MPs have today called on banks to speed up the payment of redress and compensation to businesses affected by the mis-selling of complex financial products known as interest rate "swaps".
A total of around 5,000 hospitality businesses and 30,000 businesses overall are thought to have been mis-sold the products, according to campaign group Bully-Banks.
Despite the fact that the now-defunct Financial Services Authority (abolished and replaced by the Financial Conduct Authority) launched a review into interest rate hedging products in June 2012, there has been little progress on paying redress to businesses affected by the mis-selling scandal.
Figures for September showed that just 32 businesses have accepted a redress settlement, at a cost to the banks of £2m. This is despite the fact that around 93% of businesses that took on an interest rate hedging product are estimated to have been mis-sold one.
MP for Aberconwy, Guto Bebb, who organised today's debate and founded the All Party Parliamentary Group on Interest Rate Swap-Mis-selling, called for MPs to put more pressure on the FCA and on banks to ensure that the compensation scheme moved faster.
Despite the few acceptances of redress, the 11 banks involved in the mis-selling review are estimated to have spent £300m and employed 3,000 people investigating claims.
The delays have left many businesses struggling to cling on, as they grapple with payments to the banks that are much higher than they expected, while others have failed under the weight of money they owe. Mark Williams, MP for Ceredigion, said he was worried about how many hospitality businesses in his constituency had been affected. "The number of tourist and agricultural businesses that have come to me about this has frightened me," he said during the debate.
Meanwhile, only 1,000 businesses struggling to make payments on both the loan they took out from the banks, and the unexpected payments they are now making on interest rate hedging products, have been offered a suspension of swap payments by their banks while their case is investigated. Bebb explained that many of those businesses were shying away from requesting a suspension because to do so was an admission that their business was in financial distress, which could result in the banks putting the business in special measures - something that business owners clearly want to avoid.
And MPs expressed concern over the sophistication test that banks use to judge whether a company had the financial knowledge to realise what they were getting themselves into. At the moment, banks exclude any business that took a swap in excess of £10m from the review, deeming it as sophisticated, but Bebb argued that even fairly small businesses run by people, with relatively little knowledge of complex products, borrowing relatively small sums of money, £5m for example, could end up with a £10m hedge that would deem them sophisticated.
Even where businesses are judged by the banks to be unsophisticated, the process can take a long time, as John Baron, MP for Basildon and Billericay, explained. He highlighted the case of a business in his constituency that had taken 16 months to be deemed unsophisticated.
Some MPs, including Natascha Engel, also raised the possibility of bringing criminal charges against banks that were proven to be part what she called the "injustice" of the mis-selling scandal.
Bebb, who also criticised the "slow and laborious" nature of the banks' investigations said he hoped the redress scheme would soon start working in the way in which it was intended when it began in January. "We need to see the banks providing support for those business where they are waiting to be reviewed. We still need to see the proof of the pudding in the way in which this scheme is delivered from now onwards," he said.
Today's debate came shortly after news that two of Britain's largest banks, HSBC and the Royal Bank of Scotland, had given unconditional assurances that customers who had been mis-sold interest rate hedging products would be offered compensation without being forced to accept a deal on any separate claims for damages.
The MPs congratulated the move, but called on the other banks to follow suit.
The banking industry has so far set aside around £3b in provision against customer claims resulting from the review of mis-sold interest rate hedging products.