17.07.18
Banks sued by 15 major councils in controversial loans fraud court battle
Barclays is facing a legal battle over the issuing of controversial loans worth millions of pounds to major English councils.
A High Court claim revealed by the Mail on Sunday found that 14 major local authorities including Bradford, Greater Manchester, Liverpool and Bristol are amongst those accusing Barclays of fraud over Lender Option Borrower Option loans (LOBOs).
Leeds City Council has confirmed its involvement in the legal proceedings. A spokesperson for the authority told us: “We confirm that Leeds City Council has instructed Hausfeld & Co to issue a protective claim against Barclays in connection with the bank’s involvement in manipulation of the LIBOR benchmark rate and its impact on Leeds City Council’s entry into certain LOBO transactions with the bank. As this is an ongoing issue we are unable to comment further for the time being.”
A Nottingham City Council spokesperson also commented to PSE: “We are considering the possibility of legal action and so we’re not in a position to comment further.”
The high-profile loans allow private banks to propose or impose a new fixed rate on a pre-determined future start date.
The borrower can choose to accept the rate or repay the loan in full, but there are no breakage penalties at this point. 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.
Joel Benjamin, a campaigner for Debt Resistance UK, told press that the organisation is “thrilled councils have finally stepped in to protect local taxpayers by filing fraud claims against banks which brought our economy to the bring.”
“We know 240 councils have rip-off LOBO loans. We’re now calling on the other 224 councils with LOBO loans to file legal action against Barclays, RBS, Dexia, ICAP, Tullet Prebon and Capita,” he added.
The 14 local authorities currently looking to sue Barclays include Bristol, Bradford, Greater Manchester, Kirklees, Leeds, Liverpool, Newcastle, North East Lincolnshire, Nottingham, Oldham, Sheffield, South Gloucestershire, Walsall and West Yorkshire.
Reports that Newham could sue RBS
Similarly, national media has reported that Newham Borough Council has also issued a High Court claim against the Royal Bank of Scotland (RBS) over the ongoing LOBO loans scandal.
Around £578m in loans were taken out between 2003 and 2010, according to data compiled by Debt Resistance UK. RBS was the second largest lender to Newham council behind Barclays, whom Newham is also considering taking legal action against.
Mayor of Newham Borough Council Rokhsana Fiaz said: “We have serious concerns regarding the misselling of LOBO loans and manipulation of the LIBOR rate by Barclays and potentially other banks. We understand that we were the first of a number of local authorities to issue a High Court claim of misrepresentation in respect of LIBOR manipulation.
“We continue to take all steps available to us to seek to recover money potentially denied to us at a time when local services face the prospect of being diminished because of central government’s continued austerity drive.”
The RBS declined to comment when approached by PSE. Newham Council said anything outside of the Barclays claim was purely speculation.
Last month, John Whitworth, chair of the Newham Council Scrutiny Committee, labelled the LOBO loans a “fraud on the people,” arguing that many took them out when they were struggling financially during the economic crisis of 2008. They have now become a “very serious handicap” during times of austerity.
In May the Chartered Institute of Public Finance and Accountancy (CIPFA) urged local councils to review their LOBO loans after auditing firms expressed concern at their impact on local authorities’ accounts. Channel 4’s Dispatches found that over 200 authorities had used the loans, totalling up to £15bn.
The councils include Bristol, Bradford, Greater Manchester, Kirklees, Newham, Leeds, Liverpool, Newcastle, North East Lincolnshire, Nottingham, Oldham, Sheffield, South Gloucestershire, Walsall and West Yorkshire.
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