Financial Services Disputes FAQs

1) What is mis-selling?

2) What are interest rate hedging products?

3) How is the FSA dealing with the mis-selling of interest rate hedging products?

4) Have I been mis-sold an inappropriate financial product?

5) I think I have been mis-sold a structured collar, what can I do?

6) I think I’ve been mis-sold a swap agreement, what can I do?

7) I think I have been mis-sold a cap, what can I do?

8) I am still not satisfied with the way in which my case has been handled, is there anything else I can do?

9) If I make a complaint against a bank, will my financial product be affected?

 

1) What is mis-selling?

The Financial Conduct Authority (FCA) (formerly known as the ‘Financial Services Authority’ (FSA)), the Financial Ombudsman Service (FOS), consumer groups such as the Consumers' Association, and the media are increasingly focusing their attention on the mis-selling of financial products. The combination of falling stock markets, decreased returns on investment and growing public awareness of mis-selling issues has led to a notable increase in both the number of mis-selling complaints and the breadth of products to which such complaints relate.

Mis-selling can occur in a number of ways. Put simply, mis-selling means that a financial services provider has mislead a customer about a product, either in terms of its suitability for that customer, or certain characteristics of the product. Sometimes, a service provider can misrepresent a product to a customer by giving false or misleading claims about a product.

Commonly, customers will have been given poor advice on the product they are signing up to, been given incorrect information about a product, been sold a product they could not afford or been subject to charges which they were not aware of.

2) What are interest rate hedging products?

Interest rate hedging products are typically separate to a loan and, if so, are regulated by the FCA. These products were frequently marketed to customers who had a loan with the bank. There are broadly four types of products that have been sold to customers:

  • Swaps – enabling the customer to ‘fix’ their interest rate
  • Caps – placing a limit on any interest rate rises
  • Collars – enabling the customer to limit interest rate fluctuations to within a simple range; and
  • Structured collars – enabling a customer to limit interest rate fluctuations to within a specified range, but involves arrangements where, if the reference interest rate falls below the bottom of the range, the interest rate payable by the customer may increase above the bottom of the range.

Interest rate hedges include a variety of different products sold to customers to help protect them against interest rate risk. In principle, interest rate hedging products can meet customers’ needs, as they provide greater certainty over future loan repayments. However, these products can also be very complex and therefore susceptible to mis-selling.

3) How is the FSA dealing with the mis-selling of interest rate hedging products?

In January 2013, the FSA published the results of a pilot scheme in an attempt to provide redress to individuals and businesses that were mis-sold interest rate hedging products.

The FCA reached agreement with Barclays HSBC, Lloyds Banking Group, The Royal Bank of Scotland and National Westminster Bank to provide appropriate redress where mis-selling has occurred, whereby the banks agreed to:

  • Provide fair and reasonable redress to non-sophisticated customers who were sold structured collars;
  • Review sales of other interest rate hedging products (except caps or structured collars) for non-sophisticated customers; and
  • Review the sale of caps if a complaint is made by a non-sophisticated customer duringthe review.

The exercise for each bank will be scrutinised by an independent reviewer and overseen by the FCA.

4) Have I been mis-sold an inappropriate financial product?

When sold to customers who are likely to lack expertise and understanding of the product (i.e. ‘non-sophisticated customers’), some financial products may be inappropriate.

If the product which you were sold has not performed in the way that you expected, or has ended up costing a lot more than you would have expected as a result of not being given the correct information when signing up to the product, then you should get legal advice as soon as possible.

5) I think I have been mis-sold a structured collar, what can I do?

Under the Financial Services Authority Redress Scheme, if you have bought a structured collar from Barclays, HSBC, Lloyds or RBS, the bank should contact you to explain whether you fall within the scope of the review (i.e. whether you are considered sophisticated or not).

If you fall within the scope of the review then you may need to respond to requests for information from your bank. The bank should then propose fair and reasonable redress, which is reviewed and agreed by an independent reviewer.
If you agree to the redress proposal then you will be issued with a final redress proposal.

6) I think I’ve been mis-sold a swap agreement, what can I do?

If you believe that you have been mis-sold a swap agreement then you should seek legal advice. In some cases such as smaller businesses, which are not expected to have a clear understanding of complicated financial products, you may be able to seek redress as set out below. Whilst these cases are currently limited, you should seek legal advice to establish whether you meet the necessary criteria.

Under the FSA Redress Scheme, if you have bought an interest rate hedging product such as an interest swap agreement from Barclays, HSBC, Lloyds or RBS, the bank should contact you to explain whether you fall within the scope of the review (i.e. whether you are considered sophisticated or not).

If you fall within the scope of the review your bank will ask you whether you want the sale to be reviewed. If you do, you may need to respond to further requests for information from the bank.

Where it is appropriate, the bank should then propose fair and reasonable redress. This is decided on a case by case basis and will be reviewed and agreed by an independent reviewer.

If you agree to the redress proposal then you will be issued with a final redress proposal.

7) I think I have been mis-sold a cap, what can I do?

Customers who purchased caps are not included in the scope of the review unless they complain to their bank during the course of the independent review and are non-sophisticated customers.

If you do make a complaint it will be considered in the same way as the other interest rate hedging products (except structured collars) category. However, if you complain after the independent review, your complaint will be dealt with in accordance with the banks’ usual complaints handling procedures.

8) I am still not satisfied with the way in which my case has been handled, is there anything else I can do?

If you are not satisfied with the outcome of the review then you still have the opportunity to refer your complaint to the Financial Ombudsmen Service (subject to meeting the eligibility criteria). If you customer does not meet the Ombudsman Service’s eligibility criteria, or you believe that you have suffered a loss that is more than £150,000, then you will need to consider whether to take action through the courts.

A recent authority has held that it is possible to seek redress through the Financial Ombudsman Service or Financial Compensation Service as well as pursuing a claim through the Courts provided that there is no double recovery of the loss suffered.

9) If I make a complaint against a bank, will my financial product be affected?

Ultimately, this will depend on what you are hoping to achieve. If you believe you were sold a product that was unsuitable then we assume that you would want the product cancelled and your money back.

However, financial providers cannot simply cancel your product just because you have made a complaint.

For more information, please contact Richard Foss.

I rate them all extremely highly. They know what they're doing. They've got great tactical ability and huge experience in this field. They give you everything you need." 

Chambers UK 2015, A Client's Guide to the Legal Profession

...sensible, realistic view of cases - seizing only the points worth arguing...

Chambers UK, A Client's Guide to the Legal Profession

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