Woman loses challenge to 20% mortgage rate in the High Court

[Brendan Burgess]

This is a very interesting case reported in today's Irish Independent.

In the first case of its kind in modern Irish legal history, the High Court has been asked to reduce the interest rate charged by subprime lender Secured Property Loans Limited (SPL) to as little as 5pc.[from 20pc]


The woman received independent legal advice before she borrowed €125,000 from SPL in 2008.
...


Mr Sugrue said that the rate was "unconscionable" and told Judge Laffoy that it was a market reality for borrowers in the woman's position that had determined the interest rate rather than any calculated risk.


SPL said that there was no evidence of the courts intervening to set aside loans where interest rates as high as 60pc were charged.
Benefit
Barrister Alastair Rutherdale, for SPL, said that until the 1980s when dedicated consumer credit laws were introduced, the rate of interest charged by moneylenders was 39pc, almost twice as much as that charged by SPL.
Mr Rutherdale said that the woman had the full benefit of independent legal advice and had not objected to the terms and conditions of the mortgage loan when she took it out three years ago.

 

[Bronte]

Following this case in the news myself and personally cannot believe she has any case and that she is paying lawyers willing to go to the High Court on a point of law that to me makes no sense. This is going to cost her thousands and if she won, everybody above 5% presumable will be clambering over themselves to go to the High Court. What legal advice says that a High Court can decide your interest rate shall be 5%. Why have banks at all.

She borrowed the money, she knew the rate, she got independant advise, she signed the documents. Her personal circumstances, (stress, tax, ex husband etc) cannot fathom how this is relevant.

Basically the case seems to be that she doesn't like the rate she is paying and wants the courts to decide what interest rate she shall pay.

 

[horusd]

I have a fair bit of sympathy given the apparent circumstances that led the woman into this loan arrangement. But given she had legal advice I can't see what her case is.She went in with her eyes wide open, there was no coercion on the part of the lender, and they seem to have been more than totally upfront. I'm really interested to see how this pans out.

 

[ontour]

This is a bizarre case and bears no relationship to the problems that most people have. This loan was taken for a short term and is unlikely to be in negative equity. The borrower sought and received legal advice. There is nothing to indicate that the rate has changed. The borrower make assumptions and these have been wrong, there is no indication that the lender has done anything wrong. She could sell the pub and pay off the loan. She may need to to cover the legal costs that she is going to incur.

 

[alaskaonline]

Did the article state what the interest rate was when she signed the contract? If the contract clearly indicated that they can be as high as 20% fair enough but if the interest started at 5% - 20% is a huge increase and i'd love to see the justification (other than "it's a free market we can do what we want) for it.

 

[demoivre]

Did the article state what the interest rate was when she signed the contract? If the contract clearly indicated that they can be as high as 20% fair enough but if the interest started at 5% - 20% is a huge increase and i'd love to see the justification (other than "it's a free market we can do what we want) for it.

I'm not saying it's right but anyone on a standard variable rate mortgage could technically have to face any interest rate as they are totally at the mercy of the banks!

 

[ontour]

Maybe its an oldfashioned view point but there is a moral argument here. If somone does not believe that exorbitant high interest rates -several times a profitable level - are immoral, and that loan-sharks charging those rates are a disgusting abomination then there is no point arguing with them.

If the person could have accessed the funds for a lower interest rate, they would have. If such loans were 'highly profitable', then there would be lots of competiion for them and this would drive down the rate. Many loans that charge high interest have a high rate of default and a high collection cost.

19.4% is around the rate for many credit cards, it is not in the range of loan sharks. There are lenders across the pond that charge over 1700% and I would agree with your sentiment regarding such lenders. This lender insisted that the customer get independent legal advice, IMHO they are a sub prime lender that has acted responsibly, probably more responsibly that many mainstream banks have acted.

 

[Brendan Burgess]

Kathleen Barrington has a story on this today. The company involved is owned by Ron Weisz who also trades under Wise Mortgage Company and Wise Finance Company. (Note these are unconnected to the Wyse Property Management Company in Baggot Street)

 

[McDuff]

Has there been a decision on this case by the hight court?

 

[Brendan Burgess]

Hi McDuff

She lost her case. Secured Property Loans are entitled to charge 20%. . Secured Property Loans Limited and Elizabeth Floyd

Anyone interested in the topic should read the full case, but here is the conclusion

8.2 the Court has no jurisdiction to grant relief to the defendant in respect of the high level of interest payable under the mortgage. Any regulation of interest rates charged by lenders to borrowers is a matter for the Oireachtas.


5.4 In outline, the legal basis on which it was submitted by counsel for the defendant that the plaintiff’s claim for possession cannot be maintained is predicated on the rate of interest charged on the mortgage being exorbitant, constituting a penalty levied on the defendant, being a source of unjust enrichment for the plaintiff and being usurious. It was submitted that under its inherent equitable jurisdiction the Court may strike down or modify a rate of interest or premium contractually due to a lender, where it is of opinion that the liability of the borrower accrues on foot of an unconscionable bargain. It was further submitted that, since the repeal of the statutory restrictions on usury, the Court has an added equitable jurisdiction to set aside transactions which provide for an exorbitant rate of interest, if the justice of the case so requires. On the latter point, counsel for the defendant relied, in particular, on three cases...


[He quoted this earlier case on the tests for a contract to be unconscionable]

• “First, one party has been at a serious disadvantage to the other, whether through poverty, or ignorance, or lack of advice, or otherwise, so that circumstances existed of which unfair advantage could be taken.
  
• Second, this weakness of the one party has been exploited by the other in some morally culpable manner … and,
  
• third, the resulting transaction has been, not merely hard or improvident, but overreaching and oppressive. …
• In short, there must, in my judgment, be some impropriety, both in the conduct of the stronger party and in the terms of the transaction itself … which in the traditional phrase ‘shocks the conscience of the court’ and makes it against equity and good conscience of the stronger party to retain the benefit of a transaction he has unfairly obtained.”

7.2 In relation to the broader equitable jurisdiction under which the Court may set aside an unconscionable bargain, compliance with the preconditions to the Court’s intervention falls to be established by reference to the point in time at which the mortgage transaction was entered into, in this case, in January and February 2008. At that point in time, the defendant was in need of capital to discharge tax arrears in relation to the business of the licensed premises and other debts. While I accept that there were limited options available to the defendant to raise the capital she needed, I do not accept that, as was contended by her counsel, she was “thrown on a lender of last resort”. She made a commercial decision, with the benefit of independent legal advice from the solicitor who is acting for her in these proceedings, to raise the capital by mortgaging the Mortgage Property to the plaintiff in consideration of a loan on the terms offered. The plaintiff made a commercial decision to advance the loan on those terms on the security of the Mortgage Property. It may be that in the commercial transaction the defendant was the weaker party. Assuming she was, in applying the factors outlined by McDermott as relevant to whether she was victimised by the plaintiff, the questions which arise and, in my view, the appropriate answers thereto are as follows:

• • (a) Was there inadequate consideration? If the defendant was charged an excessive or exorbitant rate of interest, it could be held that there was, in the sense that what the defendant got, the loan for a fixed period of time, was worth less in value than what she was obliged to pay in terms of principal and interest to redeem the Mortgage. For the reasons set out at 7.3 below, I am not satisfied that there is evidence of inadequacy of consideration in that sense before the Court.
  • (b) Was there some procedural impropriety on the part of the plaintiff? In my view, on the evidence there was not.
    
  • 
    (c) Did the defendant have independent legal advice? On the evidence, in my view, she definitely did.
    

7.3 I have already recorded that counsel for the defendant submitted that the Court should take judicial notice of the fact that the rate of interest charged in the mortgage is out of kilter with the rates charged by other lenders. In my view, it is not open to the Court to do so. While it appears to be high, in order to determine whether the rate of interest was fixed at a level which rendered the bargain between the parties unconscionable, evidence of a comparative analysis of the rates charged by other lenders would be relevant but the analysis would have to take account of all relevant factors, such as the size of the loan, the duration of the loan, the creditworthiness of the borrower, whether the loan was to be secured or not, and, if secured, whether the security was adequate. No evidence was adduced by the defendant, and, in my view, the evidential burden in relation to this matter was on the defendant, on the basis of which the Court could make a finding that the rate of interest charged was at a level which rendered the transaction unconscionable.




8.2 The Court was informed, although this was not on affidavit, that the amount now due by the defendant on foot of the Mortgage is approximately €201,000 and the debt is growing. This reflects the fact that the defendant has not discharged any principal and has defaulted in payment of interest since mid-2008. While the defendant’s concern and her obvious sense of grievance that she is faced with this level of debt is understandable, the Court has no jurisdiction to grant relief to the defendant in respect of the high level of interest payable under the mortgage. Any regulation of interest rates charged by lenders to borrowers is a matter for the Oireachtas.