Interest-rate swaps are not "absurdly complex" products as has been stated - in combination with a floating-rate loan they result in a fixed-rate loan. What sort of businessman borrows millions who cannot understand this ? And a 'collar' is only a tad more difficult.
We read that some borrowers were told there would be no loan unless they took a swap. This means, the bank in question was unwilling to offer a floating-rate loan. But (for various reasons we could go into) they frequently have a practice of quoting on a floating-rate basis, and swapping it out when the loan is agreed. The two-step process is a bit unnecessary, perhaps, but it's how things are often done (and not just for loans - it's quite usual in energy contracts, too).
So - a very simple product, sold in a somewhat redundant two-step way. And yet we are told that 90% of the borrowers hadn't a clue what was going on - to the tune of £10 billion in compo ! Someone's surely avvin' a lucrative laugh: and we are allowing the Great British Businessman, Mr Diddums, to walk away from any responsibility for his own affairs.
So what would have to happen for genuine mis-selling to occur (which, to repeat myself, would certainly merit redress) ? I suggest it would need to be one or more of the following:
- the bank rep lied through his teeth, and stated that the swap was in fact a call-option ('cap', or 'ceiling'), and would only operate if interest-rates rose
- the bank rep asserted strongly and convincingly that interest-rates were definitely going to rise, and that a fixed rate was the best choice
- the bank rep stated that floating-rate loans were not available anywhere, from any lender
- it was self-evident the client was as thick as shit, or spoke no English whatever (see below)
- the loan was much bigger than the client needed
- the strike-price on the swap was way off the money (in the bank's favour) at the time the deal was struck
Footnote: these little cameos from the Telegraph make interesting reading. I particularly found the case of the non-English-speaking Turkish patisserie owner instructive. Taking the numbers cited at face value, Mr Bey must have borrowed several millions. Quite a patisserie, I'd say.