Banks face claims of mis-selling

Customers of Irish banks have taken cases against their lenders for mis-selling of interest rate swaps valued at almost €150m.

Solicitors McHale Muldoon predict a wave of litigation against the banks for mis-selling interest rate hedging products such as swaps, caps, and collars.

The owners of the Belgard Retail Park in Dublin are suing Ulster Bank Ireland over alleged mis-selling of derivative loan facilities or swaps totalling almost €54m.

Ulster Bank refused to elaborate on how wide-spread the practice of selling interest rate products was during the boom and whether or not a hedging product was part of loan agreements.

A spokesperson for the bank said: “Interest rate swaps are used by customers to manage interest rate risk on borrowings. Customers who require interest rate risk management can take the appropriate product out with us or another bank. Credit decisions are made on a case by case basis.”

However, Bank of Ireland said it was common practice for both parties to agree in advance to fix part of the costs to manage interest rate risks.

“Interest rate swaps are a very commonly used solution for companies globally to manage their interest rate risks,” a spokesperson said.

“They have been prevalent for many years — pre- and post-boom — both here and abroad, and would be viewed as an integral part of the risk management techniques at the disposal of companies.”

AIB said it had only handled a small volume of interest rate swaps in Ireland.

McHale Muldoon claimed many SMEs had been mis-sold interest-rate hedging products in Ireland. Due to the complexity of the financial instruments, these businesses may have ended up paying significantly higher repayments to the banks due to clauses that may not have been made clear when the deal was agreed.

Michael Muldoon said a common factor with cases of mis-selling of hedging products was an element of duress, where businesses had to take a hedging product in order to secure a loan.

Although the Central Bank has not become involved, Mr Muldoon believes the Irish regulator should follow the steps taken by the UK’s Financial Services Authority.

“There is clearly a major problem in Ireland that needs to be addressed. We have been instructed on many of mis-selling cases in the UK and the same products were sold in Ireland in a similar manner.

“These products are crippling many small businesses that urgently require the help of the regulator,” he said.

However, time is running out for businesses who were sold mis-sold hedging products. The statute of limitations on taking an action is six years.