By Dr. Daniel Hall
23rd December 2013
 

Well, unfortunately, that largely depends on which ‘camp’ you are in. In one camp, businesses will be entering the festive period with a warm hearty smile having been offered redress for a mis-sold interest rate hedging product (IRHP), especially if it’s a “full tear up”. The other less fortunate camp will be grumpy. Very very grumpy, especially if their IRHP Bank Review Director was Ebenezer Scrooge.

FSA Pilot Findings Report

As the FCA Review Scheme continues to gather pace, we are seeing these two camps develop. There are some businesses that have been through the review process (sometimes alone, sometimes with an adviser) and have come out the other side happy with the outcome. That is, the same bank that sold the IRHP, has reviewed the sale of the product and determined that it had been “mis-sold”. That makes sense when you look at both the FSA Pilot Findings Report which found that over 90% of the sales of IRHPs breached one or more regulations. It also makes sense if you are monitoring the monthly FCA review scheme progress update reports where again the percentage of IRHPs found to have been mis-sold is equally high. But just because the bank has determined that the IRHP has been mis-sold, does not automatically mean that you are going to get redress, far from it.

Businesses need help!

We are seeing more and more cases of businesses turning for help. Having been assessed by the bank to be a ‘Non-sophisticated Customer’ (hurdle 1), having opted in to the Review Scheme (hurdle 2), having had the sale of the IRHP reviewed and found to have been mis-sold (hurdle 3), only to fall at the final 4th hurdle when the bank determines that the business “would in any event have taken out the IRHP and therefore the bank has not caused any loss to occur”. In that instance the amount of redress is zero.

This is the key flaw in the whole Scheme. You see, it’s very difficult for a bank to defend that many of these products were not mis-sold. The official FCA figures don’t support that. There is agreement that widespread mis-selling has occurred, ‘black and white’ if you like, but to determine whether a business would “in any event” most likely have taken out the product is much more subjective, involving varying shades of grey. But this is the bank’s ‘get out card’ from paying significant amounts of compensation. They have an ‘Independent Reviewer’ (who they pay for) to agree with their decision and sign this determination off

How did you prepare for the review process?

the Review process?”. Typically the answer is “I didn’t”. As the old saying goes “the more you put in, the more you get out”. If the business isn’t putting the work in and taking the Review process seriously, then it’s likely that they are going to fall at that 4th hurdle. But it’s not the fault of the business, because they are consistently told by the bank that the “review process is straightforward”. If you do fall at that crucial 4th hurdle, don’t give up and walk away. Challenge the bank, get their review file, get a full explanation of the decision, don’t let them close your file without a fight.

So to ensure a happy ending to your Christmas Carol; make sure you are extremely well prepared going into any Review process, be very clear about why you believe the product was mis-sold to you and be very careful about what you say to any Bank Review team or the lawyers they appoint to take your testimony.

So it’s “Merry Christmas” or “Bah humbug” – whichever camp you are in.