UK regulator the Financial Conduct Authority is urging small firms that were mis-sold products by their banks to seek compensation. To understand more – and see if you are owed compensation - solicitor KATHERINE LEPPARD, of Mayo Wynne Baxter Solicitors, has answered some of our questions.

What is a swap?

A financial product that has the effect of turning a variable rate loan into a fixed rate. It is one of many “Interest Rate Hedging Products” available on the market, which have the effect of altering the interest actually paid on a loan. Other examples are Caps and Collars and Tailored Business Loans.

Why would a business have agreed to this product?

Businesses usually understood that they were protecting their businesses from rises in interest rates. Often the businesses were also required to agree to the swap product as a condition of the loan.

What went wrong?

Interest rates dropped and the majority of products (swaps) sold to SMEs do not allow the business to take advantage of lower interest rates and so businesses found themselves stuck on a high interest rate and unable to meet the payments.

Most SMEs are not able to get out of the product because the break fees are too high. Sadly some businesses have stopped trading because they could not meet the payments required under the swap.

Why do businesses feel they were mis-sold these products?

The main allegations against the banks are that they did not comply with the regulations and general duty of care to customers because: The bank advised or recommended a particular product, which was not in the best interests of the customer.

The bank advised the customer that interest rates would rise.

The bank failed to provide enough information about the product and in particular about the potential break costs.

How do I find out if I was mis-sold a product?

If you are a SME and you have one of these products you should have been contacted by your bank.

However, there are many businesses that have been mis-sold products that have not been contacted by their bank and have not yet taken action or realised that they can.

If you feel your business has been adversely affected by paying high or fixed interest rates you should seek legal advice.

My business is really small, will it cost me a lot in legal fees to challenge my bank?

Depending on the circumstances of your case you may be eligible for a funding arrangement, which means that you do not have to pay any fees during the case and you would not have to pay any fees if your case was not successful.

This allows businesses with limited cash flows to obtain legal representation and pursue a claim.

Will I have to stay with my bank if it turns out I was mis-sold a product?

You have no obligation to stay with your current bank, it is a commercial decision.

However, if you are not able to pay your loan back you would need to find another bank that was willing to give you a loan for the same amount.

You should take advice in relation to the terms and conditions of a new loan and the cost of exiting the agreement with your old bank.