Barclays is facing a court battle over hundreds of millions of taxpayer pounds after 14 local councils filed a mass legal action against the bank.
Greater Manchester, Bristol, Liverpool and Leeds are among the local authorities accusing the bank of fraud over loans to councils and other public bodies that were once worth billions.
Barclays is accused of rigging interest rates and thereby potentially manipulating charges to borrowers.
Battle:Barclays is accused of rigging interest rates and thereby potentially manipulating charges to borrowers
The High Court claim, seen by The Mail on Sunday, relates to hugely controversial Lender-Option, Borrower-Option loans, commonly known as Lobo loans.
These have been described as ‘lose-lose’ for borrowers and the attached terms have already sparked public outrage.
Campaign group Debt Resistance UK estimates that at least 240 councils took out these loans from lenders such as Barclays and are saddled with debts of more than £15 billion. In 2016, Barclays scrapped £8 billion of Lobo loans by converting them to fixed-rate loans, at a cost of £182 million to the bank.
The councils’ claim form accuses the bank of ‘deceit and/or fraudulent misrepresentation’ as its bankers were secretly rigging Libor, which was ‘integral’ to the rate at which Lobo loans had to be paid back.
Many local authorities took out the loans as they appeared to promise lower interest rates than those offered by central government.
But the loans remain highly contentious as they gave banks the power to impose new rates at certain points. Borrowers could reject the new terms, but would then be forced to repay the entire loan straight away.
Barclays and the local authorities declined to comment. But Lianne Craig, a partner at law firm Hausfeld, which is representing the councils, confirmed it had issued a ‘protective claim’ in the High Court.
A full claim is due to be filed in the coming months. In 2015, a parliamentary committee launched an investigation into Lobo loans.
Manchester is among the local authorities launching the action against Barclays
Rob Carver, a former derivatives trader at Barclays, described the loans as ‘horrible stuff’, telling MPs: ‘I do not think anyone who fully understood it would do it.’
Crippling repayment rates of 7 to 9 per cent were attached to some of the loans and are thought to have cost taxpayers tens of millions of pounds in interest a year.
The 14 local authorities – Bristol, Bradford, Greater Manchester, Kirklees, Leeds, Liverpool, Newcastle, North East Lincolnshire, Nottingham, Oldham, Sheffield, South Gloucestershire, Walsall and West Yorkshire – launched the action.
They are preparing to put a number to the total value of the claim if Barclays seeks to defend the action, rather than settle.
The councils say the loans – entered into between 2004 and 2010 – should be rescinded with fees returned. They also want compensation for damages.
On June 27, 2012, the Financial Services Authority, the precursor to the Financial Conduct Authority, fined Barclays £59.5 million over manipulation of Libor – the London interbank offered rate.
Some Lobo loans were directly linked to Libor rates, and many others were influenced by it. In some cases, repayment rates rose if Libor rates fell out of a certain range.
Joel Benjamin, of Debt Resistance UK, said: ‘It’s high time banks were made to pay to clean up their own mess.’