The interest rate swap mis selling scandal is just the latest blow to the reputation of the banks, after the global economic crash and the Payment Protection Insurance scandal. It was estimated by the Financial Services Authority - which has now been taken over by the Financial Conduct Authority - that around 90% of interest rate collar deals were sold unfairly, with vital information being withheld from customers as well as various other underhand tactics being used in the interest rate mis selling scandal.
A Huge Financial Gamble
With each passing month, it seems that the banks are setting aside more and more cash to compensate the victims of mis sold interest rate hedging, suggesting that the scandal has reached unprecedented scales. Interest swaps, which were sold to scores of customers during the last decade, were promoted on the basis that they would essentially fix interest rates for customers, protecting them from rising interest rates. If rates went up, the customers would be paid money by the banks to offset the resulting costs, but if they went down, the customers would be forced to pay more cash to the banks to compensate them for the falling rates. However, when interest rates slumped to historic lows, customers found themselves paying out vast sums of cash to the banks, which threatened livelihoods and threw various business operations into compromise.
Historic Interest Rate Lows
In the past, the chances of interest rates falling so low were extremely small, but after the global economic crash, the Bank of England reduced them to stimulate growth. Whilst this may have been pleasing for most borrowers, victims of interest rate swap mis selling found themselves in a catastrophic situation, and many found that there was no realistic way out due to the fact that exit fees were so high, typically running into several hundred thousand pounds.
More and More Set Aside For Redress
It seems that various tactics were used in the field of interest rate swap mis selling, with some customers being told that they could only borrow money if they agreed to sign up for a swap, whilst others were simply not informed about the risks that they were taking. A clear distinction between "sophisticated" and "unsophisticated"customers has been outlined however, with unsophisticated customers not being big enough or having the resources to realistically understand the complexities of the terms and conditions. Even more troubling for victims of interest rate collar deals was the fact that even if a loan was paid off, they remained obliged to carry on paying into the swaps, finding that loans and swaps were two entirely different products. The banks are continuing to set more and more resources aside for redress after mis selling swaps.
Complex Interest Rate Hedging Deals Hit Hard
The banks have not enjoyed the best public relations over the years, with the interest rate collar mis selling scandal offering various parallels with the payment protection insurance controversy. Add to this the repercussions of the global economic crash which are still being felt today and it seems that the banks have a mountain to climb if they are to see the public's trust in them being restored after mis selling swaps, interest rate hedging deals and other financial products.
A Huge Financial Gamble
With each passing month, it seems that the banks are setting aside more and more cash to compensate the victims of mis sold interest rate hedging, suggesting that the scandal has reached unprecedented scales. Interest swaps, which were sold to scores of customers during the last decade, were promoted on the basis that they would essentially fix interest rates for customers, protecting them from rising interest rates. If rates went up, the customers would be paid money by the banks to offset the resulting costs, but if they went down, the customers would be forced to pay more cash to the banks to compensate them for the falling rates. However, when interest rates slumped to historic lows, customers found themselves paying out vast sums of cash to the banks, which threatened livelihoods and threw various business operations into compromise.
Historic Interest Rate Lows
In the past, the chances of interest rates falling so low were extremely small, but after the global economic crash, the Bank of England reduced them to stimulate growth. Whilst this may have been pleasing for most borrowers, victims of interest rate swap mis selling found themselves in a catastrophic situation, and many found that there was no realistic way out due to the fact that exit fees were so high, typically running into several hundred thousand pounds.
More and More Set Aside For Redress
It seems that various tactics were used in the field of interest rate swap mis selling, with some customers being told that they could only borrow money if they agreed to sign up for a swap, whilst others were simply not informed about the risks that they were taking. A clear distinction between "sophisticated" and "unsophisticated"customers has been outlined however, with unsophisticated customers not being big enough or having the resources to realistically understand the complexities of the terms and conditions. Even more troubling for victims of interest rate collar deals was the fact that even if a loan was paid off, they remained obliged to carry on paying into the swaps, finding that loans and swaps were two entirely different products. The banks are continuing to set more and more resources aside for redress after mis selling swaps.
Complex Interest Rate Hedging Deals Hit Hard
The banks have not enjoyed the best public relations over the years, with the interest rate collar mis selling scandal offering various parallels with the payment protection insurance controversy. Add to this the repercussions of the global economic crash which are still being felt today and it seems that the banks have a mountain to climb if they are to see the public's trust in them being restored after mis selling swaps, interest rate hedging deals and other financial products.