Norfolk businessman counts cost of bank interest cap scheme

A Norfolk businessmen is counting the cost of a scheme designed to help firms ride out spikes in interest rates after racking up �175,000 in bank charges.

Paul Adcock, managing director of Watton-based electrical retailer Adcocks, said he was considering legal action against his bank Barclays after signing up to the so-called interest rate derivative scheme, promoted by banks as a means of protecting business borrowers from spikes in interest rates.

Major banks including Barclays, HSBC, RBS, and Lloyds TSB, all offer the derivatives product. But with rates falling to historic lows, there are fears many businesses have been caught out by the policies and even pressured into buying them.

Questions are now being asked nationally about how banks encouraged smaller firms to take out the so-called interest rate derivatives which were designed to protect companies from rises by capping payments. However the banks are robustly protecting the practice.

Meanwhile, the complex rules involved mean that it could be difficult for either the Financial Services Authority or the Financial Ombudsman Service to get involved.

Mr Adcock said the business borrowed �970,000 as part of a 25-year deal which would both remortgage the business and pay for a major refurbishment of the store. But around 12 months later he was approached by Barclays asking him if he wanted to take out the extra protection.

'Interest rates were a little bit high at the time and because we were quite highly borrowed and had gone over budget, we felt beholden to Barclays,' he said. 'We only really decided to do something about interest rate protection to appease the bank manager.

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'But we had absolutely no idea what the potential costs would be. It's been a tremendous strain, signing up to something we weren't fully aware of and didn't really want in the first place. We asked for help and they said we could break the agreement, but it would cost �130,000 and would be added to our loan. Now it is �224,000.

'We were paying �7,500 in interest capital and those payments started going on top of that,' he added. 'The first month we ended up paying an extra �2,000 on top of that.

'We've been battling since then and now it's costing us �4,500 in extra interest charges alone. It's catastrophic. Things are difficult enough now; you have only got to see what's happening to other retailers.

'The net cost so far has been �175,000. That's meant cashflow is extremely tight and we haven't got the flexibility to buy stock. If we'd not had these crippling charges, we would have at least broken even for the last three years. What's really been a bone of contention when talking to the bank is that their attitude has been that we've got to cut staff rather than saying they can help.'

But he said despite the charges, the business, which was founded by his great-grandfather Earnest in 1912, and has a �1.3m a year turnover, would fight on to survive and he said the company had been grateful for the understanding and patience of its suppliers.

'This is centenary year,' he said. 'We are still fighting and we are not going to give in.'

Barclays said it would not comment on individual cases, but said it was happy with the processes that had been followed.

'Barclays is satisfied that it provides sufficient information to enable a client to make an informed, commercial decision about the products it offers,' a spokesman said.‬

Has your business been affected by the derivatives scheme? Contact business editor Shaun Lowthorpe on 01603 772471 or email

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