Interest Rate Swap Products

Debate between David Burrowes and Heather Wheeler

Thursday 21st June 2012 Commons Chamber

[Heather Wheeler]

Absolutely; that scandal has emerged from today’s debate.

In January 2012, my constituent was informed that, because his debt to RBS included the fee for breaking the IRSA agreement, the cost of the loan had increased further to a mind-boggling 23.8% of the loan—approximately £215,000. He was also informed that, even if he sold his property to repay the loan in full, the IRSA would still exist, because it was a separate product from the original loan, and that the agreement would last for 10 years. That clearly was not fully explained to my constituent, who runs a small business with a healthy turnover of £2.5 million and employing 30 people. He is not a financial expert; he trusted his banks, both NatWest and RBS, to provide him with advice on a flexible fixed rate product, as he requested.

[Mr David Burrowes (Enfield, Southgate) (Con)]

My hon. Friend mentions trust. In everything we have heard today, has there not been a complete absence of trust? I think, not least, of a constituent of mine and their RBS relationship manager. Our relationships are based on trust and clear communication, but there was none of that. A simple loan developed into 20 swaps, which led to his losing £5 million, and this once-proud business man has now lost his business, which has broken him. He is a broken man, because of the unaccountable lack of trust in banks such as RBS.

[Heather Wheeler]

That is a salutary lesson The banks have lost the trust of the country, and, having listened to all the stories today, we now understand why. I feel great compassion for my hon. Friend’s constituent.

The matter was not explained to my constituent, who feels strongly that if the IRSA had been explained properly, he would have understood the true cost of breaking the agreement, and instead would have opted for a variable rate or approached an alternative lender. Where was the bank’s duty of care?

It is not only a lack of clarity that makes these agreements so concerning. For another constituent of mine, the complaint is who is selling these products. Back in 2006, he wanted a loan to develop a garden business. He approached his bank manager and was advised to take out an IRSA to guard against rising interest rates to protect his business. His bank manager admitted, however, that he did not fully understand them himself, so arranged for a specialist to come from NatWest to advise my constituent.