Early Repayment Charges

[Nick W]

Hiya

 

I read on here various bodies have said ERC's are unfair.

 

Where exactly are these quotes?

 

I have redeemed 50% of my loan over time and been hit be these charges and considering taking action - but need all the evidence I can find.

 

Cheers

 

Nick

[gizmo111]

I read on here various bodies have said ERC's are unfair.

 

No they haven't - the few that went to court lost and were landed with quite hefty charges.

[Nick W]

Ah - I read on another post the FSA said ERC are unfair and wondered if anyone had the link..................?

[iconoclash]

Hi - I found this in my notes files and know that I copied it from CAG but dont remember whose thread - sorry. It is a statement from the FSA I believe - have a dig thru their site and try OFT etc -

 

"A term in a mortgage agreement which requires the

 

borrower to pay more for breaching the contract terms

 

than actual costs and losses caused to the lender by

 

the breach (or a genuine pre-estimate of that) is

 

likely to be regarded as an unfair penalty and to be

 

unenforceable both at common law and (in a consumer

 

mortgage) under the Unfair Terms in Consumer Contracts

 

Regulations. A redemption charge may be regarded as a

 

penalty even if it is expressd as the price for

 

exercising a right rather than a consequence of

 

breaking the agreement"

 

I am about to make a case against a former mortgage lender who charged me a hefty £11+k then a further £8+k interest on top to redeem!!!!!

Edited March 6, 2009 by iconoclash
extra text

[gizmo111]

That quote was used in all the claims that lost in court.

[iconoclash]

That quote was used in all the claims that lost in court.

HI - oh, was it, sorry 'bout that. I did get the erc removed from the balance being claimed in our recent repo case and thinking about that I also note that the erc is also securitised and isnt therefore 'owned' by the lender anymore - see the threads on mortgages and secured loans. Superslueth may be able to help on this one.

[supersleuth]

Hi,

 

The OFT quote is an accurate account of the LAW. Even if one court failed to enforce the law (which happens often when the law is on the consumers side), that doesn't mean that the court got it right!

 

The FSA's MCOB rules say that ERC's are unfair - and in particular, are NOT ENFORCEABLE at law if the lender is in breach of the MCOB rules.

 

The MCOB rules concerning ERC's is rule 'MCOB 12.3" You can find the rule on this link

 

FSA Handbook - Full Handbook

 

It is unfortunate that Gizmo111 knows of one case where the court did not enforce the law, but that does not mean that that particular case will prevail. It would probably only be a county court decision, and would not necessarily stand up as case precedent - particularly if you can show (which you can) that that that court got it wrong (which it did).

 

The MCOB rules have statutory force and is law. The OFT quote can be used as a PUBLIC POLICY argument and butress that the fact that the OFT have announced that public policy argument with statute law as the FSA's MCOB rule 12.3.1. In fact, the OFT's announcement IS the FSA's MCOB 12.3.1.

 

Also, at contract law, the law allows contracting parties to make provisioin for contractual remedies (which is what an ERC is - i.e. if you the borrower don't keep the mortgage for a certain number of years, you will give the lender the remedy of an ERC for "breaching" your obligation for not keeping the mortgage for that certain number of years) BUT..... the law will not enforce a contractual remedy (i.e. an ERC), if the remedy is deemed to be a PENALTY CLAUSE.

 

The law will not enforce a contractual remedy (i.e. an ERC), if that remedy is not a genuine pre-estimate of the DAMAGES actually suffered by the lender. If that remedy (i.e. the ERC) is not a genuine pre-estimate of the damage suffered, then it is a PENALTY CLAUSE. THE LAW DOES NOT ENFORCE A CONTRACTUAL PENALTY CLAUSE. THAT HAS ALWAYS BEEN THE LAW. It was the enforcement of that particular common-law and equity law rule that allowed so many CAGgers to successfully recover their bank charges. That principle prevails no matter what contract is at issue. Whether it is a mortgage contract or a contract for a bank account or any other type of contract. Even before the FSA became a regulator and made the MCOB rule 12, it was the law applicable to mortgage contracts too anyway. It has been common-law for hundreds of years. The OFT's statement is a statement of how the law HAS ALWAYS BEEN even without the FSA's MCOB rule 12!

 

Therefore, use (1) the fact that the law has NEVER enforced a penalty clause (2) is not enforceable by operation of the FSA's MCOB rule 12.3.1 and (3) is not enforceable by operation of the Unfair Contract Terms Act.

 

Put all this together (and anything else you can think of) and tell the judge they must ENFORCE AND FOLLOW THE LAW!!!!

 

If the judge still allows the PENALTY clause to be enforced against a borrower, then the judge has ERRED AT LAW and that decision can be appealed against, to correct the judge's error of law.

 

The reality is, that alot of judges are just there to rubberstamp the demands of the powerful litigant and are so in awe of the powerful litigant that they will not dare to go against the powerful lender. Parliament has given the consumer many protection laws against powerful litigants BUT the problem is that the courts rarely allow the consumer to use and enforce the consumer law.

 

Nonetheless, some of us consumers will break through and we must still push for the enforcement of consumer laws against the abuses (and illegalities) that the lenders purportrate against consumers. Thanks Campari2 for posting the quote - all borrowers out there should use the quote together with the FSA MCOB rule 12.3.1 and the common law rule that the law has never enforced a penalty clause.

 

Good luck

Supersleuth

Edited March 7, 2009 by supersleuth

[gizmo111]

It is unfortunate that Gizmo111 knows of one case where the court did not enforce the law, but that does not mean that that particular case will prevail. It would probably only be a county court decision, and would not necessarily stand up as case precedent - particularly if you can show (which you can) that that that court got it wrong (which it did).

 

It was not one case it was four - details here - http://www.consumeractiongroup.co.uk/forum/mortgage-companies/62003-important-mortgage-claimants-please.html

 

It was not 'only a county court decision' and the claimant ended up with

£7.5K costs -

 

Judge Kaye QC, in the High Court (Smith v Mortgage Express), addressed the matter as follows (in a case concerning a mortgage early redemption charge) –

“In my judgment, looking at the contract as a whole, I have no doubt that this is merely a provision as to what should happen, not if the borrower broke the contract, but if the borrower elected a right to redeem the mortgage at an early stage. It was, after all, part of the package that was being offered to him.”

[supersleuth]

Hi Gizmo111

 

Thank you for bringing that thread to my attention. It is incredibly sad reading because the judge was wrong!!! The CAGger should have prevailed.

 

I cannot find the Smith v Mortgage case, BUT I have found a case where Judge Kaye QC did find for the borrower and ordered that the lender refund a £33K ERC with interest - the lender appealed the decision to Court of Appeal AND HOORAY!!! THE COURT OF APPEAL UPHELD THE JUDGE'S DECISION IN FAVOUR OF THE BORROWER!!!

 

Here a link to the Court of Appeal case:

 

Evans v Cherry Tree Finance Ltd & Anor [2008] EWCA Civ 331 (06 February 2008)

 

I wholeheartely agree with you Gizmo that consumers run a risk of dumb judges who just rubberstamp the lender's demand and get the law wrong, but these judges do err at law. The ERC's are illegal. It is up to each individual whether they pay the extortion charge or whether they fight.

 

I'll keep looking at the case law to see if I can find other cases that help the borrowers stop the lenders from what can be reasonably regarded as theft!

 

Gimzo, please do let us know of other difficulties that consumers may face on this issue so that we can find law to overcome the evil hurdles that the lenders put up. By knowing ahead of time the tricks they will use to make the Judge ERR AT LAW, we can find ways to plan ahead to rebut those mistakes before they happen.

 

Supersleuth

[supersleuth]

BTW: Note that the borrower (Mr Evans) in the Evans v Cherry Tree Finance case used the Unfair Terms in Consumer Contracts Regulations 1991.

 

That law can now be found under Results within legislation - Statute Law Database

 

and also see

 

Results within legislation - Statute Law Database

 

Anyone looking to present a claim could use the Evans case, the unfair contract terms statutes and the FSA MCOB rules - try and get a judge to ignore ALL THAT LOT.

 

On the costs issue - use the same unfair terms statutes. The clause in the contract that allows the lenders to charge all the legal costs to a borrower is also an unfair term - read the Scheudules in the statutes for lists of unfair terms.

[Last of the Mohicans]

Hi Gizmo111

 

Thank you for bringing that thread to my attention. It is incredibly sad reading because the judge was wrong!!! The CAGger should have prevailed.

 

I cannot find the Smith v Mortgage case, BUT I have found a case where Judge Kaye QC did find for the borrower and ordered that the lender refund a £33K ERC with interest - the lender appealed the decision to Court of Appeal AND HOORAY!!! THE COURT OF APPEAL UPHELD THE JUDGE'S DECISION IN FAVOUR OF THE BORROWER!!!

 

Here a link to the Court of Appeal case:

 

Evans v Cherry Tree Finance Ltd & Anor [2008] EWCA Civ 331 (06 February 2008)

 

I wholeheartely agree with you Gizmo that consumers run a risk of dumb judges who just rubberstamp the lender's demand and get the law wrong, but these judges do err at law. The ERC's are illegal. It is up to each individual whether they pay the extortion charge or whether they fight.

 

I'll keep looking at the case law to see if I can find other cases that help the borrowers stop the lenders from what can be reasonably regarded as theft!

 

Gimzo, please do let us know of other difficulties that consumers may face on this issue so that we can find law to overcome the evil hurdles that the lenders put up. By knowing ahead of time the tricks they will use to make the Judge ERR AT LAW, we can find ways to plan ahead to rebut those mistakes before they happen.

 

Supersleuth

 

 

Thanks for that Superslueth. Just got two redemption figures with ERC on - both will get letters with reference to that case next week

[statistics]

Thankyou Supersleuth. Due to unforseen circumstances we have had to take out 2 secured loans and re-mortgaged three times since 2004. I have incurred ERC on 4 of these loans/mortgages incurring a total of more than 50K in Early Repayment Charges. After reading what you have posted am I right in thinking that I have a claim against these Lenders?

[supersleuth]

You may have - but you will have to decide. The law is as stated in the posts and therefore, the ERC's are not enforceable against borrowers unless they are a "genuine pre-estimate" of the damages suffered by the lender.

 

Gizmo111 has correctly warned us that some borrowers get hit with legal costs if they lose. Therefore, if you are going to bring claim against the lenders, you must also plan a contingency in to defend yourself against costs. As mentioned, a clause in the contract giving the lender the right to costs is unenforceable too, but you should prepare a full defence against a costs order so that you're not caught off guard.

 

The lenders always use the threat of a large costs order against you as their first line of defence against a claim for the refund. Very often they will intimated borrowers just off the back of this threat and borrowers will keel over from that alone.

 

You will have to decide on the whether you can assert your claim and defend yourself against a costs order. If you feel strongly enough, then you will go ahead - you have 50,000 reasons to go head but the risk is that fancy footwork on costs and duping the court to grant a costs order against you is the risk you run. You must decide if you are prepared to take the risk based on the strenght of your case to recover the ERC, and the strength of your defence against a potential costs order.

 

Good luck whatever you decide

Supersleuth

[statistics]

SupersleuthFor well over a year now I have sent numerous letters to the Lenders and have been fobbed off every time trying to confuse me with legal jargon. I have spent so long on this, and not knowing where I legally stand, I am cautious about going to court on my own to confront these Lenders.I have contacted a solicitor who are well aware of the Lenders and think that I have a case against them.We had the same broker for 4 of these loans/mortgages.Is there something underhand going on? Also all of the Lenders that we have been through are linked to each other.Any ideas?

[statistics]

I know sometimes we have to take these loans out in desperation, but surely there is a line that must be drawn as to how much charges they can take off you, especially when you are trying to get back on the straight and narrow!I was with a High Street Lender until I was stung with bank charges, which led to my downfall to bad debt.Sorry about my paragraphs, but they all seem to be merging into one.

Edited March 7, 2009 by statistics

[supersleuth]

Of course there is something underhand going on. Every time you are forced to remortgage they earn mortgage application fees, fees, fees and fees, and then the best bit the ERC!

 

So each time there would have been some reason that you felt forced to incur all the expense of remortgaging and that's how the continue to earn fees from you...not only the ERC. This is part of the whole securitisation strategy - they use excessive interest rates to force people either to remortgage or they will repossess - either way they win and earn lots and lots of cash - in your case 50K - so you'll forever be getting deeper and deeper into debt and never actually be able to pay off the loan. The whole securitisation process has repossessions designed into the strategy. The fact that each of the lenders are linked means that they know you'll keep paying and they can pass you around the next time that you're forced to remortgage and they'll earn another ERC.

 

If you had a solicitor that said you have a case against them - then you can be sure that you do. But you must decide whether you will risk the costs.

 

One way to avoid the excessive legal costs is to ensure that your claim is allocated to the FAST TRACK - the fast track has a cap on the amount of legal costs that can be granted against you - avoid having your case allocated to the MULTI-TRACK - that's where they can ask for crazy amounts of costs.

 

Your case is relatively simple - it is just to assert that they ERC is not contractually payable because that clause is unenforceable at law. It is one question for the court and therefore you must ensure that the case is allocated to the FAST TRACK. If your case is allocated to the MULTI TRACK then you could compromise with them and not go to trial which is where the crazy costs are.

 

Again these are just suggestions - so talk to your solicitor again.

 

Finally, make sure your solicitor fights for a costs order against them! The risk of a costs order against them is also present - it should not be a foregone conclusion that the lender will get a costs order against you.

 

Hope this all gives you more food for thought

 

Good luck

Supersleuth

[statistics]

Supersleuth.Thanks for that.I seem to have borrowed off the same Lender right down the tracks. The same Broker. This makes me very worried. I have come to the conclusion that I have paid ERC to the same Lender since 2004. I have checked my Lenders out and they are all linked. All money in their back pocket!!!!

[statistics]

SupersleuthMany thanks for your advice on this.I have been hit back too many times with the ERC. I don't seem to be doing very well by myself. Need help now !!!!!!!!

[Nick W]

Hmmmm - all interesting.

 

Mine is an un-regulated mortgage account with SPML - do you think it makes any difference (apart from FSA rules wont apply)?

 

Nick

[iconoclash]

Hmmmm - all interesting.

 

Mine is an un-regulated mortgage account with SPML - do you think it makes any difference (apart from FSA rules wont apply)?

 

Nick

Hi - the way I read it NO - if you re-read Supersleuths Post no. 7 above that covers it I think.

[supersleuth]

Hi Nick,

 

The lender will assert that it does but it does not make any difference.

 

Use logic - it is absurd to say that an ERC is unlawful for a mortgage originated after 31 Oct 2004 but lawful to for an ERC charged before 30 Oct 2004. The fact is that ERC's ARE UNFAIR and the Unfair Contracts Statutes say its unfair and the Court of Appeal says its Unfair so why should it magically be "fair" because it is charged from an "unregulated" mortgage?

 

So if the lender starts clutching straws with a defence of "unregulated" mortgage - smile - they ARE clutching straws - and they have no defence.

[Nick W]

Thanks for that - its great help.

 

I have made capital repayments every 3 months or so for the last 2 years, taking £40k off my mortgage.

 

I assume, even thought I have not made one big capital repayment but around 8 smaller ones - this wont affect anything?

 

Again, they should only be compensated for a genuine estimate of additonal work - otherwise its a penalty.......?

 

Nick

[Nick W]

Sorry for the double post..................

 

I noticed about the ERC's in the terms and conditions.

 

SPPL only apply 3 months interest on amount being paid plus £65 charge for the first 3 years ONLY.

 

Then after this, its 1 months interest plus £65.

 

This is stronger evidence that it IS a penalty........

 

Nick

[seelybee]

I've read the useful info here on ERC cases. Mine is a bit different and I'd appreciate other's views.

My saga in brief:

I had a 2 yr fixed rate mortgage (around £100K)ending Jan 09. For work reasons I needed to move last year and in mid March 2008 checked with the lender (a major building society) that my mortgage was portable. It was, as long as I bought another property within 6mths of redeeming the mortgage. The lender advertised itself at that time as a major provider of shared ownership mortgages. I went back to them in mid April having found a buyer for my (non-shared ownership) property and paid a deposit on a new shared ownership property. They then told me that they were no longer providing shared ownership mortgages (from 31st March 2008) and would not transfer my mortgage. I had the choice between losing my buyer and around £2K of fees and costs incurred to withdraw from the purchase (gaining nothing), or £4k of ERCs to proceed. Having got nowhere with the lender's complaints procedure, I proceeded with the purchase, incurred the ERCs and referred the complaint to the Financial Ombudsman, having advised the lender that this is what I would do. The FO did not find in my favour, essentially on the basis that the mortgage agreement I entered into was for portability to a suitable product, but the lender no longer provided a suitable product.This was not their fault as the government had ended their agreement for the particular shared ownership scheme with the lender.

Would I have good grounds to take this to court on the basis that (i) the lender imposed a unfair penalty on me by effectively forcing me into early redemption and therefore that (ii) any breach of the mortgage contract was theirs, since they had a suitable product when I took out the mortgage (i.e. when agreeing the terms)? They could have transferred my normal mortgage on the new property (this is what I now have with Abbey, who have no particular scheme)for shared ownership) but chose not to. So my argument is that I did not end the mortgage agreement, they did. Any advice will be much appreciated.

[henderson50]

Hi - the way I read it NO - if you re-read Supersleuths Post no. 7 above that covers it I think.

Reading all this with interest.

I had a mortgage up to May 2008 with Halifax. I sold the property due to ill health and not being able to sustain my self employed income. ERC was calculated I asked the lender to 'port' the mortgage to another property as I could remortgage that one without penalty. They would not because my previous good credit score had deteriorated. I had to pay circa £12k Erc. Could anyone put me on the right track, and how I should approach the situation.

Regards

Henderson