Paul Kanolik

Partner & Solicitor

DATE PUBLISHED: 10 Mar 2016 LAST UPDATED: 15 Apr 2021

The ‘Hidden’ Banking Scandal – Have you been mis-sold a ‘Fixed Rate Loan’ or a ‘Tailored Business Loan’?

In excess of 60,000 businesses may have been mis-sold unregulated products by their bank, described as ‘Fixed Rate Loans’ or ‘Tailored Business Loans’. Many of these products incorporate a ‘Hidden’ or ‘Embedded’ Swap, which can result in substantial losses and ultimately prove financially crippling to a business.

What is a ‘Hidden’ or ‘Embedded’ Swap?

Essentially, the idea of a Fixed Rate Loan/Tailored Business Loan is to ‘fix’, ‘cap’ or otherwise limit the rate of interest being paid under on a business’s borrowings. This may therefore have appeared an attractive alternative to paying a variable rate of interest. These products were often sold to provide “protection’ or ‘insurance’ in the event that interest rates increased.

In order to protect or ‘hedge’ its own exposure to interest rate increases, the Bank would have entered into a separate, standalone product either internally or with a third party. These products are known as ‘Interest Rate Swaps’, ‘Caps’, ‘Collars’ or ‘Interest Rate Hedging Products’. By entering into such a product, the Bank can ensure that it will still stand to make money, even if interest rates increase above the fixed rate under the customer’s associated Fixed Rate Loan/Tailored Business Loan.

The main problem with ‘Hidden’ or ‘Embedded Swaps’ generally arises when a customer seeks to terminate its Fixed Rate Loan/Tailored Business Loan. In that scenario a substantial breakage cost may be payable by the customer. The amount of that breakage cost will typically be very high if interest rates are low and, in extreme cases, could be up to or in excess of 50% of the amount borrowed.

Many customers were not warned about these potential breakage costs or were not warned of their potential size. Consequently, customers are being prevented from refinancing or selling their businesses due to the breakage costs ‘embedded’ or ‘hidden’ in their Fixed Rate Loan/Tailored Business Loan.

How do you know if you have a ‘Hidden’ or ‘Embedded’ Swap?

Many of the large banks in the UK sold Fixed Rate Loans/Tailored Business Loans to customers, which incorporated ‘Hidden’ or ‘Embedded Swaps’. In particular, we are aware that these products were sold by Lloyds Bank, Clydesdale Bank/Yorkshire Bank, Santander, HSBC, Nationwide and RBS.

It may not be easy to spot whether your Fixed Rate Loan contains a ‘Hidden’ or ‘Embedded’ Swap. The biggest indicator of this is however that the breakage cost under your loan is not dependent upon the amount of your outstanding borrowing. For example, the breakage cost may be dependent upon ‘prevailing market rates’. Typically, you may find that you are quoted a disproportionately high breakage cost for exiting your Fixed Rate Loan if you have a ‘Hidden’ or ‘Embedded’ Swap.

If the breakage cost/early redemption charge under your loan is more than 1% of the balance of the loan, call us now for a free initial appraisal of the type of product that you have.

How can Ellis Jones Solicitors help you?

We are proud to have been able to assist a number of customers clients in obtaining substantial sums in compensation from their banks and have a number of claims and complaints in relation to Fixed Rate Loans which are currently progressing in the High Court or via the Financial Ombudsman Service.

With a dedicated and experienced Banking and Finance Litigation Department, Ellis Jones is well-placed to provide expert advice on disputes regarding Fixed Rate Loans or Tailored Business Loans and may be able to act on a ‘no win no fee’ basis to help minimise risks to clients.

Time Limits

There are strict time limits which apply for making a claim or complaint and it is therefore very important to check the terms of your product and to obtain independent legal advice as soon as possible. If these time limits are missed, your claim or complaint may become ‘time-barred’ and you may lose the right to recover your losses.

If you think you may have been mis-sold a Fixed rate Loan or Tailored Business Loan, or if the breakage cost under your loan is more than 1% of the outstanding balance, then feel free to contact either Paul Kanolik ( or William Fox Bregman ( in our specialist Banking and Finance Litigation Department on 01202 525333.

How can we help?

When you submit this form an email will be sent to the relevant department who will contact you within 48 hours. If you require urgent advice please call 01202 525333.

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