Interest rate 'swap' mis-selling heading to the High Court

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Thousands of businesses across the country will be paying particular attention to a court proceeding due to take place at the High Court in London next Monday. Guardian Care Homes, a chain of homes, is taking on Barclays in court, over accusations of mis-selling of interest rate 'swaps' a bit like insurance policies that were sold to companies in the late 2000s.

The policies were meant to protect companies from interest rate increases to stop the cost of loans spiralling out of control. But as interest rates fell and then stuck at rock bottom levels, the opposite happened and thousands were stuck with costs they just could not deal with.

You can read what happened to one company here.

A generic stock photo of the front of the Financial Services Authority (FSA)
A generic stock photo of the front of the Financial Services Authority (FSA) Credit: Clive Gee/PA Wire

The FSA suggests now as many as 40,000 firms may have been hit, and are piloting a compensation scheme for those who have been affected. For many companies though that is just taking too long, and the process they feel is skewed in the first place because it is being run by the banks themselves. Just last week a group of those campaigning for disputes to be resolved faster and more fairly had meetings with the Treasury, the FSA and the Business Secretary, Vince Cable.

But while that process grinds on, one of the businesses involved, Guardian Care Homes, is having its day in court. They are suing Barclays over the alleged mis-selling of interest rate hedging products known as swaps that have cost the company over £12m since 2008 and that were being manipulated for the bank’s benefit. Barclays has already admitted to the US and UK regulators that its managers gave instructions for sterling Libor submissions to be lowered during the credit crunch in 2008.

Barclays to face the High Court in mis-selling case
Barclays to face the High Court in mis-selling case Credit: PA

It is the first time that the judiciary will determine one of these swaps, which were based on Libor should be rescinded in full. Thousands of other businesses up and down the country will be eagerly awaiting the results. And there are even wider implications for all sorts of other financial products that were based on Libor too. In America, a pensioner named Annie Bell Adams, is leading a class action against banks for using dodgy Libor rates in the sub-prime mortgage problem. The start of next week's case ushers in a legal fight whose consequences could reach far.