A new mis-selling scandal involving the UK banks is set to destroy thousands of British small businesses and jobs, it has been warned.
The Federation of Small Businesses (FSB) claims that many companies have already gone bust after being sold complex hedging products called Interest Rate Swap Agreements (IRSAs).
The products were sold throughout 2006 to 2009, allegedly to protect small firms taking out loans from future interest rate rises.
However, as interests plummeted, these firms faced vastly increased payments and ruinous penalties – sometimes exceeding £1 million – in exchange for escaping from these agreements.
The Financial Services Authority is now investigating as evidence has emerged that firms were forced to take out IRSAs as a condition of the loan and with little or no explanation of the risks involved.
It has promised to publish a detailed report on the issue by the end of July.
MPs have also raised concerns about the way IRSAs have been used within business, during a Commons' debate.
Conservative MP Guto Bebb noted that at least 4,000 businesses have been affected, with potential claims likely to total £1 billion.
MP Heather Wheeler added: "This could be the biggest mis-selling scandal since payment protection insurance."
John Walker, national chairman of the FSB, said the huge scale of this mis-selling scandal is starting to emerge.
"It is vital small firms who have been affected make themselves heard rather that expect their bank to settle if they keep it secret," he stated.
"The last thing banks need now is another mis-selling scandal. But exposing it is the only way of dealing with the problem effectively."
Small firms are the lifeblood of the economy and these sharp practices carried out by the big banks need to be stopped right away, he added.
Posted by Steve Williams