Hidden Credit Liabilities: Role of the FCA

Joe Morris Excerpts

Tuesday 14th April 2026 Westminster Hall

[Joe Morris (Hexham) (Lab)]

I congratulate my right hon. Friend the Member for Hayes and Harlington (John McDonnell) on securing such an important and timely debate.

Catherine and Nigel Jarvis are of the type of local business owners who become the lifeblood of their communities and local economies. Creative, hard-working and passionate about the Northumberland countryside, in 2007 they looked to buy a property deep in the heart of Hadrian’s Wall country. Their dream was to raise their young family there, while renting out some of the rooms as a bed and breakfast. They approached HSBC for a loan of £175,000 to put towards the family home and business proposition.

It should have been straightforward. As more than 40% of the house was always intended to be used as Catherine and Nigel’s main dwelling, under FCA rules their loan request to HSBC represented a standard home on which a normal residential mortgage should have been offered. An offer should have come from the regulated mortgage side of the bank, where all consumer protections under the mortgage conduct of business rules would apply. What happened instead trapped them in a relationship with HSBC for almost 20 years that has ruined their finances, their credit ratings, their health and their relationships. It has ruined their plans for the future and their dreams as small business owners and has had an irreversible impact on the lives of their two children, who have grown up in the shadow of this trauma.

Instead of a residential mortgage, the couple were explicitly told that they had to agree to a commercial loan with a derivative product—in this case, an interest rate swap—as a condition, without which the Jarvises could not have bought their home. As every member of the public should be able to, they trusted the institution implicitly and proceeded. Even when the suggestion of a derivative product came as a surprise, they believed the bank had their best interests at heart. They were sold the swap on the understanding that it was insurance, protecting them from the risks of increasing interest rates with no up-front cost. The reality was that, on the very first day of the agreement, the product they were sold created hidden profit for the bank and an undisclosed credit line for the couple, acting effectively as a second, secret mortgage on their home. They began their SME journey with extra secured debt and a risk they knew nothing about.

When rates crashed in early 2009, the undisclosed “out of the money” position covered by the hidden credit line exploded that risk, damaging Catherine and Nigel’s internal credit grade and making the loan look far riskier to the bank. Eventually, they were threatened with foreclosure unless they agreed to move into the bank’s restructuring unit, even though Catherine and Nigel never missed a payment and had no knowledge of the additional risk now being used against them. Since 2007, they have poured everything they could into trying to untangle themselves from an agreement they never would have signed had its true scope been disclosed to them. That has cost them hundreds of thousands of pounds, with an untold cost to their mental and emotional wellbeing and physical health.

The then FSA’s conduct of business rules, which applied in 2007, stated that, before granting any credit or loan in connection with an investment business, such as the interest rate swap, the bank was required to make and record an assessment of the couple’s financial standing based on the information disclosed; take reasonable steps to ensure that arrangements for the loan or credit, and the amount concerned, were suitable for them; and obtain Catherine and Nigel’s prior written consent to the maximum amount of the loan or credit and to the amount or basis of any interest fees to be levied in connection with it. The bank did none of those things. In making the interest rate swap a condition of the loan it offered, it hid the credit risk from the couple and made applications for those credit facilities in their personal names without their knowledge or agreement.

The hidden credit line made the agreement toxic from the start. A key factor in the lack of justice for Catherine and Nigel has been the FCA’s handling of hidden credit lines as a specific factor. At the initial IRHP review scheme, the FCA told reviewers to treat the hidden credit line as an internal bank risk and ignore it in considering almost everything that Catherine and Nigel suffered—directly derailing their claim to redress.

The decision was made that the Jarvises’ losses were not foreseeable to the bank. In reality, their losses were not only foreseeable but expected, due to that hidden credit line. Hidden credit line practices and the profit motivations of banks have destroyed the lives and livelihoods of not only Catherine and Nigel but thousands of families and businesses across the country. I strongly support the calls for an investigation into the specific issue of hidden credit liabilities. Without that, and without a proper inquiry into the FCA’s own conduct on the matter, Catherine and Nigel, along with thousands of others, will continue to live without remedy for the financial destruction they have endured.