Interest Rate Swaps – The Dangers of DIY

10th Dec 2013

This is a cautionary tale for those going through the FCA review on their own without the help of a lawyer.  I know that I have banged on about this before and pointed out that since the principles to be applied in the process are those of “tort and breach of statutory duty”, a lawyer really is the professional you need on your side at this stage.  To date that analysis was theoretical.  It is now very real for a client that instructed us yesterday after dealing with the review process himself and having had a letter from the bank which offered him nothing.

The client went it alone and in response to the banks invitation to provide information, provided an email amounting to the equivalent of one side of A4 paper.  This is in contrast to the submissions that we prepare for clients that average about 20 pages.  In relation to this new client the bank have said that, “We have carefully considered the information you supplied about the sale, in the testimony you provided to us along with our records of the transaction”.  Having done this they come to a number of conclusions such as “there was no evidence of pressure exercised on you by the bank” (there was pressure –the client just didn’t explain it properly), “there was evidence that you did not want to pay a premium” (there may well have been on the banks file-but this was not countered by the client in his submissions-it could have been).  Also “It was your preference that there would be known, fixed interest costs on your facility” (maybe, but in preference to what? Clearly not in preference to overpaying huge sums and having a business ruined, which is what actually happened.  The client did not explain in their submissions that that downside was never explained to them).

In essence because this is an evidence based process, if you don’t counteract what is on a piece of paper at the bank in your submission to them (we put those elements in a witness statement and they are therefore “evidence”), their version is going to be preferred.  The reviewer simply looks at a piece of paper that for e.g. has a tick next to the box “Customer does not want to pay a premium” and in the absence of any mention in the clients submission concerning this, concludes (and I have to say in a sense rightly) that on the balance of probabilities this was the customer’s position.  This in a sense then becomes a fact that will lead to an unjust result.

We are now looking at re-opening the submissions stage and getting the real version of the client’s story before the bank and get them to reconsider their position.  We are hopeful that this can be done event at this stage.  This isn’t a position you want to be in though.

To avoid this happening to you-make sure that you get your submissions professionally prepared. In going it alone in this case the client has shot himself in the foot.  I know that many feel that giving away a percentage of their damages appears unfair.  In a sense I agree and we are certainly going to be seeking to get legal fees back for clients at the consequential loss stage of the review. That being said, as our new client has discovered 80% of nothing equals nothing.  

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