Member Article

Top tips for handling Interest Rate Hedging Products (IRHPs)

The majority of banks have now completed the first stage of their review of the sales of Interest Rate Hedging Products (IRHPs) after the regular unearthed serious failings.

Michael Peacock, commercial lawyer and partner at hlw Keeble Hawson, has the following advice for Yorkshire businesses involved in the review who bought IRHPs to protect themselves against the risk of their loan becoming more expensive in the event of rising interest rates.

1.Ensure you are happy with the outcome of the review

You will receive a letter from your bank explaining the outcome of their review. If they think your IRHP was mis-sold, this letter should contain an offer of redress. It is important to consider the points made in the letter carefully, particularly any reduction for the cost of an alternative product. If you are not happy with the outcome, outline your reasons to the bank.

2. Take action if you have any concerns

The banks and their independent reviewers will consider any comments that you wish to make. Subsequently your bank may invite you to a meeting. If you are not happy with your bank’s decision, ask questions, request additional information and communicate your concerns – this may be in the form of a letter. Either way thorough preparation is highly recommended to maximise the chance of a successful outcome.

3. Explore other options

If unable to resolve the matter in the above manner, you may be able to pursue it through the Courts or Financial Ombudsman Service. Before doing so consider, for example, whether your claim/ complaint is time sensitive, or if you are eligible to complain to the Financial Ombudsman. Remember that litigation can be expensive so think through carefully the merits of your claim and the risks involved. If in doubt, speak to a solicitor specialising in this area, who can advise you further.

4. Check if you have a claim for consequential loss

The first phase of the review process dealt only with “basic redress”. The banks will also be looking at claims for consequential loss (indirect losses that you have suffered as a result of the IRHP). These can include:

• Lost opportunities- i.e. if your business lost the chance to develop or expand because of the payments due under the IRHP. An example can be the effects of the inability to invest in property or equipment.
• Loss of reputation/ goodwill - i.e. if the payments due under the IRHP prevented you from honouring contracts with customers/ suppliers, or news of your business’ financial situation caused a decline in trade.
• Decrease in the value of shares.
• Tax costs.

You may need input from a solicitor and/ or an accountant to quantify these losses.

5. Provide relevant documents

It is crucial that your claim is set out clearly, and that you can provide relevant documents to illustrate and support it. If you are unable to, your claim is unlikely to succeed. If claiming for loss of opportunity or reputation, consider whether you will need expert evidence. Your offer letter may provide guidance on what your bank will require, so read this carefully.

This was posted in Bdaily's Members' News section by Michael Peacock .