Could a borrower challenge mortgage rates in a variable rate contract as unfairly high?

[Brendan Burgess]

Coyote
That is brilliant.
I have removed the quotes to make it easier to read

And I have attached it as a Word document

Brendan

 

[Kingoftench]

There is no harm in trying to get the CCPC to act on this. You would have to be an impacted customer however. I don't think there is much chance but it's the cost of a stamp.

Here is a sample letter if anyone wants to try. You would need to annex copies of the correspondence from Pepper as well. Letters are better than emails in my experience.


Director of Consumer Affairs
Competition and Consumer Protection Commission
Bloom House
Railway Street
Dublin 1
D01 C576

Dear Director,

I am a mortgage holder with Pepper Finance Corporation Ireland. Since [Date 1] I have been charged a variable rate of 4.5% and I have made agreed monthly payments in full. Pepper wrote to me on [Date 2] to increase it to [x%] and on [Date 2] to increase it again to [y%]. This is causing me actual loss as my mortgage payments have increased from [€A] to [€B] per month.

I believe that this contravenes my consumer rights under S.I. No. 27/1995 - European Communities (Unfair Terms in Consumer Contracts) Regulations, 1995, specifically section 3(2) below:

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.

The increase in rates by [Z%] creates a significant imbalance to my detriment. I do not have an option to switch lender or choose a different rate. The loan was sold my [previous lender] to Pepper Finance Corporation Ireland and the latter offers no fixed rates unlike my previous lender. I do not believe that Pepper Finance Corporation Ireland qualifies for the exception under Schedule 3, Section 2(c) of the aforementioned SI regarding a "financial instruments and other products or services where the price is linked to fluctuations....financial market rate that the seller or supplier does not control". To my knowledge Pepper Finance Corporation Ireland's own costs have not increased by this amount, nor has it made a clear claim in this regards. In sum, this additional cost imposed on me amounts to an abuse of a contractual term which is unfair to me as a consumer. There are several thousand other customers of Pepper Finance Corporation Ireland who are likely in the same position as me.

I urge you to make use of your legal powers to under Section 8 of the aforementioned SI to apply to the High Court to prohibit Pepper Finance Corporation Ireland from making use of this unfair contractual term.

I look forward to your response.

Sincerely

Completed and send to them this evening thanks a million for this we really appreciate your time and effort

 

[Kingoftench]

Good luck and let us know how you get on!

I'm curious as to how they will reply.

I will keep you posted looking forward to how they reply too thanks again

 

[Brendan Burgess]

If someone does want to challenge the rates, here is some good information in an article by Charlie Weston.

Mortgage misery for thousands as Start and county councils hike interest rates

Thousands of people whose mortgages are handled by Start are being hit with huge interest rate hikes, while local authorities are also raising the rates on home loans they have issued.

www.independent.ie

In a letter from Start seen by the Irish Independent, it justified the most recent increase on the basis of what it called “changes to the cost of funding your loan”.

Start did not reply when asked to explain why customer rates were rising when the vulture funds that bought the mortgages, which Start services, funded them with finance as low as 1pc fixed for up to 35 years, according to the publicly available prospectuses for these transactions.

Not only did they fund them at 1%, they typically bought these mortgages at a substantial discount.

Brendan

 

[Brendan Burgess]

There is no harm in trying to get the CCPC to act on this. You would have to be an impacted customer however. I don't think there is much chance but it's the cost of a stamp.

Here is a sample letter if anyone wants to try. You would need to annex copies of the correspondence from Pepper as well. Letters are better than emails in my experience.


Director of Consumer Affairs
Competition and Consumer Protection Commission
Bloom House
Railway Street
Dublin 1
D01 C576

Dear Director,

I am a mortgage holder with Pepper Finance Corporation Ireland. Since [Date 1] I have been charged a variable rate of 4.5% and I have made agreed monthly payments in full. Pepper wrote to me on [Date 2] to increase it to [x%] and on [Date 2] to increase it again to [y%]. This is causing me actual loss as my mortgage payments have increased from [€A] to [€B] per month.

I believe that this contravenes my consumer rights under S.I. No. 27/1995 - European Communities (Unfair Terms in Consumer Contracts) Regulations, 1995, specifically section 3(2) below:

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.

The increase in rates by [Z%] creates a significant imbalance to my detriment. I do not have an option to switch lender or choose a different rate. The loan was sold my [previous lender] to Pepper Finance Corporation Ireland and the latter offers no fixed rates unlike my previous lender. I do not believe that Pepper Finance Corporation Ireland qualifies for the exception under Schedule 3, Section 2(c) of the aforementioned SI regarding a "financial instruments and other products or services where the price is linked to fluctuations....financial market rate that the seller or supplier does not control". To my knowledge Pepper Finance Corporation Ireland's own costs have not increased by this amount, nor has it made a clear claim in this regards. In sum, this additional cost imposed on me amounts to an abuse of a contractual term which is unfair to me as a consumer. There are several thousand other customers of Pepper Finance Corporation Ireland who are likely in the same position as me.

I urge you to make use of your legal powers to under Section 8 of the aforementioned SI to apply to the High Court to prohibit Pepper Finance Corporation Ireland from making use of this unfair contractual term.

I look forward to your response.

Sincerely

Hi Coyote

Here is the response from the CCPC.

 

[NoRegretsCoyote]

Here is the response from the CCPC.

This is unfortunately correct. I was looking at the original 1995 SI here. There have been a lot of amendments, see here and one of them must have transferred certain powers to the Central Bank. The Central Bank website confirms that unfair terms for financial services are its responsibility.

Sorry if I've wasted anyone's time but at least something has been learned.

 

[Brendan Burgess]

Sorry if I've wasted anyone's time but at least something has been learned.

You have wasted no one's time.

The draft applies equally well to the Central Bank who equally will do nothing about it.

But it's still no harm in telling them what they should be doing.

And while the CCPC does not have a role under the legislation, it should be advocating for consumers and should not be excusing it's idleness by saying it is someone else's job. It has shown absolutely no interest in the mortgage rate issue over the years and no interest in the tracker issue either.

Brendan

 

[NoRegretsCoyote]

The draft applies equally well to the Central Bank who equally will do nothing about it.

When I have time I will try to dig out the precise legal basis the Central Bank is obliged to operate under.

It may be worth someone's time highlighting the issue. At some point they might act.

 

[Sarenco]

This is unfortunately correct. I was looking at the original 1995 SI here. There have been a lot of amendments, see here and one of them must have transferred certain powers to the Central Bank. The Central Bank website confirms that unfair terms for financial services are its responsibility.

Ah, I see that the CCPC, the Central Bank and ComReg are now each listed as an "authorised body" for this purpose under the Consumer Rights Act 2022 (which consolidates various consumer protection laws) - sorry, I missed that change.

 

[Sarenco]

The draft applies equally well to the Central Bank who equally will do nothing about it.

You're probably right but the issue is starting to get some airtime - I heard Charlie Weston talking about it on the radio this morning.

In addition to writing to the Central Bank, I think I would drop an email to my local TDs and request them to raise the issue with the Minister for Finance.

 

[NoRegretsCoyote]

I've updated the legal references here and re-addressed the letter to the Central Bank.

@Sarenco - I think your eye for this is more trained than mine and grateful if you could highlight any error. Full act is here.




Governor
Central Bank of Ireland
North Wall Quay
North Dock
Dublin
D01 F7X3

Dear Governor,

I am a mortgage holder with Pepper Finance Corporation Ireland. Since [Date 1] I have been charged a variable rate of 4.5% and I have made agreed monthly payments in full. Pepper wrote to me on [Date 2] to increase it to [x%] and on [Date 2] to increase it again to [y%]. This is causing me actual loss as my mortgage payments have increased from [€A] to [€B] per month.

I believe that this contravenes my rights under the Consumer Rights Act 2022, Section 130(1) which states that:

A term of a consumer contract is 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.

The increase in rates by [Z%] creates a significant imbalance to my detriment. I do not have an option to switch lender or choose a different rate. The loan was sold my [previous lender] to Pepper Finance Corporation Ireland and the latter offers no fixed rates unlike my previous lender. To my knowledge Pepper Finance Corporation Ireland's own costs have not increased by this amount, nor has it made a clear claim in this regard. In this regard I do not believe that it can make use of the exemption under Schedule 5 Part 2, 4(a) of the Act relating to "transactions....where the price is linked to fluctuations in a stock exchange quotation or index or a financial market rate that the trader does not control."

I also draw your attention to Section 130(3) of aforementioned Act which states that:

(3) In assessing whether a term of a consumer contract complies with the requirement of good faith, regard shall be had in particular to— (a) the strength of the bargaining positions of the parties,

As I have outlined, my bargaining position as a mortgage holder is essentially non-existent as I do not have the option to switch to another lender, nor does Pepper offer other rates which I could avail of.

I urge the Central Bank to make use of its legal powers under Section 137 of the aforementioned Act to apply to the Circuit Court as an authorised body for a declaration that this consumer contract is unfair.

I look forward to your response.

Sincerely

 

[Sarenco]

Looks fine to me but I would be inclined to reference the response from the CCPC to the effect that the Central Bank is the appropriate body to consider this matter.

 

[Sarenco]

The Millars case had absolutely nothing to do with the Unfair Terms in Consumer Contracts Directive.

Anyway, the Court of Appeal overturned the High Court decision referenced above.

Bottom line - the Ombudsman rejected a claim that a lender was overcharging on the basis of a standard variable rate clause and this was upheld by the courts.

Previously discussed here -

Court of Appeal overules High Court in Millar case! Upholds FSO's finding.

What more can I say just very disappointing: Source: independent.ie http://www.independent.ie/business/personal-finance/court-of-appeal-deals-blow-to-campaign-for-lower-variable-interest-rates-31326585.html

www.askaboutmoney.com

 

[Dazzler123]

The Millars case had absolutely nothing to do with the Unfair Terms in Consumer Contracts Directive.

Anyway, the Court of Appeal overturned the High Court decision referenced above.

Bottom line - the Ombudsman rejected a claim that a lender was overcharging on the basis of a standard variable rate clause and this was upheld by the courts.

Previously discussed here -

Court of Appeal overules High Court in Millar case! Upholds FSO's finding.

What more can I say just very disappointing: Source: independent.ie http://www.independent.ie/business/personal-finance/court-of-appeal-deals-blow-to-campaign-for-lower-variable-interest-rates-31326585.html

www.askaboutmoney.com

Unfair terms directive has a specific derogation for interest rates set on mortgage contracts So it doesnt apply.

Consumer rights act does allow such clauses to be challenged but there is a high bar as they are included in schedule 5 part 2 of the act, so are not presumed to be unfair. Interest rates would also be a core term or however it is referred to in section 131 of the act so its unlikely to be a winner here.

I referenced the court of appeal decision, agreeing with the fspo, that yes, the fspo ok'd the standard variable rate clause in the matter.

 

[NoRegretsCoyote]

Unfair terms directive has a specific derogation for interest rates set on mortgage contracts So it doesnt apply.

IANAL but Schedule 5 part 2 only exclude financial services from the provisions of the Act if the lender has a valid reason for doing so and I am not convinced that Pepper's funding costs have increased to the point where it can justify 6.5%. Also the aCt does not exclude financial services in the presence of:

A term which has the object or effect of irrevocably binding the consumer to terms with which the consumer had no real opportunity of becoming acquainted before the conclusion of the contract.

You could argue that borrowers took out a contract a long time ago with a different lender and could not reasonably envisage said situation. In any case there is the overarching purpose of the legislation which prohibits terms where there is a significant imbalance between the parties which there is in this case.

 

[Dazzler123]

IANAL but Schedule 5 part 2 only exclude financial services from the provisions of the Act if the lender has a valid reason for doing so and I am not convinced that Pepper's funding costs have increased to the point where it can justify 6.5%. Also the aCt does not exclude financial services in the presence of:

A term which has the object or effect of irrevocably binding the consumer to terms with which the consumer had no real opportunity of becoming acquainted before the conclusion of the contract.

You could argue that borrowers took out a contract a long time ago with a different lender and could not reasonably envisage said situation. In any case there is the overarching purpose of the legislation which prohibits terms where there is a significant imbalance between the parties which there is in this case.

Just to clarify, the above relates to the consumer rights act 2022. The derogation i referred to relates to the unfair terms in consumer contracts directive.

But the above is correct in that variable rates can be scrutinised under the 2022 act. However, section 131 (1) a) excludes a term from being assessed for unfairness, where that term "lays down the essential obligations" under the contract. Payment of interest on a loan is an essential obligation so a clause setting the interest rate would fall under this arguably.

It should be noted that the unfair terms angle is a double edged sword here. If the variable rate clause is struck down for unfairness (and its usually the only clause setting out interest rates) then the contract will arguably have to be dissolved as it cannot continue without interest being paid. This would result in the entirety of the debt falling due immediately.

Certainly high interest rates should be challenged, im just not sure that unfair terms is the best method to achieve the desired outcome.

 

[Sarenco]

FWIW, in my opinion it is highly unlikely that any standard variable rate clause would be struck down as being unfair.

I think this issue requires a legislative intervention (which is why I think anybody affected by this issue should lobby their TDs).

Perhaps the legislation could prohibit lenders from charging home loan customers a rate in excess of their cost of funds, from time to time, plus a margin of, say, 2%.

 

[NoRegretsCoyote]

Just to clarify, the above relates to the consumer rights act 2022. The derogation i referred to relates to the unfair terms in consumer contracts directive.

Once again IANAL but the Consumer Rights Act 2022 which entered into force a month ago appears to give effect to the 2019 DIRECTIVE (EU) 2019/2161 which amends the 1993 Unfair Contract Terms Directive.

Certainly high interest rates should be challenged, im just not sure that unfair terms is the best method to achieve the desired outcome.

It is surely a question of degree rather than principle. There is a theoretical point at which Pepper's rates become undeniably unfair (say 15%) as it would be utterly decoupled from cost of funds and most borrowers have zero bargaining strength.

 

[CarrotStick]

Unfair terms directive has a specific derogation for interest rates set on mortgage contracts So it doesnt apply.

Consumer rights act does allow such clauses to be challenged but there is a high bar as they are included in schedule 5 part 2 of the act, so are not presumed to be unfair. Interest rates would also be a core term or however it is referred to in section 131 of the act so its unlikely to be a winner here.

I referenced the court of appeal decision, agreeing with the fspo, that yes, the fspo ok'd the standard variable rate clause in the matter.

Where do you get that idea from? If mortgage interest rates where excluded from the outset from being assessed as unfair, then why do terms which have the object and effect of being unfair under schedule 3 of S.I. 27/1995 (j) and (l) exist?

The provision of interest is NOT a main term of a mortgage loan contract as some contributors on this site have suggested (indeed some Irish High Court Judges have also erred in this regard). This matter was settled in the Supreme Court legal case Pepper v Cannon (para 129 refers), where Justice O’Malley outlined what the main terms of a mortgage loan agreement are: the obligation to repay the loan and to provide security for it, and the lender’s right to take possession of the security in the event that the loan is not repaid. Price variation clauses are not part of the main terms of a mortgage loan agreement.

 

[CarrotStick]

Ok, so you now seem to accept that a clause that gives a lender an express right to assign their rights under a mortgage does not itself transfer a mortgage.

If an assigned contract contained a guarantee to a fixed-rate (and I have never seen such a clause), then the guarantee would continue to exist, post-transfer. It wouldn't magically disappear.

Of course I do, financial institutions assign beneficial and economic benefit to third parties all the time.

What I am saying is that when funds acquire distressed mortgages they buy all the mortgage, legal, beneficial, title etc. They are then registered in the PRA as the charge holder.

However, if these funds do not offer the option to the consumer to fix mortgage interest rates, then it can be argued that the transfer of the mortgage to such funds by the bank has reduced the guarantees to the consumer, as this interest rate option which was included in the original loan agreement with the bank and is no longer available. Schedule 3(p) of s.i. 27/1995 refers.