If you are an individual or a bank with a loan agreement with West Bromwich Commercial Limited, it is important to review your loan agreement when you are in a position to repay the loan. There are many individuals today who are struggling to exit these loans and have only just become aware of the mis-selling, hidden swaps or break costs, which may be the case in your situation. Due to limitation issues, it is important to seek legal advice on a potential claim against West Bromwich Building Society.
West Bromwich mortgage loan mis-selling
If you are an individual or business, you may have been mis-sold the loan if:
- your fixed rate loan was packaged with an interest rate swap of which you were unaware:
- you were aware of the interest rate swap but you were given inadequate information, unsuitable advice and the risks of the same were not explained to you;
- the options and penalties associated with refinancing were not explained to you; and/or
- you were not provided simple numerical illustrations of early breakage/repayment costs.
Early Repayment Fees and Break Costs
As a result, under these swaps, customers were forced to make substantial payments to lenders such as West Bromwich, to the detriment of their businesses. Individuals and SMEs were and often are still unable to terminate these swaps without paying large (and previously undisclosed) breakage costs (or Early Repayment Fees) to the lenders. The break costs, described as “repayment fees” or “exit fees” are prohibitively expensive and in turn lead to difficulties for future practice planning such as bringing in new partners.
The Fixed Rate Loan documentation will have a generic clause referring to Early Repayment Fees but which does not explain the method of calculation – perhaps because that method involves reference to Gilts-linked or Interest Rate Derivatives?
West Bromwich’s excessive “prepayment fee”
There is often a clause in loan agreements which refers to an “early repayment fee” or “exit fee”, in West Bromwich’s case a “prepayment fee” and the clause is sometimes brought to the attention of unsophisticated borrowers but it does not explain it at all nor warn that the costs could be substantial as they are linked to derivatives. Often borrowers will assume the exit fee represents a few thousand pounds.
If the Borrower prepays the loan, the borrower shall indemnify and pay to the Lender an additional sum determined by the Lender as representing all costs, loss and liability to the Lender arising as a result of such prepayment including without limitation, mid-interest period break costs and breakage funding costs, arising in relation to any fixed rate funding (including the cost of having to liquidate or re-deploy funds acquired or committed to make, fund or maintain the Loan or any part of it, or liquidating, cancelling or varying transactions entered into to match, hedge or fund the Loan or any part of it) together with an administrative charge representing 5% of all such costs.Clause referring to “prepayment fee” in a loan agreement with West Bromwich Commercial Limited
Those break costs could be several hundred thousand pounds if not millions – all dependant on the cost of breaking a hidden derivative. Many individuals thought this was clause was simply an ‘early redemption penalty’ which might cost a few to several thousand pounds like in a domestic mortgage because of the above vague wording, with no warning the costs could be substantial. Some break costs can amount to nearly 60% of the loan amount.
We have successfully obtained redress via High Court swaps mis-selling litigation and via the FCA agreed IRHP Review on behalf of SMEs ranging from family run businesses or local retail companies to listed PLCs and offshore companies. We specialise in hidden derivatives litigation and have issued more court claims than any other law firm. Many hidden swaps cases settle via out of court settlements with banks and insurers doing this in order to prevent the setting of a case precedent which would cost much more.
What are ‘Hidden Swaps’ or embedded derivatives?
Embedded swaps – also known as hidden swaps – are fixed rate or tailored business loans that contain embedded complex financial derivative products. With embedded swaps, unlike with standalone swaps, the derivative product (i.e. the swap) and the loan are marketed and sold as part of the same product. Major lenders, insureres, banks and building societies promoted these embedded swaps to their customers as ordinary business loans without explaining that these “loans” also contained complex financial derivative products, which bore significant risks to customers. As a result, customers are now finding that they are unable to exit these “loans” without paying prohibitive (and previously undisclosed) breakage costs to their banks.
In my view, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.Warren Buffet, Berkshire Hathaway annual report, 2002
Why use a Specialist Hidden Rate Swap Solicitor?
Derivatives are a complex subject matter which most generalist lawyers simply won’t be familiar with or understand to a level adequate enough to be able to recognise and formulate a mis-selling claim. Our specialist lawyers are degree level educated in banking and securities law and have professional experience in both financial services regulatory auditing and in litigation against banks. This experience has been gained not only at other leading city law firms but at the legal and compliance departments of the banks and building societies themselves.
Our team will ensure your interest rate swap mis-selling claim achieves the best possible result in terms of putting you back in the position your business would have been in but for the hidden swap. This usually means a refund of all balancing payments and escaping or recovering the contingent liability (ie the break fee). We work to achieve our client’s interests by attempting to negotiate with the banks wherever proper and commercially sensible to do so. When the time comes to issue legal proceedings we know how best to do so. If a without prejudice settlement approach is unsuccessful we seek on behalf of our client both litigation funding and after the event insurance policies and prepare and issue a claim without delay.
Call us about your Fixed Rate Loan case
If your business is a party to an interest rate swap which you feel was mis-sold we, as specialist interest rate swaps lawyers, are able to assist. Get in touch so we can assess your claim. We can subsequently provide urgent help, advice or representation to clients from our expert legal team of leading financial services mis-selling litigation solicitors and barristers. Just call or email us now for a free initial telephone consultation; our legal team are waiting to help.
LIMITATION ACT 1980 – WARNING
The Limitation Act 1980 sets out strict statutory deadlines within which you must bring litigation claims. Your legal rights will become irreversibly time-barred if you fail to take legal action (or defend a claim on time). Therefore, you should seek specific legal advice about your legal dispute at the very first opportunity so that you understand the time you have left. Failure to take advice or delay in taking action can be fatal to your prospects of success.