Newcastle’s MP slams RBS NatWest over ‘predatory’ treatment of local business
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05 Dec 2014Newcastle’s Labour MP Paul Farrelly has slated the scandal-hit Royal Bank of Scotland over the alleged mis-selling of a complicated financial product to local business DK Motorcycles, which cost the firm well over £1/2 million in extra interest and penalty charges.
The criticism came in a backbench debate in the House of Commons on Thursday as part of MPs’ pursuit of the latest scandal to hit the banking sector: the inappropriate sale of so-called ‘interest rate hedging products’, or ‘interest rate swaps’, as they are commonly called.
DK runs the UK’s biggest motorcycle showroom based on the A34 Liverpool Road in Newcastle and also imports, does up and sells classic cars, too.
The firm first approached Mr Farrelly in January, 2013 after running into problems over a swap taken out at the same time as a £2.45 million loan with the local NatWest operation of RBS in 2008.
The debate was the first time it felt confident enough, though - after finally escaping the clutches of RBS’ controversial Global Restructuring Group - to make its experience public.
The business - a partnership owned by father-and-son-team Derek and Kevin Neesam - was forced to take out the swap seemingly as a hedge against interest rates rising. But when rates actually fell following the financial crash, they ended up paying RBS an extra £480,000 in interest, plus a ‘break fee’ of £157,000 to finally get out of the deal earlier this year.
With a turnover of around £20 million at the time, however, they did not qualify for regulator the Financial Conduct Authority’s scheme of redress. The firm was instead deemed to be a ‘sophisticated’ customer, even though it did not have a specialist finance director at all.
‘By no stretch of imagination could DK be called “financially sophisticated” in a world of complex derivative products,’ Mr Farrelly told the well-attended debate.
‘Given their experiences so far, they were frankly petrified of making a formal complaint for fear that the bank would pull the plug on the business. From what I have seen of RBS, they were right to be frightened,’ Newcastle’s MP added.
So far the country’s main banks have put aside over £4 billion in reserves to cover the cost of compensation for swap mis-selling. Of them all, RBS was by far the worst offender, accounting for around 7,300 – nearly half - of the 15,400 sales covered by the FCA scheme.
‘That suggests wholesale pumping of those toxic products down the RBS sales pipeline,’ Mr Farrelly said.
During the debate, MPs called for a review of the FCA scheme to give businesses like DK the ability to appeal against being excluded, as they realistically could not afford to sue enormous banks like RBS.
‘The Government should address that as the majority owner of the bank,’ Mr Farrelly added.
‘They should force the bank to have fully independent handling of complaints from customers such as DK that have been excluded from the scheme, in the interests of businesses, in the interests of a thorough clearing of the stables and in the interests of the future of RBS and therefore of the taxpayer when it is finally sold off.
’RBS has also hit the headlines over the last year over the operation of its Global Restructuring Group, into which DK was shunted after having problems with the penal interest payments.
The GRG operation has been accused of pulling the plug on businesses to get hold of their assets and sell them off at a profit. Senior RBS management were recently criticised by the House of Commons Treasury Select Committee for giving misleading evidence over the activities of GRG, which remain under investigation and scrutiny.
Pictured: Newcastle MP Paul Farrelly with DK’s General Manager Ewan Macdonald and other members of the ‘Bully Banks’ pressure group, lobbying against the scandal.