So here we have it, the finishing line is not only in sight but many businesses are about to cross it. Like any race, there will be winners and losers.
Let’s be very clear about what the 31st March deadline actually means for businesses and take a look at your chances of getting paid redress for a mis-sold Interest Rate Cap.
What the 31st March 2015 Deadline Means
The FCA will be closing the scheme for businesses that want the sale of Interest Rate Caps reviewed. Note, the deadline only applies to CAPS, not all other IRHPs (Interest Rate Hedging Products), so if you have a Swap, Collar or Structured Collar, you can still opt in to the FCA Review past the 31st March deadline. Admittedly, there should not be too many businesses out there who have not yet opted in to have their swaps and collars reviewed, but there will be some (maybe a few hundred). For holders of structured collars, this will be less of an issue as they are entitled to ‘automatic review and redress’, i.e. no box to be ticked to opt in.
RBS/Nat West – Lloyds – Barclays. The difference is?
There is also little consistency among the banks when it comes to trying to get your Cap sale reviewed. Some banks (Lloyds, Barclays) require the business to complain about the sale in the first instance, and only after lodging the complaint are you eligible to opt in to the FCA Review, (remember the Review and a bank’s complaints procedure are two different things). Other banks (RBS/NatWest) require you to simply notify them that you want the sale of the Cap reviewed without the need for complaining in the first instance. This removal of an extra (meaningless) hurdle should help their customers.
Don’t be fooled by Clydesdale & Yorkshire Bank
Don’t be fooled. I have seen some circulars from Clydesdale/Yorkshire Bank notifying their customers that the 31st March deadline relates to all IRHPs. This is simply incorrect information. The deadline only relates to Caps. So the risk to the Customers is that they may think they have missed the deadline to have their swap or collar sale reviewed and therefore not put the claim into the bank after the “deadline” when they actually have a genuine claim outstanding. Is this an innocent oversight or blatant misrepresentation of the FCA Review Scheme?
I’ll let you be the judge.
Further, in their very (un)helpful circular notifying their Customers of the “closure” of the FCA Review scheme for all IRHPs, they do not provide any contact information as to how a business should opt in. No email address, postal address or phone number. The circular is not even signed by anyone. No name, no department. Oh, and there is no product or account reference included either. They certainly do not make things easy. An oversight of deliberate attempt to place hurdles in the way, I’ll let you be the judge.
If I have a Cap, is it worthwhile claiming?
The short answer is YES.
There is no downside to having the sale of the Cap reviewed and it could result in redress being paid. We have seen some fairly respectable amounts being paid for mis-sold Caps. The mis-sold Caps we have come across tend to result in a full refund of premium payments being awarded (or Full Tear Ups) as it is difficult for the bank to justify that the business would have taken a simpler alternative IRHP; a Cap is the simplest form of IRHP (Category C product). In theory, businesses could be awarded a shorter dated or different strike Cap as a replacement, but we haven’t seen any instances of these and the data released from the FCA does not provide this level of transparency.
In order to assess the chances of being paid redress, the first question to ask yourself is whether there was a legitimate condition requiring the business to hedge.
Check your loan agreement under Condition Precedents or Undertakings to see if there is any language relating to the requirement to hedge. Also, are there any Credit looking papers that mention the requirement?
The other thing to check is how the condition to hedge was communicated. Was there a bullet point in the Pitch Book/Presentation or were there any emails informing you of the requirement? Was it just a verbal short conversation involving your RM?
What did the bank tell you?
The bank will need to demonstrate both the condition and the appropriate communication of the condition in order to satisfy this requirement. It may be that the bank told you that you needed to hedge, when in fact you didn’t and there is nothing in the Facility Agreement to support the requirement – so you need to check everything.
If there was a condition to hedge, then the chances of securing redress will be reduced as, despite the Cap being mis-sold, the bank will argue that you would have had to take this product in any event, resulting in zero redress.
Demonstrate that Sales Standard have been breached
If there was no legitimate condition to hedge – and the bank is not trying to defend this – then the chances of securing redress should be higher as you can focus purely on the sales process. Demonstrate that Sales Standard have been breached, in particular Sales Standard 1. Sales Standard 2 (Break Costs) will not apply to upfront premium paid Caps but more to Pay As You Go Caps – but don’t think just because you have a Cap that break costs will not be relevant. They could be and could make the difference between nothing and redress.