Bank will face multi-million pound loan damages case
Herald Scotland, 08.07.2017
SCOTLAND’S third-largest bank faces a multi-million pound legal claim from small businesses over mis-sold loans whose spiralling costs are alleged to have pushed a number of companies into insolvency.
Augusta Ventures, a litigation funder, has set aside more than £2 million to bring a claim against CYBG – owner of Clydesdale and Yorkshire banks – on behalf of thousands of small business customers.
The alleged losses for customers are said to range from hundreds of thousands of pounds to several million pounds each.
It centres on more than 8,000 Tailored Business Loans (TBLs) which contained interest rate swaps that were not clearly explained to customers and are believed to have been sold by the Clydesdale Bank between 2001 and 2012.
The bank levied break fees on its widely-sold TBLs, on the basis the loans were linked to market “swaps” or derivatives intended to hedge against a rise in interest rates, but incurring a penalty to the bank if rates fell.
The slashing of interest rates in the wake of the 2008 banking crisis sharply forced up the cost of the loans and the action alleges the customers believed they were taking on a simple fixed-rate loan, and the TBLs therefore represented fraudulent behaviour on the part of CYBG.
The value of the claims in the action, which is being handled by claims management company RGL, could run to several hundred million pounds.
James Hayward, chief executive of RGL, said: “Clydesdale’s conduct is actionable and we’ll be suing those involved in order to recover damages for customers it harmed.
“Proceedings will probably be issued later this year, however the exact timing is difficult to predict and will depend primarily on what gives us the greatest tactical advantage. Anyone wishing to join the action should get on board quickly.”
The latest case is similar to a long-running row over the sale of interest rate hedging products (IRHPs) to small business customers of the UK’s biggest banks, most notably state-backed Royal Bank of Scotland.
Last November, the Financial Conduct Authority (FCA) said that a review set up to address failings in the way nine banks had sold these loans – including CYBG – had led to £2.2 billion being paid out in redress.
That figure included £500m in consequential losses, which refers to money not directly connected to the mis-sold loans but was lost by customers because they had bought the products from the nine lenders.
The FCA scheme is subject to independent review, but a significant number of business customers have argued their bank has failed to properly handle their claims.
The TBLs frequently included very high break fees, with one Clydesdale customer saying their loan faced a break cost of up to £200,000 on a loan of £1m.
Many customers also accused the bank of concealing these costs from them.
A Treasury Select Committee report from 2015 urged ministers to examine whether to bring IRHPs and similar loans within the scope of regulation.
Andrew Tyrie, the then MP who chaired the committee, said at the time: “This gap in the regulatory perimeter meant that the product created by Clydesdale Bank was not covered by the usual safeguards.
“Many of its customers did not understand the product and could not reasonably have been expected to do so.” Some were probably unaware that the product fell outside the scope of FSMA. Regulators have been powerless to provide redress to those affected by wrongdoing.
“Furthermore, Clydesdale’s own internal review of potential mis-selling appears to have serious shortcomings: it lacks public oversight, transparency and is limited in scope. A CYBG spokeswoman said: “We have no record of a TBL claim being submitted by either RGL Management or Augusta Ventures. If and when any claim is made, we will deal with it in the appropriate way”.
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