Laura Sharman 07 July 2015

Betts calls for inquiry into ‘outrageous’ LOBO loans

Betts calls for inquiry into ‘outrageous’ LOBO loans image

An inquiry into how councils were sold £15bn of high interest loans could be launched, following last night’s documentary from Channel 4 Dispatches.

The programme - How councils blow your millions - revealed that around 240 local authorities have taken up to £15bn in Lender Option Borrower Option (LOBO) loans from private banks, which charge interest rates of more than 7% in some cases.

Expensive exit fees have stopped councils from moving to a better deal, which can often run for up to 70 years.

Clive Betts, chair of the Communities and Local Government Committee, is now calling for an inquiry into the loans after hearing private banks made more than £1bn in upfront profits from these loans. He also said it was ‘outrageous’ that some council advisers earned commission if town halls took out one of these risky loans.

He told the programme: ‘In the end a council appoints and pays for an independent outside advisor to come in they expect that advice to be independent and not to be paid for by somebody else who is gaining a profit from these loans being set up. I mean that really is scandalous if that's happened.’

The documentary revealed that the London Borough of Newham had the largest amount of LOBO loans at £563m, and was paying up to 7.6% in interest rates.

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