Interest Rate Swap Products

John Healey Excerpts

Thursday 21st June 2012 Commons Chamber

[Guto Bebb]

That is a key point. Time and again, businesses have told me that their relationships with banks go back 15 or 20 years, and that they believed the banks had their best interests at heart. In some situations, however, they have clearly been sold products that they did not understand, but they trusted their bank manager because they had dealt with them for so long.

Having been persuaded by Mr Jones’s transcript to look into this issue, I started asking questions, and as a result I came across the Federation of Small Businesses working hard on this issue and the organisation Bully-Banks. We have identified literally thousands of businesses that have been affected, and debates such as this are necessary to show that the House understands and cares about the problem and wants to see a resolution.

[John Healey (Wentworth and Dearne) (Lab)]

I congratulate the hon. Gentleman on his leadership of this debate. He is looking for evidence and examples, but has he come across Guardian Care Homes, a firm with two care homes in my constituency? Its problem was that the term of the swaps that it was sold far exceeded the term of the loans to which they were linked.

[Guto Bebb]

That is a key issue. In many cases, the term of the swap is longer than that of the loan, which the Financial Services Authority believes to be evidence of mis-selling.

Evidence about the background to interest rate swaps suggests that banks started to target small businesses from about 2006 onwards. The practice was probably curtailed in 2008-09, although there are a few examples of such products being sold after that. In a number of cases, banks have settled with businesses out of court. My concern is that banks have placed significant gagging orders on those businesses, which stops them explaining the terms and conditions of the settlement.

Existing regulations should have been taken into account when these products were sold. Swaps are financial derivatives covered by section 85 of the Financial Services and Markets Act 2000. They are, therefore, a regulated product and any adviser who tries to sell them has a duty to understand the needs of their customer. That is a key point. A fair, clear and not misleading explanation of the product must be provided to the customer, yet in many of the cases I have seen the information provided was far from satisfactory.

--- Later in debate ---

[Emma Reynolds]

I totally agree with the hon. Gentleman. I would very much like to hear from the Minister today whether the Government have a grasp of the scale of the problem, as it is certainly significant.

[John Healey]

Like my hon. Friend, I have written to the head of Barclays, which was responsible for selling the two swaps that have cost Guardian Care Homes at least an extra £12 million so far. Does my hon. Friend agree with the point being made on both sides of the House that such small companies are often afraid to complain, for fear that their loans will be pulled? Does she also agree that a moratorium is needed following complaints, and that firms should be able to make collective challenges for redress?

[Emma Reynolds]

I thank my right hon. Friend for making those points, and I hope that the Minister will be able to respond to them in due course, if not today.

There seems to be an extremely worrying level of coercion involved in the banks’ selling these products to small businesses without making sufficient information available. I have no doubt that what happened to the company in my own constituency has been replicated across the country. That is regrettable at a time of such difficult economic uncertainty when small businesses are the backbone of the British economy. We need to make sure that they are supported, not systematically exploited.