Interest Rate Swap Products

Tessa Munt Excerpts

Thursday 21st June 2012 Commons Chamber

[Guto Bebb]

I agree wholeheartedly with the hon. Gentleman.

[Tessa Munt (Wells) (LD)]

That is a good point. I have a constituent, whom I will not name, who is a farmer and was offered such an arrangement completely inappropriately. He said specifically that he did not want it. None the less, his bank, Barclays, wrote to him on 6 June 2008 with a contract, which he read in detail, but on 10 June sent him the final contract, into which it had slipped two clauses that turned it into this sort of agreement. He accepts that he probably should have read the second document, but it did not indicate at all that it had changed the arrangement. That was very poor.

[Guto Bebb]

That is another example that should be taken on board in this debate.

Another example of general mis-selling already touched upon is where a swap is for a period longer than the loan. I have also seen examples of where the swap was for a sum in excess of the loan. Another crucial example is where the break cost for terminating the swap was described in one e-mail from a bank as being £9,000 but, three years later, when the customer approached the bank to break the swap, a figure of £135,000 was quoted to settle. I fail to understand how it could go from less than £10,000 to £135,000 in three years. That is another example of mis-selling. Another one worth mentioning is where the bank classified the client as a professional client and experienced derivative trader. I can assure the House that the business in question was blissfully unaware of the nature of the product it was buying, yet, for paperwork purposes, the bank had described it as a professional client rather than a retail client.

It is generally agreed that there is an issue here. The FSA accepts it is an issue. Bully-Banks, an organisation representing 350 victims, has done some work highlighting that 96% of businesses in its organisation were approached about such products by relationship managers. Businesses did not go looking for these products; they were approached with a solution to a problem that often they did not have. Some 87% of businesses surveyed by Bully-Banks were unaware that the adviser was not an adviser but a salesperson, and there was a general lack of understanding. In 95% of cases, businesses stated categorically that they entered into these agreements on the basis of advice and guidance given by their bank relationship managers.

--- Later in debate ---

[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.