A routine part of any given working day for me generally involves advising people with a wide variety of different types of issues with their bank, on the best way to try to negotiate with their bank. Many people struggle to engage with their financial institution, and find it difficult to establish any sort of ongoing dialogue with the bank. There is often a sensible commercial outcome that benefits both the bank and the customer, but very often the most commercial result for everybody seems to get lost in the mix, with the bank adopting a rigid positional stance, and the customer unable to communicate with the bank.
To be honest, there’s no easy answer to this: banks are often defensive, and scared to make any sort of concession lest they inadvertently open the floodgates to other similar claims. The complaint departments of banks are often under-staffed, and seem to suffer from “complaint-fatigue”: complaint handlers seem programmed to find in favour of the bank wherever possible.
However, there are some strategies that can really make a difference in terms of encouraging the bank to engage with you as a customer.
1. Carrot and stick – encourage the bank to see the financial downside
I find myself using this analogy a lot. Banks need to be offered an incentive – the “carrot” - to settle with you, and that will almost always involve some payment to the bank, even if there is a substantial element of debt forgiveness, but it can be very useful also to put pressure on the bank by outlining the financial downside to not settling with you – the “stick”. This is often the likely cost of an insolvency process , whether personal bankruptcy (sequestration in Scotland), administration, or corporate insolvency. The more specific and detailed you can be about those likely costs, ideally with considered input from an insolvency practitioner, the better. Consider also if there may be other financial costs to the bank of not settling with you – might there be a number of properties to repossess? Is there a personal guarantee in play? Would the bank have to raise proceedings against the guarantor for payment under the guarantee (not always required in Scotland) and if so, might there be stateable defences which could be employed to defeat the bank’s claim? See for example earlier blogposts on this at https://mbmcommercial.co.uk/blogs/banking-disputes-blog/how-to-prevent-a-personal-guarantee-from-being-enforced/ and https://mbmcommercial.co.uk/blogs/banking-disputes-blog/six-potential-ways-out-of-a-personal-guarantee!/. You should also consider, if you think one of the possible defences might apply to you, what the likely cost to the bank might be of running a personal guarantee case which you vigorously defend, and in particular, what the bank’s irrecoverable costs might be even if they win, and what their liability could be if they lose. In Scotland typically the winning party in court proceedings will recover only 50% of what it has cost them to litigate, and this should be factored in to any negotiation with the bank where personal guarantee proceedings may be required.
2. Avoid emotion and rhetoric
The calmer you can be, the better. Generally speaking, banks like to be given sensible objective reasons to do a deal with you. They are unmoved by personal pleas to their better nature, or passionate emotional appeals outlining the devastation that the bank’s behaviour has brought about. It can be very difficult to be detached and dispassionate, especially when feelings are running high, and you may be facing enormous upheaval to your business or your personal life, or both, which has been brought about by your bank. However, the more composed and professional you can be, the more likely the bank is to listen. Think of yourself as presenting a business proposition to the bank – there may be a lot in it for you, clearly, to settle on your terms, but there must be something in it for the bank too. Separate out the personalities from the problem and focus on finding a deal that you can sell to the bank as making commercial sense.
3. Be open and upfront with the bank
Banks are highly sensitised to the situation in which they believe information is being kept from them. Rarely, if ever, will you be able to beat the bank by concealing assets or information from them. Much better to be as open and as honest as you can reasonably be, right from the outset. It can be very frustrating, especially when you feel that the communication is all going one way (from you to the bank), and there is very little, if anything, coming back from the bank. However, I would encourage you to keep giving them information as soon as it is requested, and offer information – valuations for example, information about marketing of properties, in principle offers you may have received, and so on, as much as you can. Once the bank believes that information is being withheld from them, it can be very very difficult to right that impression and in practical terms will making resolution with the bank nigh impossible. Create an impression of openness and willingness to communicate, and you greatly increase your chances of reaching a resolution you can live with.
4. Try to individualise your case
Banks are particularly nervous about settlement and debt forgiveness that could create a precedent for others. They are more likely to dig their heels in if they perceive that you are one of a number of customers in a similar position, and if they are worried that resolving things with you might give hope to many others with the same or similar problems. The case of John Glare is a case in point. Mr Glare had been missold a tailored business loan (TBL) from the Clydesdale Bank. The Clydesdale sold many such TBLs to customers in the run-up to the recession, and these operated as “embedded swaps” creating high breakage charges for those who wished to redeem early. Mr Glare raised proceedings against the Clydesdale bank, and at the same time created a public-facing customer support group to pool knowledge and resource with other customers in a similar position. The net result was that the Clydesdale were in a difficult position: settle with Mr Glare, and they were aware of what a shot in the arm such settlement would be to the other members of the group. Even if the details of such settlement were confidential, the fact of settlement could not be concealed, and would have given a huge psychological boost to other claimants. As we reported in our earlier blog on the case https://mbmcommercial.co.uk/blogs/banking-disputes-blog/mis-sold-loan-results/ the Clydesdale therefore had no choice but to run the case, focussing all their efforts on discrediting Mr Glare, and proving that even if he had been given a variable rate loan, his business was doomed to failure anyway. They succeeded. This suggests that banks will be particularly nervous about settling if they know there is a group of customers in the same position. It is much easier for a bank to apply debt forgiveness to achieve resolution with a customer if they feel that the customer’s position is unique and can be differentiated from others.
5. Consider publicity
The banks have been subjected to such a cavalcade of bad publicity over recent years that they have developed comparatively thick skins, and are undoubtedly less susceptible to adverse PR than their customers sometimes think. Publicity of the right kind can make a difference, though, when you focus your effort wisely – if you are able to engage the interest and attention of a business editor from one of the broadsheets, a sympathetic piece in the quality press which looks at the impact the bank’s behaviour has had upon your life can help. However, this type of publicity will tend to work best where the bank has adopted a particularly aggressive approach and is seeking to force you down an insolvency route – it will certainly make the bank more wary of taking the final step to repossession, sequestration, liquidation etc : it definitely has less impact if your issue is simply that the bank will not agree the level of debt forgiveness you would like them to. Consider whether there has been clear “bad behaviour” on the part of individuals within the bank that the bank would not like being aired in public. Examples we have seen, where the bank seemed wary of their dirty linen being washed in public include: the bank taking instructions from shadow directors with no connection to their client; the bank securing pre-signed drawdown forms and using these to transfer money around without directors’ consent; a relationship manager, on being told by a customer that the relentless hounding was made the customer feel suicidal, advising the customer to tell his wife to make sure she had life assurance in place; a bank promising to support a company if the director put his house into the company assets, then placing the company in administration only months after the house was transferred; and a bank manufacturing a piece of correspondence which it could be proved had not been sent.
6. Political pressure
MPs can and do play an important part in an overall package of negotiation. Some will take on a really proactive role, and will communicate directly with the bank, or even chair settlement meetings, whether in the constituency or at Westminster. Some of these interventions have been incredibly effective in my experience. Again, as with media involvement, it does depend on your own particular circumstances, and on how aggressive the bank are being. Where the bank has adopted an apparently unreasonable stance, the involvement of your MP can really help in buying you time and a bit of breathing space. Banks are undoubtedly wary of catapulting customers into an insolvency process where there is political involvement and we have seen many instances of banks pulling back from doing so after MP intervention. Much will depend on the willingness of your MP to become engaged – they need to be persuaded that the issue is important, and that you really need them to fight your corner. If your MP displays an unwillingness to become involved, don’t take no for an answer – there are MPS who will fight hard for their constituents and you are entitled to this sort of support from your MP.
7. Finally… Keep lawyers in the background!
This may seem like an odd sort of thing for a lawyer to say. But bear with me. There is undoubtedly a role for lawyers to play in negotiations with banks. But unless proceedings have been issued, and there is a need for lawyers to go on the record, very often your chances of successfully negotiating a resolution lie in keeping the lawyers “off the record” and in the background. If a lawyer issues a formal letter on your behalf to the bank, the bank will immediately appoint one of their panel lawyers to respond. In our experience, this frequently has the result that any sensible commercial negotiation is immediately derailed, and instead both sides become entrenched, firing legal points at one another like shells from the safety of their dug-out. To avoid your own personal re-enactment of the Somme, it is best, where you can, to front negotiations yourself. This does not necessarily mean that you do not engage lawyers – their input can be invaluable when it comes to assessing alternatives, particularly relating to an insolvency process, and to identifying the financial downside for the bank of not doing the deal with you, as outlined at number 1 above. We have found that where we are engaged behind the scenes, to advise, to prepare briefing notes, and to run through strategy with the client in their discussions with the bank, this can very often be the most effective way to ensure the negotiation remains focussed on commercial issues. Clearly, if the bank has raised proceedings against you, you definitely need lawyers on the record, fighting your corner. However, up until that point, it may be better to engage lawyers to provide behind the scenes advice.
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