Farmers 'hit hardest' in rate swaps scandal

Farm owners are the latest group to emerge as apparent victims of the alleged mis-selling of the complex derivate products that produced large profits for high street banks but left thousands of small companies out of pocket.

James Dean, managing director of advisory firm Legal Plus, said there are "many thousands of farmers with ... all manner of complex financial products which they simply shouldn't have.

"The penetration [of swap sales] is about the same for farmers as for care homes and hotels, but my feeling is there's a much higher chance they were mis-sold to farmers and less chance they understood the products."

Small companies claim that interest rate swap derivatives, which were supposed to protect them from upward movements in interest rates, were badly explained, overly complex and frequently sold as a condition of loans, typically between 2006 and 2008. Many have also reported that the potential costs if interest rates fell, along with the significant "break costs" if a company wanted to exit a swap arrangement, were not made clear.

Mr Dean, who advises small firms who say they were mis-sold interest rate protection, said: "Banks had really faulty sales processes as far as farmers were concerned. Typically, the relationship would be held by the bank's agricultural business manager and it was difficult to get the swaps salesman into the farms." This lack of cohesion between farmers' bank managers and the swap salesmen led to poor communication with farmers, he said.

The owner of a North Yorkshire-based farm is among scores of small businesses which have contacted the Telegraph to complain about interest rate swaps.

The farm thought it had secured a conventional £560,000 loan from Barclays to develop a dairy in 2007 but the debt in fact came with a 30-year interest rate swap.

The farm's owners, who asked to remain anonymous, said they only realised they had a swap product when more money than they expected was taken out of the farm's account.

Paperwork detailing the swap didn't arrive for 18 months, they claim, while the swap cost the farm £4,000 a month and it only managed to exit the deal after borrowing £254,000 from a rival bank to pay the break costs. "We've ended up in a mess. Lots of farmers have been hit," said one of the farm's directors.

A Barclays spokesman said: "Barclays is satisfied it provides sufficient formation to enable a client to make an informed, commercial decision about the products it offers."

The Treasury has said it is to examine small firms' complaints over the alleged mis-selling of interest rate swaps.