Interest Rate Swap Products

Emma Reynolds Excerpts

Thursday 21st June 2012 Commons Chamber

[Emma Reynolds (Wolverhampton North East) (Lab)]

I, too, would like to applaud the hon. Member for Aberconwy (Guto Bebb) for delivering such a fantastic speech. I want to tell the House about a similar case in my constituency. It is the case of Guardian Care Homes, and it has already been mentioned by my right hon. Friend the Member for Wentworth and Dearne (John Healey). The company’s headquarters are in my constituency, but it employs about 900 staff in 30 care homes across the country. Small and medium-sized enterprises such as these need to be supported, rather than exploited.

I recently met members of the senior management at Guardian Care Homes, and I was shocked by what they told me. In 2007, they were sold two interest rate swap products, which were taken out against existing loans that had been taken out to improve the business model and to improve the care homes. They also said that the bank that sold them the products told them that this was a condition of getting the original loans, and that the products would protect them against interest rate rises. They were not informed of the dangers and financial implications of interest rate falls, however. According to Guardian Care Homes, the bank did not at any point during the sale of those swaps fulfil its obligation to explain that such costs could be incurred.

Guardian Care Homes also discovered that the swaps that had been sold to them vastly exceeded the original terms of the loans, by 10 and 15 years respectively, which made things incredibly difficult for the company in the long term. An independent study of this specific case recently described the bank’s behaviour as reckless, and a complaint has been made against the bank. It beggars belief that banks were requiring SMEs to take these products alongside loans, and I look forward to hearing the Minister’s response to these points today.

Even if the case involving the company in my constituency had been a one-off, it would have been extremely worrying, but there appear to be hundreds, if not thousands, of SMEs in the same situation. I am sure that we shall hear of cases in other right hon. and hon. Members’ constituencies later. Anecdotal evidence from SMEs suggests that, in many cases, swaps were bought without the companies having received any legal advice on their nature. The banks have a duty when selling financial products to ensure that the products and the risks involved are identified to businesses, and that there should be no coercion involved. I have written to the bank in question and requested that no punitive measures be taken against the company in my constituency while the complaint is ongoing.

[Glyn Davies]

The scale of this problem is far greater than we are being told. I have two examples in which the people I have spoken to are not going to take action. They have other clients and they are afraid to take action because they fear that they will be punished and that future relationships could be damaged. This is a huge problem, and we are seeing only part of it.

[Emma Reynolds]

I totally agree with the hon. Gentleman. I would very much like to hear from the Minister today whether the Government have a grasp of the scale of the problem, as it is certainly significant.

[John Healey]

Like my hon. Friend, I have written to the head of Barclays, which was responsible for selling the two swaps that have cost Guardian Care Homes at least an extra £12 million so far. Does my hon. Friend agree with the point being made on both sides of the House that such small companies are often afraid to complain, for fear that their loans will be pulled? Does she also agree that a moratorium is needed following complaints, and that firms should be able to make collective challenges for redress?

[Emma Reynolds]

I thank my right hon. Friend for making those points, and I hope that the Minister will be able to respond to them in due course, if not today.

There seems to be an extremely worrying level of coercion involved in the banks’ selling these products to small businesses without making sufficient information available. I have no doubt that what happened to the company in my own constituency has been replicated across the country. That is regrettable at a time of such difficult economic uncertainty when small businesses are the backbone of the British economy. We need to make sure that they are supported, not systematically exploited.

[Tessa Munt]

I have a quick point. One of my constituents took his local bank manager to Bristol to talk to Barclays about what had happened, yet that local bank manager did not understand it. If bank staff do not understand what is going on, how is a farmer who has so many things to consider every day meant to understand it?

[Emma Reynolds]

The trust between the bank and SMEs certainly seems to have been exploited, as the hon. Member for Aberconwy demonstrated, although one would have hoped that the banks would support small, viable businesses rather than exploit them.

[Several hon. Members]

rose—

[Emma Reynolds]

I shall not speak for much longer, as I know others want to contribute.

Let me end by asking the Minister a few specific questions. Will she reassure us that the Government are taking this issue seriously? What are the Government doing to ensure that SMEs struggling with these swap agreements are supported in the short term and will not have punitive measures imposed on them by the banks if they complain? What steps are the Government taking to ensure that this practice will not happen in future? Do they have any idea of the time scale for the Financial Services Authority report?

[Mr Dominic Raab (Esher and Walton) (Con)]

The hon. Lady is making her case in a typically powerful way. One of my constituents sought legal recourse against Barclays and was subsequently threatened with foreclosure of his loan, which would result in him being forced to sell his house, even though he was not in arrears, unless he signed a waiver removing his right to take legal action. Does the hon. Lady agree that such punitive action is utterly unconscionable?

[Emma Reynolds]

I think it is utterly disgusting that this is happening. We are told that our banks are too big to fail. They have taken advantage of significant Government intervention, yet now we find that they are not even supporting viable small businesses across the country. Something needs to be done about this urgently, so I look forward to hearing what the Minister has to say.