Regulators are facing major questions over the compensation scheme for victims of interest rate swap mis-selling after one of the first settlement agreements was found to be in breach of the terms of an agreement between the banks and the authorities.

Lloyds Banking Group was forced to withdraw a redress contract for a small business after the terms offered on the compensation deal were questioned by financial experts. According to the original contract document seen by The Telegraph, the small businessman, who cannot be named, was offered a new interest rate hedge to replace his old derivative that would have meant that its break cost would have exceeded a cap of 7.5pc of the amount borrowed. Based on the expert’s analysis, the break costs on the new “simple” product would have actually amounted to closer to 39pc of the business’s borrowing and potentially about half of its loan amount.

“The redress trade does not appear to meet the guidelines set out by the FSA [Financial Services Authority] regarding the 7.5pc maximum break cost,” wrote the expert in a confidential report. A separate expert also questioned the benchmark borrowing rate used by Lloyds on the settlement, pointing out it would end up costing them more.....Read more here

Other Blog entries on 'Rate Swap' -

http://forums.all-about-debt.co.uk/blog.php?b=1848

Rate swap scandal: mis-selling bill to top £1.5bn - allaboutFORUMS

Swap mis-selling staff offered pay worth more than £200,000 a year - allaboutFORUMS