Many SMEs facing ruin after banks mis-sell them insurance product

A mis-selling scandal may ruin thousands of SMEs in the UK and cause up to 80,000 redundancies after the Federation of Small Businesses (FSB) and the MPs accused some of the most notable British banks of taking part in the mis-selling of a product that will ruin many SMEs across the country.

Throughout the course of 2006 and 2009 Interest Rate Swap Agreements (IRSAs) which are basically complex hedging products, were sold with the alleged intention to protect companies from having to take out loans at a higher interest rate in the future. However, what really happened is that as interest rates started to fall dramatically the businesses were forced to pay higher payments while at the same time dealing with high penalties.

In some cases businesses were forced to pay over £1m which was at the time a much needed evil in order to get out of previous agreements which caused some of the SMEs to go bankrupt.

The FSA (Financial Services Authority) is looking at evidence that suggests businesses had no choice left but to take out IRSAs as it was written into their loan conditions even though they were not told about any risks associated with the condition. The finished report on the matter is expected to be released by the close of July.

Originally, the matter was brought to the attention of MPs when a Commons’ debate took place among backbench MPs who had heard about some terrible experiences with the loans from their constituents. One firm was even forced declare bankruptcy after being charged six million pounds of interest on a loan that was originally valued at three million pounds.