Poor wording on an Arrears letter

[itsallwrong]

Friend got a letter from PTSB when he agreed to pay some of his arrears.
The wording is:
'Your arrears balance will also build up interest as part of the overall balance in accordance with the terms and conditions of the account'.

But The Code of Conduct on Mortgage Arrears says in

CHAPTER 3
PROVISIONS
9. Lenders are restricted from imposing charges and/or surcharge interest on [FONT=Calibri,Calibri][FONT=Calibri,Calibri]arrears [/FONT][/FONT]arising on a mortgage account in [FONT=Calibri,Calibri][FONT=Calibri,Calibri]arrears [/FONT][/FONT]to
which this Code applies and in respect of which a [FONT=Calibri,Calibri][FONT=Calibri,Calibri]borrower [/FONT][/FONT]is co-operating reasonably and honestly with the lender in the
Mortgage Arrears Resolution Process. (Lenders will have been notified individually of the charges to which this applies.)

So by definition the wording is misleading and doing one thing only - to scare someone in arrears even more.

 

[Brendan Burgess]

Hi

That wording is fine and is in full compliance with the Code.

Lenders are not allowed to charge surcharge interest i.e. interest in excess of the ordinary rate on the arrears.

Brendan

 

[mercman]

Brendan,

I was under the impression that lenders are not allowed charge interest on interest !!

 

[Brendan Burgess]

Brendan,

I was under the impression that lenders are not allowed charge interest on interest !!

Hi mercman

Compound interest is charged to every borrower every day.

Simple interest, which is what you describe, is extremely rare in the banking industry.

In general, lenders charge interest on the balance outstanding.

The balance outstanding is the previous balance + interest - repayments made.

So interest is charged on interest.

And if you miss repayments, i.e. go into arrears, you are charged interest on a higher balance than you would otherise have been charged.