A Lloyds Banking Group business customer who was sold an interest rate swap alongside a £2.3m loan is facing monthly payments of £8,000 for the swap and exit penalties of up to £800,000.
Mike Chadwick took out the loan from Lloyds in 2007 to finance property development plans on plots in Devon and Sheffield. He says the bank told him it would not be able to offer finance unless “protection” was in place. Chadwick took out the interest rate swap on £2m of the total £2.3m borrowed for a 10-year term.
Chadwick claims exit penalties were never mentioned. He says: “You have to question whether anyone would agree to a take out a £2.3m loan that cost £800,000 to get out of.”
Chadwick must pay nominal interest payments on the loan in addition to the monthly £8,000 cost of the swap.
He says: “It is not just the cash costs for businesses like mine, it is the worry. This situation has been a big worry for us.”
The case demonstrates the crippling costs faced by small and medium-sized businesses sold interest rate swaps by the banks.
Last month, the FSA agreed a settlement with Barclays, HSBC, Lloyds and Royal Bank of Scotland for the banks to pay “appropriate redress” to businesses missold interest rate swaps.
Since 2001, banks have sold around 28,000 interest rate swaps, which are designed to protect consumers against interest rate rises.
Chadwick has complained to Lloyds about the swap and his case is on hold pending the review.
Lloyds declined to comment on Chadwick’s case but says it has “assisted the FSA fully in relation to its review”.
Jacksons Wealth Management managing director Pete Matthew says: “This case indicates the sheer scale of the profits banks must have made on something allegedly missold across the board. It is a sickening betrayal of trust.”