• A Guide to the Interest Rate Hedging Product Review (the Review).

    In June 2012 Lloyds Banking Group (the Bank), along with eight other banks, agreed with the Financial Conduct Authority (FCA) to undertake a review into sales of Interest Rate Hedging Products (IRHPs) made since 01 December 2001 to customers categorised under the FCA’s rules as either "private customers" (in respect of sales made between 01 December 2001 and 31 October 2007) or "retail clients" (in respect of sales made since 01 November 2007).

    Within the Review undertaken by the Bank it agreed to:

    • Automatically provide fair and reasonable redress to non-sophisticated customers who were sold structured collars
    • Review the sales of other IRHPs (except caps or structured collars) to non-sophisticated customers to determine whether redress is due
    • Review the sale of caps to non-sophisticated customers if a complaint is made by the customer

    When does the Review close?

    As confirmed in the recent FCA Update (available to view on their website), the Review closed to new customers on 31 March 2015. Any complaint regarding the sale of an IRHP received by the Bank after 31 March 2015 will be considered through the Bank’s usual complaints handling process. If you would like to make a complaint about an IRHP that was not included in the Review please refer to the frequently asked questions detailed below, with particular reference to:

    • How do I register a complaint?

    Please note: if your case is currently being considered within the Review, we will continue to progress your case through to completion under the oversight of the Independent Reviewer in accordance with the processes established within the Review.

    Can I still accept a Final Basic Redress Determination provided within the Review?

    As outlined in the recent FCA Update (available to view on their website), all banks are in the process of writing to customers who are in receipt of a Final Basic Redress Determination, but who have not accepted it. This is to offer a further, final opportunity within the Review for those customers to accept their Final Basic Redress Determination on its original terms (where the previous opportunity to do so under the Review has otherwise lapsed). You will be notified directly (in writing) by us where this opportunity is available to you, and you will be given until 31 December 2015 to accept the Final Basic Redress Determination that has been provided to you.

    Please note that where a Final Basic Redress Determination has been issued, your opportunity to submit additional information in relation to the Basic Redress Determination has already closed, along with your opportunity to make a claim for Consequential Loss.

    This opportunity will remain in place until 31 December 2015. In the event that you do not accept the Final Basic Redress Determination by 31 December 2015, you will no longer be able to accept redress within the Review process. Instead, any queries received after this date will be handled by the Bank’s Customer Complaints Team in line with the Bank’s usual complaints handling procedures. You are still free to pursue your legal or regulatory rights should you wish to do so. These include the right to take this matter to the Financial Ombudsman Service (the "FOS") if you are eligible.

  • Your journey explained

    • Initial contact

      • What are the timescales for this review?

        Customers who purchased an interest rate cap: As agreed with the FCA, customers who purchased an interest rate cap will only be included in the Review if they make a complaint about the sale of the product and are assessed to be “non-sophisticated”.

        For those customers who purchased interest rate caps, the final date when complaints will be considered within the IRHP review will be 31 March 2015. Any complaint regarding the sale of interest rate cap products which is received after 31 March 2015 will not be included in the Review and will be considered through our usual complaint handling process.

        Therefore if you have purchased an interest rate cap and you wish the sale to be included in the Review, please contact our complaints department as soon as possible, and before the 31 March 2015. Your complaint must be received by the Bank by 31 March 2015 in order to be included in the Review.

        Lloyds Banking Group is doing everything it can to deliver its redress decisions, with our priority being those currently in financial distress. For those customers deemed eligible to take part in the Review, the process is as follows:

        1. You will be invited to join the Interest Rate Hedging Product Review.
        2. You will be given the opportunity to present your version of events at a fact finding meeting (either face-to-face or via telephone) and submit any documentation relevant to the sale of your interest rate hedging product.
        3. All additional information submitted by you will be assessed by Lloyds Banking Group.
        4. The outcome of the file assessment will be overseen by the Independent Reviewer to ensure it is fair and reasonable.
        5. Following approval of the Review decision by the Independent Reviewer, you will be informed of the redress outcome, as well as the next steps of the process.

        Lloyds Banking Group treats every case individually and undertakes a full review of every eligible sale in accordance with agreed methodology. As such, the timescales for reaching a redress outcome will vary for every customer. Lloyds Banking Group is committed to communicating the redress outcome to every customer as quickly as possible, with the priority being those in financial difficulty.

      • What do you mean by ‘non-sophisticated’ customers

        As part of the Review, the Bank is required to assess whether a retail customer had the ability, whether through knowledge, experience or size of the company, to understand the risks associated with purchasing an IRHP, or to seek advice relating to the sale. The criteria have been prescribed by the FCA and are known as the ‘sophistication criteria’.

        Where the customer meets the sophistication criteria the customer will not be eligible to take part in the Review and will receive a letter to confirm that this is the case. Where the customer is eligible to take part in the Review, the customer will receive a written invitation to be part of the Review. On the customer’s acceptance they will be allocated a Case Handler who becomes the main point of contact throughout the Review.

      • Do I need to make a complaint?

        It depends on what type of product you purchased and whether you are classed as a ‘non-sophisticated’ customer.

        • If you are a ‘non-sophisticated’ customer and bought a structured collar, you do not need to complain; your sale will automatically be included in the Review by the Bank. The Review will then include all other interest rate hedging products you purchased which are within scope of the FCA requirements.
        • If you are a ‘non-sophisticated’ customer and you purchased only a cap from the Bank then you will need to make a complaint in order for the sale to be part of the Review. If you have other interest rate hedging products that are included in the Review (either automatically for a structured collar or you have opted in for other products), then the cap will automatically be included in the Review.
        • If you are ‘sophisticated’ under the FCA criteria then you will need to complain and the Bank will review this separately. Please use the following contact details:

          CB IRHP Customer Complaints
          Lloyds Banking Group
          PO Box 70386
          London SE16 9ED.

          or telephone 0845 602 3076.

         

      • What is the role of the Case Handler?

        The Case Handler will be your point of contact throughout the Review process. The Case Handler will collate information you may wish to submit and ensure this is included in the Review. All queries relating to the Review should be directed to your Case Handler in the first instance.

    • Information gathering

      • What information should I provide as part of my review?

        Information you may wish to submit as part of the Review is detailed within your Invitation to Review letter.

        In particular: To assist the Bank in determining an appropriate outcome for your case, the following are a number of areas where additional relevant information would assist the assessment.

        • Details of why you entered into the product(s).
        • Details of any advice you received during the sales process and by whom.
        • Details of why you felt you needed this product at the time and how it matched (or did not match) your needs.
        • Details of your understanding of any conditions you felt were associated with the sale(s) of the product(s) at the time.
        • Details of whether you had any specific concerns in relation to the original sales process. If possible, please provide any evidence that these were raised before/at the time of the sale(s).
        • Details of whether there are any additional losses and costs that you would like the Bank to consider. This is an opportunity for you to provide information relating to any additional losses and costs. Additional losses and costs may include consequential losses and/or net tax costs. Additional losses and costs will only be considered where redress is determined to be due in relation to the sale of the IRHP(s). Guidance on how to make a claim for consequential losses is provided by the FCA.

        You will need to provide copies of any additional evidence that would support your case.

        This guidance is intended to assist you in identifying information that you may wish to provide and is not intended to limit your submission in any way. Your submission should be signed and include your confirmation that the facts stated therein are true to the best of your knowledge and belief.

        After the Outcome is communicated, and where redress is due, the customer has an opportunity to raise a claim for any related additional losses and costs at this stage. The customer has 28 days to submit a claim for consequential loss. Thereafter the customer is sent a Redress Determination Statement which they must sign in order to settle redress.

      • Is the Fact Finding process the last opportunity to provide additional information?

        You may submit information, which you deem relevant to your case, at any time during the Review. Lloyds Banking Group encourages you to do so as early as possible in the Review to ensure we are able to determine the correct outcome as quickly as possible. Where you do not submit information we will not delay the Review of your file.

      • What is the role of the Field Representative?

        The Field Representative’s primary roles are to facilitate customer meetings, and ensure any documentation and information provided by the customer is submitted correctly to assist with the review process.

    • Assessment

      • How will Lloyds Banking Group calculate the redress?

        Redress will be based on what is fair and reasonable in each individual case. Redress could include a mixture of cancelling or replacing existing products with alternative products, and partial or full refunds of the costs of the products. Redress calculations will be approved by the Independent Reviewer.

      • How will I know if I am due redress as part of the Review?

        Once the redress outcome has been determined, you will be contacted and invited to a meeting where a suitably qualified person, known as a Redress Specialist, will present and explain the outcome of the review of your case, including the details of any redress due to you.

      • What qualifies my case for redress?

        Your case will qualify for redress where the sale of your IRHP has not been compliant with the regulatory requirements and where you have suffered loss because of it.

      • What is redress?

        All ‘non-compliant’ sales will be considered for redress, and redress will be provided where appropriate. Redress must be fair and reasonable in each case, with the aim being to put the customer back in the position they would have been in had the breach of one or more regulatory requirements not occurred.

        On its website the FCA states that, “Fair and reasonable redress means putting the customer back in the position they would have been in had the regulatory failings not occurred, including any consequential loss. What is fair and reasonable redress will vary from case to case and will be determined by a review of evidence and customer testimony. All redress offers will be considered and agreed by the independent reviewer.”

        Redress will not be owed to customers in all cases where the sale did not comply with regulatory requirements. This is because breach of the regulatory requirements may not have affected the outcome of the sale, and so the breach did not actually result in a loss for the customer.

    • Redress outcome explained

      • How will I receive my Redress Outcome?

        You will receive your redress outcome in a Basic Redress Determination Statement which sets out what, if any, redress is due, and where applicable, how it has been calculated. If you then wish to make a claim for Consequential Loss you can submit supporting information to your Case Handler.

         

      • What information should I bring to the redress delivery meeting?

        You should bring identification documents with you. No other documents are necessary but you may wish to bring copies of your own records for reference.

      • What is the role of the Redress Specialist (who will attend the redress meeting)?

        The Redress Specialist’s primary role is to explain the redress outcome to customers. They will attend any redress meetings and any subsequent meeting or phone call thereafter. Their role is not to give advice, nor to negotiate, but to explain the rationale behind the outcome. They are there to answer your questions and concerns, and to facilitate your understanding of the review process.

      • What might redress look like?

        Redress will not be due in all cases.

        Where it is due, the nature of redress will be determined on the basis of placing customers back in the position they would have been in had any non-compliance with regulatory requirements not occurred.

        Redress could include a mixture of cancelling or replacing existing products with alternative products with the refund of any difference in payments between the alternative product and the product actually purchased.

        Redress may not be applied in all cases, for example where the redress would place the customer in a worse economic position.

        For clarity, redress may not therefore always be in the form of a cash payment.

        On its website the FCA provides examples of the different types of redress customers might receive.

      • How do I know the redress offered is fair and reasonable?

        The Independent Reviewer will have reviewed all aspects of the proactive redress exercise and past business review. This includes the methodology used and review of each individual case. The Independent Reviewer is responsible for ensuring that the reviews are carried out in line with the methodology and that customers receive fair and reasonable redress where appropriate. The FCA provide more information on the role of the Independent reviewer.

      • What happens if I am not due redress?

        You will receive a letter explaining the outcome of the Review which will set out why redress is not due. You will also be given the opportunity to have a meeting to have this outcome explained. Following this, you will receive a letter that will confirm the Redress Determination.

    • Additional information

      • What additional information can I provide?

        Once you have received your Redress Outcome Statement you have 28 days within which to provide information relating to additional losses and costs. Additional losses and costs may include consequential losses, and/or net tax costs.

        On its website, the FCA defines ‘fair and reasonable redress’ to mean “putting the customer back in the position they would have been in had the regulatory failings not occurred, including any consequential loss.”

        The FCA then sets out how the banks have agreed to calculate the redress under their review. To read this, including their guide to types of consequential loss, please go to the FCA website.

    • Final redress determination

      • What happens if I am dissatisfied with the outcome?

        If you have further / new information that you believe has not been taken into account in the review but could impact on the outcome of your case, you may submit this information for our consideration.

        If you are not satisfied with the redress determination you are free to pursue your legal and regulatory rights which include the right to take this matter to the Financial Ombudsman Service if you are eligible and you do so within six months.

    • Settlement and/or exit the review

      • When will I receive redress?

        Lloyds Banking Group will do everything it can to deliver its redress decision as soon as your case has been assessed and our determination accepted by you.

  • Frequently asked questions

    • What must I do to be included in the Review?

      • Do I need to make a complaint to be included in the Review?

        It depends on what type of product you purchased and whether you are classed as a ‘non-sophisticated’ customer.

        • If you are a ‘non-sophisticated’ customer and have been sold an interest rate cap product by the Bank then you will need to make a complaint in order for the sale to be part of the Review. 
        • If you are a ‘non-sophisticated’ customer and bought a structured collar you do not need to complain, your sale will automatically be included in the Review by the Bank. The Review will then include all other Interest Rate Hedging Products you purchased which are within scope of the FCA requirements.
        • If you are a ‘non-sophisticated’ customer and bought an Interest Rate Hedging Product that is not a structured collar and which is not solely a cap you do not need to complain. Following an invitation to Review letter if you choose to opt in to the Review, any cap you may also have purchased will automatically be included in the Review.
        • If you are a ‘non-sophisticated’ customer and have been sold an interest rate cap product by the Bank then you will need to make a complaint in order for the sale to be included in the Review. Therefore if you have purchased a cap product and wish the sale to be included in Review, we urge you to contact our complaints department as soon as possible.

            

        Please note that if you complain after the Review has been formally completed then your complaint will be dealt with in accordance with the Group’s normal complaints handling procedures. 

        Therefore if you have purchased a cap product and wish the sale to be included in the Review, please contact our complaints department as soon as possible.

      • What if I think that I am a ‘non-sophisticated’ customer and believe that I have been incorrectly classified as a ‘sophisticated’ customer?

        Sales to ‘sophisticated’ customers fall outside of the scope of this review. If a customer is identified as sophisticated and disagrees, you should write to the Bank and submit documentation in support of your case. Please write to:

         

        CB IRHP Customer Complaints
        Lloyds Banking Group
        PO Box 70386
        London SE16 9ED.
        or telephone 0845 602 3076.

      • I bought a cap, what should I do?

        If you bought a cap on or after 1 December 2001 you will only be included in the scope of the review if you make a complaint and you are a ‘non-sophisticated’ customer. If you do complain, and you are a ‘non-sophisticated’ customer, the sale of your cap will be considered in the same way as the sale of other Interest Rate Hedging Products (except structured collars).

        Therefore if you have purchased a cap product and wish the sale to be included in the Review, we urge you to contact our complaints department as soon as possible.

        Please note that if you complain after the Review has been formally completed then your complaint will be dealt with in accordance with the Group’s normal complaints handling procedures.

      • I bought a structured collar, what should I do?

        If you bought a structured collar on or after 1 December 2001, we will contact you to explain whether your sale is eligible for review (i.e. whether you are considered to be a ‘non-sophisticated’ customer).

        If contacted, we will ask you whether you want to provide information relating to the sale. Following the review, we will communicate the redress outcome as appropriate. This will be agreed by the independent reviewer. If you decide to accept the redress outcome, you will be issued with a final redress determination.

      • I bought a swap or collar, what should I do?

        If you bought a swap or collar on or after 1 December 2001 you will be contacted by the Bank to explain whether you are considered to be a ‘non-sophisticated’ customer.

        If you are eligible for the review (i.e. you are considered to be a ‘non-sophisticated’ customer) we will ask you whether you want your sale to be reviewed. If you want your sale to be reviewed, we will ask you whether you wish to provide information relating to the sale. Following the review, we will communicate the redress outcome and provide redress if appropriate. This will be agreed by the independent reviewer. If you decide to accept the redress outcome, you will be issued with a final redress determination.

      • How do I register a complaint?

        If you wish to register a complaint you can write to Commercial Banking Interest Rate Hedging Product (‘CB IRHP’) Customer Complaints:

        CB IRHP Customer Complaints
        Lloyds Banking Group
        PO Box 70386
        London SE16 9ED

        Telephone number +44 (0) 845 602 3076

    • Products explained

      • What is an Interest Rate Hedging Product?

        The purpose of an interest rate hedging product (IRHP) is to enable the customer to manage fluctuations in interest rates. These products are typically separate to a loan.

        The FCA has identified four broad categories of Interest Rate Hedging Products sold:

        • Interest Rate Swap - enables customers to ‘fix’ their interest rate.
        • Cap - places a limit on any interest rate rises.
        • Collar - enables customers to limit interest rate fluctuations to within a simple range.
        • Structured collar - enables customers to limit interest rate fluctuations to within a specified range, but involves arrangements where, if the reference interest rate falls below the bottom of the range, the interest rate payable by the customer may increase above the bottom of the range.
      • What is an Interest Rate Swap?

        An interest rate swap is a separate contract to the underlying loan agreement. It is an agreement between two parties whereby one type of interest payment is swapped for another; such as exchanging a fixed interest rate payment for a floating payment.

        In practice, if the floating interest rate payment increases because base rates rise, the customer receives an amount that they can use to off-set the increase in loan repayments. Conversely, if the floating interest rate payment decreases as a result of falling base rates, the customer makes an additional payment to the bank under the terms of the swap, but benefits from lower loan repayments. The customer’s costs therefore effectively remain stable.

      • What is a Cap?

        A cap is a separate contract to the underlying loan agreement that can have the effect of limiting increases in a customer’s loan repayments if interest rates rise.

        A customer typically pays an upfront fee and/or an on-going premium for a cap. The lower the agreed interest rate, the higher the fee.

        As interest rates fluctuate, a customer’s loan repayments will fluctuate. If base rates are above the agreed interest rate, the customer receives a payment from the bank that can be set against the increased loan repayments. If interest rates are below the cap, then no payment is made.

      • What is a Collar?

        A collar is a separate agreement with the bank that limits fluctuations in interest rates within certain pre-agreed levels.

        A collar involves a ceiling and a floor. As interest rates rise, loan repayments will increase, but increases are capped at the rate agreed as the ceiling. Similarly, as base rates fall, any reductions in loan repayments are limited to the rate agreed as the floor.

      • What is a Structured Collar?

        Structured collars are in some respects similar to simple collars. They enable customers to limit interest rate fluctuations to within a range. However, while the ceiling functions in a similar way, the floor is more complex and customers can end up paying increased interest rates if the base rate falls below the floor. They require a more difficult assessment of the benefits and risks.

    • I am currently in financial difficulty, what should I do?

      • Does Lloyds Banking Group still prioritise cases in financial difficulty?

        Yes. We have prioritised the review of cases where we know customers to be in financial difficulty. However, our focus is on communicating the outcome of the review to all impacted customers in a timely manner.

      • Am I able to suspend payment of an existing interest rate hedging product?

        Following the British Bankers Association (BBA)’s announcement in December 2012, customers in financial distress who wish to suspend their payments in relation to their interest rate hedging product should contact their Relationship Manager.

        Where the Bank determines financial distress to be present in relation to meeting on-going hedging product payments, the Bank will, at the customer’s request, suspend the collection of hedging product payments pending the outcome of the formal review.

        Should the Bank agree to the suspension of payments this will not constitute an acknowledgement or admission of any wrongdoing on the part of the Bank. The Bank will reserve all its rights including with respect to the suspended payments and/or any other defaults, notwithstanding the final outcome of the formal review.

      • My business is in administration, can I discuss my case with you?

        The matters will be handled by the administrators and you should contact them directly going forward for further information.

      • My company has been dissolved, am I still eligible for this review?

        Where a company has been dissolved it has ceased to exist i.e. it no longer has a legal personality. This means that it would not be possible for a bank to pay redress to the dissolved company regardless of a company’s eligibility.

        Having been dissolved, you may wish to consider seeking legal advice about whether to apply to have your company “restored”, and the potential consequences of doing so. We will write to you to invite you to take part in the Review.

        Alternatively, you may wish to refer to published FCA guidance for advice on how to proceed.

      • I have been declared bankrupt, am I still able to discuss my case with you?

        Matters relating to the review will be handled by the Official Receiver/ insolvency practitioner and you should contact them directly going forward for further information.

      • I wish to speak to someone about my circumstances

        The Bank has established a helpline on 0845 602 3076 for customers who wish to ask questions about the FCA Review and the Bank’s response. This helpline is available Monday to Friday 9am to 5pm. Upon invitation to the Review, a customer will be assigned a Case Handler who will be their point of contact throughout the review process.

    • Role of the Independent Reviewer

      • What is the role of the Independent Reviewer?

        On its website, the FCA sets out the role of the Independent Reviewer: For each sale, the Independent Reviewer will assess whether the Bank has implemented its review process appropriately. The Independent Reviewer will also confirm that the redress proposed for each customer is appropriate, fair and reasonable.

        The Bank will offer customers the opportunity to have the Independent Reviewer present during any meetings or telephone calls with them to discuss their case. The Independent Reviewer will act as an observer to ensure that the process is fair and the customer is not disadvantaged. If the customer declines to have an Independent Reviewer present then the Bank will do its best to ensure any discussions are recorded, with the recording made available to the reviewer.

        Please note that the Independent Reviewer cannot provide customers with any advice on the redress statement.

        Refer to the following FCA factsheet for further information regarding the role of the Independent Reviewer: http://www.fca.org.uk/static/documents/fsa-factsheet-independent-reviewer.pdf 

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