In the past few months, the periodicals and news channels have prominently featured the heavy intrigue shrouding the country’s major banking institutions. In the midst of its struggle to reclaim stability and recover from the devastation of the recent recession, the banking industry is now facing another hurdle – the business loan mis-selling scandal. This brouhaha not only gave the press a field day but also caused quite a stir among business owners who have fallen victim to this complex scheme initiated by the banking institutions deemed to be trustworthy. With the outbreak of this great controversy, many bank clients found themselves hapless and caught off guard – causing outrageous financial setbacks and even driving others to business closure. But, what really happened? What is business loan mis-selling and how did it cause such an economic turmoil?
Understanding Business Loan Mis-selling
Business loan mis-selling may seem like Greek to a great share of the public who may not be acquainted with the ins and outs of the banking industry. Simply, this jargon entails a highly-speculative scheme or gamble pandered by the banks to their, mostly small or medium, business customers. Also known as business swap loans or interest rate hedging, it is usually offered to business owners as a derivative product to their loans from the bank which is supposed to shield them from any future increases in the interest rate. Supposedly, in the event of an increase in increase rates, the bank would have to make up for the difference to the advantage of the business owner. On the other hand, a plummeting interest rate would entail an additional liability on the part of the debtors.
Oftentimes, these unsuspecting clients are told that the offer is only a formality to protect them from any abrupt increases in their loan amount that may be caused by the turbulent and uncertain economic conditions. Relying on the advice and representation of the banks which were supposed to be their partners in growth, many businesses trustingly acceded to the devious scheme.
The Great Fall
For years, Britain’s banking institutions were able to pull off business loan mis-selling without incident but what finally gave it away was the recession that effectively swept through major business centers. With the advent of the recession and the downfall of businesses in its wake, interest rates went on a downward spiral – shocking many business owners with horrendous fees out of the business loan mis-selling which they initially, and mistakenly, thought is only akin to a fixed mortgage. As a consequence, many businesses were driven to closure due to their liquidity issues and their inability to pay off their debts with the bank. While banks are raking in profits from their misleading scheme, their customers are suffering under the brunt of heavy charges.
When the business loan mis-selling was finally discovered, the government commenced an investigation into the entire affair in view of providing compensation for those who were adversely affected by the scheme. Finally, business owners are given a glimmer of hope that their claims may finally be addressed. If there is one good thing that came out of this whole scandal, it may be the long overdue realization by the government that regulations and policies pertaining to the banking industry must be improved and intensified to better protect their clients.