Latest Public Sector News

08.02.19

Newham LBC to sue RBS over £150m in LOBO loans

Newham London Borough Council is to sue the Royal Bank of Scotland over the terms of around £150m worth of LOBO bank-loans, making it the latest council to take legal action against banks over the highly controversial loans.

Previously labelled the ‘debt capital’ of the UK by campaign group Debt Resistance UK, the authority has filed a high court claim against RBS around the terms and interest of the complex bank loans.

The lender-option, borrower-option (LOBO) loans were popular amongst councils in the 2000s due to appealing teaser interest rates, but the loans give the lender the option to increase the rates at fixed points in the loan term.

With LOBO loans there are set days when the interest rate can be changed by the lender. The borrower can choose to accept the rate or repay the loan in full, but there are no breakage penalties at this point. The breakage penalties only apply if the borrower wants to repay at another point in time or when the rate is not changed – the same as a fixed rate loan would be.

The east London authority took out around £578m in LOBO loans between 2003-10, with around £150m of those loans provided by RBS.

Holding the highest number of LOBO loans of any UK council, Newham reportedly spent £87m in 2017 on interest payments, and pays the highest interest rates in the UK which the group attributes to under-investment in social housing, a history of chronic gambling, low wages and the closure of its docklands.

The legal action follows the news earlier this week that seven other councils were suing Barclays over LOBO loans worth over a total £500m – which the authorities claim were fraudulently set with high rates before the financial crash.

Last year, Newham’s legal team filed a separate claim against Barclays over its LOBO loans, along with 14 other authorities, and proceedings are reportedly ongoing.

A spokesperson from Newham Borough Council confirmed that the authority had issued the claim, but could not comment further as it is a live legal matter.

LOBO loans have been heavily criticised, most notably by the shadow chancellor John McDonnell who called for a government investigation in order to “restore any historic loss to the public purse.”

Analysis from Research for Action showed that 240 authorities in total had been involved with LOBO loans, and a total of £16bn could be lost over the lifetime of the loans if the councils do not refinance them.

Image credit - trenchcoates

Comments

There are no comments. Why not be the first?

Add your comment

 

public sector executive tv

more videos >

last word

Prevention: Investing for the future

Prevention: Investing for the future

Rob Whiteman, CEO at the Chartered Institute of Public Finance (CIPFA), discusses the benefits of long-term preventative investment. Rising demand, reducing resource – this has been the r more > more last word articles >

public sector focus

View all News

comment

Peter Kyle MP: It’s time to say thank you this Public Service Day

21/06/2019Peter Kyle MP: It’s time to say thank you this Public Service Day

Taking time to say thank you is one of the hidden pillars of a society. Bei... more >
How community-led initiatives can help save the housing shortage

19/06/2019How community-led initiatives can help save the housing shortage

Tom Chance, director at the National Community Land Trust Network, argues t... more >

interviews

Artificial intelligence: the devil is in the data

17/12/2018Artificial intelligence: the devil is in the data

It’s no secret that the public sector and its service providers need ... more >

the raven's daily blog

Utilising data to best deliver meaningful public services

14/11/2019Utilising data to best deliver meaningful public services

Public Sector Executive’s Matt Roberts explains how living in a modern, interconnected world, as we do, means public sector organisations cannot afford to ignore the rol... more >
read more blog posts from 'the raven' >

editor's comment

25/10/2017Take a moment to celebrate

Devolution, restructuring and widespread service reform: from a journalist’s perspective, it’s never been a more exciting time to report on the public sector. That’s why I could not be more thrilled to be taking over the reins at PSE at this key juncture. There could not be a feature that more perfectly encapsulates this feeling of imminent change than the article James Palmer, mayor of Cambridgeshire and Peterborough, has penned for us on p28. In it, he highlights... read more >