Banks pay out just half of rate hedging compensation pots » SMEInsider

Banks pay out just half of rate hedging compensation pots

UK Banks have paid out less than half of the £4.4bn set aside to compensate small businesses for the mis-selling of interest rate hedging products, Reuters reports.

According to data from the Financial Conduct Authority (FCA) banks have paid out just £1.8bn in compensation, ordered by the regulator for the mis-selling of products meant to protect small companies against rising interest rates. When rates fell companies had to pay extra charges – often in the tens of thousands of pounds – and hefty penalties for extricate themselves from the deal.

Since the FCA ordered the review of nearly 30,000 cases banks have dismissed a third of claimants, deeming them sophisticated enough to have understood the product, and offered half of remaining claimants left alternative products in lieu of cash. The FCA has set a deadline of the end of March for claims.

Taxpayer-owned RBS, which faced more claims than any other bank, set aside £1.46bn for compensation. Barclays, which initially set aside £.134bn, reduced that amount by £160m last October.

Alison Loveday, managing partner of law firm Berg, which is working on the mis-selling case, said: “I don’t think the banks are being held to task on this. I don’t think they ever thought they were going to have to pay out and they haven’t been forced to pay, so now they’re releasing the money.”

The compensation scheme has drawn criticism from businesses and lawmakers, who argued in a parliamentary debate last year that it was opaque, inconsistent and denied victims a proper right of appeal.