Summer Adjournment

Mark Williams Excerpts

Thursday 16th July 2015 Commons Chamber

[Mr Mark Williams (Ceredigion) (LD)]

It is a privilege to have an opportunity to raise an important constituency case in this debate. I would first like to echo the tributes to the hon. Member for East Kilbride, Strathaven and Lesmahagow (Dr Cameron) for her excellent maiden speech. Not only did she talk appropriately about her high regard for her constituents—and evidently her constituents’ high regard for her—but I was particularly touched by her reference to Prayers, when we are reminded daily that, whatever our political standpoint and whatever manifesto we were elected on, our first priority is always to our constituents. Having listened to her speech, I know the dedication she has shown already to her constituents. I wish her well in the months and years ahead.

I want to talk about an issue that I have spoken about in the Chamber on four occasions over the past three or four years: namely, the mis-selling of interest rate swap products by the commercial banks and the effect that has had on some of the small and medium-sized enterprises in my constituency. I will focus, in particular, on fixed-rate loans, tailored business loans, sold to constituents of mine by the Clydesdale and Yorkshire bank, whose motto is, “We care about here.” Over a period of time, these loans were peddled by overzealous relationship managers, who managed to cause havoc to a large number of SMEs in Aberystwyth, the largest town in my constituency. The asset-rich farms, hostelries and shops of my agriculture and tourism-dependent constituency were deliberately targeted by greedy salesmen.

In that context, I want to talk today about one constituent in particular, Mr Mansel Beechey, who I believe to be a victim of mis-selling by Clydesdale and Yorkshire bank, and the difficulties he has had in seeking redress from the authorities. Aberystwyth’s Hen Llew Du public house is a long-established and successful local family business. Mr Beechey has owned it for 30 years, and his family have worked hard to create a popular, lively and iconic Welsh social hub that welcomes locals and students alike.

In 2008 Mr Beechey decided to expand the business by buying another pub with a restaurant for his daughter to run. Having identified suitable premises in his home village of Llangrannog in the south of Ceredigion, he was offered what was talked up as a straightforward loan by his relationship manager, a local man known well to Mansel for many years. The Beechey family borrowed money from the bank on a variable rate basis to purchase their new business. The loan was to be partly secured by their pub in Aberystwyth. However, unbeknown to Mr Beechey, approval for the tailored business loan was granted based on an incorrect interpretation of his accounts. None the less, on or around 28 January 2008, Mr Beechey signed a variable rate loan agreement with Clydesdale bank to borrow £700,000. His facility letter stated:

“The Borrower may at any time prepay all or any part of the Loan.”

There was no mention of any form of fee, cost or penalty for early pre-payment or repayment of the amount of the loan, nor was there any reference to any of the following terms that might indicate a possible cost for early repayment.

Mr Beechey drew down the bulk of the loan in early February to complete the purchase of the second business and immediately began extensive refurbishment work. Once the project was under way and the Beecheys began repaying capital on the loan, it became clear that there would be issues of affordability. At that point, Mr Beechey discovered that the friendly and trusted bank manager had submitted figures that showed a far larger net income from the Yr Hen Lew Du pub in Aberystwyth than was actually the case.

Then there was a second bombshell. The Beecheys were told that National Australia bank, of which Clydesdale is a part, was withdrawing from the UK hospitality sector, and owing to a stated technical breach of the loan, which the Beechey family disputed, the bank was demanding that they came up with a strategy to repay the entire loan within just a few weeks. Against a difficult economic background, with falling property prices, the Beecheys realised that the rapid sale of the new pub and restaurant that they had only just bought was unlikely to raise enough money to repay the entire loan, so their suggested strategy was to sell the new business and restructure any remaining debt. However, Clydesdale told them that if they repaid even part of their loan before the end of a 15-year term, they would incur a “breakage fee” of some £200,000—a not insubstantial amount for a small family-run business—even though it was the bank itself that was forcing early repayment. I repeat term 3.1 of the facility letter that the family received:

“The Borrower may at any time prepay all or any part of the Loan”.

The Beechey family were never warned about the potential scale of any early repayment charges. They have since discovered that instead of the simple fixed-rate loan that they thought they had, their tailored business loan had an embedded, or hidden, interest rate hedging arrangement, or swap—a complex derivative product that would protect the bank against interest rate fluctuations during the term of the loan. They now know that this would have been established during the phone call to fix the interest rate with the bank manager’s “colleague”, who was almost certainly a registered derivatives trader—not that that was known to the Beechey family.

Mr Beechey first came to my office in December 2012 about this problem. He had already, in April, made a complaint to the bank through his solicitor about the mis-sale of the TBL—an unregulated product. Appallingly, it took Clydesdale and Yorkshire bank over six months to respond to that formal complaint. We are talking about a business operating on the margins it needs to survive. This cloud should not last; it needs to be dealt with. Having taken six months to respond to the initial written complaint, to this day the bank has still not fully addressed it, despite my office facilitating meetings with its most senior personnel.

Mansel Beechey had always made it clear to his relationship manager that he wanted a loan that was flexible, sustainable and affordable. He is an experienced businessman, and he was shrewd enough to know that if things did not go to plan in the new venture, he would need a loan that he could repay or pre-pay at any time. Indeed, that is exactly what was said in one part of what turned out to be a complicated agreement. Yet three weeks after taking out the loan, over the course of three days and three telephone calls with what turned out to be bank treasury officials, the seemingly straightforward loan had morphed into the now infamous Clydesdale and Yorkshire tailored business loan—the fixed-rate loan with hidden swap. Two years into the loan, the Beechey family found themselves in an impossible position. They could not afford to pay the increased interest charges and so could not service the debt, and nor were they able to sell the business and repay the loan because of the huge break charges that they were initially unaware of.

The name “tailored business loan” was given by National Australia bank to a new type of loan designed to look like a traditional fixed-rate loan but with traditional penalty charges for breaking the loan replaced with an open-ended break cost. Of course, Clydesdale and Yorkshire was not the only bank to provide such loans. It issued, on its own admission, 8,300 of them. The Financial Conduct Authority has disclosed that 69,738 were issued across a range of banks. There has been at least a suspicion that the Clydesdale and Yorkshire Bank manufactured these loans to avoid regulation.

I was very interested in the Treasury Committee’s inquiry into these matters at the end of the last Parliament. It took evidence from David Thorburn, the chief executive officer of the Clydesdale and Yorkshire Bank, and Debbie Crosbie, who bears the rather promising title of executive director for customer trust and confidence. Their impression of what needs to happen and what the bank will do to put matters right when a customer is mis-sold one of their products is very different from the reality experienced by constituent.

When Ms Crosbie appeared before the Treasury Committee last summer, she said of fixed-rate TBLs that

“the customer gets a fixed payment for a fixed period of time and that payment will never change as long as the customer does not want to terminate the agreement early.”

Yet the Beecheys’ payments were increased more than once, since the bank was simply able to vary the margin that they paid on top of the fixed rate. Mr Beechey never envisaged that that might happen. He understood that a fixed-rate loan meant what Debbie Crosbie had described. Indeed, her boss, the chief executive, David Thorburn said:

“This is a product which does what it says on the tin.”

I remind the House of the evidence that Ms Crosbie gave to the Treasury Committee last June. To his credit, the hon. Member for Dundee East (Stewart Hosie), the Treasury spokesman for the SNP, asked the fundamental question about the sales process:

“If a customer is able to identify that that process did not happen, that that warning was not explicit, that would count as a mis-sell would it…?”

Ms Crosbie confirmed:

“We believe that once you examine that process, and find that it had not been carried out in accordance with what we had agreed is appropriate, we would absolutely redress a customer and we have done so on a number of occasions.”

I do not doubt that Clydesdale has addressed these matters on a number of occasions, but not in the 8,300 cases; and the other banks have certainly not addressed all 69,000 cases. The few offers made to people such as my constituents are derisory and have been made only under acute pressure. Only a portion of the overcharged interest is offered to be refunded, and no consequential losses are considered at all.

Over the past two or three years, we in this House have travelled a great distance in seeking justice for SMEs that have been mis-sold interest rate swap products. We have moved some way, but we are nowhere near where we should be. The public and the businesses I am dealing with find it confusing and frustrating given that evidence to the Treasury Committee last year shows that the banks all too often wittingly knew what they were about when they sold these products. They were delaying responses to complainants, denying the existence of the problem and diluting the seriousness of the complaint by not voluntarily offering full disclosure of information.

I am mindful of your stipulation about the time, Madam Deputy Speaker, but let me cover this quickly. Mr Andy Keats of the Serious Banking Complaints Bureau has commented that

“the largest complaint by far is that there is no access to bank held documentation… The bank relies on concealment of your central file, committee meeting reports and minutes, internal and external valuations of your property”.

That has been my constituent’s experience.

In the past six months, during which my constituent has put in simultaneous requests to both the Clydesdale and Yorkshire Bank and the Financial Ombudsman Service, I have seen transcripts of conversations between my constituent and officials that are quite different from those initially provided in response to the first subject access request made to the bank. I have seen three different credit reports and three different sets of credit figures, and, worryingly, none of the figures was correct. Things seem to have been changed at the stroke of a pen. That is a serious but deeply concerning allegation. The Treasury Committee has exposed great misconduct, yet we cannot move forward unless we have complete transparency in the process.

I believe that the process of redress is not working as well as it needs to. The issue has been approached in a far more positive way in New Zealand. An arrangement has been made between the New Zealand Commerce Commission and a New Zealand bank, ANZ, under which the bank paid compensation of 18.5 million New Zealand dollars. Those funds will be distributed to affected customers who complained to the regulator. That has been done in New Zealand and it needs to be done here.

Above all, my plea is for the Minister to look mindfully at the suggestion that she will hear from the all-party group on interest rate mis-selling—the Bully Banks group —which is ably chaired by the hon. Member for Aberconwy (Guto Bebb), to push for a new, fair banking Bill that will regulate all products and services for commercial enterprises. I hope that we can push for fruition soon so as to benefit my constituent, Mr Beechey and, I believe, many others across the country.