Debt charity cuts 20 jobs after it was 'mis-sold' insurance product

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A debt charity claims it has been forced to cut a third of its staff after being "mis-sold" a complicated insurance product.

Derby-based Direct Help and Advice said it was "in limbo" while it awaits the outcome of a mis-selling claim against Royal Bank of Scotland (RBS).

Derby North MP Chris Williamson said he was urging ministers to press the bank into "pulling its socks up".

RBS said it hoped to resolve the matter soon.

The charity said it had been waiting five months for a decision on whether it was mis-sold an interest rate hedging product to support its mortgage loan in 2009.

If the claim is successful, it could be paid as much as £200,000 in compensation, according to chief executive Ian Grostate.

The mis-selling scandal

  • It is thought about 40,000 small businesses were sold products, known as interest rate hedging products (IRHPs), between 2001 and 2008
  • Many who had taken out a loan with their bank were advised to "hedge" against the possibility of interest rates going up
  • In return for higher fees, they were told they would not have to pay extra if the Bank of England raised base rates.
  • In fact, the Bank reduced rates, from 2008 onwards
  • As a result, many small firms were faced with paying much more for their loans, or having to find tens of thousands of pounds in exit fees
  • The four banks concerned - HSBC, Lloyds, Barclays and Royal Bank of Scotland - made large profits from the products

However, if the bank dismisses the claim, the charity, which helps people at risk of being made homeless, could be forced to shut down services.

'Unacceptable attitude'

The charity, which now employs 40 staff and helps about 5,000 people a year, was sold its current mortgage arrangements by NatWest, which is owned by RBS Group.

It claims that the bank persuaded the charity to support its existing mortgage with an interest rate hedge product that left it having to pay £3,000 a month in loan servicing and debt exposure fees.

Since 2009, it has cost the charity £150,000, forcing it to let 20 staff go, he added.

Derby North MP Chris Williamson said he had written to RBS about its "unacceptable attitude".

"It is a travesty that Direct Help and Advice has been forced into this position of limbo with RBS seemingly uninterested in resolving the situation," said the Labour MP.

"Derby people are suffering, and while RBS kicks its heels, Direct Help and Advice is unable to commit the resources needed to offer support."

A RBS spokesman said: "We are sorry to hear of the frustrations experienced and can confirm that this enquiry is in the very latter stages of review by the independent reviewer.

"We have advised the customer of the reason for the delay and hope to have this matter resolved shortly."

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