# Banks charging penalty interest on arrears when outside MARP



## 44brendan (4 Jun 2015)

_Copied from another thread - Brendan _


there is a further downside to being excluded from MARP. That is the re-imposition of penalty interest rate (surcharge) on the arrears element of the facility. In at least one lender,  that penalty rate if .5% per month or 6% pa on top of the standard rate. If that were applied it would rapidly erode any equity in their property!! Surcharge rate is likely to be a standard for all banks!


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## Brendan Burgess (6 Jun 2015)

Hi brendan

While most contracts allow the lenders to impose penalty interest on arrears, I was not aware that any lender does it. 

Do you know of any lender which actually imposes it? 

Brendan


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## ClubMan (6 Jun 2015)

Do you mean a penalty on top of the normal interest charged on the mortgage (and arrears)?


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## Brendan Burgess (6 Jun 2015)

Generally, the contracts allow them to charge additional interest on the arrears portion only. 

So let's say you have a mortgage of €100,000 @4% which includes €10,000 arrears with additional interest of 6% per annum.

In a year, you would be charged €4,000 + €600. 

Under the MARP, they are not allowed to charge such penalty interest. But even before the MARP, I don't think that any lender was still charging it.  Irish Nationwide charged 5% per quarter at one stage. The sub-primes actually charged it as well.

It's commonplace on business loans and I have seen it on buy to lets as well.

By the way, I think it would be wholly justified on tracker mortgages. 

Brendan


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## Asphyxia (6 Jun 2015)

The penalty fee to be charged to consumers in arrears must be clearly stated within the Mortgage contract terms.The said clause should also clearly state how and when these penalties will be applied The penalty must not be excessive otherwise it will risk as being classed as an unfair term.


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## Brendan Burgess (9 Jun 2015)

I see this wording from a Bank of Ireland offer of a split mortgage 


Fees and charges  relating to arrears
We may charge extra interest at the rate of 0.50% a month or part month (equal to 6% a year) on any amount you do not pay by its due date. This extra interest is to cover the increased administration and related charges we have as a result of the arrears and is added to the normal interest charged on your mortgage.

We do not charge this extra interest if you are in our home Mortgage Arrears Resolution Process, as long as you co-operate with us during the process.

You can avoid or reduce extra interest charges by making sure your mortgage account does not go into arrears or, if this is not possible, by paying off any existing arrears as soon as possible.


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## Asphyxia (9 Jun 2015)

I believe with the details and wording you have supplied, that the bank has complied with its obligations under section 134 of the Consumer Credit Act 1995. However I do not have details of the split loan interest rates. For example, if the mortgage was 50% tracker at 1% above the ECB rate and the other half of the mortgage was a variable rate of 4.75%, then it could be argued that an annualized default penalty interest rate of 6% is excessive.

I cannot post a link on the matter as I do not have the required amount of posts on this site !


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## 44brendan (9 Jun 2015)

Generally the default interest rate is a standard across the board. I.e. Would be .5% pm in at least 3 banks that I am aware of. This penalty charge is included in "General terms and Conditions" and while it may be considered to be excessive it is perfectly legal. An exclusion from MARP in the case of a HL or an arrears situation for any other loan will generally lead to a surcharge rate being applied.
Banks are prohibited from charging surcharge where the borrower is covered by the MARP process. I am aware of a number of loan facilities where the standard rate is less than 1.5% and the surcharge rate is 6%pa.


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## Asphyxia (9 Jun 2015)

All default penalty interest rates are perfectly legal until they are challenged as being excessive , either through the financial ombudsman's office or through the courts.

Again I cannot post a useful link on this matter.


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## ClubMan (13 Jun 2015)

Asphyxia said:


> All default penalty interest rates are perfectly legal until they are challenged as being excessive , either through the financial ombudsman's office or through the courts.


How are distressed borrowers expected to foot the costs involved in going to court over such a matter and taking the risk that they might lose (and maybe face additional costs)?!


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## Brendan Burgess (13 Jun 2015)

I think it's a theoretical question. None of the lenders actively charge it at present.  If they do, I doubt if the courts would find 6% p.a. excessive. 

I certainly think that lenders should be allowed charge additional interest on arrears on trackers, even under MARP. 

Brendan


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## ClubMan (2 Jul 2015)

Somebody with BoI with a relatively small amount of arrears.
c. €5K on a balance of €220K with a property worth maybe €250K-€300K.
Outside of MARP at the moment as far as I can tell (although it's never easy with BoI!).
According to a recent letter 0% is charged on the arrears - is this standard practice? For BoI? For most or all lenders?


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## Bronte (16 Oct 2015)

Asphyxia said:


> The penalty must not be excessive otherwise it will risk as being classed as an unfair term.



What does this mean?


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## Bronte (16 Oct 2015)

Asphyxia said:


> All default penalty interest rates are perfectly legal until they are challenged as being excessive , either through the financial ombudsman's office or through the courts.
> 
> .



And this?  How can you take a case that the penalty interest rate is excessive?  How much is excessive?  Has there ever been a case?


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## Asphyxia (17 Oct 2015)

Bronte said:


> What does this mean?


It means exactly what it says.


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## Asphyxia (17 Oct 2015)

There has never been such a case taken in an Irish court, as all lenders in Ireland do not charge excessive penalty interest rates, indeed the main providers do not charge any supplementary penalty interest rate at all. I think there have been a few cases successfully taken in the U.K.


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## Sarenco (17 Oct 2015)

Really?  I am not aware of any such cases.

The UK ombudsman has certainly upheld a number of complaints relating to charges applied by lenders to mortgage accounts in arrears for a variety of reasons but I am unaware of any cases where the UK ombudsman or courts found an interest charge to be unfair on the basis that it was "excessive".


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## Rebuttal (17 Oct 2015)

Sarenco said:


> Really?  I am not aware of any such cases.
> 
> The UK ombudsman has certainly upheld a number of complaints relating to charges applied by lenders to mortgage accounts in arrears for a variety of reasons but I am unaware of any cases where the UK ombudsman or courts found an interest charge to be unfair on the basis that it was "excessive".





Sarenco said:


> Really?  I am not aware of any such cases.
> 
> The UK ombudsman has certainly upheld a number of complaints relating to charges applied by lenders to mortgage accounts in arrears for a variety of reasons but I am unaware of any cases where the UK ombudsman or courts found an interest charge to be unfair on the basis that it was "excessive".



Sarenco,

you are probably aware to these types of cases in the good old U.S.A.


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## Sarenco (17 Oct 2015)

I'm not actually but in any event the Unfair Contract Terms Directive has no application in the US.


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## Rebuttal (18 Oct 2015)

Sarenco said:


> I'm not actually but in any event the Unfair Contract Terms Directive has no application in the US.


Well you would want to look the cases up, they are there, but you are right, there is no unfair terms directive in the USA, they only judge items as being fair or unfair, excessive penalty interest rates on arrears is class as excessive, simple really, maybe the European Union could take a page out of the USA's legislation.


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## Sarenco (18 Oct 2015)

Why would I want to look up US case law?  It has no relevance here.

I very much doubt any US case law renders void any contractual term on the basis that it is an unfair contractual term - that is simply not a recognised legal concept under US law.  The US courts certainly apply the common law concept of unenforceable liquidated damages but that is a different matter.


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## Rebuttal (18 Oct 2015)

Sarenco said:


> Why would I want to look up US case law?  It has no relevance here.
> 
> I very much doubt any US case law renders void any contractual term on the basis that it is an unfair contractual term - that is simply not a recognised legal concept under US law.  The US courts certainly apply the common law concept of unenforceable liquidated damages but that is a different matter.


Sarenco,

Seeing that you do not like looking at the common law based jurisdiction of the U.S.A. and how the federal courts deal with banks who charge excessive penalties if the borrower is in arrears. How about the common law jurisdiction of Canada which, like Ireland, is based on the common law legal system of England. They have a good piece of statutory legislation called the " interest Act " you should give it a read, in particular section 8.


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## Sarenco (18 Oct 2015)

Why would I want to do that?  Canadian legislation may be of academic interest but it has no application or relevance in Ireland.

I was simply responding to Asphyxia's suggestion that there were cases in the UK where clauses imposing interest on arrears were voided as being unfair contractual terms.  There are no such cases as far as I am aware.


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## Sarenco (18 Oct 2015)

As regards your edited post, the fact that Canada is a common law jurisdiction is irrelevant.  Canadian legislation does not apply here.


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## Rebuttal (18 Oct 2015)

The Irish Supreme Court sometimes consult with judgments, determinations in other jurisdictions when seeking guidance on a legal matter presented to them. To state that the laws and judgments in other common law jurisdictions are irrelevant is rather obtuse.

As regards the irrelevant edited post dig, the section 8 addition was to draw your attention to the particular section of relevant legislation, and besides I am entitled to edit anything that I have posted I do not see a problem with that.


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## Sarenco (18 Oct 2015)

Judicial precedents from other common law jurisdictions may be of persuasive authority in the Irish courts.  Legislation enacted by other common law jurisdictions has no application in the Irish courts.

Again, Canadian legislation does not apply in Ireland.  The fact that Canada is a common law jurisdiction is irrelevant in this regard.

Did I suggest you were not entitled to edit a post? 

I have no idea why you are drawing my attention to a section of a Canadian statute that has no application in Ireland.


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## Rebuttal (18 Oct 2015)

Tua sunt perquam valde molesta et magnificis commemts.


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## Sarenco (18 Oct 2015)

Huh?


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## Rebuttal (18 Oct 2015)

I am speaking for your benefit in the language of the common law.


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## Sarenco (18 Oct 2015)

Well, Google throws up a blank.  

Anyway, when did English stop being "the language of the common law"?


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## Rebuttal (18 Oct 2015)

I suppose when the wigged powers that be allowed words like

Affidavit for " he has sworn ",

Bone fide for " in good faith "

Caveat emptor for " let the buyer beware "

Certiorari  for " to be appraised "

Contra proferentum for " against the drafter "

Ignorantia juris non excusat for " ignorance of the law does not excuse "

And one I actually like,

Mortgage for " death pledge "

to be used in our great common law legal processes.


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## Sarenco (18 Oct 2015)

Many thanks for clearing that up.  We'll leave it there so.


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