Interest Rate Swap Products

Sandra Osborne Excerpts

Thursday 21st June 2012 Commons Chamber

[Sandra Osborne (Ayr, Carrick and Cumnock) (Lab)]

I, too, congratulate the hon. Member for Aberconwy (Guto Bebb) on securing the debate, and on the work that he has done in encouraging Members in all parts of the House to become involved in local cases.

My constituents do not want their names to be used because they are embarrassed by their position—although they have no need to be, because, as we have already heard today, they are not the only ones to find themselves in such a position. In November 2007, they were invited to a meeting in Glasgow by the Bank of Scotland. There was a fancy PowerPoint presentation, but it did not explain adequately the downside of the product that my constituents were being offered. Indeed, this was described by the bank’s relationship manager—which is a laugh in itself—as a win-win situation. The Herald, which has taken up the cause, described it rather more accurately as a “heads they win, tails you lose” situation.

The contract was struck verbally in a tape-recorded conversation. My constituents had had a 20-year relationship with the bank, and it seemed reasonable to rely on verbal trust and good will, because that had been their experience over all those years. They believed that they could take the bank’s word, and that the bank would follow through what had been agreed. They are shocked by the scale of the impropriety that they have witnessed, and we know that they are not alone in that view.

The bank’s behaviour in derivative selling has been reprehensible. It has bottled out, in the words of my constituents, because the rate swing does not suit it, and it has no appetite to proceed with what was agreed although no risk is posed to it. My constituents feel that the bank should be compelled to implement its selling commitments, or at least to reverse the arrangements as far as the point of sale to remove the premium/penalty element, which it is working both ways to suit itself with no regard for what it agreed with its customers. It seems confident that it can get away with that because the structuring of the arrangements relied on verbal trust and good will.

To add insult to injury, the bank has destroyed the tape of the conversation, wiping out the evidence that proves the verbal side of the bargain. When they requested the tapes, they were first told the bank had them, then they were told they had been lost in the wake of the bank merger, and finally they were told the tapes had been destroyed as the bank keeps them for only one year. How convenient for the bank. That has left my constituents even more vulnerable, however—and, frankly, conned. The bank refuses to discuss the matter with them in any meaningful way, denying a meeting with anyone with any genuine decision-making power. This has been ongoing for months, and they received a response to their complaint only yesterday. It was a glib and bland response; the bank did not engage in any meaningful way with what was a very detailed complaint.

Mr Clive Adamson of the Financial Services Authority told me its rules require the firm to investigate the complaint and respond to the consumer within eight weeks. The bank is therefore breaching FSA rules in respect of the complaints procedure, in addition to its conduct in the original sale.

So far, these are the only constituents who have contacted me on this matter, but I feel sure many more of them have been affected. The Herald estimates hundreds of struggling Scottish businesses have been caught up in this, with the 83%-taxpayer owned Royal Bank of Scotland alone costing thousands of UK companies £3 billion in extra bank payments. Its investigation shows that UK small businesses—which, as we all know, are crucial to our economic recovery—may have paid at least £10 billion in extra interest costs for IRSPs, and face extra liabilities of over £20 billion, potentially impacting on 80,000 jobs.

This is not a trivial matter. It has consequences for economic growth as well as for the individual businesses concerned. The financial ombudsman has rejected 66 complaints relating to the sale of IRSPs against RBS, apparently because the banks have a disclaimer saying that they do not give advice. How do we define “advice”, however? There was certainly hard-sell, weighted towards the positive aspects of deals, and it appears that the banks did not abide by their responsibility to ensure that any product they sell is appropriate, in the customer’s best interests and fully understood.

I realise that these are complex financial instruments that take time to investigate. However, action must be taken as soon as possible. It is undoubtedly true that regulation has in the past been insufficiently robust, so I welcome the creation of the Financial Conduct Authority, especially as it will focus on early intervention.

Previous mis-selling situations have gone on and on, and have caused a great deal of distress to the victims. We know from experience that the worry these issues causes can lead to serious health problems and some people die before justice is done.

We already know that the banks are not being transparent over this matter, and in some cases are being downright obstructive and unco-operative. We should not allow stalling tactics to impede putting in place a remedy. It is our responsibility as elected representatives to take this up immediately and encourage those who have been affected to come forward. Experience shows that a collective response is more effective in getting things sorted out.

It is not in the interests of the banks to have another long-running mis-selling scandal unfolding in a very public way. That will do nothing to restore public confidence. I understand that there is a six-year time bar for claims as well. Speed is of the essence, therefore, and I urge the Government to do all they can to make sure this situation is dealt with quickly.

[Several hon. Members]

rose—