Mis-Selling: Victims Of The Ticking Time Bomb
We started investigating the interest rate swaps scandal in the summer of 2011.
Over several months we found from sales literature, recorded phone calls obtained by clients and from testimony of former sales staff that the banks were pressure-selling the product and not fully informing customers of the dangers.
One reason for this seemed to be that the investment bankers could gain more commission from larger, more complex, hedge products. They were not acting with their clients' best interest at heart.
Whistleblower James Duker, who used to sell swaps, told Sky News: "It was normal practice to emphasise the rewards of structures and de-emphasise the risk. They were mis-sold on a regular basis."
When we first raised this with the banks 18 months ago we were faced with a blanket denial.
Barclays told us: "Barclays is satisfied that it provides sufficient information to enable a client to make an informed, commercial decision about the products it offers."
HSBC's said they had " ... extensive processes that are designed to ensure it provides clients with appropriate products ... as well as a full explanation of the products and relevant risks".
Lloyds' response was perhaps the most interesting because while they also claimed customers were fully informed they were keen to stress that they were small players in the swaps market.
They told Sky News: "Interest rate swaps are not a product that we sold widely or in large volumes. It is a regulated product and as such we are careful to explain the risks, costs and benefits of these products."
But 18 months later the Financial Services Authority (FSA) said that of samples they have tested, 90% were mis-sold.
Swaps were sold as protection against interest rates rising - but came with opposing charges if interest rates fell. The idea was that this would be offset by the fact that interest on your loan also falls. So the swap helps you manage your repayments.
One allegation is that the scale of the payments and the breakage costs just weren't explained to customers, and that the products were constructed to work in the banks' favour.
In the banks' defence, the costs rise depending on the level of fall in rates and in 2007, no one knew rates would plummet to record lows of 0.5% and stay there for what seems an indefinite period.
These low interest rates, which should help people to borrow and invest, have hung like a millstone around the necks of many small businesses.
I have met people whose businesses have gone bankrupt, care homes that closed down, hotel owners who had to sell up, and an elderly couple who've had to forget retirement and, they say, are simply working to pay the bank.
During our investigation Sky News learned about a number of swaps claims that successfully settled out of court. They included a chip shop in Leeds who took on HSBC and a care home, estimated to have settled with Lloyds for more than £10m. These out of court settlements were covered by confidentiality agreements, so word couldn't get out about the deals being agreed.
One of the first disgruntled customers I met was ex-Welsh rugby national, Spencer John. He had turned to property investment after an accident left him unable to play.
He claims Barclays offered him a development loan but only on condition a 'swap' was part of the deal.
When interest rates fell and Mr John could not afford the higher payments, Barclays charged him a fee of £95,000 to exit the swap - something he insists he was not warned about.
"Barclays put a swap presentation in front of me but it could have been written in Latin for all I knew; I didn't understand it," he said.
"I asked them what the breakage costs would be. He said worst case scenario, a £1,000 or £1,500 - now I've got a penalty of £95,000."
It is still uncertain what all this might cost the banks - but estimates are that it will be a lot more that the £700m they have already set aside.
Martin Wheatley, chief executive-designate of the new Financial Conduct Authority, said: "This marks significant progress in our review of these products. We believe that our work will ensure a fair and reasonable outcome for small and unsophisticated businesses.
"Small businesses will now see the result of the review as the banks look at their individual cases.
"Where redress is due, businesses will be put back into the position they should have been without the mis-sale."
But there are many who can't get back to how things were before the mis-sale because they've lost their business. Although criteria has now been set by the FSA, some questions remain over who will qualify for compensation, and whether enough is being done to explore the culture in banks that led to them selling products that have crippled businesses.
One swaps claimant has already made the link between swaps mis-selling and the rate-fixing Libor scandal. In October last year Guardian Care Homes alleged their mis-sold interest rate derivative was in turn based on false Libor rates.
Lord Justice Flaux, who presided over the preliminary hearing, refused Barclay's attempts to dismiss the rate-fixing aspect to the claim.
When one looks back to 2007, when the bulk of these products were being sold, one wonders why banks were pushing this product so hard just months before interest rates started to tumble?