At a time when many farming businesses could be assessing their bank lending as margins get squeezed, bank lending is one area of scrutiny for many.
Daniel Fallows, a director at Seneca Banking Consultants, said swaps locked many farmers into fixed or structured interest payments on borrowings to protect against interest rate hikes which never happened.
Swaps, which are extremely complex products, were sometimes mi-sold and led to farmers paying out huge interest bills to their banks at a time when the Bank of England slashed its rates in 2007 and 2008.
Mr Fallows said: “The pressure of the swap payments meant many otherwise sound and trading farming businesses became insolvent.”
Pointing towards ‘certain breeds of swaps’, he said many were sold to the agricultural sector by Clydesdale and Yorkshire Bank.
These loans, embedded with swaps, were linked to market rates and came with the same risks and losses as the normal swaps, in particular, break costs which led farming businesses to pay enormous fees.
The main perpetrator, according to Seneca, were Clydesdale and Yorkshire Bank which coined these products ‘fixed rate tailored business loans’.
Other banks also sold these products, for instance, ’treasury loans’ by Lloyds Bank, and ‘sterling fixed rate loans’ by RBS.
Building societies such as Nationwide also had a part to play.
Mr Fallows added: “Instead of supporting these businesses, it is clear to us Yorkshire Bank sold tailored business loans as the only solution and the break cost element of these products were never explained adequately - if at all. In some cases, Yorkshire Bank even converted overdrafts into fixed rate loans, the liabilities of which were also never explained.”
He added Seneca had recently acted on behalf of a farming client who had been mis-sold swaps on a capped rate loan and also a fixed rate loan.
With significant overpayments on the former eventually being torn up by the bank, Seneca also managed to achieve a six figure redress on payments for the latter.
Clydesdale and Yorkshire Banks were approached for comment but did not respond.