Small firms 'at risk' from interest rate derivative loans

Colin Jones Colin Jones says his hotel was repossessed when payments on his loan went up

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An MP has claimed up to a hundred small businesses in Wales are at risk after being allegedly mis-sold loans with complicated strings attached.

Firms were told the interest rate derivatives were similar to a fixed rate mortgage but found their payments went up when rates came down.

Aberconwy MP Guto Bebb said viable companies had gone bust as a result.

"The products in question were not suitable for the businesses that have been targeted," he said.

'Utterly destroyed'

The MP's help was sought by Colin Jones, who used to run a hotel on the seafront in Llandudno.

He bought it in 2007 with a bank loan for £500,000. But it was repossessed in 2010.

Mr Jones said he didn't realise when he took out the loan that he was also being made to take a bet on what would happen to interest rates.

The interest rate derivative meant that when interest rates were high, his repayments stayed manageable.

Start Quote

We were totally and utterly destroyed by a scandalous sale of a product that I never asked for, didn't want and never understood”

End Quote Colin Jones Hotelier in Llandudno

But when interest rates started to fall in late 2008, Mr Jones said the system meant that his repayments actually went up.

He said that by the time the hotel was repossessed he was paying nearly £6,000 every three months towards the loan.

"I had a business that was viable and employing people, and that's now gone," said Mr Jones.

"We were totally and utterly destroyed by a scandalous sale of a product that I never asked for, didn't want and never understood.

"I can't explain it in words, it's been awful, terrible, it's been a nightmare. My wife and I came to the point of splitting up.

"The stress that she felt - and my children, my whole family felt - it was extremely hurtful, it really was."

'Unsuitable' loans

Aberconwy MP Guto Bebb said he knew of around 500 similar cases across the UK.

He claimed Wales had been particularly badly affected, with up to a hundred businesses coming forward so far.

Guto Bebb MP MP Guto Bebb says viable firms have gone bust due to complex loans

"Any business lost in Wales is a blow to the Welsh economy," he said.

"There is no doubt in my view that there are a number of businesses which would have been financially viable if it was not for the penalties that they were faced as a direct result of these products being sold to them.

"It would appear to me that the products in question were not suitable for the businesses that have been targeted.

"These products were described not as the complex financial instruments that they actually are, but as similar to your fixed rate mortgage. That in my view is mis-selling."

Several major banks have been accused of wrongly selling interest rate derivatives, but said they had done nothing wrong.

Colin Jones's lender, the Royal Bank of Scotland, said it had procedures in place to make sure that the products in question were sold in accordance with regulations.

The bank pointed out that the Financial Ombudsman reviewed Mr Jones's case and found in the bank's favour.

The Financial Services Authority said it was considering the issue of interest rate derivative loans - also known as swaps - and what if anything should be done to address it.

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