The saga of the mis-selling by the banks of Interest Rate Hedging Products (“IRHP”), commonly known as Interest Rate Swaps, rumbles on.
It was reported in the Sunday Times over the weekend that The Coin Group Limited, an operator of care homes in Buckinghamshire, had settled its High Court claim against Lloyds Bank Plc over the mis-selling of three complex financial products to it by Lloyds.
When settling cases banks typically insist that the Claimant agrees to a Confidentiality Clause in the Settlement Agreement preventing the Claimant from disclosing any details of the settlement. However, in this instance The Coin Group refused to enter into such a clause because it wanted to demonstrate to the public the flaws in the IRHP Review Scheme which has been set up by the Financial Conduct Authority (“FCA”) for dealing with IRHP mis-selling claims and because Lloyds refused to completely compensate The Coin Group for all of the losses that it had suffered as a result of the mis-sold IRHP.
Under the settlement, Lloyds agreed to pay The Coin Group £890,923.98 for the IRHP payments which it had paid; to bear the “exit” costs of the remaining IRHP which was estimated to be in the region of £3.5m; and to pay a contribution towards The Coin Group’s legal costs. The settlement will therefore cost Lloyds in the region of £4.5m albeit the Bank has denied any liability.
What is of particular interest in this case is the fact that The Coin Group initially took part in the IRHP Review Scheme to compensate customers who were mis-sold IRHP. Under the terms of the Scheme, the banks would decide whether a borrower was entitled to any compensation with the help of an independent reviewer. The Coin Group was told by Lloyds that it could not claim under the Scheme because it was a “sophisticated customer” and they were specifically excluded from the Scheme. The Coin Group was judged to be a “sophisticated customer” because, due to the size of its assets, it was deemed to be able to judge the risk of the swap products. The Coin Group is only one of thousands of borrowers who have been refused compensation under the Scheme on that basis.
The IRHP Scheme has been criticised by many as being similar to having a trial where the Defendant is also the Judge (since the Scheme is self administered by the banks) and it has been alleged that the “sophistication test” is not actually a test of sophistication but a set of criteria designed to save the banks from having to pay compensation owed to customers. It has also been reported on the BBC that the Treasury pressurised the FCA to water down the Scheme to save billions of pounds of redress from the major banks, two of whom (Lloyds and Royal Bank of Scotland) are publically owned. This allegation is denied by the Treasury. A Judicial Review of the Scheme has now been ordered.
It was revealed in The Coin Group case that Lloyds delayed notifying The Coin Group by several months of its decision that it considered The Coin Group to be a “sophisticated customer” and would therefore not qualify under the Scheme. It appears there were no good reasons for this delay other than for Lloyds to frustrate The Coin Group from pursuing a legal claim against the Bank as the decision letter from Lloyds arrived a few weeks after the statutory time limit for The Coin Group to bring a claim had expired. Fortunately for The Coin Group, it had sought legal advice before that deadline and its lawyers had issued a protective Claim Form before the expiry of the time limit.
If you have a claim and even if you are currently pursuing your claim through the IRHP Review Scheme, you should not delay in seeking legal advice. There are strict time limits for bringing legal claims and, even if your claim has been rejected, it does not necessarily mean that you do not have a claim; particularly given that the Scheme is now going to be scrutinised by the courts.