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Will trickle of fixed rate TBLs considered by FSA Review turn into a flood?

Posted on Mar 14, 2013 by  | 0 Comments


By Neil Morrison, Associate, Financial Services Disputes



It is being reported in the media that the FSA and the UK Treasury are now actively discussing the problem of unregulated commercial loans which contain embedded interest rate derivatives.

The most common ‘embedded swap’ we have encountered is the fixed rate Tailored Business Loan (TBL) which was a product offered by both Clydesdale and Yorkshire Banks (embedded swaps were also sold by other UK Banks such as Lloyds Group).

The fixed rate loans have a regulated interest rate derivative ‘under the bonnet’ which means that borrowers face similar breakage costs to a standalone interest rate swap agreement. Many businesses simply had no idea of the magnitude of the breakage costs which in some cases were as much as 40% of the value of the loan.


While the Clydesdale and Yorkshire Banks have agreed to be part of the FSA Review Process, they have excluded Tailored Business Loans with comparable features to fixed rate products or Caps. Of course, the majority of TBLs were the equivalent to a fixed rate vanilla swap with the result thousands of businesses currently fall outwith the Review.

Clydesdale Bank has repeatedly stated that the fixed rate TBLs fall outwith the scope of the Review and that they would only be considered by the bank’s internal complaints process.

A derivatives expert at a recent Scottish conference proclaimed that by excluding TBLs from the Review the banks had “won the World Cup three times over”. This would seem to be borne out by industry experts’ estimates of approximately 60,000 businesses that are affected by fixed-rate TBLs.


It is understood that the UK Business Secretary, Vince Cable, is to ask the FSA whether TBLs are comparable to the interest rate swap mis-selling problem. Moreover, earlier this week, the Financial Secretary to the Treasury, Greg Clark MP stated:

“The hon. Gentleman [Jim McGovern MP] has raised the case of his constituent [Mr James Boyle] with me before; even though the product was not within the review’s terms of reference, Clydesdale has agreed to consider it as part of the review.”


It would be quite extraordinary if Mr Boyle was allowed to have his fixed rate TBL reviewed while thousands of others were not given the same opportunity. The position appears to be untenable; the dam has burst and it is only just and equitable that other businesses with fixed rate TBLs are entitled to have their cases fall within the FSA Review Process. Alternatively a specific TBL compensation scheme should be set up to provide appropriate redress to businesses with fixed rate TBLs.


If businesses with fixed rate TBLs are ultimately included in the FSA Review Process that does not necessarily mean that satisfactory redress will be forthcoming from the banks.

It would be sensible in the circumstances to raise protective court proceedings (raising a court action and then putting it to sleep) in Scotland or England depending on the governing law and jurisdiction clause in the relevant fixed rate TBL terms and conditions.

Borrowers should keep in mind they have 5 years to raise a claim in Scotland from the date that loss is sustained flowing from the mis-selling.

In England, borrowers have 6 years from the act of mis-selling for contractual claims and 6 years from date loss is suffered by wrong for tort (i.e. negligence) claims.

It should also be borne in mind that there are some exceptions to the general position on time-bar rules in both jurisdictions that certain borrowers may be able to rely upon to overcome time-bar. It would be prudent to seek advice from a solicitor without delay as the law on limitation is complex and fact sensitive.


We are acting for a number of clients who have been affected by fixed rate TBLs and may be able to provide you with further information and assistance. Please contact a solicitor in our Financial Services & Banking Disputes team on 0131 226 8200.

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