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Nationwide Building Society Facing Swap Mis-selling Claim

According to recent press reports, Nationwide Building Society has become the first UK building society to face claims relating to the mis-selling of interest rate hedging products (“IRHP”) to small businesses. 
Nationwide is facing a claim from Urban Lime, a London property developer, arising out of the alleged failure properly to explain the level of “break costs” on a substantial loan taken out with Nationwide in 2007. The claim does not involve a free standing interest rate swap agreement. It involves a commercial loan with an “embedded swap”. This claim is similar to a number of claims that are being pursued by small business customers of Clydesdale Bank and Yorkshire Bank in connection with their Tailored Business Loans. These “embedded swap” loans have been the subject of much political debate over the last few months. Unlike free standing IRHPs, such commercial loans do not fall within the remit of the Independent Review set up under the supervision of the Financial Conduct Authority in 2012. The Independent Review provides a redress scheme for small business customers who have been mis-sold IRHPs. The only options currently available to customers with “embedded swap” loans are a complaint through the Financial Ombudsman Service (with a limit of compensation of £150,000) or Court action.
Urban Lime’s claim is a good example of how break costs charged in connection with commercial loans with embedded swaps can significantly escalate. Urban Lime took out a £9.8million loan in 2007. In July 2012, Nationwide indicated that the break costs would be £1.6million. Weeks later, however, Urban Lime were informed that the break costs would actually be £4.47million, ie almost 50% of the total amount outstanding under the loan.
Balfour+Manson LLP are acting for a number of small businesses who are challenging banks over commercial loans with embedded swaps. These include claims against Clydesdale Bank involving their Tailored Business Loans. If you would like to discuss any aspect of these claims, please contact Gordon Deane on 0131 200 1485 or by email at Gordon.deane@balfour-manson.co.uk

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