A group of 24 MPs have written to the Financial Services Authority and the Treasury demanding that banks immediately suspend payments on interest rate swaps.
Banks must be forced to offer a moratorium on payments that thousands of small businesses are still being forced to make on interest rate swaps, according to a group of MPs investigating the scandal.
The Financial Services Authority and Treasury have been told they must push banks to offer an immediate freeze on all swap payments, according to a letter signed by 24 MPs.
“There are many businesses who are continuing to enter administration as a direct result of their obligations under their swap contracts,” wrote Guto Bebb, a Conservative MP and chairman of the All-Party Parliamentary Group on swap mis-selling.
Mr Bebb and the other MPs said the existing offer of suspending payments on a case-by-case basis was not sufficient and that more needed to be done to help struggling victims.
More than 40,000 interest rate derivatives are estimated to have been sold to smaller businesses since 2001, but with interest rates at historic lows the cost of servicing these contracts has left many firms facing hundreds of thousands and even millions of pounds in costs they say they were never warned about.
Eleven major banks, including Barclays (LSE: BARC.L - news) , Lloyds Banking Group (LSE: LLOY.L - news) , HSBC (LSE: HSBA.L - news) , and Royal Bank of Scotland, have signed up to an FSA-designed scheme to compensate customers mis-sold swaps.
In the six months since the deal was announced many businesses have complained they have been forced to continue making payments under swap contracts that have already been identified by the FSA as likely examples of mis-selling.
The FSA is currently reviewing the results of a pilot redress programme for swap victims, which it is expected to announce the results of at the end of January ahead of the full launch of the scheme.
Banks have so far put aside more than £600m to cover the cost of compensating victims, however this figure could rise substantially as more details emerge of the terms of the settlements. Barclays has made the largest provision, setting aside £450m against the cost of swap mis-selling.
The Financial Ombudsman Service recently toughed its stance on the issue, finding in favour of victims and recommending that banks pay out settlements that would see businesses returned all the money they had to fork out to cover their swaps as well as cancelling the break costs.
The costs to the industry if this type of settlement became standard could easily eclipse the more than £12bn set aside to cover PPI compensation and has led to fears that some banks might not be able to meet the bill.