The financial watchdog has been warned to speed up compensation for businesses hit by a widespread bank “mis-selling” scandal.
Bromsgrove MP Sajid Javid, the Financial Secretary to the Treasury, said the Financial Conduct Authority had been too slow in arranging compensation for firms that were pressured by banks into taking out complicated financial products known as interest rate swaps.
Earlier this year it was revealed that victims included Guardian Care Homes, a Wolverhampton-based businesses which employs 900 staff in 30 care homes across the country which was sold two interest rate swap products in 2007, taken out against existing loans.
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It was told the products would protect it against the threat of interest rate rises – but the swaps actually cost the firm £12 million after interest rates plummeted.
Midland MPs warned that banks were taking too long to compensate customers who had not been properly warned of the dangers. Interest rate swaps meant that borrowers did not benefit from cheaper interest rates once the Bank of England slashed base rates in 2008. But in many cases, they could only escape from the deal by paying a massive cancellation cost.
Speaking in the House of Commons, Mr Javid told MPs: “I share the disappointment about the progress made under the Financial Conduct Authority (FCA) review to date.”
MPs had raised concerns in June, he said, “and the fact that the FCA has not made any significant progress since that debate is, frankly, not good enough.”
He added: “It is time for the banks and the FCA to do more to speed up the process and get redress out the door. As such, the Government will continue to push the banks and the FCA to complete the process as quickly as possible... the redress scheme’s progress has been too slow. That is costly and has caused further undue distress to the businesses involved.
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“The FCA and banks need to get on with the job.”
Birmingham MP Shabana Mahmood (Lab Ladywood), a Shadow Treasury Minister, said: “This scandal has highlighted shocking abuse of small and medium-sized enterprises; banks saw an opportunity in firms wanting to take out loans and they attached complex hedging products to them, in many cases giving the impression that this was a requirement of the loan itself.”
Banks were also condemned by Worcestershire backbench MP Mark Garnier (Con Wyre Forest), who has been campaigning for the banks to provide compensation. He said: “The banks made an incredibly cynical effort to persuade people to enter into these contracts where, in many instances, they should not have done so.
“Sometimes it was the right thing to do, and I think that many businesses will agree that they just got it wrong, but we need to look after the smaller businesses that were simply mis-sold these products.”
Pat McFadden (Lab Wolverhampton South East) warned that the issue would deepen he lack of trust in the banks as it came after the payment protection insurance scandal, when banks sold people loan insurance they did not need.
He said: “This issue provides a really important test of the standards and culture in the banks after everything that has happened.
“They have to show whether they have learned the lessons of previous mis-selling scandals or whether there has been a repeat of the pattern of behaviour that we saw before in which there was first a refusal to face up to responsibility. That was followed by increasing anger among the customer base and the destruction of trust.”