Adjustable Rate Mortgages Explained

How To Get All About Interest Rate Swap Mis Selling

By rougebanks11 : A how to tutorial about Finance with step by step guide from rougebanks11.

Introduction

Interest rate swap mis sellingis something that many of us do not know about, and yet it is one of the mostburning issues among banks and small businesses. Before going into the detailsof mis selling of interest rate swap agreements or IRSAs, it is essential tounderstand what they actually mean.

Steps

1. Interest rate swap mis sellingis something that many of us do not know about, and yet it is one of the mostburning issues among banks and small businesses. Before going into the detailsof mis selling of interest rate swap agreements or IRSAs, it is essential tounderstand what they actually mean.

   Interestrate swap agreements are financial instruments that were offered to smallbusiness and similar customers with the promise of a capped interest rate. Nomatter how much the interest rates would rise, customers who have bought theseIRSAs will still pay the capped interest rate, but the drawbacks were clearlynot explained. This is where the concept of mis-selling of IRSAs came in thescenario.

   Manypopular and known banks were charged of forcing their customers to buy theseagreements. When interest rates fell to as low as 0.5%, the customers wereforced to pay the higher capped rate which was mentioned in the agreement. Mostcustomers were small and medium scale businesses, who had to bear heavy lossesbecause of the situation.

   Mostbusinesses complained that they were not told about the disadvantages of suchcapped interest rates, while there were others who said that they wereliterally pressurised to take such agreements. Banks had given the condition ofpurchasing such agreements for renewing loans or granting a new loan. There arecases where customers have paid for agreements for loans that dont even exist.Also, businesses that demanded cancellation of such hedges were asked tothousands of dollars, which were termed as cancellation costs.

   Insuch a situation, banks found themselves in tough position, and the main fourbanks under the fire are HSBC, Lloyds, Barclays, and RBS. While there is apotential measure taken to ensure that such mis selling is taken care of, theprocess is time consuming, and there are many customers who are still waitingfor the cases to be reviewed.

   Themain reason why agents sold interest rate swap agreements without potentiallytelling about the risks is blamed on the high commissions that were paid tothem. Banks hired the agents who were just concerned about the highcommissions, and as such, many businesses had to bear the loss and paid forthose exorbitant hedges. Although, the four banks mentioned above have beenunder the scanner, there are others who have been alleged in such cases ofpotential mis selling of interest rate swap agreements.

   Insuch a situation, most small businesses are wondering whether they shouldinvest in such hedges, as well. Just becauseInterest rate swap mis selling has come to light doesnt mean thatthese financial instruments are good for nothing. In fact, the increasinginterest rates can be really alarming in the future, especially for businessesthat are dealing with small amount of loans. What is required is complete anddetailed information that banks should offer to the customers before offeringthem the choice to buy such agreements. As for customers, they must check thekind of choices they have and the offers that are made to them.

   
   

Original article published on PubArticles.com

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