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Fairness in interest rate terms - that is to say the standard terms in a contract for the supply of financial services to consumers which give the supplier the power to vary the interest rate payable by, or to, the consumer.
Like any other contractual term in a consumer contract, the fairness of the interest variation term ultimately depends on whether the term satisfies the general fairness test which, in our domestic legislation, is to be found in regulation 3(2) of the Unfair Terms in Consumer Contract Regulations 1995 ( SI 27/1995 refers ).
In other words, is the term one which, contrary to the requirment of good faith , causes a significant imbalance in the parties rights and obligations to the detriment of the consumer?
However while the general test in regulation 3(2) is ultimately the decisive test, the so called " grey list " of indicatively unfair terms in Schedule 3 of the 1995 regulations identifies a number of particular factors which will be relevant when assessing the fairness of an interest variation term.
Schedule 3 (J) " enabling the seller or supplier to alter the terms of a contract unilaterally without a valid reason which is specified in the contract"
That suggests that an indication of unfairness will not arise if the interest variation term DOES specify valid reasons for changing the rate.
Schedule 3(J) as per paragraph 2 (b) of SI 27/1995 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 the supplier is required to inform the other contracting party or parties thereof at the earliest oppunity and that the latter are free to dissolve the contract immediately.
From recent ECJ judgments RWE Vertrieb and Invitel. "Valid reason" specified in a contract should be clearly and unambigiously defined so that the consumer can challenge a harmful variation that they have not clearly agreed to and " a term should explain with sufficient clarity, if when and how a variation is likely to occur.
It can be therefore deduced that the recent ECJ judgments in Invitel and RWE Vertrieb create more of a difficulty for banks relying on the first ident of Schedule 3, point 2(b) than they do for banks who specify valid reasons for changing interest rates in contracts.
SVR mortgage clauses in Ireland require the banks to have valid reasons for changing the interest rates, although these reasons do not have to be specified in the contract. However these particular types of mortgage contracts are not enough to ensure that the consumer is able to foresee what changes may be made on the basis of clear intelligible criteria.
Therefore these types of contracts do not meet the transparency requirement that the ECJ stipulates must be included within a contract for a contract to be deemed fair.
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 on two occasions.
Like any other contractual term in a consumer contract, the fairness of the interest variation term ultimately depends on whether the term satisfies the general fairness test which, in our domestic legislation, is to be found in regulation 3(2) of the Unfair Terms in Consumer Contract Regulations 1995 ( SI 27/1995 refers ).
In other words, is the term one which, contrary to the requirment of good faith , causes a significant imbalance in the parties rights and obligations to the detriment of the consumer?
However while the general test in regulation 3(2) is ultimately the decisive test, the so called " grey list " of indicatively unfair terms in Schedule 3 of the 1995 regulations identifies a number of particular factors which will be relevant when assessing the fairness of an interest variation term.
Schedule 3 (J) " enabling the seller or supplier to alter the terms of a contract unilaterally without a valid reason which is specified in the contract"
That suggests that an indication of unfairness will not arise if the interest variation term DOES specify valid reasons for changing the rate.
Schedule 3(J) as per paragraph 2 (b) of SI 27/1995 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 the supplier is required to inform the other contracting party or parties thereof at the earliest oppunity and that the latter are free to dissolve the contract immediately.
From recent ECJ judgments RWE Vertrieb and Invitel. "Valid reason" specified in a contract should be clearly and unambigiously defined so that the consumer can challenge a harmful variation that they have not clearly agreed to and " a term should explain with sufficient clarity, if when and how a variation is likely to occur.
It can be therefore deduced that the recent ECJ judgments in Invitel and RWE Vertrieb create more of a difficulty for banks relying on the first ident of Schedule 3, point 2(b) than they do for banks who specify valid reasons for changing interest rates in contracts.
SVR mortgage clauses in Ireland require the banks to have valid reasons for changing the interest rates, although these reasons do not have to be specified in the contract. However these particular types of mortgage contracts are not enough to ensure that the consumer is able to foresee what changes may be made on the basis of clear intelligible criteria.
Therefore these types of contracts do not meet the transparency requirement that the ECJ stipulates must be included within a contract for a contract to be deemed fair.
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 on two occasions.
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