As the banking commission calls for an “electrified” ring fence around banks’ riskier business methods, Siobhan Kennedy meets a hotelier whose life was ruined by one of these practices.
A small hotel in Conwy is a long, way away from the heady heights of big city investment banking. Yet it is here, in this sleepy town in north Wales, that evidence has emerged of some of the most controversial practices of the banking boom, practices that only now are beginning to catch up with the banks.
Channel 4 News has obtained a tape recording of a telephone conversation between a local hotelier, Colin Jones, and a banker from RBS in London. Mr Jones says it was a five-and-half minute phonecall that would go on to ruin his life.
The story began in 2007 when Mr Jones had agreed a new loan with his bank RBS to expand his business.
But as part of the deal, he was told he had to take out another financial product, called an interest rate swap, that would protect him in case interest rates rose.
What he was not told – clearly enough – is what would happen if interest rates fall. And fall they did.
But when he finally got the paperwork for the swap, he did not like the look of it and refused to sign it. When he told the bank, they informed him he’d already agreed the deal on the telephone.
If you listen to the call, it is true that Mr Jones did agree to go ahead with the interest rate swap on the phone.
But there are some key questions that arise too: Did he truly understand what he was signing up to? Did the banker on the phone call ever make it clear the call constituted a legally binding contract? And when Mr Jones asked for the documents to be faxed over in the middle of the call, why didn’t the banker do it?
One lawyer we spoke to, who has represented about 50 businesses on mis-selling claims, said the call was typical of those he had heard many times before. A friendly banker calling, a casual chat, scant, detailed information.
And the outcome? A verbal contract signed for a complex financial product that should never have been targeted at small businesses in the first place.
On Friday evening the business secretary, Vince Cable, described the mis-selling of these products as a scandal.