My law firm is acting for a number of business clients who have taken the brave step of suing their bankers. Although there has been much made of the bank’s so called mis-selling of personal protection insurance, which is better termed as simple deceit, there has been little publicity given to the plight of what are usually small businesses who have found to their surprise that they have bought all kinds of weird and incomprehensible financial products from their bankers, usually as a condition of a loan arrangement, only to discover to their cost that what they have bought was entirely inappropriate for them of their businesses.
For too many years small businesses have looked upon their bankers as part of the advice team with which they need to surround themselves. Bankers have made many useful recommendations and their customers expect them to deal fairly with them, balancing the needs of the bank with the needs of the business.
In the fast six or seven years there has been a change in the relationship. The banks instead of sharing the same table as their customers have turned themselves into predatory parasites. They have, I have found from cases that I am acting in, treated their customers quite shamefully.
It seems to me to have resulted from the banks’ greed in trying to turn a profit wherever they can get it and no matter what the cost is to the business upon which they prey.
Under pressure from the various agencies supposedly regulating the banks, the banks are supposed to be rectifying the wrongs that they have inflicted on small businesses by selling them swaps, derivatives, and similar instruments. The common factors in all these financial products include
- The customer does not understand them but thinks that it is sensible to buy them because of his bank’s recommendation
- The customer fears that if he does not buy the product, then the request for loans will be dismissed and most small businesses do not have sufficient capital to work without some kind of bank loan
- The bank managers who sell the products invariably do not understand them. It would be amusing, were it not so serious, to hear any of these sales people who sold the products (often described as bank managers) to explain them in court under cross examination
- The products seem to be designed as a speculation on the basis of “heads I win, tails you lose”
- The auditors of the banks do not understand the value of these products that the banks have sold to small businesses, because they are usually sold with misrepresentation and the contracts for them can be rescinded if the small business takes the matter to court.
I would encourage small businesses to do this. It is expensive, of course, to bring a court action but usually the savings of a successful action make the risk worthwhile. However, the businesses must hurry and on the whole not wait for the regulator to rule. There are strict limitation periods in which to bring an action – usually not more than six years starting from when the arrangement was made and some remedies have a shorter three year deadline.
It is sad to see so many good small businesses being so badly treated by their banks. It can be a tragedy for the business concerned and it is certainly a tragedy for the economy of the United Kingdom because so many jobs depend on small businesses and so much economic activity is conducted by small businesses. I find it unacceptable when I see a small business fail because a bank wants to line the pockets of some employees with commissions and make profits from business that they should not conduct. It is a disgrace and although you may feel that the banks are strong and you are financially weak, if you have a good case it must be worth pursuing it.
We as a nation have suffered greatly from the misbehaviour of bankers, which has gone unpunished. It is time to change that.