'Living nightmare' of mis-selling scandal for East Yorkshire businesses
BUSINESSES in East Yorkshire are caught up in a "living nightmare" after being left facing crippling repayments linked to a banking mis-selling scandal.
Before the recession hit, thousands of firms across England were sold complex fixed-rate loan agreements they believed would protect them from rises in interest rates. These financial products were known as Interest Rate Swap Agreements (IRSA).
Last month, The Financial Services Authority (FSA) revealed 90 per cent of these products were aggressively mis-sold to small and medium-sized enterprises (SMEs), which are now faced with making crippling payments for the duration of the agreements.
The FSA says a "significant portion" of these cases are likely to result in customer redress, however uncertain time frames and legal implications mean many could be plunged into severe financial hardship before they see redress.
Now, fears are mounting that the scandal could see a number of businesses forced into administration, bringing devastating results to East Yorkshire's economy.
Hull East MP Karl Turner said: "This is a living nightmare for small businesses struggling to survive in this difficult climate.
"It is another example of rip-off banks fleecing customers at a time when they can least afford it. I am deeply concerned that this will make some SMEs go under.
"SMEs are the biggest employers in east Hull and are the backbone of our economy. We need to do everything we can to support them."
One Hull businessman, who asked not to be named, said the findings of the FSA report were "very encouraging", but pointed out there were still fundamental flaws in the FSA review.
"The review has no definition of what is 'fair and reasonable' or what redress those affected by a miss-sale can expect and had no deadline for a resolution," he said.
"While there is light at the end of the tunnel, I feel the banks are going to drag their heels at the expense of the backbone of the British economy."
The businessman was one of more than 30 people from East Yorkshire who this week attended a regional conference at The Hilton Hotel in Leeds.
The event was organized by Bully Banks, a nationwide campaign group founded by business men and women who are victims of swap mis-selling.
Banks have now been given six months to complete their reviews of mis-selling.
However, as the Hull businessman pointed out, "giving the banks the responsibility of dealing with the review process is a bit like putting the wolf in charge of the sheep".
He said: "It's time those who are found guilty should act in the best interest of the British public and put right what they are guilty of."
More than 100 East Yorkshire firms have joined the Bully Banks campaign group. The companies in the group have between them paid out an estimated £50m, with crippling repayments preventing firms from expanding.
Also in attendance at the meeting was businessman Jon Welsby, of Hull.
Mr Welsby had taken out an IRSA for his business, Bluesight in Filey, in 2008.
The following year, when interest rates dropped dramatically yet Mr Welsby saw his payments rise, he said it became evident the product "wasn't what we thought it was".
He said: "Our case was quite complicated as we had what's known as a 'callable swap'. We tried to work with the bank to see if we could exit the agreement, but they refused.
"On top of the normal interest on the loan, we were paying an additional £13,000 and in September 2011, this figure was £16,955."
Events that followed, including a valuation of Bluesight's property portfolio that slashed 60 per cent of its value, saw the company end up in administration. This in itself resulted in a fee of almost £1m.
Mr Welsby says, while the FSA announcement means he should receive redress, it is unclear where this will go. He is now looking to head up Bully Banks' valuation and administration department.
"Many of these cases are so complicated, as I've found from my own experience. Hopefully, I can help others in a similar situation."
Property developer Jon Los, owner of Keygrowing in Woodmansey, is expecting to get back the £900,000 he has paid to service an IRSA over the past five years, as previously reported in the Mail. His bank, HSBC, had already put the repayments on hold, pending the outcome of the FSA's investigation.
Mr Los has been able to withstand the repayments and says he is confident of getting his money back, but many others have been plunged into financial despair.
Nigel Beckwith, head of the corporate department at Gosschalks Solicitors, and colleagues are working with a number of local companies affected by IRSA mis-selling concerning financial products that run into millions of pounds.
He said: "It is essential that companies who think they have been mis-sold IRSAs act now for two key reasons".
Firstly, he pointed to the six-year limitation period in respect of claims for negligent financial advice which may run from the date the SWAP was mis-sold, which could mean businesses are left without redress if they fail to make a claim within that timeframe.
He said: "Secondly, from April 1, it may no longer be viable to pursue such claims on a no-win no-fee basis backed up by an ATE insurance policy, which insures against the risk of the claim being unsuccessful".