Newham council is suing Royal Bank of Scotland over the terms of about £150m in complex bank loans, making it the latest UK bank to face a lawsuit over lending terms that critics say piled undue pressure on local services.
The east London authority filed a high court claim against RBS earlier this week, the Guardian can report. The claim centres on terms of its lender option borrower option loans, known as Lobos, which proved popular with local councils in the early 2000s. One of the main attractions were the Lobos’ teaser interest rates that kept costs low in the short term but later proved expensive as austerity and spending cuts took hold.
Lobos have attracted criticism by campaigners and the shadow chancellor, John McDonnell, who has called for a government investigation and action to restore any historic losses to the public purse.
The east London authority took out about £578m in Lobos between 2003-10, according to data compiled by the campaign group Debt Resistance UK. About £150m of those loans were provided by RBS, making it the second largest lender of Lobo loans to Newham aside from Barclays.
Newham’s legal team filed a separate legal claim against Barclays over its Lobo loans last year and proceedings are understood to be ongoing. Barclays declined to comment.
A spokesman for Newham council confirmed that the claim had been lodged against RBS but declined to comment further given it is a live legal matter.
An RBS spokeswoman said: “No claims have been served on the bank at this time.” While a filing has been made at the high court, it is understood that the bank does not yet have the specifics of the claim.
It follows a similar lawsuit launched against Barclays in recent weeks by seven local councils including Greater Manchester and Leeds over the terms of nearly £573m in Lobo loans taken out between them.
Their own high court claim centres on how interest rates on those loans were influenced by the London interbank offered rate (Libor). Barclays is among the lenders that have been fined for Libor rigging since the banking crisis.
The loans gave banks the power to raise interest rates at certain points over their lifetime, accounting for the “lender option” of the loan agreement.
Although borrowers had the option of rejecting those terms, it would trigger a clause forcing them to immediately repay the loan in full.
The seven councils say the bank knew customers would rely on Libor rates, which Barclays was accused of lowballing, when deciding whether to enter into contracts. Barclays then has the power to raise interest rates over the lifetime of the Lobo loans as part of the central terms.
This week marks six years since RBS was fined a total of £87.5m over Libor manipulation by the City watchdog in 2013.
Research for Action, a research cooperative that involves members of Debt Resistance UK, said the anniversary meant the six-year time limit for potential claims linked to Libor manipulation was also coming to a close.
The research group claims that 42 local authorities in the UK have suffered losses on about £1.4bn of RBS-issued Lobo loans due to Libor manipulation. The organisation says it has sent letters to the chief executives of all the potentially affected councils to notify them of the deadline.