How To Get A Refund On A Tailored Business Loan From Clydesdale Bank

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1 Tailored Business Loans the imaginative law firm

2 Tailored Business loans Tailored business loans were once sold mainly by large corporate banks such as Clydesdale and Yorkshire Bank. Similar loans with slight variances were also endorsed, to a lesser degree, by other financial institutions such as Lloyds and Barclays Bank. But what exactly is a tailored business loan? How might you have been mis-sold a tailored business loan and what are the implications for you if you have? Find out by following our simple list of frequently asked questions. help@.co.uk

3 ?! What are Tailored Business Loans? A tailored business loan (TBL) was promoted as being a simple fixed rate loan agreement; however, they are not as clear-cut as first suggested. To minimise risk caused by rate movements in the cash market, the banks deployed undisclosed interest rate hedging products, known as IRHPs in the background of the agreements. The sale of an IRHP as a stand-alone entity is regulated by the FCA and is therefore subject to their Rules of Conduct (COB/COBS). However, TBLs are not so regulated despite utilising a very similar but complicated imitation. This meant that the selling process of these products could be carried out in an unfair manner, as they were not controlled by regulations set out in the COB/COBS rules. How Were TBLs Mis-Sold? Many case reports have indicated that bank sales representatives purely focused on the possibility of interest rates rising when selling a TBL to a potential customer. This was scaremongering in providing misleading information and therefore the banks really should not have been providing advice and opinion on future interest rate movements. In addition, customers were also not fully informed about break costs. In general, the banks fundamentally failed to ensure that SME customers fully understood the nature of the associated risks involved with embedded swap agreements. They also failed to make clear the repercussions of interest rates falling instead of rising and the potential ramifications of terminating a TBL early. Banks also often failed to provide advice on alternative financial products, such as interest cap products. Customers Completely Unaware Because of the regulatory loophole, TBLs were largely misrepresented as standard fixed rate arrangements to unaware customers; when in actual fact they also included potential break costs for the embedded interest rate swap. These costs can be up to half of the original loan amount. As interest rates dropped in 2008, many SMEs with TBLs found themselves locked into high interest rates with the inability to switch to a more competitive product. In cases where SMEs failed to meet payments, banks have been known to end the loan arrangement and demand payment of break costs. This has forced many businesses into closure over the last few years. The vast majority of customers were not made aware of these break costs when entering the loan agreement. Clydesdale CEO, David Thorburn, has since gone on to admit selling complex TBLs to customers who were not made aware of the associated risks. (The information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by or any of its partners or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.)

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5 Tailored Business Loans ( TBLs ) were sold mainly by Clydesdale and Yorkshire Bank ( the Banks ) between 2001 and 2009 on the basis of creating a fixed rate loan tailored to the individual customer. TBLs, unbeknown to the vast majority of customers, utilised an embedded interest rate product, to mitigate the Bank s losses arising from rate movements in the money markets. Customers signed up to an apparently simplistic product, only to learn at a later stage that extricating themselves from the loan would expose them to substantial and unaffordable break costs which were never brought to their attention. Under rigorous Parliamentary questioning during the Treasury Select Committee ( TSC ) on SME lending on 17 th June 2014, David Thorburn, CEO, admitted that TBLs were complex products sold to customers who had no understanding of their mechanics and in many instances were unsuitable. Following the above Parliamentary Forum, the Bank agreed to initiate its own internal complaint led review, which is in a number of respects, similar to the FCA led review into the sale of interest rate hedging products ( the Review ) which has resulted in financial redress for many SMEs. The sale of TBLs was prevalent between 2001 and There are strict time limits for the issue of Court proceedings and there is a real danger that for many TBL customers they will be out of time to protect their legal rights. Further, the announcement of the end of the Review is expected imminently, and it is clear that given the review of TBLs is a voluntary process, the Banks will follow suit and TBL customers will be left with little or no options for redress. (The information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by or any of its partners or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.) help@.co.uk

6 Clydesdale Bank under the spotlight over Tailored Business loans The Chief Executive of Clydesdale Bank, David Thorburn, has been questioned by the Treasury Select Committee over the Banks sale of TBLs.

7 These products have come in for criticism as customers have alleged, and agrees, that they contain embedded interest rate hedging products such as swaps, which means that for all intents and purposes they have the same consequences as a directly traded interest rate hedging product. The TBLs are not included within the Financial Conduct Authority ( FCA ) led review into IRHPs and so customers have been denied the chance to seek redress for the losses caused as a result of the improper sale of these products. Clydesdale has agreed to review structured collar equivalent TBLs, but not the remaining portfolio. This has caused a lot of confusion. Clydesdale still maintains that these products do not contain embedded swaps but have accepted that the products behaved as if they did and that the distinction would have meant little to the customers who were sold TBLs. The bank s Chief Executive, David Thorburn, admitted that the bank could have provided better information and clarity to its customers but stated that no one could have predicted the sharp drop in interest rates that occurred in Mr Thorburn did state that Clydesdale would co-operate fully if the TSC felt that a full investigation into the sale of TBLs to SMEs was required. However he gave no indication that the bank would be willing to include all of these products in the FCA Led Review and allow their customers to seek redress for the losses caused. Campaigners claim that the high charges and difficulties in refinancing associated with TBLs could have cost thousands of jobs across the UK but so far it has been extremely difficult for anyone affected to seek redress from Clydesdale. The FCA are doing very little to rectify this situation and appear happy to let the bank dictate the policies. Therefore it is likely that many SMEs will struggle to achieve adequate compensation (if at all) for the sale of these products despite the fact that Clydesdale s Chief Executive admitted that they could have provided better and clearer information to its customers when they were selling TBLs. It comes as no surprise that Clydesdale is doing very little to help its customers affected by the sale of TBLs. The bank has previously informed that it is not bound by any timetable with the FCA in respect of the FCA led review and as such will not issue any redress offers in the immediate future. This is despite the fact that the review process is scheduled to come to an end shortly. Clydesdale has not provided a review timetable, which leaves a number of its customers stuck in limbo and is contrary to what is being said publically by the bank. Clydesdale has consistently shown complete disregard for the hardworking SMEs that have been forced into these toxic loan agreements and the FCA appears unable or unwilling to do anything about it. As a result a large number of people may be left without any form of redress for mis-sold products that may have ruined their businesses and deprived them of their livelihoods. (The information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by or any of its partners or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.) help@.co.uk

8 Case studies Anonymous TBL were instructed by an individual in January 2014 regarding his TBL taken out with Yorkshire Bank. He had entered into a 15 year discounted fixed rate range loan dated 12 June 2008 in the sum of 757,000. He has exited the TBL, paying approximately 200,000 in break costs to do so. Following our investigations a complaint letter was sent to the Bank on 14 March Notwithstanding Clydesdale Bank stating a response would be received within 8 weeks, the Bank s response wasn t received until 29 August Within that letter, the Bank considered that redress was payable to the customer. The offer of redress was a full tear up of the existing TBL and replacement with a standard variable rate TBL. This resulted in a redress offer of 113, Simple interest at 8% per annum was added and following HMRC deductions the amount of total redress was 145, Following receipt of this letter on 12 September 2014 wrote to the case handler at Clydesdale to query why the break costs paid by the customer were not included in the redress offer. Despite numerous requests from September 2014 onwards the Bank s further response was not received until 12 March Within that letter, the break costs of 203,500 were now included in the offer which had increased to 400, As such, without the involvement of and querying the issue on break costs, the client would have been out of pocket to the tune of 200,000. Clydesdale has provided no rationale as to why the final decision was not received until a year after the complaint was filed with the Bank. The customer has now accepted the offer and is awaiting the redress monies whilst considering a claim for consequential losses. The customer did not try to do anything prior to instructing whose subsequent input was a letter of complaint and numerous attendances following receipt of the initial offer of redress in August This culminated in the improved offer in March The final outcome to the case was a full tear up and replacement with a variable rate tailored business loan with no break costs. We have materially improved upon the client s position following a long arduous wait for a response from Clydesdale. In that time, the client has been unable to deal with other assets charged to Clydesdale as the amount owing to the Bank was prohibitive. The client is now able to move forward and dispose of assets if he so wishes. help@.co.uk

9 Property Company TBL In mid-2006 a property company (the Company ) sought a lending facility of 9.2m. The purpose of the lending was to repay existing borrowing and assist with the purchase of new property. The Company was offered two loans by Clydesdale, both for 4.6m and one of the loans was required to be a Tailored Business Loan ( TBL ). The CF21 Treasury employee from Clydesdale completed his paperwork to identify that the Company had hedging experience, and as such were a low risk group. This was not true. Clydesdale offered the Company a TBL that incorporated: A Fixed Rate Loan Facility A Discounted Fixed Rate Range Loan Facility A Modified Participating Fixed Rate Loan Facility The products offered to the Company were not clearly explained and the terms and conditions applicable to the products would not meet the plain English test. As a result the Company was unclear on the exact workings of the products prior to entering into them. The facility agreement received by the Company contained a variable rate loan facility, a modified participating fixed rate loan facility and a discounted fixed rate range loan facility; all in one document and was manifestly unclear, however Clydesdale had required that 50% of this loan was to required to be hedged and so the Company did not feel that they had any option but to enter into this product. As a result of entering into the TBL the Company were subject to much higher interest charges than they otherwise would have been and were unable to refinance the facility elsewhere due to the prohibitive break costs associated with this product. The Company complained to Clydesdale that components of the facility agreement in the manner outlined and described to the company did not perform. Whereas the product protected the business in periods of rising interest rates, they severely disadvantaged and potentially damaged the business in periods of falling interest rates and at no point was this mentioned or discussed with the Company. The Company believed that Clydesdale mis-sold the product and had no regard for the potential impact it would have on their business. The Company also state that at no point were the potential break costs associated with a TBL explained to it. As a result it did not anticipate the significant sums it would be required to pay should it wish to break this facility. The TBL caused the Company significant financial difficulties and has not been properly compensated by Clydesdale for the losses caused. help@.co.uk

10 Tailored Business Loans Testimonials

11 Anonymous - Banking Dispute Client, Scotland As Scottish consumers with a Scottish bank we selected to act for us solely from an internet search which attracted us to the firm s credentials in resolving banking disputes. We are new clients to who acted swiftly and effectively in obtaining redress and covered our position both under court process and the Financial Ombudsman Service. submitted our case to the specialist arm within the the FOS that deals with Fixed Rate Loans (the same as Tailored Business Loans). A specialist and knowledgable FOS Adjudicator liaised with and the bank to reach a satisfactory and amicable settlement. We can recommend the firm of unreservedly. Anonymous -Banking Dispute Client Our company was involved in a dispute regarding historical Tailored Business Loans and through the help of we were able to bring our complaint to a satisfactory conclusion and obtain redress. I would have no hesitation in recommending the services of. help@.co.uk

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