Legal options to challenge the high SVRs

Brendan Burgess

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Ross Maguire S.C. of New Beginning has kindly accepted our invitation to attend the SVR Campaign public meeting and explain the legal options open to challenging the high SVRs.

He has summarised them in an email to me, which I reproduce with his permission.

We are currently preparing cases but may look for further plaintiffs to cover different banks and differing wording in various loan documents.
There are 2 basic arguments. The first relates to an ambiguity in some loan agreements referring to "market rates" or some such unclear term. This has been covered in the Millar judgement which is now under appeal to the Court of Appeal where judgement is awaited. If, as is expected, the High Court is upheld it will pave the way for cases on this point to be litigated.
The second and more common and important point relates to circumstances where a bank is given power in the contract to vary the interest rate at its absolute discretion. Most of the Irish banks have this wording.
Consumers are at serious disadvantage when it comes to contracts made with commercial entities. Most contracts are extremely complicated and are presented on a take it or leave it basis. Consequently, and as far back as 1993, the European Union enacted a series of Regulations aimed at protecting consumers in this area.

One of the most important of these regulations came into law in Ireland in 1995 and is known as the Unfair Terms in Consumer Contracts Regulation. This regulation means that a term in a consumer contract that is deemed unfair is not capable of being relied upon against the consumer. Consumer is defined as somebody acting outside his/her business or profession and would therefore catch all home-buyers.

The regulation sets out what might constitute an unfair term.

One of these is a term which has the effect or object of enabling a seller or supplier to alter the terms of the contract unilaterally, without a valid reason which is specified in the contract.

Irish home owners are charged the highest variable interest rates in Europe. Banks have all unilaterally increased those rates over the last number of years despite general interest rates in Europe and beyond having decreased significantly.

Changing the interest rate in a home loan constitutes a change in the term. Can such a term be considered unfair?

The question comes down to a consideration of what a “valid reason” is.

We know what the reasons for the increased rates are and they are:

  1. Because the banks can;
  2. To shore up losses on the tracker interest rate loans
  3. To make profit for the banks
Are these reasons valid?

Arguably they are not because they have nothing to do with the individual contracts entered into between the parties. If, for example, the bank's costs of funds had increased it may be valid for the bank to pass that on to the borrower and really the contract should state that. As we know, the banks costs of funds have substantially decreased.

New Beginning will shortly began to launch a series of test cases aimed at overturning the variable rate increases over the past years and returning such overcharged funds to borrower
 
The second and more common and important point relates to circumstances where a bank is given power in the contract to vary the interest rate at its absolute discretion. Most of the Irish banks have this wording.

This is interesting because a while back I was looking into a mortgage which my wife took out (my previous post is here) because there were a lot of unknowns about the mortgage. At the time I asked the bank for details of the mortgage and they stated that it was a "Banks Base Linked rate" mortgage. Originally I had thought that this type of mortgage was meant to be a tracker but I was told that it is a variable rate by a mortgage broker. The term "Banks Base Linked rate" would seem to me that this type of mortgage rate is not at the absolute discretion of the bank or am I misunderstanding this. Does anyone know if the banks base linked rate is discretionary?
 
Unfortunately no case law on Unfair terms in consumer contracts that I could ever find in Ireland. Its very powerful nevertheless in its implementation. I recommend that people look at the ECJ Mohammed Aziz case in relation to Spanish mortgage its very enlightening and will clearly demonstrate how we can beat the banks on SVR.,, im in court in a few months and its part of my case
 
New Beginning will shortly began to launch a series of test cases aimed at overturning the variable rate increases over the past years and returning such overcharged funds to borrower

Did new beginning, get any further with this? Were the test cases launched?
 
The question comes down to a consideration of what a “valid reason” is.

If the "valid reason" is known only to one party to the agreement, it could mean that that party can change what "valid reason" means anytime it likes. It could be one thing on Monday and another on Tuesday.

The other party has no avenue to verify what the first party regards as "valid" is actually valid and not profiteering.

Pointing to competition is not a justification as this would include entrapped (e.g. negative equity) borrowers who could not benefit from competition.
 
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Brendan, Has anyone thought about making a noise on behalf of hard pressed buy to let owners (on interest only) who are being charged 5.8% and cannot switch because of age (sixties) even if the mortgage is less than 80% loan to value. We are sitting ducks for restoring profit to the banks and in particular Permanenttsb.
 
I don't necessarily agree that BTL customers are hard pressed. Demand for rental properties is at an all time high, yields of 6 to 7% are not uncommon. It's hard to feel too sorry for those who decided to become property investors for financial gain, which is a fair enough way of generating an income into the future, but has its risks, including funding rates. Default levels for the BTL segment are still excessive based on Central Bank statistics. The overall BTL rates reflect a high exposure to the property collapse that remains a legacy issue on Bank balance sheets. This needs to be dealt with through appointment of rent receivers, legal judgements, repossessions etc. all of which costs the banks, and takes several years to resolve. If anything needs to be addressed for BTL property investors it is probably the increased tax burden being imposed by stealth (reduced tax relief on interest, property tax, water charges etc) that is in danger of providing a real disincentive to those wishing to invest their capital and provide rental accommodation, which may have the consequence of limiting supply and increasing rents even further.
 
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