# Can the Unfair Terms in Consumer Contracts be used to challenge high variable rates?



## ClubMan (6 Aug 2015)

Edit: my post was originally in this thread but was subsequently split out into this new/separate thread...

I've seen 93/13/EEC aka S.I. No. 27/1995 - European Communities (Unfair Terms in Consumer Contracts) Regulations, 1995 (with subsequent amendments) mentioned in this thread in relation to possibly unfair clauses in mortgage contracts.

http://www.irishstatutebook.ie/1995/en/si/0027.html

As I mentioned elsewhere in this or another thread I was confident that this legislation rendered the following BoI mortgage contract clause illegal:


> *6. Variable Interest Rates*
> 
> _(a) Subject to clause 6(c), at all times when a variable interest rate applies to the Loan the interest rate chargeable will vary at the Lender’s discretion upwards or downwards..._


On this basis I helped somebody to make a complaint to BoI and, not surprisingly, the Final Response letter just arrived rejecting the complaint.

I have now helped them to make a complaint to the FSO on this matter but after submitting the complaint I looked more closely at the legislation (caveat - I am not a laywer!) and it seems to me that this (in particular the bit in red) may get BoI and other mortgage/financial service providers off the hook? As such I expect the FSO complaint to also be fruitless but it's in now so I/we will wait and see...
_



			1. Terms which have the object or effect of:
...
( j ) enabling the seller or supplier to alter the terms of the contract unilaterally without a valid reason which is specified in the contract;
...
( l ) providing for the price of goods to be determined at the time of delivery or allowing a seller of goods or supplier of services to increase their price without in both cases giving the consumer the corresponding right to cancel the contract if the final price is too high in relation to the price agreed when the contract was concluded;
...

2. Scope of subparagraphs (g), (j) and (l)
...
( c ) Subparagraphs (g), (j) and (l) do not apply to;
		
Click to expand...

_


> _— transactions in transferable securities, financial instruments and other products or services where the price is linked to fluctuations in a stock exchange quotation or index or a financial market rate that the seller or supplier does not control;_


Anybody with more legal knowledge than I have care to comment?
With as little jargon/presumption of legal knowledge as possible please...


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## Andy836 (6 Aug 2015)

I think you're focusing on the wrong clause. The red section you highlight I think was purely intended to relate to index linked investments (UCITS and the like).

The paragraph to focus on is the following:

Scope of subparagraphs (_g_), (_j_) and (_l_)

( _b_ ) Subparagraph (_j_) is *without hindrance to* terms under which a supplier of financial services reserves the right to *alter the rate of interest payable by the consumer* or due to the latter, or the amount of other charges for financial services without notice where there is a valid reason, provided that the supplier is required to inform the other contracting party or parties thereof at the earliest opportunity and that the latter are free to dissolve the contract immediately.
Subparagraph (j) being:

( _j_ ) enabling the seller or supplier to alter the terms of the contract unilaterally without a valid reason which is specified in the contract;

This is not an "unfair" terms & conditions problem. This is a negative equity problem. The consumer is free to dissolve the contract - they can freely repay the loan. The consumer's problem is they can't refinance the loan or sell the house to cover the loan. That is a separate issue to the interest rate which is the term you're arguing over. 

The Banks clearly have a valid reason - risk has increased & cost of funds have increased. If you want to argue those points then fine, but that's separate (and was this discussed in the Millars case).


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## ClubMan (6 Aug 2015)

Andy836 said:


> The red section you highlight I think was purely intended to relate to index linked investments (UCITS and the like)


I don't see how it's restricted to such products. The legislation refers to "other products or services ... where the price is linked to fluctuations in ... a financial market rate that the seller or supplier does not control". Surely a mortgage would fit into that definition?


> This is a negative equity problem. The consumer is free to dissolve the contract - they can freely repay the loan. The consumer's problem is they can't refinance the loan or sell the house to cover the loan. That is a separate issue to the interest rate which is the term you're arguing over.


Sorry - I don't really see how this relates to the bits of the legislation that you highlighted. Maybe you can explain/clarify in more detail?
I don't see how/why it's the lender's problem that the customer cannot refinance/switch due to NE?
(And NE is not the only reason one might not be able to refinance/switch - e.g. poor credit rating, arrears, missed repayments etc.).
If you mean the problem is that the borrower cannot get out when the lender unilaterally changes the rate charged then surely that IS a "contract fairness" issue?
And I don't see where the legislation deals with that sort of scenario?


> The Banks clearly have a valid reason - risk has increased & cost of funds have increased. If you want to argue those points then fine, but that's separate (and was this discussed in the Millars case).


My understanding is that the Millar case was different. Their mortgage contract had something like "rate will vary depending on market conditions" or something like that. The BoI contract is much more to the point - "WE can unilaterally change the rate". There are absolutely no restrictions/qualifications.

Having said all that I'm now of the opinion that there's no real grounds for challenging the BoI contract on the basis that it breaches this legislation because I now believe that it does not... 

Apologies if it's dealt with elsewhere but is there anybody else looking at challenging such contract terms/conditions on the basis of unfairness under this or any other relevant legislation? Or is it down to individuals such as the person I was trying to help with this?


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## Andy836 (6 Aug 2015)

ClubMan said:


> I don't see how it's restricted to such products. The legislation refers to "other products or services ... where the price is linked to fluctuations in ... a financial market rate that the seller or supplier does not control". Surely a mortgage would fit into that definition?



The sub paragraph I quoted relates specifically to interest rates on loans & deposits. 

I believe the intention of the section you are quoting was intended to relate to other market instruments - shares, derivatives, exchanged traded funds, UCITs, options, CFDs and other capital markets instruments/securities etc etc. A bog standard home loan doesn't fit into this. If the loans were securitized, then the bonds issued on foot of that loan pool could be be subject to this - however RMBS notes aren't bought by consumers - either the indentures wouldn't allow it or they'd require the rights to be waived



ClubMan said:


> I don't see how/why it's the lender's problem that the customer cannot refinance/switch due to NE?


It's not the Banks problem. It's the Borrower's problem.



ClubMan said:


> If you mean the problem is that the borrower cannot get out when the lender unilaterally changes the rate charged then surely that IS a "contract fairness" issue?



That's not a "contract" problem. The "contract" still allows the consumer to exit. The reason the consumer can't exit has nothing to do with the "contract", it's due to their own personal circumstances.



ClubMan said:


> And I don't see where the legislation deals with that sort of scenario?



It doesn't. As I said that's not a contract problem.


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## Asphyxia (7 Aug 2015)

Clubman,

Andy836 is correct in telling you that you are focusing on the wrong clause within SI 27/1995, and has indeed directed you to the relevant clause; however his assertion that the BOI's clause is fair, is open to challenge.

Let me explain and refer you to guidance from the FSA UK ( financial services authority ) in relation to unfair terms.


*Valid reasons*

Many firms have failed to address the indication given in the Regulations that ‘valid reasons’ can help make a unilateral variation term less likely to be unfair. We often see no valid reasons specified in the contract which is of clear concern when assessing terms by reference to paragraph 1(j) of Schedule 2 to the Regulations. Valid reasons help consumers understand the circumstances in which their contracts may be varied.

We also see reasons that are not, in our view, valid. We consider that ‘valid reasons’ specified in a contract should be clearly and unambiguously defined, so a consumer can challenge a harmful variation that they have not clearly agreed to. In our view, a term should explain with sufficient clarity if, when and how a variation is likely to occur. What constitutes a ‘valid reason’ will depend upon the contract as a whole and the product in question. Ultimately, only a court can decide what constitutes a ‘valid reason’. However, we are unlikely to object to a term that states that unilateral variations may be made: · to respond proportionately to changes in general law or decisions of the Financial Ombudsman Service; · to meet regulatory requirements; · to reflect new industry guidance and codes of practice which raise standards of consumer protection; · to respond proportionately to changes in the Bank of England base rate, other specified market rates or indices or tax rates; or · to proportionately reflect other legitimate cost increases or reductions associated with providing the particular product or service.

*Examples of reasons that we are likely to consider not to be valid include:*

· to cover unexpected costs;
· *for any reason a firm sees fit; 
· for any reason a firm considers reasonable at the time of the change; or *
· solely to increase profit margins.

Another concern we have in relation to ‘valid reasons’ is where the list of reasons specified in the contract is not exhaustive. We often see lists of reasons which conclude with ‘any other valid reason’. In our view, ‘any other valid reason’ is not an example of a valid reason in itself and therefore the reasons are not being ‘specified in the contract’ as indicated by paragraph 1(j) of Schedule 2 to the Regulations.

Now let us look at BOI variable rate clause in the mortgage contract.

*6. Variable Interest Rates*

_(a) Subject to clause 6(c), at all times when a variable interest rate applies to the Loan the interest rate chargeable will vary at the Lender’s discretion upwards or downwards..._

It can be seen that the said clause falls foul of the unfair terms directive, as the clause gives the lender sole discretion to vary the term, in other words the lender can unilaterally alter the variable rate for any reason it deems fit.

In the recent ECJ ruling Van Hove in 2014, the ECJ court stated in relation to the transparency of a term in a contract:

"that the contract sets out transparently the specific functioning of the arrangements to which the relevant term refers and the relationship between those arrangements and the arrangements laid down in respect of other contractual terms,

so that, as articulated in previous judgments
[the] consumer is in a position to evaluate, on the basis of precise, intelligible criteria, the economic consequences for him which derive from it",

Financial institutions would do well to consider these factors when drafting terms within contracts.


In relation to Andy836's assertion that a consumer is free to leave the contract, this is what the Uk FSA say on the matter, in relation to unfair terms.


*Freedom to dissolve the contract*

The Regulations indicate that the consumer’s freedom to dissolve the contract can be a factor in a unilateral variation term being less likely to be unfair and our experience is that firms sometimes fail to consider this. In our view, firms should bear in mind both the financial and the practical barriers which may prevent a consumer from exiting the contract if they object to a particular variation of a term.

For example, we would not regard consumers as being free to dissolve the contract if the terms did not provide that any exit charges would be waived to remove financial barriers to exiting the contract. Even if exit charges were waived, while a consumer may be financially free to exit the contract, there may also be practical barriers that we often find firms fail to consider. These concerns apply in many sectors. For example, in the case of some long-term insurance contracts, the consumer may, in practice, find it difficult to obtain alternative insurance because of the need for fresh underwriting. The same can also apply to *mortgage products*, where a consumer may be unable to find an affordable interest rate with an alternative provider, and so would be unable to exit their contract in practice.

Due to the particular lack of competition in Ireland, within the mortgage market, the question must also be asked are Irish consumers truly free to exit their respective mortgage contracts.


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## ClubMan (7 Aug 2015)

Thanks but - and not being smart but wary of this thread going the same way as the other one and ending up in a legal quagmire rather than something that most readers can understand - ....


Asphyxia said:


> Let me explain and refer you to guidance from the FSA UK ( financial services authority ) in relation to unfair terms.


... why? What relevance do UK FSA guidelines have here?


> It can be seen that the said clause falls foul of the unfair terms directive


You mean the EU/Irish law on fairness in contracts or the UK FSA guidelines?


> In the recent ECJ ruling Van Hove in 2014, the ECJ court


What relevance does that have here?
Was it specifically about a mortgage contract?
If it's relevant then how in practice can an individual borrower here use this to improve their lot?


> Due to the particular lack of competition in Ireland, within the mortgage market, the question must also be asked are Irish consumers truly free to exit their respective mortgage contracts.


Again - yes - the question can be asked but what good does that do any individual borrower?

I get the impression that the only way that something might be done in this context is for somebody to take it to court unilaterally and see what happens?
Like the Millar's but in the case of the BoI contract there seems to be enough of a different to make it a different (stronger?) case?

Of course I still look forward to seeing what the FSO make of my friend's complaint.


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## Asphyxia (7 Aug 2015)

Clubman,

You are sending a complaint to the F.S.O. in relation to this matter. The UK and Ireland come from the same common law tradition, so any guidance by the UK's version of the F.S.O. is also applicable in this Country, and will be taken on board by the Irish F.S.O.. Without getting into legalese, Ireland and the UK have both transposed the European Directive 93/13/EEC ( unfair terms directive ) in a very similar manner, so any guidance by the UK authority will be acceptable in this jurisdiction, much in the same manner as legal case law is. In making a complaint, it will be important to stress this particular guidance on the Directive from the UK FSA, a bit like referring to cases stated in relation to a disputed matter in a court.

From a European prospective, the directive speaks for itself and the ECJ has refrained from narrowing the scope in which this directive applies. I stand corrected, but I believe there has never been a legal case regarding a mortgage dispute taken in Ireland, in relation to breaches of the unfair terms directive, in terms of plain and intelligible language, variation clauses, freedom to dissolve, etc. so we are in uncharted waters. What I can say is that, in common law, we have laws for assessing the unfairness of contracts, such as misrepresentation, undue influence, mistake etc. These common laws have been supplemented with European Law in relation the unfairness in contracts ( that being SI 27/1995 as amended ). European law takes precedent over all common, statutory and even constitutional laws of Member States, this point is worth highlighting.

In relation to the Van Hove judgment, this judgment related to a mortgage protection policy on several mortgages, the ECJ judgment in this regard, has legal implications for all contracts, that being, in how a court should assess the possible unfairness of the term with regard to the terms of a contract as a whole.

The individual borrower ( affected ) should either make a complaint to the F.S.O. or seek redress through the Irish courts system in relation to these alleged breaches. If a citizen does not get satisfaction in relation to the perceived breach of the Directive they can make a complaint, free of charge, to the European Commission, about Ireland's failure to properly implement or enforce European Law.

In relation to your question about lack of competition with the mortgage market in Ireland, a court is obliged to take cognizance of this fact, when concluding whether a term is unfair or not.


Hope I have answered your questions and that this helps you.


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## ClubMan (7 Aug 2015)

Thanks. Especially for keeping it relatively simple for the likes of me.


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## Sarenco (7 Aug 2015)

Hi ClubMan

As you know, the FSO provides a dispute resolution service to consumers and regulated financial service providers.  It is required to deal with complaints by mediation and, where necessary, by investigation and adjudication.

However, the FSO is not a court and “is required to act in an informal manner and according to equity, good conscience and the substantial merits of the complaint *without regard to technicality or legal form*”.  As such, the role of the FSO is not to interpret or apply any legislative provision, including the Unfair Contract Terms Regulations.  Your friend may well have a justifiable complaint against his or her mortgage provider but the FSO is not required to have any regard for these Regulations in making its determination.

So what are consumers supposed to do if they consider a particular loan term to be unfair?

If a consumer is of the view that a loan contract contains an unfair term, within the meaning of the Unfair Contract Terms Regulations, then they may refer to matter to the Central Bank.  The applicable legislation provides the Central Bank with powers to protect consumers from unfair contract terms where they relate to regulated financial services providers such as banks and other regulated lenders. Under the applicable legislation, certain supervisory powers are available to the Central Bank to ensure compliance with the Regulations by regulated financial services providers. These powers mean that the Central Bank may require regulated lenders to make amendments to loan contracts with consumers.

The Central Bank (or any consumer organisation) may also seek a court order preventing the use of contract terms that it considers to be unfair or the Central Bank may use other regulatory tools, including its administrative sanctions procedure, to combat the use of unfair contract terms in consumer contracts.

In addition, the Unfair Contract Terms Regulations may be employed as a defence in any court proceedings for enforcement of a contract and an adjudicating court is required, of its own initiative, to investigate any potentially unfair terms in certain circumstances.  A contractual term in a consumer contract that is found to be unfair will be ineffective and, therefore, unenforceable.  However, if the relevant loan or mortgage contract is capable of continuing in existence without the unfair term, then that contract (other than the unfair term) will continue to bind the parties.

To be frank, I don’t think there is any realistic prospect that a court would consider the variable rate clause in your friend’s loan agreement to be unfair within the meaning of the Regulations. 

The right “to alter the rate of interest payable by the consumer” is explicitly excluded from the (non-exhaustive) list of unfair terms annexed to the Regulations, provided that the lender is required to notify the borrower of the rate change at the earliest opportunity and the borrower is free to dissolve the contract immediately.  Assuming there are no restrictions on redeeming the loan early, I really don’t see how your friend could argue that s/he is not in a position to “dissolve the contract immediately”.

Varying the amount of any “other charges for other financial services without notice” certainly requires a “valid reason” but, on my reading of the Regulations, the requirement for a valid reason to exist does not apply to the alteration of the applicable interest rate in a variable rate loan arrangement.  Even if I am wrong in this respect, I would certainly share Andy’s view above that a bank would have had perfectly valid reasons for altering the interest rate and there is certainly no requirement in the Regulations to specify those reasons, in advance, in the applicable loan agreement.

I really have no desire to get involved in another lengthy debate on these Regulations with any other poster but I hope the above has been of some assistance and hopefully your friend will get a fair hearing from the FSO.


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## Descart (7 Aug 2015)

Clubman,

I will try my best not to enter another pointless debate with the above poster, but I will draw your attention to the Memo of Understanding between the C.B.I. and the F.S.O.

*Roles of the Cooperating Authorities*
The respective roles of the Central Bank and the Financial Services Ombudsman are summarised below:

*The Central Bank*
The Bank is responsible for the prudential supervision of individual financial service providers, conduct of business, including protection of consumer interests, and the stability of the financial system overall.

*Financial Services Ombudsman*
The primary role of the Financial Services Ombudsman is to deal with complaints made by eligible consumers about the conduct of regulated financial service providers that have not been resolved by the providers. The Ombudsman is therefore the arbiter of unresolved disputes and is impartial.


In relation to Sarenco's post, second paragraph, specifically in relation to the F.S.O. not being allowed to interpret legislative provisions, this is an absolute falsehood, as if it was the truth, then how on earth would the F.S.O. be able to adjudicate on any contractual matter in dispute. This statement is subtafuge, to stop posters like you taking such actions against the banks. The banks are terrified of the unfair terms directive, as some of their contracts are invariably in breach of same. They do not want borrowers to challenge them on this basis. The F.S.O. can also refer matters to the C.B.I. for their opinion on same, if and when it deems it prudent to do so. Like the other posters, I hope this clarifies matters. I wish you success in the resolution of your complaint.


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## visigoth (7 Aug 2015)

Sarenco nicely replied to some of the similar points in another thread, but I respectfully disagree. I think the terms of SVR contracts were and are misleading to any objective third-party person, and maybe this is one of the reasons why they change them now into various “LTVs”, at least there is some idea on what those depend on.  As an average intelligent human being, I don’t understand what SVR means and why it does not vary as in “variable.” If a high SVR rate is not driven by a very low tracker rate, then why does not it vary? Trackers varied, fixed ones varied, but the BOI’s 4.5 SVR has not. Surely, all mortgage products move generally in one direction if they all depend on the same bank’s funding costs and if they do not cannibalize each other? Furthermore, a fixed rate may carry risks for the bank if the borrowing rate can only go up in the future – then it should be higher than the SVR that can be changed any time, therefore, no risk. But SVR is higher than the fixed one by almost 1% and therefore is nonsensical – it should be the other way around. 

My understanding is that the FSO is a formal vehicle for unhappy consumers to let off steam and they would not take any meaningful action whatsoever that may jeopardize "the recovery"; besides they have that convenient 6-year rule if you start asking good questions. ECJ could be a way to go if there are savvy people out there to do that.


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## Sarenco (7 Aug 2015)

Oh dear.

Descart, for what it's worth I have quoted directly from the relevant legislation regarding the scope of the FSO's role and responsibilities.  There is no subterfuge, agenda or undisclosed campaign on my part - I have simply reproduced the relevant provision from the statute that provided for the creation of the office of the FSO. 

The FSO was established as an informal, expeditious and independent mechanism for the resolution of consumer complaints.  The FSO is not engaged in the resolution of contract law disputes in the way a court would engage with such a dispute.  The FSO is specifically required by statue not to have regard for legal technicality or form in resolving any complaint that comes before it.

Accordingly, the role of FSO is completely different to that performed by the courts.  The FSO resolves disputes using various criteria which would usually not be used by the courts, such as whether the conduct complained of was improper or otherwise unreasonable.  The role and responsibility of the FSO is absolutely clear from its governing legislation and this distinct role has been repeatedly emphasised by our courts in multiple appeals.

There is a very clear legal framework and procedure in place for determining whether any particular term in a loan agreement is unfair within the meaning of the Unfair Contract Terms Regulations, which I have described in some detail in the above post.  The FSO has absolutely no role or place in that framework or procedure.

On the substantive issue, I wonder has it ever struck you as odd that no competent authority or consumer organisation anywhere in the EU has ever sought a court order to the effect that a provision in a loan agreement that permits a lender to vary the interest charged at its sole discretion is an unfair term within the meaning of the Directive?  Does it not strike you as somewhat extraordinary that in a political union with over 500 million inhabitants, no borrower ever thought to challenge the enforcement of a variable rate loan on this basis?

While you are obviously entitled to your opinion, I would suggest that you will struggle to find any court judgment anywhere within the EU that is directly on point to justify your argument.  Because it doesn't exist.


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## Bronte (7 Aug 2015)

Well Clubman you ended up with a legal quagmire which was precisely what you did not want.  Must say the new posters do not speak in lay mans terms so I for one am floundering.


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## Sarenco (7 Aug 2015)

To be fair Bronte, ClubMan did ask for a view on a legal question and I tried my very best to avoid using legal jargon, unnecessarily quoting legal precedent, etc.


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## Descart (7 Aug 2015)

Clubman,

Speaking in layman terms, the F.S.O. is required by statute not to have regard for legal technicality or form in resolving complaints. This is true. This means, that the F.S.O. can apply the laws of equity, fairness and common sense; as well as the law, the absence of which, sometimes acts as a straight jacket down in the civil courts. This does not mean that the F.S.O. cannot refer to statutory law when adjudicating on a complaint as Sarenco suggests.

In relation to Sarenco other postulations,

I advise him to look up the following ECJ case law

C-226/12 Constructora Principado SA V Jose Averez

C-472/11 Banif Plus V Csaba Csipai

C- 618/10 Banco Espanol de Credito

C- 488/11 Brusse V Jahani

C- 472/10 Invitel

These cases show how the ECJ assesses fairness in contracts and may have implication for how it would assess a variable rate term.

Oh yes, I nearly forgot about Mr Mohammad Aziz, a man evicted from his home in Spain, he challenged the Spanish Law in relation to how he was evicted using the Unfair terms in Consumer Contracts, and do you know what, he won. His case will cost the Spanish Banks potentially billions of euro, and the Spanish Government have to rewrite the said law in question.

In relation to why citizens in other jurisdictions have not challenged the variable rate term in their mortgage contracts, in terms of its unfairness, maybe it's down to the fact that the European Banks behave fairly in setting the variable rates, unlike the banks operating in Ireland, who continue profiteer on the backs of borrowers ( variable rate considerably higher in Ireland than elsewhere in Europe ), who for various reason stated in previous threads are not free to dissolve their contracts.

Best of luck, I hope your friend becomes the Irish version of Mr Aziz.


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## Bronte (7 Aug 2015)

Sarenco said:


> To be fair Bronte, ClubMan did ask for a view on a legal question and I tried my very best to avoid using legal jargon, unnecessarily quoting legal precedent, etc.



I understand your posts Sarenco. It's the argy bargey with the new posters that I do not understand, but if Clubman is progressing in his endeavour of understanding then so be it. I find it tedious, references to this and that UK law, eu directive, rather than actual cases that set the principle.  More like theoretical far fetched theories, conjecture, hypothesis and possibility than reality.


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## Sarenco (7 Aug 2015)

Descart said:


> Clubman,
> 
> Speaking in layman terms, the F.S.O. is required by statute not to have regard for legal technicality or form in resolving complaints. This is true. This means, that the F.S.O. can apply the laws of equity, fairness and common sense; as well as the law, the absence of which, sometimes acts as a straight jacket down in the civil courts. This does not mean that the F.S.O. cannot refer to statutory law when adjudicating on a complaint as Sarenco suggests.
> 
> ...



The behaviour of other European banks is irrelevant to this issue.  The Unfair Contract Terms Directive seeks to prevent unfair contractual terms in consumer contracts - it has nothing to do with a party's behaviour, fair or otherwise.

I am familiar with each of the cases listed in your post and none come close to supporting your contention that a provision in a loan contract that reserves a right to the lender to vary the interest rate charged to the borrower contravenes the Unfair Contract Terms Directive.

Mr Aziz successfully challenged a procedural Spanish law that prevented him from raising the Directive in the context of a repossession hearing - he did not successfully challenge a variable rate clause.

Again, you are entitled to your opinion but you cannot point to a single judgment - in any EU jurisdiction - that supports your position.  Strange that.


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## Sarenco (7 Aug 2015)

Bronte said:


> I understand your posts Sarenco. It's the argy bargey with the new posters that I do not understand, but if Clubman is progressing in his endeavour of understanding then so be it. I find it tedious, references to this and that UK law, eu directive, rather than actual cases that set the principle.  More like theoretical far fetched theories, conjecture, hypothesis and possibility than reality.



Understood but my concern is to ensure that it is clear to readers that these are simply theories - they do not represent the settled legal position.  I certainly agree that it's tedious.


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## Descart (7 Aug 2015)

In Ireland the settled legal position is that there is no settled legal position, as you state yourself, this particular term has never been contested in relation to unfair terms in contract regulations. Maybe Clubman's friend will change all that.

 Sarenco, now examine the post below!


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## Descart (8 Aug 2015)

Clubman,

Here is an ECJ ruling that specifically relates to a judgment where a court can assess whether a variable rate term in a mortgage contract can be assessed as being in contravention of the Unfair Term Directive, this is at odds with poster Sarenco's assertions.

Judgment in case C-143/13 - Bog Bogdan Matei, Ioana Ofelia Matei v SC Volksbank România SA

This case deals with Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts.

That directive stipulates that a court can invalidate certain terms in a consumer contract if it finds them unfair. However, the directive specifies certain terms (for example relating to “subject matter” or “price”) which are excluded from this provision so long as they are in “plain intelligible language”; that is, a court cannot invalidate them on grounds of unfairness providing they are in plain intelligible language.

In this case, two borrowers brought an action against Volskbank seeking to have certain unfair clauses invalidated, namely regarding variable interest rates and risk charges. The 3 appeals court referred requested a preliminary ruling from the Court of Justice, which ruled that the exclusion in the directive did not apply to these particular terms; that is, under the directive the national court was permitted to rule on the fairness or unfairness of variable interest rates and risk charges. The borrowers concluded two credit agreements with Volksbank in March 2008, totalling roughly EUR 120 000. Under the agreements, the bank reserves the right to alter the current rate of interest in the event of significant changes on the financial markets. Additionally, the agreements stipulate that, for making available the credit, the borrower may be required to pay the bank a ‘risk charge’, calculated on the basis of the balance of the loan and payable monthly throughout its duration, and totalling roughly EUR 40 000.

In 2010 the borrowers took the view that several terms in the credit agreements, including the terms relating to the variable rate of interest and the ‘risk charge’, were unfair and therefore invalid, under a Romanian law implementing Directive 93/13. The borrowers brought an action before a court of first instance seeking a declaration to this effect.

In December 2011 that court found that certain terms were unfair (and therefore invalid), including the term relating to variable rate of interest because of its vagueness. However, it did not find the ‘risk charge’ clauses unfair since it was not for the court to determine the specific risk the bank was exposed to or the effectiveness of the contractual guarantees.

Both the borrowers and Volksbank appealed against that judgment to a higher national tribunal, which observes that, while the Court has not already decided whether the specific contractual terms are covered by Directive 93/13, certain Romanian courts have already held that such terms are covered by it—or, more specifically, a Romanian national law which exactly replicates the relevant section of the directive. Those courts have taken the view that those terms can be assessed for their unfairness since the lender does not provide any service which would justify the risk charge and, additionally, the drafting of those terms is unclear. In those circumstances, the Romanian tribunal decided to stay the proceedings and to request a preliminary ruling from the Court regarding whether Directive 93/13 can be interpreted as covering the APR of a credit agreement secured by a mortgage (which is in particular made up of: the interest rate, whether fixed or variable; bank charges; and other costs included and defined in the credit agreement).

The ECJ Court ruled that “Directive 93/13 … must be interpreted as meaning that ‘main subject matter of the contract’ and ‘adequacy of the price and remuneration, on the one hand, as against the services or goods supplies in exchange, on the other’ do not, in principle, cover the types of terms in the credit agreements” in question, meaning that these terms can be assessed for their unfairness.


Interesting times ahead !


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## Sophrosyne (8 Aug 2015)

Bronte said:


> I understand your posts Sarenco. It's the argy bargey with the new posters that I do not understand, but if Clubman is progressing in his endeavour of understanding then so be it. I find it tedious, references to this and that UK law, eu directive, rather than actual cases that set the principle.  More like theoretical far fetched theories, conjecture, hypothesis and possibility than reality.


 
Bronte,

At the heart of this is a determination of whether a contract term is fair or reasonable.

A court can decide whether it is fair or reasonable by interpreting the contract term according to law and precedent cases.

But sometimes, as Mr. Bumble put it, "the law is an ass".

The FSO may find that "although the conduct complained of was in accordance with a law or an established practice or regulatory standard, the law, practice or standard is, or may be, unreasonable, unjust, oppressive or improperly discriminative in its application to the complainant."

This is a challenge to the status quo.

The question is not whether a lender can vary its interest rates.

It is whether it is clear to an _average borrower_ [without the benefit of legal knowledge] about the circumstances in which it can.

Vague terms such as "at the lender's discretion" which mean nothing to a borrower, are no longer acceptable.


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## Descart (8 Aug 2015)

Bronte,

This ECJ judgment is far from far fetched theories, conjecture or hypothesis, it is factual reality. Now all you have to do is read same.


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## Descart (8 Aug 2015)

Clubman,

I hope my posts will help you to formulate your complaint to the F.S.O. Do not forget that you can supplement your original complaint with additional information, like those referred to in the above posts.


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## Sarenco (8 Aug 2015)

Descart said:


> Bronte,
> 
> This ECJ judgment is far from far fetched theories, conjecture or hypothesis, it is factual reality.



That ECJ judgment is certainly a reality.  Unfortunately, it is not authority for your proposition that a provision in a loan agreement that reserves a discretion to a lender to vary the rate of interest charged during the term of the loan is an unfair term within the meaning of the regulations implementing the Unfair Contract Terms Directive.

There are literally millions of outstanding home purchase loans that have been written on this basis across the EU and yet you cannot point to a single judgment to justify your proposition.  Strange.


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## Descart (8 Aug 2015)

Sarenco,

That was never my proposition, as well you know, you might have stated that it was, but again you are taking liberties and putting words into my mouth. What I am stating is this: that it is possible for a mortgage interest variation term within a mortgage contract to be assessed by a court to be unfair,  as per the unfair terms directive, that is all. So, depending on the wording of the interest rate variation term in question and the mechanism for allowing such variation, a court could assess the term as being unfair.

I believe the variation clause in the BOI contract that Clubman refers to, could be assessed as being unfair.


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## Sophrosyne (8 Aug 2015)

Sarenco said:


> That ECJ judgment is certainly a reality.  Unfortunately, it is not authority for your proposition that a provision in a loan agreement that reserves a discretion to a lender to vary the rate of interest charged during the term of the loan is an unfair term within the meaning of the regulations implementing the Unfair Contract Terms Directive./QUOTE]
> 
> Could you elucidate?


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## ClubMan (9 Aug 2015)

Bronte said:


> Well Clubman you ended up with a legal quagmire which was precisely what you did not want.  Must say the new posters do not speak in lay mans terms so I for one am floundering.


Yeah - unfortunately this thread has gone the way of the other one and I've given up on it.
Maybe a certain amount of jargon is unavoidable in this context but I had hoped that some greater clarity/simplicity might have been possible.
Thanks to those who contributed even if I can't follow half of what was posted.
I'll let you know where the FSO complaint goes.
I suspect nowhere...
And going to law/court is not going to be an option here as the person involved would not have the time or resources.


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## Descart (9 Aug 2015)

Clubman,

Sorry that the thread turned technical, but it was not my fault. The simple answer to your question in the thread is, yes, depending on the wording within the variable rate clause.


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## ClubMan (9 Aug 2015)

Thanks.
Like Bronte I find it confusing when the thread descends (ascends? ) into legalese and what seem like innumerable cases/judgements (often in other jurisdictions) are cited.
Maybe that's necessary but it seems like arcane stuff.
Seeing that the UK FSO has been mentioned in relation to this issue I had a look at/search of their site but could find nothing that was obviously relevant to such a case - and even I had it seems to me that there's no guarantee that it's relevant to any similar complaint that may be made here. I did notice that the UK FSO often mention that they do not look at complaints/cases the same way as the courts do and the law is just one thing that they consider. 
When making the complaint to BoI and now FSO on my friend's behalf I tried to keep things simple:
"Here is the BoI clause - and here is the legislation that I think it breaches."
Other than that I have no interest in or expertise for arguing the legal case.
I'll let the FSO consider it.
They did propose mediation (always their first step nowadays?) but I don't think that my friend is interested in that.


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## Descart (11 Aug 2015)

To Sarenco,

Not only have I pointed to a judgment which indicates that variable rate clauses can be assessed for fairness under the unfair terms directive; the said judgment emanates from the highest court in Europe. So, once again, you have been proved wrong, not by me, but by the ECJ. Please stick to the settled legal position in future.


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## Sarenco (11 Aug 2015)

I never suggested that a court could not assess the fairness of a variable rate clause in a loan agreement.

What I did suggest was that:-

Ultimately only a court (not the FSO) can declare a term in a consumer contract to be unfair within the meaning of the Irish Regulations implementing the Unfair Contract Terms Directive;
It is improbable, in my opinion, that a court would declare a term which reserved discretion to a lender to vary the rate of interest at any time during the term of a variable rate loan to be unfair within the meaning of the Regulations; and
You cannot point to a single case, anywhere across the EU, where a court found such a clause to be unfair.
It is clear at this stage that the OP will not benefit from any further discussion on this issue.


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## Descart (11 Aug 2015)

I have just cited the case, please read it. A Romanian High Court has already found a variable interest rate term in Volksbank's mortgage contract to be unfair due to its vagueness.


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## Sarenco (11 Aug 2015)

In that case the rate of interest could only be altered in the specific circumstances set out in the loan agreement.  The Romanian court found that the wording of these specific circumstances was vague and therefore unfair as they amounted, in effect, to a discretionary right on the part of the lender to change the interest rate charged, which would not have been clear to a consumer at the time the loan was granted.

You have not, and cannot, point to a case where a loan term that reserved an explicit discretion to a lender to vary the rate of interest charged at any time during the term of the loan was found to be unfair.

If you are genuinely of the view that such a standard clause in a variable rate loan is unfair within the meaning of the implementing Regulations, could I suggest you present your case to the Central Bank and/or try and persuade a consumer agency to seek a court declaration to this effect?

Continuing to present your theories and arguments here is of no benefit to the OP.


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## Descart (11 Aug 2015)

Sarenco,

Clubman posted a BOI variable rate term that states that the lender can vary interest rates at it's discretion, upwards or downwards. This term is not transparent to the consumer as to what mechanism the bank will use to vary rates, indeed it is vague, therefore the term can be challenged as being an unfair term.

In relation to Volkbank's term, the bank stated it could vary interest rates in the event of significant changes on the financial markets. The Romanian Court found this term to be unfair ( indeed the Court  assessed the terms unfairness ).

This term is not unlike Danske bank's variable rate term which the Millar's challenged and which the Irish Appeal Court did not examine in terms of its unfairness (breached ECJ guidance ( Pannon judgment  )), but let us not open that can of worms, best kept swept under the carpet, or maybe articulated within an application to appeal to the Supreme Court.

Your right Sarenco, let's all just take it on the chin from the bank's, sure it's the Irish thing to do! Those Romanians, what do they know, and as for the ECJ, stop ruining the party.


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## Sarenco (11 Aug 2015)

The Romanian Court did indeed assess the fairness of the particular term and the ECJ, in response to a case stated from the relevant Romanian appeals court, found that the court could assess this term in accordance with the Directive.  I am not suggesting otherwise.

Also, the Romanian Court did indeed find that the clause in question was vague and hence unfair within the meaning of the implementing regulations in Romania.  Again, I am not suggesting otherwise.

However, the BOI variable rate term posted earlier in this tread is not written in vague language - it is written in clear, unambiguous language that would be readily understandable to an average consumer.  It is certainly true that the circumstances in which BOI might chose to exercise their contractual discretion are not necessarily transparent to a borrower but that does not mean that the term that reserves that discretion to BOI is vague or otherwise unfair.  The Unfair Contract Terms Directive invalidates unfair contractual terms in consumer contracts - it does not seek to regulate the actions of parties taken pursuant to a contractual right in a manner or in circumstances that a consumer considers unfair or non-transparent.

I have already suggested what action you might usefully take if you genuinely believe that the BOI variable rate clause is unfair within the meaning of the implementing regulations.

Posting your theories on an internet forum is not advancing your agenda in any practical way and, in particular, is of no benefit to the OP.


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## Descart (11 Aug 2015)

Sarenco,

Here is some of the actual ECJ judgment on the said case, that totally contradicts what you have just said in relation to the BOI clause. PLEASE READ:

73 In that connection, it should be recalled that the requirement of transparency of contractual terms laid down by Articles 4(2) and 5 of Directive 93/13, which, moreover, have identical scope, cannot be reduced merely to their being formally and grammatically intelligible (see, to that effect, _Kásler and Káslerné Rábai_, EU:C:2014:282, paragraphs 69 and 71).

74 It follows, in particular from Articles 3 and 5 of Directive 93/13 and Paragraph 1(j) and (l) and Paragraph 2(b) and (d) of the annex to that directive that it is of fundamental importance, for the purpose of complying with the requirement of transparency, to determine whether the loan agreement sets out transparently the reasons for and the particularities of the mechanism for altering the interest rate and the relationship between that mechanism and the other terms relating to the lender’s remuneration, so that the consumer can foresee, on the basis of clear, intelligible criteria, the economic consequences for him which derive from it (see, to that effect, _Kásler and Káslerné Rábai_, EU:C:2014:282, paragraph 73).


You need to read this judgment in its entirety before commenting on same again, as it is obvious you do not have a clue about that which try to impart to readers as knowledge on the subject of the unfair terms legislation.


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## Descart (11 Aug 2015)

Sarenco,

I believe you would be better off not commenting on this particular post again as you are clearly misinforming readers about the unfair term directive, maybe that is part of your agenda, I do not know. I do know that readers will now take most of your posts in relation to this thread with a pinch of salt as they are clearly inaccurate and erroneous.


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## Descart (11 Aug 2015)

The banks should be worried, very worried. The party in Ireland is over.


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## Descart (11 Aug 2015)

Clubman,

In relation to your friends predicament, inform the F.S.O. of the above mentioned case. I believe the F.S.O. will assess the said clause and find the clause to be unjust.


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## Sarenco (11 Aug 2015)

I really must ask you to stop the constant stream of disparaging remarks and personal abuse. 

The case cited above involved a complex provision in a consumer loan agreement where repayment amounts were determined by reference to the amount of the loan in a foreign currency as determined at the buying rate for the foreign currency applied by the bank. The ECJ held that the requirement that the contractual term must be drafted in plain intelligible language is to be understood as requiring not only that the relevant term should be grammatically intelligible to the consumer, but also that the contract should set out transparently the specific functioning of the mechanism of conversion for the foreign currency to which the relevant term refers and the relationship between that mechanism and that provided for by other contractual terms relating to the advance of the loan, so that that consumer is in a position to evaluate, on the basis of clear, intelligible criteria, the economic consequences for him which derive from it.

To put it in simple terms, the complexity of the terms of the contract in this case caused it to be unintelligible to an average consumer and therefore it was held to be unfair.

The relevant BOI variable rate term sets out in transparent terms how the interest rate on the variable rate loan may be varied upwards or downwards - any decisions in this regard are simply reserved to the discretion of the lender.  The term is not vague or ambiguous and would be readily understandable to a consumer.  To put it in colloquial terms, there is nothing "sneaky" about the term.  At the outset of the variable rate loan agreement, an average consumer, who is reasonably well informed and reasonably observant and circumspect, would fully understand that interest rates may be varied at the discretion of the lender from time to time and would readily understand the potential economic consequences of this term. 

Again, I would make the point that the Directive invalidates unfair terms in consumer contracts, not the fairness or otherwise of the circumstances in which a party may chose to exercise a contractual right.

In any event, if you are so convinced of your theory why not do something meaningful about it as suggested above?  Constantly postulating your theories on here achieves nothing.


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## Descart (11 Aug 2015)

Sarenco,

I do not think the penny has dropped with you, the case you have just referred to, was the case cited by the ECJ, but then they applied that principle to the Romanian case, which has a completely different variation clause ( not too dissimilar to the Millar V Danske Bank clause ). The application of the transparency principle can also be applied to the BOI clause, as the consumer has been given no reason for, or particularities as to how, the interest variation mechanism will apply to their account, save to say, that it is solely at BOI's discretion. This is without doubt an unfair term ( significant imbalance ). Tell me Sarenco, how can the BOI customer foresee on the basis of *clear* *intelligible* *criteria* the economic consequences for him that derive from the banks variable rate clause.

Read para 74 of the Volkbank Sa judgment again.

In relation to your own erroneous pontifications, why are you constantly on this site taking the side of the banksters ?

Making readers aware on this site, of recent ECJ judgments that might help them or their respective legal counsels in their battle with the banks I feel is worthwhile. I bet the banks wish I was not bringing these matters to the public's attention on this forum, just look at how many individuals have looked at this particular thread.


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## Descart (11 Aug 2015)

Sarenco,

Go to page 1 of the thread and read Asphyxia's post regarding what the FSA in the UK would regard as unfair within the valid reason category of the unfair term directive. He has highlighted same.

These include:

For any reason a firm deems fit, which is basically the same as solely at our discretion.


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## Sarenco (11 Aug 2015)

I am familiar with the case law.

The term under discussion in the BOI variable rate loan agreement is clearly not vague, unclear or otherwise unintelligible to an average, reasonably well informed consumer.

A borrower can readily foresee the economic consequences that derive from a term that reserves to BOI a discretion a right to vary the rate of interest.  Aside from anything else, a borrower would have received documentation containing the following warning in accordance with the Consumer Credit Act:

*WARNING: (Variable rate loans) THE PAYMENT RATES ON THIS HOUSING LOAN MAY BE ADJUSTED BY THE LENDER FROM TIME TO TIME.*

The economic consequences of such a loan term for a borrower really couldn't be made any clearer or more intelligible than that.

There is no requirement under the regulations implementing the Unfair Contract Terms Directive, the Consumer Credit Act or any other legislative provision for a lender to explain why it choses to exercise the discretion reserved to itself.  In all the cases that you have referenced, the relevant contractual term that was considered unfair was found to be unclear or otherwise unintelligible to an average customer - that is simply not the case with a clause that simply reserves a discretion to a lender to vary the rate of interest charged during the term of the loan.

Frankly, I suspect you may be flattering yourself to think that any bank is in any way concerned about your posts.  I am certainly under no illusion that any bank has any interest in mine.


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## Sarenco (11 Aug 2015)

Descart said:


> Sarenco,
> 
> Go to page 1 of the thread and read Asphyxia's post regarding what the FSA in the UK would regard as unfair within the valid reason category of the unfair term directive. He has highlighted same.
> 
> ...


 
In that case, why has the FSA not sought a court order to prevent such variable rate loans in the UK?


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## Asphyxia (11 Aug 2015)

I think the point that Descart is trying to make to you in regard to the BOI clause is that it is too broad a term, and because of that, it causes a signifigant imbalance in the consumers rights and obligations under the contract.

Article 3(2) of SI 27/1995 refers,

(2) For the purpose of these Regulations a contractual term shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations under the contract to the detriment of the consumer, taking into account the nature of the goods or services for which the contract was concluded and all circumstances attending the conclusion of the contract and all other terms of the contract or of another contract on which it is dependent.

in relation to the valid reason in which a bank may alter it's interest rate, 

the directive states,


( _b_ ) Subparagraph (_j_) is without hindrance to terms under which a supplier of financial services reserves the right to alter the rate of interest payable by the consumer or due to the latter, or the amount of other charges for financial services without notice where there is a valid reason, provided that the supplier is required to inform the other contracting party or parties thereof at the earliest opportunity and that the latter are free to dissolve the contract immediately.

It could well be argued in Court that a bank's sole discretion is not a valid reason, well not a fair valid reason within the terms of the directive.


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## Sarenco (11 Aug 2015)

You could certainly make that argument but, in my opinion, it is very unlikely to succeed and there is no precedent that I am aware of in this context that would support such an argument.

Varying the amount of any “other charges for other financial services without notice” certainly requires a “valid reason” but, on my reading of the Annex to the Regulations, the requirement for a valid reason to exist does not apply to the alteration of the applicable interest rate in a variable rate loan arrangement. Even if I am wrong in this respect, there is certainly no requirement in the Regulations to specify those reasons, in advance, in the applicable loan agreement or any additional requirement for those valid reasons to be fair.


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## Descart (11 Aug 2015)

You have to take a case to set a precedent, a bit like Mr Matei did in Romania. I do not think there has been any legal case taken in Ireland  against a bank, where the mortgage was challenged with regard to the unfair term directive. There may be one coming soon. Sarenco, your opinion on the matter is of no consequence to any court.


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## ClubMan (11 Aug 2015)

Sarenco said:


> A borrower can readily foresee the economic consequences that derive from a term that reserves to BOI a discretion a right to vary the rate of interest.  Aside from anything else, a borrower would have received documentation containing the following warning in accordance with the Consumer Credit Act:
> 
> *WARNING: (Variable rate loans) THE PAYMENT RATES ON THIS HOUSING LOAN MAY BE ADJUSTED BY THE LENDER FROM TIME TO TIME.*
> 
> ...


This is basically what BoI said in their final response letter.
I suspect that the FSO will back them on this.
I think that the discussion in this thread has run its course at this stage and is just rehashing what has been said already here, and in the other thread - and maybe elsewhere.


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## Sarenco (11 Aug 2015)

ClubMan said:


> I think that the discussion in this thread has run its course at this stage and is just rehashing what has been said already here, and in the other thread - and maybe elsewhere.



I couldn't agree more.


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## Brendan Burgess (12 Aug 2015)

Posting Guidelines reminder:

10 Do not abuse other posters
Controversy and argument are welcome. But please keep your comments civil. Attack an opinion by all means, but please don't attack the person expressing the opinion.Posts or threads which use language designed to be deliberately offensive or just to stir up trouble will be deleted.



If someone is abusive, either ignore them, or report the post. Responding in kind, just takes the thread off topic.


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## Descart (12 Aug 2015)

Clubman,

Mr Matei, in the ECJ case stated above, probably received the same letter from the bank when he complained, look what happened there. Do not be disillusioned.

Brendan,

Thank you.

Bronte,

have you any constructive opinion on the question asked in the post ?


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## Descart (12 Aug 2015)

IMPORTANT

Clubman,

Read the judgment referred to in its entirety, ask the F.S.O. to consider same when making an adjudication on your friends complaint. In particular refer them to para 76 which states:

76 As regards the contractual terms at issue in the main proceedings and, first, those allowing the lender unilaterally to alter the interest rate, the question arises as to the foreseeability for the consumer of increases in that rate which may be made by the lender according to the criterion, which is prima facie not transparent, relating to ‘significant changes in the money market’, even if that formulation is in itself grammatically plain and intelligible.
.
The ECJ found this variable rate term to be unfair, with regards to the terms foreseeability to the consumer of an increase in the bank's variable rate, imagine what they would make of BOI's variable rate term, where there is absolutely no foreseeability whatsoever for the consumer, indeed there is also no criterion specified for the consumer to assess any such increase in the bank's variable rate, just BOI's sole discretion in the matter. The ECJ would have a field day.

The F.S.O. can make an adjudication that the term complained of, is unjust, which in my opinion, it most certainly is.


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## ClubMan (12 Aug 2015)

Thanks Descart.
I'll bear that in mind if necessary when the FSO come back.


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## Descart (12 Aug 2015)

Clubman,

The judgment is c-143/13, I would advise your friend to write a short note to them a.s.a.p., referring them to the judgment, particularly para 76. I think it will significantly influence their determination on the complaint. The ECJ only gave this judgment in March of this year, so it is not widely known.

Best of luck.


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## todo (14 Aug 2015)

Descart said:


> IMPORTANT
> The F.S.O. can make an adjudication that the term complained of, is unjust, which in my opinion, it most certainly is.



I couldn't agree more Descart, it is a totally unjust term. Anybody who has a mortgage with Bank of Ireland is completely at their mercy.

But the FSO is a complete and utter waste of time and effort, they are just a free complaints department for the banks, payed for by the tax payer. Further the cost of appealing a decision made by the FSO is so prohibitive that it essentially removes a consumers right to justice.

The legal challenge should be taken to Bank of Ireland directly as a group.


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## ClubMan (14 Aug 2015)

todo said:


> Further the cost of appealing a decision made by the FSO is so prohibitive that it essentially removes a consumers right to justice.
> 
> The legal challenge should be taken to Bank of Ireland directly as a group.


How would the latter be cheaper?
Is it because a challenge to the FSO must go to the high court and the latter can go to a lower/cheaper court or something?
The reality is that few people - especially those under pressure with the mortgage due to clauses such as this and the high rates being charged by Irish lenders - can afford to take ANY sort of court action over this sort of thing.


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## todo (14 Aug 2015)

ClubMan said:


> How would the latter be cheaper?
> Is it because a challenge to the FSO must go to the high court and the latter can go to a lower/cheaper court or something?
> The reality is that few people - especially those under pressure with the mortgage due to clauses such as this and the high rates being charged by Irish lenders - can afford to take ANY sort of court action over this sort of thing.



I'm no expert, but I assume you would not need to go to the high court first and also a group could take the action rather then a single individual, thus spreading the cost and associated risk.


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## Sophrosyne (14 Aug 2015)

ClubMan said:


> The reality is that few people - especially those under pressure with the mortgage due to clauses such as this and the high rates being charged by Irish lenders - can afford to take ANY sort of court action over this sort of thing.


 
That is _the_ problem.

To these people the FSO is the final step and so the consequences of his decisions can be enormous.

Irrespective of European Directives, the FSO has under s 57 CI 2(c) of the Central Bank Act 1942, the power, to find that although the conduct of a financial institution was lawful, it may be unreasonable, unjust or oppressive in its application to the complainant.

In other words, he can look beyond what is lawful to what, _in layman’s terms,_ is just and reasonable.

Would the FSO use this power, even when specifically asked to do so by a complainant?

The inevitable consequences of finding in favour of the complainant would be an appeal by the bank to the High Court on the basis that its conduct was lawful.

How would the Courts handle the appeal?

Perhaps legislative changes are necessary.


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## Sarenco (14 Aug 2015)

todo said:


> The legal challenge should be taken to Bank of Ireland directly as a group.


 
The regulations implementing the Unfair Contract Terms Directive specifically provide that a consumer organisation may seek a Court declaration that a particular term in any mortgage contract is unfair.  There is nothing to stop group of interested parties forming a consumer organisation for this purpose and seeking a Court declaration to this effect.

I don't believe any such application in relation to a term that reserves a discretion to a lender to vary the rate of interest charged would be successful but that's a different matter.  The procedure is already there if people want to avail of it.

The High Court can only hear appeals from decisions of the FSO on points of law - the Court will defer to the FSO on matters falling squarely within his jurisdiction.


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## Sophrosyne (14 Aug 2015)

Sarenco said:


> The High Court can only hear appeals from decisions of the FSO on points of law - the Court will defer to the FSO on matters falling squarely within his jurisdiction.


 
My point is a more general one.

Let’s suppose the FSO decided that the ability of a bank to vary its interest rate, whenever it liked, how often it liked and by whatever percentage it liked for reasons known only to that bank and which it is not obliged to disclose to its customers was, from a _layman’s_ standpoint, unreasonable.

If the bank appealed to the High Court on a point of law, would the court defer to the FSO’s opinion in that case?


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## Sarenco (14 Aug 2015)

When you say "the ability of the bank" are you referring to the term in the contract that reserves this discretion to the bank?  

If you are, then your argument is really that the contract term is unfair within the meaning of the regulations implementing the Unfair Contract Terms Directive.  That's a legal interpretation and, no, the Courts would not defer to any determination of the FSO in this regard in any appeal.


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## Sophrosyne (14 Aug 2015)

Yes, obviously, I mean the contract term.

No I do not mean the Unfair Terms Directive.

I refer to the power granted to the FSO by the Central Bank Act, 1942.

See post #58.


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## Sarenco (14 Aug 2015)

To be frank, I am struggling to understand what you mean at this stage.

The FSO is not a court and “is required to act in an informal manner and according to equity, good conscience and the substantial merits of the complaint without regard to technicality or legal form”.

Determining that a contract term is unfair would be a legal determination, which is subject to appeal to the Courts.  And, no, the Courts would not defer to the judgment of the FSO in this regard.

The FSO can't simply ignore any clear, unambiguous contract terms before it, if that's your point.  If it did then that would certainly be a legitimate subject of appeal.


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## Sophrosyne (14 Aug 2015)

Why are you struggling?

It’s a simple enough issue.

Under what circumstances can the FSO make a finding for a complainant under s 57 CI 2 (2) (c), if the respondent has complied with the law?


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## Descart (14 Aug 2015)

Sarenco,

you might also remember Justice Geoghegan's eminent judgment in the Millar's case, where she referred to literature " Chitty on Contracts ", which stated, that contracts were a mixture of both law and of fact. Therefore any interpretation by the F.S.O. about contracts  must be deferred to by the courts, unless, of course, it is in relation to the F.S.O.'s interpretation of a specific matter of law which relates to the contract. Then the Court is the only organ of the state vested with the sole power for such interpretation.

Sophrosyne,

a good question.


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## Sarenco (14 Aug 2015)

Sophrosyne said:


> Under what circumstances can the FSO make a finding for a complainant under s 57 CI 2 (2) (c), if the respondent has complied with the law?


 
In respect of any particular complaint, the FSO is entitled to find that although the *conduct *complained of was in accordance with a law or an established practice or regulatory standard, the law, practice or standard is, or may be, unreasonable, unjust, oppressive or improperly discriminatory in its application to the complainant.  Any decision in this regard is subject to judicial review by the Courts (e.g. because unfair procedures were applied in reaching his determination) but otherwise the Courts will not substitute their own view for that of the FSO on the merits of the case.

However, that it completely different from declaring that a particular *term* in any consumer contract is unfair and therefore invalid.  Ultimately, only a Court can make that declaration.

Does that help?


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## Descart (14 Aug 2015)

Sarenco,

how about a case were the F.S.O. find that the conduct complained of is " unjust", the bank then appeal the decision to the High Court. How can the court make a finding on the F.S.O.'s determination, as the determination itself relates to the laws of equity, as oppose to statutory or common law.


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## Sophrosyne (14 Aug 2015)

Clubman’s point that for most people, courts are out of the question is very important. To put it simply:

The Joe Soap, without legal knowledge depends firstly _and lastly_ on the FSO’s findings.

The FSO is not constrained by technicality or legal form, but can - for want of a better term - take a layman’s view of what is just and reasonable.

“Conduct” has many different legal definitions, but if Sarenco’s view is taken, it would mean a completely unreasonably term in a contract could stand up in court.

What I am questioning is that if a court finds that it is lawful, is that of itself, a reason to overturn a finding of the FSO, which did not doubt that it was legal, but found that it was also unreasonable or unjust.


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## Sarenco (14 Aug 2015)

A Court could certainly find that a particular term in a consumer loan contract was not in and of itself unfair (and therefore invalid) without necessarily quashing a decision of the FSO that the conduct of a lender in exercising a discretion pursuant to that contract term was unreasonable, unjust, oppressive or improperly discriminatory in its application to the complainant. 

Is that what you're asking?


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## Sophrosyne (14 Aug 2015)

Define "conduct".


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## Sarenco (14 Aug 2015)

Acting or omitting to act in a particular manner.

I'm not trying to be clever - I'm just trying to draw out the distinction between a contract term itself being unfair and the exercise of a discretion pursuant to that contract term in a manner that is unreasonable, unjust, etc..  You seem to be conflating the two concepts.


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## Sophrosyne (14 Aug 2015)

Sarenco said:


> I'm not trying to be clever - I'm just trying to draw out the distinction between a contract term itself being unfair and the exercise of a discretion pursuant to that contract term in a manner that is unreasonable, unjust, etc..


 
I understand what you are doing. I am not conflating two concepts.

I was interested in what you mean by "conduct".


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## Sarenco (14 Aug 2015)

Fair enough but I'm not trying to give the word any meaning beyond its normal usage.


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## Descart (14 Aug 2015)

Sophrosyne,

In relation to the question " Can unfair terms in consumer contracts be used to challenge high variable rates " The answer is yes they can. However, I would have to agree with Sarenco in this instance, in that the High Court can only assess whether a term is unfair within a contract under current Irish regulations ( SI 27/1995 refer ). However the F.S.O. could deem the term to be unjust, oppressive etc. The problem emerges when the financial institution appeals the decision of the F.S.O. to the High Court when the F.S.O. has made such an adjudication.  How does the High Court deal with matters of equity, good conscience  etc.


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## Sophrosyne (14 Aug 2015)

Descart said:


> Sophrosyne,
> 
> The problem emerges when the financial institution appeals the decision of the F.S.O. to the High Court when the F.S.O. has made such an adjudication.  How does the High Court deal with matters of equity, good conscience  etc.


 
That was my original point exactly.

To me, there is an obvious conflict.

It is unclear to an average complainant as to how the complaint is to be tested and, therefore, how to express the complaint in the first instance in order to obtain the best possible outcome.


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## Sarenco (15 Aug 2015)

Except that there is no conflict, obvious or otherwise.

The Courts will not substitute their own views on the merits of the case.  The FSO is required to  determine a dispute on the basis set out in its governing legislation.  Assuming there is nothing wrong with the manner in which the FsO arrived at its decision, then that's the end of the matter.

The Courts will not substitute their own view for that of the FSO on the basis of their own conception of equity, fairness, etc.  This has been emphasised repeatedly by the Courts - there is no ambiguity on the point.

Again, this has nothing to do with the Unfair Contract Terms Directive.


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## Descart (15 Aug 2015)

Sarenco,

I agree with your assessment in your last post as to what a court should do. I cannot be certain in practice what the courts will do, in the circumstances outlined above.


In relation to the Unfair Terms directive I believe the recent ECJ ruling, as referred to, will cause a lot of financial institutions to re examine the variable rate term in their respective mortgage contracts, with a view to redrafting same. To do otherwise would be folly.


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## todo (17 Aug 2015)

This is a very interesting thread, in relation to Bank of Irelands mortgage clause.

From my point of view it seems very unfair that one side of the contract has all the power, i.e can change the rate when ever they please.



Asphyxia said:


> at all times when a variable interest rate applies to the Loan the interest rate chargeable will vary at the Lender’s discretion upwards or downwards



I know in this case the FSO will find against, stating that the complainant was advised to get legal advice and decided to accept the contract with this unfair term included.

But what is the general consensus on here, Is the Bank of Ireland contract clause unfair?


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## Descart (17 Aug 2015)

Todo,

If the B.O.I. variable rate mortgage clause, as drafted in this thread, was presented to the European Court of Justice for a determination, I have no doubt that the said court would determine the clause to be unfair.


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## Sarenco (17 Aug 2015)

The ECJ has no jurisdiction to determine whether or not any term in a consumer contract is fair.

The Directive is absolutely clear that Member States must ensure that persons or organizations, having a legitimate interest under national law in protecting consumers, may take action according to the national law concerned before their courts or competent administrative bodies for a decision as to whether contractual terms drawn up for general use are unfair, so that they can apply appropriate and effective means to prevent the continued use of such terms. 

The ECJ can obviously interpret the provisions of the Directive but it has no role in assessing the fairness or otherwise of any specific term in any consumer contract. 

The question therefore is whether the Irish Courts would determine the clause under discussion to be unfair.  I think that it highly improbable.


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## todo (17 Aug 2015)

Sarenco said:


> The question therefore is whether the Irish Courts would determine the clause under discussion to be unfair. I think that it highly improbable.



Is that because the clause is actually fair or is it because its not in the interest of the government to have Bank of Ireland straighten this out. Or is it because the courts "like" to side with the banks in cases like this?


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## Sarenco (17 Aug 2015)

To be fair todo, I have set out my views on the legal position in some detail in earlier posts in this thread and I don't think there is anything to be gained by simply repeating the points.

I certainly don't think that there is  any grand conspiracy or that our Courts are unduly disposed to find in favour of our banks in these matters.


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## todo (17 Aug 2015)

Sarenco said:


> To be fair todo, I have set out my views on the legal position in some detail in earlier posts in this thread and I don't think there is anything to be gained by simply repeating the points.
> 
> I certainly don't think that there is  any grand conspiracy or that our Courts are unduly disposed to find in favour of our banks in these matters.



Agreed, and I am grateful for your input.

If this is an unfair term, I would like to see it put right. Too many people struggling and allot is being made off their backs.


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## Sophrosyne (18 Aug 2015)

Todo,

I assume you are asking posters whether they _personally_ regard the BOI term as described by the OP as fair or unfair, as opposed to guessing the opinion of the Irish courts.

Is that correct?


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## Descart (18 Aug 2015)

Todo,

Sarenco's opinion is totally at odds with the ECJ on this issue, you can choose to believe what Sarenco believes to be unfair or what the ECJ has stated in a determination to be unfair in a variable rate clause. The option is yours.


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## Sarenco (18 Aug 2015)

The ECJ has determined that certain clauses are capable of being assessed but has not carried on any such assessment itself.  This is unsurprising as the assessment is a matter for the national courts or competent administrative bodies of member states - not the ECJ.


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## todo (18 Aug 2015)

Sophrosyne said:


> Todo,
> 
> I assume you are asking posters whether they _personally_ regard the BOI term as described by the OP as fair or unfair, as opposed to guessing the opinion of the Irish courts.
> 
> Is that correct?



Yes that is correct, what do normal hard working people think of the clause, fair or not fair.


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## todo (18 Aug 2015)

Descart said:


> Todo,
> 
> Sarenco's opinion is totally at odds with the ECJ on this issue, you can choose to believe what Sarenco believes to be unfair or what the ECJ has stated in a determination to be unfair in a variable rate clause. The option is yours.



I believe the term is completely unfair, for example Bank of Ireland could send me a letter tomorrow stating that they want to charge me an svr of 1000%, I could then goto the FSO and complain, who would turn around and tell me that I was advised to get legal advice at the time and that I signed the contract, so tough.

The problem being, you need very deep pockets and or be very well connected to gain any traction on an issue like this.

The cost of "trying" to get justice in this scenario is the greatest impediment to same.


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## Descart (18 Aug 2015)

Sarenco,

You are trying to muddy the waters again, the ECJ has given a determination in relation to the unfairness of the interest variation clause referred to. It has deemed the term to be unforseeable on behalf of the consumer and thus unfair. It has carried out the assessment during it's long judgment on the matter (in particular para 76 and 77 of the judgment refer ) However, as well you know, *it is for the referring court to verify that classification of those contractual terms having regard to the nature, general scheme and stipulations of the agreements concerned and the legal and factual context of which they they form part. *


A referring court or body has yet to disagree with a determination from the ECJ. This is how the ECJ adjudicates in relation to European Directives. Sarenco, probably knows this already but likes to confuse. If not, you need to read up on treaty law and how the ECJ adjudicates on disputed matters.

Todo,

in relation to the BOI variation clause  referred to above. I believe it is an unfair term ( zero criteria for foreseeability on behalf of the consumer as to how the interest variation mechanism functions and thus not transparent to the consumer )


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## SallyM (18 Aug 2015)

Personally I think the term is grossly unfair.  I have two variable rate mortgages with Bank of Ireland with this wording.  When I took out the mortgages I understood a variable rate mortgage would, eh, vary!!  ie go upwards or downwards.   I also believed (naively) that the interest rate charged would be somewhat in line with market conditions.  Instead I am stuck with 2 mortgages, the interest rate of which, only ever go's up (it never decreases) and which are over 100 times the ECB interest rate.

At the Ballsbridge meeting one of the speakers on the panel (I think he was a Barrister?) mentioned there were upcoming court cases that would deal with this/or a similar contract issue & how the major party to a contract should not have the power to change a fundamental part of the contract, such as the interest rate.  Sorry if that is not a good explanation - but it was something along those lines.
 I never heard anything else about it & was wondering has there been a case/is there an upcoming case that deals with this?


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## Descart (18 Aug 2015)

SallyM

you could send a complaint to the European Commission in relation to Ireland's lack of enforcement in relation to the unfair terms in contracts directive. ( i.e. Ireland allowing financial Institutions ( in which it is a significant shareholder in many cases) to have unfair terms in their contracts. ) The complaint procedure is free of charge and can be found on the European Commission's website.

In relation to the barrister, the man's name is Ross Maguire, there are several cases coming before the high court which are using the unfair terms directive as one of the pillars to their argument. The ECJ  Matei case, alluded to in this thread, will considerably bolster these respective arguments. Do not forget, a referring court has never disagreed with a determination of the ECJ, it is Treaty law


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## SallyM (18 Aug 2015)

Thanks Descart,

I see where you are talking about on the European Commission's website .  It looks fairly user friendly.  I will definitely do this.


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## Descart (18 Aug 2015)

Yes, spread the word, the more complaints from Irish Citizens in this regard, the more the Commission will take note that a problem exists in this Country, in relation to how the banks ( with the collusion of the State ) have drafted their variable rate terms which are in breach of it's unfair directive 93/13/EEC. They will take action against the Irish State.

Remember, SallyM, the complaint has to be against the Irish State and not the bank for the Commission to investigate. Having said that, highlight the fact that the Irish state has a large shareholding in all the Irish Banks and has turned a blind eye to breaches of European Unfair Terms Directive 93/13/EEC by the banks. The directive requires all Member States to have effective enforcement provisions with regard to this Directive, something which I am afraid is sorely lacking within the Irish State.


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## Sarenco (18 Aug 2015)

Descart said:


> Sarenco,
> 
> You are trying to muddy the waters again, the ECJ has given a determination in relation to the unfairness of the interest variation clause referred to. It has deemed the term to be unforseeable on behalf of the consumer and thus unfair. It has carried out the assessment during it's judgment (in particular para 76 and 77 of the judgment refer ) However, as well you know, *it is for the referring court to verify that classification of those contractual terms having regard to the nature, general scheme and stipulations of the agreements concerned and the legal and factual context of which they they form part. *


 
I am not trying to muddy any waters.  I am simply correcting your misleading suggestion to the effect that the ECJ could determine that a clause in any consumer contract is unfair.  That is simply untrue.

The ECJ has repeatedly stated in numerous decisions that it is for the referring court, and not the ECJ, to examine the fairness of a particular term.

I assume you are referring to para 76 and 77 of the SC Volksbank Romania SA decision.  In that case, the lender could only vary the interest charged under the relevant loan contract where there had been ‘significant changes in the money market’, which the ECJ stated was prima facie not transparent.  However, the ECJ did not determine that the clause in that case was unfair but stated that this was a question that must be examined by the referring court.


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## Descart (18 Aug 2015)

*Sarenco,*

The first paragraph is for your attention, The ECJ interprets European Law, it then gives its determination. In the Matei case referred to above, the ECJ has stated the said terms in question are effectively unfair within the context of the unfair terms directive. The Romanian court has now got the clarification that it required as how to interpret the said clauses that it referred to the ECJ. Please read:


*What does the CJEU do?*
The Court gives rulings on cases brought before it. The most common types of case are:


**interpreting the law* *(preliminary rulings) – national courts of EU countries are required to ensure EU law is properly applied, but courts in different countries might interpret it differently. If a national court is in doubt about the interpretation or validity of an EU law, it can ask the Court for clarification. The same mechanism can be used to determine whether a national law or practice is compatible with EU law.
*enforcing the law *(infringement proceedings) – this type of case is taken against a national government for failing to comply with EU law. Can be started by the [broken link removed] or another EU country. If the country is found to be at fault, it must put things right at once, or risk a second case being brought, which may result in a fine.
*annulling EU legal acts *(actions for annulment) – if an EU act is believed to violate EU treaties or fundamental rights, the Court can be asked to annul it – by an EU government, the [broken link removed], the European Commission or (in some cases) the [broken link removed].
Private individuals can also ask the Court to annul an EU act that directly concerns them.
*ensuring the EU takes action *(actions for failure to act) – the Parliament, Council and Commission must make certain decisions under certain circumstances. If they don't, EU governments, other EU institutions or (under certain conditions) individuals or companies can complain to the Court.
*sanctioning EU institutions *(_actions for damages_) – any person or company who has had their interests harmed as a result of the action or inaction of the EU or its staff can take action against them through the Court.

You are correct in saying that it is for the referring court to decide as to the fairness of the particular term in question, but an ECJ ruling on the term referred to it and it's subsequent guidance is always complied with by the referring court.


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## Sarenco (18 Aug 2015)

Descart said:


> In the Matei case referred to above, the ECJ has stated the said terms in question are unfair within the context of the unfair terms directive.



No it didn't and nothing else in your post suggests otherwise.

Amongst other things, the ECJ interprets EU law on referral from national courts.  It does not determine whether a term in any specific consumer contract is unfair within the meaning of relevant national regulations implementing the Directive - that is exclusively a matter for national courts and competent administrative authorities.

There is no ambiguity on this point.


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## Sarenco (18 Aug 2015)

I'm afraid the subsequent edit to your post is also incorrect - the ECJ did not state that the relevant terms in the Matei case were "effectively" unfair (whatever that means).  On the contrary, the ECJ stated the fairness of the relevant terms was a matter that must be examined by the referring court.

Nobody is suggesting that an Irish Court would not accept the interpretation of the ECJ on a point of European law.


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## Descart (18 Aug 2015)

Sarenco, you are incorrect again,

The ECJ stated in the Matei judgment

76 As regards the contractual terms at issue in the main proceedings and, first, those allowing the lender unilaterally to alter the interest rate, the question arises as to the foreseeability for the consumer of increases in that rate which may be made by the lender according to the criterion, which is prima facie not transparent, relating to ‘significant changes in the money market’, even if that formulation is in itself grammatically plain and intelligible.

Lack of foreseeability by a consumer within the interest variation clause equates to non transparency within that clause for the consumer, and as such is unfair. ( see ECJ invitel and RWE vertrieb judgments ).


While it is for the National Courts of the Member States to assess the fairness of terms under the directive, it is for the Courts of Justice of the E.U. to interpret the concept of an unfair term and the criteria to be applied by the National Court when assessing the fairness of the term. It has done so. All that remains is for the National Court to apply the said criteria.


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## Descart (18 Aug 2015)

Sarenco,

Listen to me this time. The ECJ legally interprets the concept of an unfair term and the criteria to be applied by the respective National Court when assessing the fairness of the term. In the Matei case the ECJ gave its assessment and outlined the criteria for such an assessment. The National Court must now apply this criteria when making its own assessment as to the fairness or otherwise of the term in dispute.

Likewise, if an Irish Court referred the BOI variable interest rate clause in question, to the ECJ, the ECJ would outline the criteria to be applied by the referring Irish Court when assessing the fairness of the BOI variable rate term. The Irish Court must then apply this criteria when making it's own assessment as to the fairness of the BOI clause.


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## Sarenco (18 Aug 2015)

If a national court is in any doubt regarding the correct interpretation of any EU law (including the Unfair Contract Terms Directive), it can request clarification from the CJEU and national courts are required to apply all such laws in accordance with any such clarification (so, no they can't ignore any such clarification).  However, only national courts or competent administrative authorities can determine whether any specific term in a consumer contract is unfair within the meaning of the national laws implementing the Directive.


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## Brendan Burgess (18 Aug 2015)

Guys 

I am sure that in the 6 pages, you must have answered the original question.

As it's now descending into personal attacks, I am closing the thread. 

Brendan


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