Hi PW.....here below is some good information about unfair relationship and interest rate which I received from a top barrister John Pugh.........I hope it is of some help...quite a lot of info and you can use this if you want according to your needs.
Interest Rate Rises
1. Whereas the initial rate of interest under a loan is a core term and not susceptible of appraisal for fairness under Regulation 5 of the Unfair Terms In Consumer Contracts Regulations a right to vary the interest terms is assessable for fairness. The Unfair Terms in Consumer Contracts Regulations work in the following way.
2. Section 3 of the Unfair Terms in Consumer Contracts Regulations 1999 defines a consumer as a natural person who, in contracts covered by these regulations is acting for purposes which are outside his trade, business or profession. The Defendant is a seller or supplier within the meaning of this Regulation so by Regulation 4 of the Regulations, they apply to this transaction.
3. By Regulation 5 a contractual term which has not been individually negotiated, shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties rights and obligations arising under the contract, to the detriment of the consumer.
4. By Regulation 7 (2), if there is any doubt about the meaning of a written term, the interpretation which is most favourable to the consumer shall prevail.
5. Schedule 2 to the Regulations contains an indicative and non exhaustive list of terms which may be regarded as unfair. Contained within the ,list is clause 1 (j) which are terms which have the effect or object of enabling the seller or supplier to alter the terms of the contract unilaterally without a valid reason which is specified in the contract. Such terms are regarded as ‘candidates’ for unfairness. The Regulations do not make them necessarily unfair but likely to be unfair unless justified.
6. The second part of Schedule 2 to the regulations qualifies this though by providing that
“Paragraph 1(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.
Paragraph 1(j) is also without hindrance to terms under which a seller or supplier reserves the right to alter unilaterally the conditions of a contract of indeterminate duration, provided that he is required to inform the consumer with reasonable notice and that the consumer is free to dissolve the contract.”
7. Clause 4 of the Terms and Conditions of the XXXX's agreement provides that:
“The Lender may vary the rate of interest per month (after any fixed rate period) from time to time to take account of actual or expected changes in market conditions after giving the borrower not less than 7 days notice in writing.”
8. A variation clause gives a firm power to impose a level of change which the consumer has not explicitly agreed to in advance and which does not require the consumer’s agreement at the time any change is made. As such, it directly affects the balance of power between the firm and the consumer with the risk that it weighs too far in favour of the party with the power.
The FSA’s Statement of Good Practice in relation to Fairness of terms in consumer contracts published n May 2005 has the following guidance in what constitutes a valid reason for variation (I have highlighted the relevant parts by underlining) :
“(i) ‘Valid reason’
3.6 Schedule 2 indicates that a variation clause is less likely to be regarded as
‘unfair if it can only be made with a valid reason specified in the contract’.
However, fairness should be assessed in light of the Regulations as a whole and, for example, just specifying a valid reason in the contract may not go far enough to satisfying the test of fairness. It may also be necessary, for example, to provide for notice to consumers that the change has been, or will be, made.
Particular attention to the requirements of fairness is necessary where other factors, such as the consumer being locked-in to a contract (see paragraphs 4.12-4.15 below), may be to the advantage of the firm rather than the consumer.
3.7 Ultimately, only a Court may decide what constitutes a ‘valid reason’. However, a general indication of what we might consider to be a valid reason is one which allows a firm to change contract variables to respond proportionately to changes in general law or to the decisions of the Financial Ombudsman Service, to meet regulatory requirements or to reflect new industry guidance and codes of practice which are there to raise standards of consumer protection.
Likewise, a valid reason may be one which allows a firm to respond proportionately to changes in the Bank of England base rate, other specified market rates or indices or tax rates or to reflect other legitimate cost increases or reductions associatedwith providing the particular product or service.
Financial Services Authority 11
17 With regard to any designated investment business, we would remind firms of COB 4.2.13R which requires a firm that has amended its contract without the consumer’s consent, to give at least 10 business days’ notice to the consumer before conducting any designated investment business with that consumer on any amended terms, unless it is impracticable in the circumstances to do so. There are also notice requirements in MCOB 7.
3.8 If a contract contains a clause which provides that the firm may change a contract variable, for example: ‘for any reason we see fit’, ‘for any reason that we consider reasonable at the time of the change’ or ‘to cover unexpected costs’, in our view that firm is not specifying a valid reason in the contract but is, instead, leaving its options open. We would expect a ‘valid reason’ to be, amongst other things, clearly and unambiguously defined.
3.9 The greater the number of valid reasons given in the contract then, potentially, the less plain and intelligible the variation clause may be.
3.10 We take the view that the Regulations are intended to operate in a free-market economy and do not constrain a firm from managing its business prudently. Therefore we would not intend to enforce the Regulations in a way which impedes the legitimate commercial judgments that firms make having regard to the overall well-being of their business and of all their consumers.
However, the Regulations are designed to give effect to a Directive whose purpose is to protect consumers on the assumption that there tends to be an inequality of bargaining power between firms and their consumers. Prudence and fairness are not mutually exclusive factors. Firms will have to make careful judgments when writing their consumer contracts to achieve the right balance.”
In my opinion the XXXX's power to vary the mortgage interest rates is likely to be held to be unfair as it is too widely drafted. It is vague where the Regulations require clarity. It is one sided whereas the Regulations are made for the protection of consumers. It leaves the consumer unable to obtain any objective appraisal of whether the reason given is the reason stated in the agreement. No particular lending rate or reference is specified.
I would assess the prospects of success on this argument at about 65 to 70%.
Blemain v Bentley
1. This well known settlement is indeed encouraging but the dynamics of Blemain’s decision can not be known. They may have agreed to extreme terms solely because if there was to be a case which established precedents it was not that one with a highly sympathetic consumer. The press make a meal of such events but at the end of the day it was not a decision by a Court and I can not let it guide me because if I cite it to a judge he will quite rightly say, “So what? – it was an out of court settlement”. I don’t say that to be unsympathetic – just to be realistic.
Hope this of some help to you and others.