Tuesday, 2 October 2012

Bully Banks Bilk Both Small And Mid-Sized Businesses - IRSA Scheme And The Recourse of Beleagured Business Owners

Today, I wanted to draw attention to an important organization that was formed in the face of mis-representation of both the value and costs (initial and added) of Interest Rate Swap Agreements (IRSA's) by banks in the UK. The organization is called Bully-Banks, and they are fighting back against the banking cartels that bilked the member business owners out exorbitant amounts of money through fraudulent mis-selling of IRSAs.

The website is Bully-Banks.co.uk, and they have a wealth of information and insight into the situation at hand posted throughout various pages on their website.

While this particular organization is based in the UK, it also has implications for clients of the major banks in the United States and elsewhere around the world, as these practices are common-place in today's finance sector.

Essentially, what's taken place is that thousands of small or medium-sized business owners went to their banks for business loans. When presented with the loan offer, they were also sold something called an Interest Rate Swap Agreement. Here's a little basic diagram on how an IR swap works:

Taken from Wikipedia
An interest rate swap is a derivative, and so contributes to the enormous derivatives market that currently exists (estimated to be between $600 trillion - $1 quadrillion+). I wanted to highlight this particular website so that readers may begin to understand just how unstable the enormous derivatives time-bomb is. This is a perfect example of how these derivatives will paid out by the counterparties, as they A) can't afford it and B) have decided to pursue legal recourse in order to fight back against the fraudulent manner in which they were sold the derivative by the bank.

To give you more information on Bully-Banks, here is the "about" section of their website:
Bully-Banks is not connected to any one commercial entity (such as firms of solicitors or claims management companies).
Bully-Banks is a campaigning entity seeking to:
  • publicise what has happened so that those who have been mis-sold IRSAs know that there are many others in the same situation,
  • prompt the exchange of information,
  • coordinate a campaign to involve parliament, the FSA and the media,
  • assist in the coordination of legal action, and
  • optimise the effectiveness of the response to the mis-selling of IRSAs.
Bully-Banks is the campaign name of 'Ordinary People in Business Limited' , a company formed by Bully-Banks' Members to aid in the campaign process.
Essentially, it is a group of businesses who have banded together and formed an organization to go after the banks who purposely mis-sold them IRSAs in conjunction with their loan agreement.

These businesses went to the bank managers at their respective branches - somebody who purports to maintain a trustful relationship with the client -, and believed that the manager was there to find the best option possible that was in the best interest of the client.

Instead, what happened is that the bank manager used an opportunity to sell a toxic derivative (as is the nature of most derivatives that exist in the market today) in the form of an IRSA to a customer seeking a loan. At the time of the presentation of the loan agreement, the bank manager would simultaneously present an IRSA to the client. They would advise the client that interest rates would go up, and as such it would be in the client's best interest to lock in to the swap agreement so as to avoid a higher cost of borrowing in the future.

In most cases, they did not, however, disclose the incurred cost to the client if they wanted to break the swap agreement. If it was mentioned, it was presented as a small and manageable fee. Nor, mind you, did they mention the possibility of interest rate fluctuations to the detriment of the client. Indeed, it would seem they were counting on the fact that the client didn't even understand what they were buying in the first place.

When the interest rates fall (which they did, and continued to do until they couldn't fall any further), the client incurs enormous cost from the agreement. In addition, because of the costs related to the IR swap, the client is unable to seek a third-party lender to refinance the cost. The bank then subsequently imposes new costs to the borrower due to the worsening financial conditions of the loan and the IRSA.

The bank forces the client to accept the new charges or face withdrawal of facilities that the client may have held for years, and needs in order to continue payment on the IRSA. The bank also, in many cases, would transfer the account to a different department specializing in accounts for "customers in difficulty" - with the customer then incurring additional fees for this "service" being provided by the bank.

The worst part? If a customer decides to file a complaint and attempt to fight against what is going on, the bank will use delay tactics and continue to be unresponsive to the complaints. In addition, they will claim that the commercial arm of the bank (from which the client obtained the loan) is a separate legal entity from the division of the bank that entered into the swap agreement - even though both the loan agreement and the swap agreement were presented to the client by the commercial arm of the bank only.

This is what banks around the world are doing in many different forms. They are using derivatives to trap clients into contracts and obligate them to pay additional fees that the bank tacks on for various different "services" as well as the worsening financial state of the client - due to the fraudulent misrepresentation of the terms and conditions of the loan to the client by the commercial bank manager, as well as the knowing and willful misrepresentation of future market trends/interest rates. This isn't just happening to small- and mid-sized businesses, either. It's also happening to governments around the globe - particularly in Europe, exacerbating (and in some cases contributing to the cause of) financial turmoil in already financially-strapped countries.

I'll use Greece as the most obvious example. With different derivatives, Goldman Sachs screwed Greece and worsened their financial crisis exponentially by selling them currency exchange rate swaps using completely fictitious exchange rate numbers. GS knew it would screw the Greek economy harder than a power drill, but what did they care? The bank made huge profit, and to the banksters that's all that matters - human lives be damned.

The people of Earth are in an all-out war between themselves and the banking cartels that run the world - and most don't even know it. Their wealth is being confiscated - stolen -bit by bit, impoverishing those outside the upper class (and even some within the upper class) while simultaneously stuffing their already-too-deep pockets. This is, of course, in addition to the money that banks are being gifted at 0% interest (free money) from the central banks of the world. They use this money to make their wealthy clients richer at the expense of working-class folks, and to pay out massive salaries and year-end bonuses to their top executives and traders.

Check out bully-banks.co.uk for more information on their particular plight. I will leave you with some highlights from the "Consequences of a Mis-Sold IRSA" section of the website:

The consequences:
  • Once the owner of a business has entered into the IRSA he or she is locked into very a high level of cost under that IRSA when interest rates fall substantially.
  • In practice the business owner cannot re-finance with another party because of the continuing cost of the IRSA sold to them by their Bank.
  • Because the customer cannot re-finance with a third party, the Bank is able to substantially increase Bank charges (often “justified” by the worsening financial position of the customer caused by the customer’s obligations under the IRSA sold to it by the Bank).
  • In practice ... charges are often imposed by the Bank by way of an ultimatum i.e. facilities that may have existed for years will be withdrawn if these increased charges are not agreed to. One of the particularly objectionable practices is for the Bank to move the management of the account from the local branch to a department specialising in dealing with customers in difficulty. The Bank then imposes charges upon the customers for this “service” when in practice the client now receives less service from the Bank and his financial difficulties are increased by the additional cost.
  • Although not every customer incurs all of the above layers of cost in practice many do. The impact of these layers of cost is very substantial. The costs for the management by a specialist department can be over one per cent of total borrowings. Take that cost with annual arrangement fees of one to two percent and a margin of anything upwards of three percent and you will see that the business in difficulty may be charged eight or nine per cent or more above base rate or Libor (which at the present time is 0.5%). This level of cost compares with a margin of one to two percent above base rate or Libor prior to entering into the IRSA.
  • The Bank may deliberately adopt a policy of delay and unresponsiveness to justifiable complaints. One simple example of the approach a Bank may take is to seek to maintain that the commercial lending arm of the Bank is an entirely different legal entity from the division of the Bank that entered into the IRSA with the customer. This position is maintained despite the fact that the division entering into the IRSA was introduced to the customer by the commercial lending arm of the Bank and recommended by the commercial lending manager dealing with the customer on a regular basis. The commercial lending arm then seeks to wash its hands of any responsibility for the other division’s actions.

1 comment:

  1. I just wanted to add a comment here to mention thanks for you very nice ideas. Blogs are troublesome to run and time consuming thus I appreciate when I see well written material.

    IRSA Mis Selling