It is encouraging that the FSA have pronounced on the issue of SWAP contracts. There have clearly been some extreme examples coming out where smaller ‘non-sophisticated’ customers have been sold something that they didn’t understand. In most situations however the issue has arisen not because of the appropriateness of the product but by the way that interest rate movements have created such a differential in contracted rates (particularly if a contract needs to be broken).
It is also true however that many businesses would have had their loan repayments inflated, increasing their costs, without properly understanding how significant that could be.
My reading of the FSA announcement is that they have asked the banks only to act (initially anyway) for the most complex of these products; the ‘Structured Collar’ (what is one of those you ask!). I am sure that this compromise is down to the banks capability to handle the volume of cases and therefore to start where the problems are most likely to exist.
This could however raise expectations of those who have a more ‘conventional’ SWAP. The profile that this has been given however, and the fact that the FSA have asked the banks to follow a similar process, will lead to many believing this is going to follow the same pattern as the PPI debacle. It will not as the issues are far more complicated.
That will not stop however a few ‘ambulance chasers’ from deciding that this could be a good business to get into all of a sudden! As I stated in an earlier blog small business owners should be wary of those claiming that they can get them compensation.