Can the Unfair Terms in Consumer Contracts be used to challenge high variable rates?

[ClubMan]

Edit: my post was originally in this thread but was subsequently split out into this new/separate thread...

I've seen 93/13/EEC aka S.I. No. 27/1995 - European Communities (Unfair Terms in Consumer Contracts) Regulations, 1995 (with subsequent amendments) mentioned in this thread in relation to possibly unfair clauses in mortgage contracts.

http://www.irishstatutebook.ie/1995/en/si/0027.html

As I mentioned elsewhere in this or another thread I was confident that this legislation rendered the following BoI mortgage contract clause illegal:

6. Variable Interest Rates

(a) Subject to clause 6(c), at all times when a variable interest rate applies to the Loan the interest rate chargeable will vary at the Lender’s discretion upwards or downwards...

On this basis I helped somebody to make a complaint to BoI and, not surprisingly, the Final Response letter just arrived rejecting the complaint.

I have now helped them to make a complaint to the FSO on this matter but after submitting the complaint I looked more closely at the legislation (caveat - I am not a laywer!) and it seems to me that this (in particular the bit in red) may get BoI and other mortgage/financial service providers off the hook? As such I expect the FSO complaint to also be fruitless but it's in now so I/we will wait and see...

1. Terms which have the object or effect of:
...
( j ) enabling the seller or supplier to alter the terms of the contract unilaterally without a valid reason which is specified in the contract;
...
( l ) providing for the price of goods to be determined at the time of delivery or allowing a seller of goods or supplier of services to increase their price without in both cases giving the consumer the corresponding right to cancel the contract if the final price is too high in relation to the price agreed when the contract was concluded;
...

2. Scope of subparagraphs (g), (j) and (l)
...
( c ) Subparagraphs (g), (j) and (l) do not apply to;

— transactions in transferable securities, financial instruments and other products or services where the price is linked to fluctuations in a stock exchange quotation or index or a financial market rate that the seller or supplier does not control;

Anybody with more legal knowledge than I have care to comment?
With as little jargon/presumption of legal knowledge as possible please...

 

[Andy836]

I think you're focusing on the wrong clause. The red section you highlight I think was purely intended to relate to index linked investments (UCITS and the like).

The paragraph to focus on is the following:

• Scope of subparagraphs (g), (j) and (l)
  
• ( b ) Subparagraph (j) 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 that the supplier is required to inform the other contracting party or parties thereof at the earliest opportunity and that the latter are free to dissolve the contract immediately.

Subparagraph (j) being:

• ( j ) enabling the seller or supplier to alter the terms of the contract unilaterally without a valid reason which is specified in the contract;

This is not an "unfair" terms & conditions problem. This is a negative equity problem. The consumer is free to dissolve the contract - they can freely repay the loan. The consumer's problem is they can't refinance the loan or sell the house to cover the loan. That is a separate issue to the interest rate which is the term you're arguing over.

The Banks clearly have a valid reason - risk has increased & cost of funds have increased. If you want to argue those points then fine, but that's separate (and was this discussed in the Millars case).

 

[ClubMan]

The red section you highlight I think was purely intended to relate to index linked investments (UCITS and the like)

I don't see how it's restricted to such products. The legislation refers to "other products or services ... where the price is linked to fluctuations in ... a financial market rate that the seller or supplier does not control". Surely a mortgage would fit into that definition?

This is a negative equity problem. The consumer is free to dissolve the contract - they can freely repay the loan. The consumer's problem is they can't refinance the loan or sell the house to cover the loan. That is a separate issue to the interest rate which is the term you're arguing over.

Sorry - I don't really see how this relates to the bits of the legislation that you highlighted. Maybe you can explain/clarify in more detail?
I don't see how/why it's the lender's problem that the customer cannot refinance/switch due to NE?
(And NE is not the only reason one might not be able to refinance/switch - e.g. poor credit rating, arrears, missed repayments etc.).
If you mean the problem is that the borrower cannot get out when the lender unilaterally changes the rate charged then surely that IS a "contract fairness" issue?
And I don't see where the legislation deals with that sort of scenario?

The Banks clearly have a valid reason - risk has increased & cost of funds have increased. If you want to argue those points then fine, but that's separate (and was this discussed in the Millars case).

My understanding is that the Millar case was different. Their mortgage contract had something like "rate will vary depending on market conditions" or something like that. The BoI contract is much more to the point - "WE can unilaterally change the rate". There are absolutely no restrictions/qualifications.

Having said all that I'm now of the opinion that there's no real grounds for challenging the BoI contract on the basis that it breaches this legislation because I now believe that it does not...

Apologies if it's dealt with elsewhere but is there anybody else looking at challenging such contract terms/conditions on the basis of unfairness under this or any other relevant legislation? Or is it down to individuals such as the person I was trying to help with this?

 

[Andy836]

I don't see how it's restricted to such products. The legislation refers to "other products or services ... where the price is linked to fluctuations in ... a financial market rate that the seller or supplier does not control". Surely a mortgage would fit into that definition?

The sub paragraph I quoted relates specifically to interest rates on loans & deposits.

I believe the intention of the section you are quoting was intended to relate to other market instruments - shares, derivatives, exchanged traded funds, UCITs, options, CFDs and other capital markets instruments/securities etc etc. A bog standard home loan doesn't fit into this. If the loans were securitized, then the bonds issued on foot of that loan pool could be be subject to this - however RMBS notes aren't bought by consumers - either the indentures wouldn't allow it or they'd require the rights to be waived

I don't see how/why it's the lender's problem that the customer cannot refinance/switch due to NE?

It's not the Banks problem. It's the Borrower's problem.

If you mean the problem is that the borrower cannot get out when the lender unilaterally changes the rate charged then surely that IS a "contract fairness" issue?

That's not a "contract" problem. The "contract" still allows the consumer to exit. The reason the consumer can't exit has nothing to do with the "contract", it's due to their own personal circumstances.

And I don't see where the legislation deals with that sort of scenario?

It doesn't. As I said that's not a contract problem.

 

[Asphyxia]

Clubman,

Andy836 is correct in telling you that you are focusing on the wrong clause within SI 27/1995, and has indeed directed you to the relevant clause; however his assertion that the BOI's clause is fair, is open to challenge.

Let me explain and refer you to guidance from the FSA UK ( financial services authority ) in relation to unfair terms.


Valid reasons

Many firms have failed to address the indication given in the Regulations that ‘valid reasons’ can help make a unilateral variation term less likely to be unfair. We often see no valid reasons specified in the contract which is of clear concern when assessing terms by reference to paragraph 1(j) of Schedule 2 to the Regulations. Valid reasons help consumers understand the circumstances in which their contracts may be varied.

We also see reasons that are not, in our view, valid. We consider that ‘valid reasons’ specified in a contract should be clearly and unambiguously defined, so a consumer can challenge a harmful variation that they have not clearly agreed to. In our view, a term should explain with sufficient clarity if, when and how a variation is likely to occur. What constitutes a ‘valid reason’ will depend upon the contract as a whole and the product in question. Ultimately, only a court can decide what constitutes a ‘valid reason’. However, we are unlikely to object to a term that states that unilateral variations may be made: · to respond proportionately to changes in general law or decisions of the Financial Ombudsman Service; · to meet regulatory requirements; · to reflect new industry guidance and codes of practice which raise standards of consumer protection; · to respond proportionately to changes in the Bank of England base rate, other specified market rates or indices or tax rates; or · to proportionately reflect other legitimate cost increases or reductions associated with providing the particular product or service.

Examples of reasons that we are likely to consider not to be valid include:

· to cover unexpected costs;
· for any reason a firm sees fit;
· for any reason a firm considers reasonable at the time of the change; or
· solely to increase profit margins.

Another concern we have in relation to ‘valid reasons’ is where the list of reasons specified in the contract is not exhaustive. We often see lists of reasons which conclude with ‘any other valid reason’. In our view, ‘any other valid reason’ is not an example of a valid reason in itself and therefore the reasons are not being ‘specified in the contract’ as indicated by paragraph 1(j) of Schedule 2 to the Regulations.

Now let us look at BOI variable rate clause in the mortgage contract.

6. Variable Interest Rates

(a) Subject to clause 6(c), at all times when a variable interest rate applies to the Loan the interest rate chargeable will vary at the Lender’s discretion upwards or downwards...

It can be seen that the said clause falls foul of the unfair terms directive, as the clause gives the lender sole discretion to vary the term, in other words the lender can unilaterally alter the variable rate for any reason it deems fit.

In the recent ECJ ruling Van Hove in 2014, the ECJ court stated in relation to the transparency of a term in a contract:

"that the contract sets out transparently the specific functioning of the arrangements to which the relevant term refers and the relationship between those arrangements and the arrangements laid down in respect of other contractual terms,

so that, as articulated in previous judgments
[the] consumer is in a position to evaluate, on the basis of precise, intelligible criteria, the economic consequences for him which derive from it",

Financial institutions would do well to consider these factors when drafting terms within contracts.


In relation to Andy836's assertion that a consumer is free to leave the contract, this is what the Uk FSA say on the matter, in relation to unfair terms.


Freedom to dissolve the contract

The Regulations indicate that the consumer’s freedom to dissolve the contract can be a factor in a unilateral variation term being less likely to be unfair and our experience is that firms sometimes fail to consider this. In our view, firms should bear in mind both the financial and the practical barriers which may prevent a consumer from exiting the contract if they object to a particular variation of a term.

For example, we would not regard consumers as being free to dissolve the contract if the terms did not provide that any exit charges would be waived to remove financial barriers to exiting the contract. Even if exit charges were waived, while a consumer may be financially free to exit the contract, there may also be practical barriers that we often find firms fail to consider. These concerns apply in many sectors. For example, in the case of some long-term insurance contracts, the consumer may, in practice, find it difficult to obtain alternative insurance because of the need for fresh underwriting. The same can also apply to mortgage products, where a consumer may be unable to find an affordable interest rate with an alternative provider, and so would be unable to exit their contract in practice.

Due to the particular lack of competition in Ireland, within the mortgage market, the question must also be asked are Irish consumers truly free to exit their respective mortgage contracts.

 

[ClubMan]

Thanks but - and not being smart but wary of this thread going the same way as the other one and ending up in a legal quagmire rather than something that most readers can understand - ....

Let me explain and refer you to guidance from the FSA UK ( financial services authority ) in relation to unfair terms.

... why? What relevance do UK FSA guidelines have here?

It can be seen that the said clause falls foul of the unfair terms directive

You mean the EU/Irish law on fairness in contracts or the UK FSA guidelines?

In the recent ECJ ruling Van Hove in 2014, the ECJ court

What relevance does that have here?
Was it specifically about a mortgage contract?
If it's relevant then how in practice can an individual borrower here use this to improve their lot?

Due to the particular lack of competition in Ireland, within the mortgage market, the question must also be asked are Irish consumers truly free to exit their respective mortgage contracts.

Again - yes - the question can be asked but what good does that do any individual borrower?

I get the impression that the only way that something might be done in this context is for somebody to take it to court unilaterally and see what happens?
Like the Millar's but in the case of the BoI contract there seems to be enough of a different to make it a different (stronger?) case?

Of course I still look forward to seeing what the FSO make of my friend's complaint.

 

[Asphyxia]

Clubman,

You are sending a complaint to the F.S.O. in relation to this matter. The UK and Ireland come from the same common law tradition, so any guidance by the UK's version of the F.S.O. is also applicable in this Country, and will be taken on board by the Irish F.S.O.. Without getting into legalese, Ireland and the UK have both transposed the European Directive 93/13/EEC ( unfair terms directive ) in a very similar manner, so any guidance by the UK authority will be acceptable in this jurisdiction, much in the same manner as legal case law is. In making a complaint, it will be important to stress this particular guidance on the Directive from the UK FSA, a bit like referring to cases stated in relation to a disputed matter in a court.

From a European prospective, the directive speaks for itself and the ECJ has refrained from narrowing the scope in which this directive applies. I stand corrected, but I believe there has never been a legal case regarding a mortgage dispute taken in Ireland, in relation to breaches of the unfair terms directive, in terms of plain and intelligible language, variation clauses, freedom to dissolve, etc. so we are in uncharted waters. What I can say is that, in common law, we have laws for assessing the unfairness of contracts, such as misrepresentation, undue influence, mistake etc. These common laws have been supplemented with European Law in relation the unfairness in contracts ( that being SI 27/1995 as amended ). European law takes precedent over all common, statutory and even constitutional laws of Member States, this point is worth highlighting.

In relation to the Van Hove judgment, this judgment related to a mortgage protection policy on several mortgages, the ECJ judgment in this regard, has legal implications for all contracts, that being, in how a court should assess the possible unfairness of the term with regard to the terms of a contract as a whole.

The individual borrower ( affected ) should either make a complaint to the F.S.O. or seek redress through the Irish courts system in relation to these alleged breaches. If a citizen does not get satisfaction in relation to the perceived breach of the Directive they can make a complaint, free of charge, to the European Commission, about Ireland's failure to properly implement or enforce European Law.

In relation to your question about lack of competition with the mortgage market in Ireland, a court is obliged to take cognizance of this fact, when concluding whether a term is unfair or not.


Hope I have answered your questions and that this helps you.

 

[ClubMan]

Thanks. Especially for keeping it relatively simple for the likes of me.

 

[Sarenco]

Hi ClubMan

As you know, the FSO provides a dispute resolution service to consumers and regulated financial service providers. It is required to deal with complaints by mediation and, where necessary, by investigation and adjudication.

However, the FSO is not a court and “is required to act in an informal manner and according to equity, good conscience and the substantial merits of the complaint without regard to technicality or legal form”. As such, the role of the FSO is not to interpret or apply any legislative provision, including the Unfair Contract Terms Regulations. Your friend may well have a justifiable complaint against his or her mortgage provider but the FSO is not required to have any regard for these Regulations in making its determination.

So what are consumers supposed to do if they consider a particular loan term to be unfair?

If a consumer is of the view that a loan contract contains an unfair term, within the meaning of the Unfair Contract Terms Regulations, then they may refer to matter to the Central Bank. The applicable legislation provides the Central Bank with powers to protect consumers from unfair contract terms where they relate to regulated financial services providers such as banks and other regulated lenders. Under the applicable legislation, certain supervisory powers are available to the Central Bank to ensure compliance with the Regulations by regulated financial services providers. These powers mean that the Central Bank may require regulated lenders to make amendments to loan contracts with consumers.

The Central Bank (or any consumer organisation) may also seek a court order preventing the use of contract terms that it considers to be unfair or the Central Bank may use other regulatory tools, including its administrative sanctions procedure, to combat the use of unfair contract terms in consumer contracts.

In addition, the Unfair Contract Terms Regulations may be employed as a defence in any court proceedings for enforcement of a contract and an adjudicating court is required, of its own initiative, to investigate any potentially unfair terms in certain circumstances. A contractual term in a consumer contract that is found to be unfair will be ineffective and, therefore, unenforceable. However, if the relevant loan or mortgage contract is capable of continuing in existence without the unfair term, then that contract (other than the unfair term) will continue to bind the parties.

To be frank, I don’t think there is any realistic prospect that a court would consider the variable rate clause in your friend’s loan agreement to be unfair within the meaning of the Regulations.

The right “to alter the rate of interest payable by the consumer” is explicitly excluded from the (non-exhaustive) list of unfair terms annexed to the Regulations, provided that the lender is required to notify the borrower of the rate change at the earliest opportunity and the borrower is free to dissolve the contract immediately. Assuming there are no restrictions on redeeming the loan early, I really don’t see how your friend could argue that s/he is not in a position to “dissolve the contract immediately”.

Varying the amount of any “other charges for other financial services without notice” certainly requires a “valid reason” but, on my reading of the Regulations, the requirement for a valid reason to exist does not apply to the alteration of the applicable interest rate in a variable rate loan arrangement. Even if I am wrong in this respect, I would certainly share Andy’s view above that a bank would have had perfectly valid reasons for altering the interest rate and there is certainly no requirement in the Regulations to specify those reasons, in advance, in the applicable loan agreement.

I really have no desire to get involved in another lengthy debate on these Regulations with any other poster but I hope the above has been of some assistance and hopefully your friend will get a fair hearing from the FSO.

 

[visigoth]

Sarenco nicely replied to some of the similar points in another thread, but I respectfully disagree. I think the terms of SVR contracts were and are misleading to any objective third-party person, and maybe this is one of the reasons why they change them now into various “LTVs”, at least there is some idea on what those depend on. As an average intelligent human being, I don’t understand what SVR means and why it does not vary as in “variable.” If a high SVR rate is not driven by a very low tracker rate, then why does not it vary? Trackers varied, fixed ones varied, but the BOI’s 4.5 SVR has not. Surely, all mortgage products move generally in one direction if they all depend on the same bank’s funding costs and if they do not cannibalize each other? Furthermore, a fixed rate may carry risks for the bank if the borrowing rate can only go up in the future – then it should be higher than the SVR that can be changed any time, therefore, no risk. But SVR is higher than the fixed one by almost 1% and therefore is nonsensical – it should be the other way around.

My understanding is that the FSO is a formal vehicle for unhappy consumers to let off steam and they would not take any meaningful action whatsoever that may jeopardize "the recovery"; besides they have that convenient 6-year rule if you start asking good questions. ECJ could be a way to go if there are savvy people out there to do that.

 

[Descart]

Clubman,

Here is an ECJ ruling that specifically relates to a judgment where a court can assess whether a variable rate term in a mortgage contract can be assessed as being in contravention of the Unfair Term Directive, this is at odds with poster Sarenco's assertions.

Judgment in case C-143/13 - Bog Bogdan Matei, Ioana Ofelia Matei v SC Volksbank România SA

This case deals with Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts.

That directive stipulates that a court can invalidate certain terms in a consumer contract if it finds them unfair. However, the directive specifies certain terms (for example relating to “subject matter” or “price”) which are excluded from this provision so long as they are in “plain intelligible language”; that is, a court cannot invalidate them on grounds of unfairness providing they are in plain intelligible language.

In this case, two borrowers brought an action against Volskbank seeking to have certain unfair clauses invalidated, namely regarding variable interest rates and risk charges. The 3 appeals court referred requested a preliminary ruling from the Court of Justice, which ruled that the exclusion in the directive did not apply to these particular terms; that is, under the directive the national court was permitted to rule on the fairness or unfairness of variable interest rates and risk charges. The borrowers concluded two credit agreements with Volksbank in March 2008, totalling roughly EUR 120 000. Under the agreements, the bank reserves the right to alter the current rate of interest in the event of significant changes on the financial markets. Additionally, the agreements stipulate that, for making available the credit, the borrower may be required to pay the bank a ‘risk charge’, calculated on the basis of the balance of the loan and payable monthly throughout its duration, and totalling roughly EUR 40 000.

In 2010 the borrowers took the view that several terms in the credit agreements, including the terms relating to the variable rate of interest and the ‘risk charge’, were unfair and therefore invalid, under a Romanian law implementing Directive 93/13. The borrowers brought an action before a court of first instance seeking a declaration to this effect.

In December 2011 that court found that certain terms were unfair (and therefore invalid), including the term relating to variable rate of interest because of its vagueness. However, it did not find the ‘risk charge’ clauses unfair since it was not for the court to determine the specific risk the bank was exposed to or the effectiveness of the contractual guarantees.

Both the borrowers and Volksbank appealed against that judgment to a higher national tribunal, which observes that, while the Court has not already decided whether the specific contractual terms are covered by Directive 93/13, certain Romanian courts have already held that such terms are covered by it—or, more specifically, a Romanian national law which exactly replicates the relevant section of the directive. Those courts have taken the view that those terms can be assessed for their unfairness since the lender does not provide any service which would justify the risk charge and, additionally, the drafting of those terms is unclear. In those circumstances, the Romanian tribunal decided to stay the proceedings and to request a preliminary ruling from the Court regarding whether Directive 93/13 can be interpreted as covering the APR of a credit agreement secured by a mortgage (which is in particular made up of: the interest rate, whether fixed or variable; bank charges; and other costs included and defined in the credit agreement).

The ECJ Court ruled that “Directive 93/13 … must be interpreted as meaning that ‘main subject matter of the contract’ and ‘adequacy of the price and remuneration, on the one hand, as against the services or goods supplies in exchange, on the other’ do not, in principle, cover the types of terms in the credit agreements” in question, meaning that these terms can be assessed for their unfairness.


Interesting times ahead !

 

[Sophrosyne]

I understand your posts Sarenco. It's the argy bargey with the new posters that I do not understand, but if Clubman is progressing in his endeavour of understanding then so be it. I find it tedious, references to this and that UK law, eu directive, rather than actual cases that set the principle. More like theoretical far fetched theories, conjecture, hypothesis and possibility than reality.

Bronte,

At the heart of this is a determination of whether a contract term is fair or reasonable.

A court can decide whether it is fair or reasonable by interpreting the contract term according to law and precedent cases.

But sometimes, as Mr. Bumble put it, "the law is an ass".

The FSO may find that "although the conduct complained of was in accordance with a law or an established practice or regulatory standard, the law, practice or standard is, or may be, unreasonable, unjust, oppressive or improperly discriminative in its application to the complainant."

This is a challenge to the status quo.

The question is not whether a lender can vary its interest rates.

It is whether it is clear to an average borrower [without the benefit of legal knowledge] about the circumstances in which it can.

Vague terms such as "at the lender's discretion" which mean nothing to a borrower, are no longer acceptable.

 

[Sarenco]

I never suggested that a court could not assess the fairness of a variable rate clause in a loan agreement.

What I did suggest was that:-

1. Ultimately only a court (not the FSO) can declare a term in a consumer contract to be unfair within the meaning of the Irish Regulations implementing the Unfair Contract Terms Directive;
2. It is improbable, in my opinion, that a court would declare a term which reserved discretion to a lender to vary the rate of interest at any time during the term of a variable rate loan to be unfair within the meaning of the Regulations; and
3. You cannot point to a single case, anywhere across the EU, where a court found such a clause to be unfair.

It is clear at this stage that the OP will not benefit from any further discussion on this issue.

 

[Sarenco]

I am familiar with the case law.

The term under discussion in the BOI variable rate loan agreement is clearly not vague, unclear or otherwise unintelligible to an average, reasonably well informed consumer.

A borrower can readily foresee the economic consequences that derive from a term that reserves to BOI a discretion a right to vary the rate of interest. Aside from anything else, a borrower would have received documentation containing the following warning in accordance with the Consumer Credit Act:

WARNING: (Variable rate loans) THE PAYMENT RATES ON THIS HOUSING LOAN MAY BE ADJUSTED BY THE LENDER FROM TIME TO TIME.

The economic consequences of such a loan term for a borrower really couldn't be made any clearer or more intelligible than that.

There is no requirement under the regulations implementing the Unfair Contract Terms Directive, the Consumer Credit Act or any other legislative provision for a lender to explain why it choses to exercise the discretion reserved to itself. In all the cases that you have referenced, the relevant contractual term that was considered unfair was found to be unclear or otherwise unintelligible to an average customer - that is simply not the case with a clause that simply reserves a discretion to a lender to vary the rate of interest charged during the term of the loan.

Frankly, I suspect you may be flattering yourself to think that any bank is in any way concerned about your posts. I am certainly under no illusion that any bank has any interest in mine.

 

[Asphyxia]

I think the point that Descart is trying to make to you in regard to the BOI clause is that it is too broad a term, and because of that, it causes a signifigant imbalance in the consumers rights and obligations under the contract.

Article 3(2) of SI 27/1995 refers,

(2) 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.

in relation to the valid reason in which a bank may alter it's interest rate,

the directive states,


( b ) Subparagraph (j) 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 that the supplier is required to inform the other contracting party or parties thereof at the earliest opportunity and that the latter are free to dissolve the contract immediately.

It could well be argued in Court that a bank's sole discretion is not a valid reason, well not a fair valid reason within the terms of the directive.

 

[Sarenco]

You could certainly make that argument but, in my opinion, it is very unlikely to succeed and there is no precedent that I am aware of in this context that would support such an argument.

Varying the amount of any “other charges for other financial services without notice” certainly requires a “valid reason” but, on my reading of the Annex to the Regulations, the requirement for a valid reason to exist does not apply to the alteration of the applicable interest rate in a variable rate loan arrangement. Even if I am wrong in this respect, there is certainly no requirement in the Regulations to specify those reasons, in advance, in the applicable loan agreement or any additional requirement for those valid reasons to be fair.

 

[ClubMan]

A borrower can readily foresee the economic consequences that derive from a term that reserves to BOI a discretion a right to vary the rate of interest. Aside from anything else, a borrower would have received documentation containing the following warning in accordance with the Consumer Credit Act:

WARNING: (Variable rate loans) THE PAYMENT RATES ON THIS HOUSING LOAN MAY BE ADJUSTED BY THE LENDER FROM TIME TO TIME.

The economic consequences of such a loan term for a borrower really couldn't be made any clearer or more intelligible than that.

There is no requirement under the regulations implementing the Unfair Contract Terms Directive, the Consumer Credit Act or any other legislative provision for a lender to explain why it choses to exercise the discretion reserved to itself. In all the cases that you have referenced, the relevant contractual term that was considered unfair was found to be unclear or otherwise unintelligible to an average customer - that is simply not the case with a clause that simply reserves a discretion to a lender to vary the rate of interest charged during the term of the loan.

This is basically what BoI said in their final response letter.
I suspect that the FSO will back them on this.
I think that the discussion in this thread has run its course at this stage and is just rehashing what has been said already here, and in the other thread - and maybe elsewhere.

 

[Sophrosyne]

The reality is that few people - especially those under pressure with the mortgage due to clauses such as this and the high rates being charged by Irish lenders - can afford to take ANY sort of court action over this sort of thing.

That is the problem.

To these people the FSO is the final step and so the consequences of his decisions can be enormous.

Irrespective of European Directives, the FSO has under s 57 CI 2(c) of the Central Bank Act 1942, the power, to find that although the conduct of a financial institution was lawful, it may be unreasonable, unjust or oppressive in its application to the complainant.

In other words, he can look beyond what is lawful to what, in layman’s terms, is just and reasonable.

Would the FSO use this power, even when specifically asked to do so by a complainant?

The inevitable consequences of finding in favour of the complainant would be an appeal by the bank to the High Court on the basis that its conduct was lawful.

How would the Courts handle the appeal?

Perhaps legislative changes are necessary.

 

[Sarenco]

The legal challenge should be taken to Bank of Ireland directly as a group.

The regulations implementing the Unfair Contract Terms Directive specifically provide that a consumer organisation may seek a Court declaration that a particular term in any mortgage contract is unfair. There is nothing to stop group of interested parties forming a consumer organisation for this purpose and seeking a Court declaration to this effect.

I don't believe any such application in relation to a term that reserves a discretion to a lender to vary the rate of interest charged would be successful but that's a different matter. The procedure is already there if people want to avail of it.

The High Court can only hear appeals from decisions of the FSO on points of law - the Court will defer to the FSO on matters falling squarely within his jurisdiction.

 

[Sophrosyne]

The High Court can only hear appeals from decisions of the FSO on points of law - the Court will defer to the FSO on matters falling squarely within his jurisdiction.

My point is a more general one.

Let’s suppose the FSO decided that the ability of a bank to vary its interest rate, whenever it liked, how often it liked and by whatever percentage it liked for reasons known only to that bank and which it is not obliged to disclose to its customers was, from a layman’s standpoint, unreasonable.

If the bank appealed to the High Court on a point of law, would the court defer to the FSO’s opinion in that case?