A DRONFIELD property developer could be among thousands of small businesses entitled to compensation after bankers made them pay out millions of pounds for unnecessary protection against interest rate rises.
Mike Chadwick runs Chiverton & Co with his wife Anne and son Chris and is among a number of companies that gave evidence to a Financial Services Authority investigation that found serious failings in the sale of interest rate hedging products to small and medium sized firms.
Following the investigation, the FSA has reached agreement with four banks – Barclays, HSBC, Lloyds and RBS – to compensate companies where mis-selling has occurred.
Chiverton & Co approached Lloyds Bank for funding towards new developments.
“The bank suggested we consolidated our existing loans and said they would give us working capital, but insisted that the only way we could have the loan was if we had interest rate protection,” explains Mr Chadwick.
“They put it to us as a no cost product but, when interest rates started to drop, other clauses kicked in, which made our payments go up. We were paying £90,000 a year on a £2 million loan that we wouldn’t have been paying if we hadn’t had the swap arrangement.”
When Mr Chadwick asked about cancelling the interest rate protection he was told he would have to pay a £800,000 fee - later reduced to £400,000.
Lloyds has now launched an investigation.
“It was at their instigation that the situation is being treated as a complaint and everything they are doing seems very professional,” says Mr Chadwick.
Although Lloyds Banking Group could not comment specifically on Chiverton & Co’s case, a spokesman said the group has helped the FSA fully and agreed to work with an independent third party to carry out a thorough assessment of sales of rate protection products to some of its customers.
The spokesman added that the bank had limited exposure to the products and the financial impact was “not expected to be material.”