04.02.19
Seven councils launch lawsuit against Barclays over £500m LOBO loans
Seven local authorities are suing Barclays over controversial LOBO bank-loans worth over £500m, which they claim were fraudulently set with high interest rates when sold before the financial crisis.
The councils have filed a lawsuit against the bank over lender-option, borrower option (LOBO) loans taken out between 2006 and 2008 with interest rates linked to Libor – a bank lending rate which several banks were fined over following the 2008 banking crash.
The authorities suing are the Greater Manchester Combined Authority, Sheffield Council, Oldham Council, North East Lincolnshire Council and Leeds, Newcastle and Nottingham City councils.
A Newcastle City Council spokesperson said: “We confirm the city council is part of a group action with other local authorities against Barclays Bank in respect of their LOBO borrowing. These claims relate to Barclays’ involvement in LIBOR manipulation.
“Barclays has been served with the Particulars of Claim and the proceedings are now active.”
The complex high-cost loans have come under heavy criticism in recent months, most notably from the shadow chancellor John McDonnell, who called for a government investigation and “action to restore any historic loss to the public purse.”
The typically long-term loans give the lender the option to increase the rates at fixed points in the loan term, which the borrower must then either repay plus a penalty fee or move on to the higher rate of interest.
Analysis from Research for Action showed that 240 local authorities had been involved with LOBO loans, with the councils set to lose £16bn over the lifetime of the loans if they don’t refinance them.
A High Court claim has been lodged over the terms of the loans given to the seven councils who claim that interest rates were fraudulently set as Barclays knew that customers would rely on Libor rates when entering into contracts.
The councils have not disclosed how much they are seeking in their court filings, but want the High Court to allow them to exit the loan agreements without paying the incurring hefty penalty fees as well as interest payments and other costs.
The seven councils are believed to have borrowed up to £573m in LOBO loans from Barclays, according to freedom of information requests from the campaign group Debt Resistance UK.
Joe Benjamin, an activist from the group, welcomed the news, and said: “Debt Resistance UK are heartened to see local councils filing legal action against Barclays related to LOBO loans, which has resulted in hundreds of millions of pounds being skimmed from struggling town hall budgets.
“Crippling loan breakage penalties on LOBOs can significantly dent council reserves, enough to tip some struggling councils like Northamptonshire into bankruptcy.”
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