On Thursday, the Banking correspondent of The Guardian Kayleena Makortoff reported that Barclays has been sued over high-interest rates placed on loans. The assertions of this legal claims were no longer in doubt as videos began to spread like wildfire with most bearing the same headline as this news. Political News Today; a popular YouTube Channel
The BBC reported that Leeds and Greater Manchester happen to be part of the Seven Local councils rumoured to have filed a legal claim against Barclays over high-cost loans. The legal claim is such that is linked to almost £500m in complex bank loans.
Campaigners and Shadow Chancellor, John McDonnell have taken up the issue of high-interest rates placed on loans and the use of high-cost loans have been placed under fire ever since then. The Guardian reported that Chancellor John has made comments criticising the use of high-interest loans and there effect on local councils and the services that can provide.
The terms of the lender options borrower option loan(Lobos) is the section of the loan transaction between these councils and Barclays to receive claims lodged to the high court. Having offered several Lobos, the particular lobo offered by Barclays which these councils seem to be fighting against dates back almost 11 years ago between 2006 and 2008.
The claim filed by these councils centres on how Libor, the interbank lending rate influenced the interest rates on the loans taken by the Seven parties involved. Since the banking crisis, Barclays exists among the list of lenders that have been fined for being involved in Libor rigging noted the
Unfortunately, the councils want to play safe as they have not made demands on a specific financial figure in the court filings submitted. However, the councils seek the go-ahead and approval to exit existing loans without having to pay hefty fees and the refund of sums paid as regarding the Lobo loans. In fact, the councils are hoping this extends to the interest payments as well as other costs reported the Guardian.
The legal case that was filed was done on behalf of councils in Leeds, the Greater Manchester combined authority, as well as other councils like Newcastle, Oldham, North East Lincolnshire, Nottingham, and Sheffield. According to data collected through freedom of information requests by the Debt Resistance UK campaign group, in total, these seven councils are believed to have incurred loans up to £573m in Lobo loans from Barclays noted the BBC.
Based on the findings made by The Guardian news agency we understand that all the claims of the councils are related to loans that account for an important portion of the total sum. This doesn’t come as a surprise because Lobos were popular among councils in the early 2000s because of the effective business strategy of Lobos, as they came with teaser interest rates that kept payments low in the short run. However, they became costly in the long run as a result of austerity and wider spending cuts which took place.
The scheme otherwise called Libor rigging was such that allowed the loans that banks have allowed them to raise interest rates at certain points over their lifetime. This increase is only accounted for by the “lender option” of the loan agreement. Although borrowers had the option of refusing to accept these terms, it would automatically trigger a clause forcing them to repay the loan in full and immediately noted the Guardian.
In 2016, Barclays stopped using Lobos by turning them into fixed-rate loans, however, the interest rates were not necessarily affected and breakage costs only got slightly decreased.
An activist with Debt Resistance UK, Joel Benjamin, said Debt Resistance was “inspired to see local councils taking legal actions against Barclays as related to Lobo loans. He said the Lobo loans has resulted in hundreds of millions of pounds being skimmed from hostile town hall budgets – 7years on from Barclays and a cartel of global banks being fined for conspiring to rig Libor interest rates in 2012” quoted
Barclays has since refused to make comments due to the ongoing legal proceedings and are looking to avoid unnecessary issues.