By Iain McDougall, Senior Solicitor, Dispute Resolution
In previous blog posts, we have considered the FCA’s treatment of the Clydesdale Bank’s “Tailored Business Loans” (“TBLs”). These products, sometimes as referred to as “embedded swaps”, are effectively loans in which an interest rate swap forms part of the loan agreement. To date such products, not being standalone derivatives, have fallen outwith the scope of the FCA’s review scheme.
This has left TBL customers in a difficult position. In lieu of the FCA review process being expanded their options were limited to either raising court proceedings or raising a complaint with the Financial Ombudsman Service (“FOS”). Whilst TBL’s are dealt with on a “case by case basis” by the FOS, there appears to have been little scope for review for TBL customers who would otherwise be entitled to redress via the FCA backed scheme had their swaps been separate transactions to the underlying loans.
St Andrews hotel owner Jim McGrory was such a customer. In March 2007 he signed up to a TBL which contained an embedded swap. When he sought to bring this to an end early he incurred significant breakage costs amounting to 16% of the six figure loan. He made a complaint to the FOS on the basis that the magnitude of these breakage costs had never been adequately set out to him.
The FOS initially rejected his complaint; however it has now been overturned. MBM recently commented on this matter in the Glasgow Herald. Whilst we welcome this decision, it does not suggest a uniform change in approach for TBL customers or those who had embedded swaps with other banks. It is also worth bearing in mind that the clock is still ticking in respect to the time barring of these claims (which would prevent them from ever being raised in Court) and that a complaint to the FOS is not enough to preserve a court claim.