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Wave of bank mis-sell lawsuits coming?

Tuesday, January 29 11:48:42

Dublin law firm McHale Muldoon today said it expects a wave of lawsuits from Irish businesses that have been mis-sold interest rate hedging products (such as swaps, caps and collars) by Irish banks.

The move follows an investigation by the Financial Services Authority (FSA) in the UK, which concluded that swaps were mis-sold and has ordered the banks to pay compensation to affected customers.

As a result, major banks such as Barclays, HSBC and RBS as well as AIB (UK) and Bank of Ireland have agreed to participate in the redress scheme which will result in businesses receiving significant compensation.

Many small and medium sized businesses have been mis-sold interest-rate hedging products in Ireland, the lawyers said.

These products were sold alongside loans to purportedly protect businesses from fluctuations in interest rates which could affect their loan repayments.

There are four principal types of product: swaps, caps, collars and structured collars.

The products are, by their nature, complex and it is, therefore, common for businesses not to be aware which product, if any, they have been sold. However, these products can lead to very significant increases in repayments to the bank as they rely on a degree of speculation as to interest rates which may not have been made clear when the deal was agreed, it said.

It appears that the Irish Central Bank has, thus far, not become involved in the problem but Michael Muldoon, Partner at McHale Muldoon, considers that it should follow the proactive steps taken by the UK FSA.

"There is clearly a major problem in Ireland that needs to be addressed. We have been instructed on many of mis-selling cases in the UK and the same products were sold in Ireland in a similar manner. These products are crippling many small businesses that urgently require the help of the regulator. Proactive steps can also reduce the prospect of expensive litigation such as the Agar and Ulster Bank case which ultimately ended up costing the bank over E1 million in legal costs. Furthermore, many small businesses do not have the resources to litigate which is another reason why a cost effective redress scheme is required," he said.

McHale Muldoon urges Irish business owners to act fast in the event that they are affected.

"As many of the swaps and collars were sold in 2007, and claims must be lodged within six years, there is a risk that many claims could become statute barred if potential claimants are not proactive".