The Federation of Small Businesses Wales warns the law needs to change to protect business owners from banks.
The warning comes after some people were mis-sold financial products, called interest rate swaps, claim the compensation scheme that is supposed to help them is failing. Interest rate swaps are accused of pushing firms into administration. The banking industry says it is working towards compensation and the offers made were fair.
The FSB Wales says the only way to prevent a similar mis-selling scandal in future is for business people running small firms to be offered the same legal protection as individuals. This is similar to Payment Protection Insurance (PPI) mis-selling, where banks sold financial products to people who didn’t need them, didn’t understand them or weren’t eligible for them.
Interest rate swaps were sold to small businesses like haulage firms, pubs and vets. The businesses were told that the interest rate swaps provided insurance against interest rates rising but many claim they weren’t told the costs involved if interest rates went down – as they did – or the charge if they tried to get out of the swap. It has sent some businesses to the brink, putting some workers out of jobs and leading to bankruptcy for owners of some small businesses.
FSB Wales says it may not be possible to repay in full the human cost of mis-selling
A compensation scheme is in place to try to help victims and its aim is to return small businesses back to the position they were in had they now been mis-sold the swaps.
Firstly they are supposed to get the money they paid back, plus interest. Secondly they are supposed to be compensated for the losses they incurred as a result of being wrongly sold the swap, the knock-on impact.The second part of the promise is proving controversial with some of those who went out of business. They argue that banks are not adequately compensating them for what they’ve suffered.
FSB Wales says it may not be possible to repay in full the human cost of mis-selling, which it says has ruined lives as well as livelihoods. Conservative MP, Guto Bebb says parliament may need to debate the issue again.
The British Banking Association (BBA) says the industry is working towards compensating those who have lost out and the offers being made are fair.