Interest Rate Swap Derivatives

Debate between Stephen Lloyd and Pat McFadden

Thursday 24th October 2013 Commons Chamber

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

I pay tribute to the hon. Member for Aberconwy (Guto Bebb) and all the supporters of this debate on raising an important issue. I also pay tribute to my Treasury Committee colleague, the hon. Member for Wyre Forest (Mark Garnier) for his detailed explanation of a complex aspect of this subject that probably not everyone understands.

This is the latest in a series of issues that has corroded, damaged and sometimes destroyed trust between banks and their customers following the payment protection insurance scandal. We should pause and consider a couple of features of the PPI scandal. It was characterised, first, by a refusal to admit that there was a problem; secondly, by a refusal to take responsibility for that problem; and finally, by a huge bill for the banks because it had taken too long to face up to those things. I wonder whether any of those lessons have really been learned given the way that this issue is being dealt with.

Like the hon. Member for Wyre Forest, I spent much of the past year serving on the Parliamentary Commission on Banking Standards chaired by the hon. Member for Chichester (Mr Tyrie), where we looked into the standards and culture of the banks more widely. We found a sales culture, backed by the bonus systems, going right down to branch level. The banks pushed products like this, often allied with a product that the customer wanted, namely a loan, yet sometimes the customer was not even aware that a product was being sold to them or, if they were, whether it was a voluntary agreement or something they had to accept as a condition of the loan.

[Stephen Lloyd (Eastbourne) (LD)]

The right hon. Gentleman has hit on something really important, which is that the banks’ whole modus operandi was to sell products that individuals wanted and slip in the interest rate swaps underneath. I am glad that he has reminded us of that. Does he agree that it is important for these businesses to know that it has been agreed on the Floor of the House, and it is recorded in Hansard, that they will be offered compensation that aims to put them back in the position in which they would have been if there had not been a mis-sale, plus interest rates of about 8% a year?

[Mr McFadden]

I do agree, but there is also the question of who gets that redress and who does not.

Underneath this sales culture, we found that instead of a culture of a duty of care to the customer there was—characterised by the combining of products, often a simple product with a complex one—a culture of “buyer beware” that put the responsibility for fully understanding and being aware of all this in the customer’s lap, with, in many cases, the bank showing a lack of responsibility.