Saraounia Vs SimpleLoans/GMAC-RFC

[saraounia]

New thread to claim back ERC

 

10/09/01 SimpleLoans/GMAC-RFC - £12,393.81 paid

 

21/09/06 Sent prelim letter to registered office by registered mail

[saraounia]

28/09/06 Response from GMACRFC - Nice letter saying nothing. In response to your letter...we can confirm that you paid £x to redeem on x/yy/xx and there was an ERC of £12389.44. We trust this is to your satisfaction and should you have any other queries.....

 

29/09/06 Sent Letter before Action letter (LBA) giving 14days notice. Letter below sent registered post.

Thank you for your letter dated 21st Sept. 2006, confirming that an early redemption charge was paid on 12 October 2001 of £12,389.44 to redeem my account.

 

Unfortunately, to my disappointment, you did not address my written request for a full refund or indeed, any of my queries at all. For your convenience, I am attaching a copy of that letter for your review.

 

My request is simple. I am asking that you refund the total charges that have been unlawfully levied on my account. It has come to my attention that the ERC may well be an unenforceable penalty both at common law and under the unfair terms in consumer contract regulations and recent consumer regulations. I would refer you to the relevant paragraphs in my previous letter (attached).

 

Simply put, common law only lets you recover 'liquidated losses'. It is the difference between charging to recoup actually 'making a loss' - which is entirely legal and charging for 'not making as much profit' - which is not permissible.

 

Consequently, the only justification for any redemption charge is if that sum is the actual cost to the mortgage company of ending a particular mortgage early. In other words, I believe the mortgage company should be able to point to specific expenditure undertaken in order to end my mortgage.

 

I believe that the ERC levied far exceeds any true cost to the mortgage company as a result of my breach and is therefore entirely unenforceable.

 

If you disagree, then will you please demonstrate this by letting me have a full breakdown of the costs to which you have been put to as a result of my breach, in order to reassure me that your charges really do reflect your costs?

 

If you are not able to demonstrate that the charge was your best pre estimate of actual loss, then I would very much appreciate a full and swift refund of the ERC.

 

I really hope that this matter can be resolved amicably and without the need for redress to the courts, which is why I am taking the trouble explaining my position fully.

 

I will give you another 14 days to reply, letting me know a date by which I will receive payment.

 

If you do not respond, or you do not respond positively within 14 days from today, I shall issue a claim at the expiry, to reclaim the ERC levied and legal costs, plus statutory interest at 8% in the county court.

 

Thus take this letter as 14 days written notice of my intention to issue a court claim should you not comply with my requests above. After that, there will be no further communication from me.

 

I believe that these targets are more than sufficient for a large company such as yours with dedicated staff and departments.

[saraounia]

28/9/06 Got letter from Complaints manager saying ' I am concerned about the issues you have raised and propose to investigate them in line with our internal complaints procedure, a copy of which is enclosed. I anitcipate that i wil compolete my investigations of the events and circumstances within four weeks, whereupon I shall write again.

 

Now that is what I call a fob off letter.

 

Will write back saying 'no sale' - am not complaining but making a request for a refund and the facts are clear so am now issuing a claim as you have refused to address my request. You will then be forced to appear in court and disclose your charging regime....

 

Standby.

[Les Gunn]

Good luck with everything saraounia - I hope more of us start winning a few battles soon and add to the ERC clawback...BRING IT ON!!

 

[saraounia]

Thanks for that. Gosh, you been busy as well! Well done you.

[Les Gunn]

I'm knackered with it all!!

 

But enjoying EVERY minute.

 

[saraounia]

Did you hear the discussion on 'you and yours' last sat? One chap from the Ombudsman's office saying how successful they had been with claims....then a director from a Lloyds who have just increased bank charges on their classic basic account - was asked, 'do your bank charges reflect actual costs to the bank'.....his total silence spoke volumes.

 

I am going to do all my previous mortgages first, then start on the banks and credit cards.

 

The banks and mortgage companies obviously act as a cartel against the interests of their customers. They really cannot be allowed to get away with it any longer. Unfortunately, the agencies set up to 'protect' consumers - Ombudsmen, OFT etc have been rigged and are effectively toothless. It is up to consumers to sort this out in the courts.

[Les Gunn]

Actually no, but I wish I had! Bodies like the OFT have some sway but no umphh, so as you say, it's down to the point of law now. We seem to have the edge - that's assuming British Justice is just that!!

 

[saraounia]

10/10/06 - Heard nothing so issued MCOL

10/10/06 - Got letter from GMAC in response to my letter dated 28/9/06

 

Details of GMAC response:

Thank you for your letter dated xxxx, the contents of which we note.

 

The charges you refer to are in line with our Tariff of Charges. We provided you with a copy of our applicable Tarriff of Charges with the mortgage offer that we issued to you and again with the Annual Mortgage Statement that we send you.

 

We rere you to condition xx of these mortgage conditions, which makes it clear that the Tariff is part of your mortgage contract.

 

THe charges have been properly debited to your accound in accordance with the conditions of the mortgage and it is not appropriate for us to refund them to you.

 

You have indicated that you may issue a letter before action against us if we do no refund these charges and so we have referred this matter to our legal team. YOur letters should be marked for their attention should you choose to proceed. The address of our legal team is GMAC-RFC Ltd, Eastern Gate, Brants Bridge, Bracknell, Berkshire RG12 9BZ.

 

We will not treat your letter as a formal complaint. However, if you chose not to make a court claim, our complaints procedure is still available to you and we enclose details if you wish to pursue this.

--------------------------------------

Have issued MCOL and am waiting for their acknowledgement.

 

So no legal defence given, just that it is not appropriate indeed. They are soooooooooooooooo dodgy.

[sues35]

Hi, been reading your thread with interest. I too have been chasing GMAC and guess what, i have had exactly the same response letter as you. I too was one step ahead as they had gone over my time set and had filed N1 with local court day before they sent letter. I even put the registered address on N1 so their advice of using that address was uselss to me.

 

Keep post updated and good luck

[mickey_0]

Hiya, I have also had exactly the same letter from GMAC but mine is the first response to my prelim letter. I am due to send the LBA but was wondering whether I should send it to the original GMAC address or to the address of their legal team that they have put in their letter to me? Any thoughts on this? I'm thinking it probably doesn't matter too much as they'll probably forward it to the relevant department anyway??

 

Thanx

[feelingfine]

Saraounia :

you are one step in front of me...keep going!!

They (gmac) must be printing these letters off by the thousands, i got the exact same one "last paragraph"

"we are not taking this as a formal complaint blah blah blah"

So good luck to you on this and let us all know how you get on please.

 

Mick-0:

i sent my LBA to :

Gmac-Rfc

Eastern Gate

Brants Bridge

Bracknell

Berkshire

RG12 9BZ

 

That i only sent 13-10-06, so they have yet another 14 days in which to pay, but i doubt they will, they seem to be holding out....for a change in the law hahaha!!!

[lucaloo]

hi saraunia, i will be watching this closely, just found GMAC charged £3,272.98 ERC, £115.00 repayment admin fee plus £40.00 expenses......did you have similar additional charges and if so r u claiming them too.

 

good look, just drafting my Lba now

[saraounia]

Filed MCOL, Gmac have 28days to 20th nov 06 to file a defence

[saraounia]

10/11/06 Got a defence filed by GMAC. The failed to give a basis for calculation simply repeating that it was a liquidated damages claus, not unfair etc so no refund. 12 points all in all.

 

Have written a draft response to each point in their defence. Sorry I haven't include thier points here, but it is far too long to type out and I cannot add attachments. So just my response is here for your comments. It is rather long I am afraid. Any points gratefully recived.

 

Needless to say it is a cobble from all the great advice on the site....thanks Zootscoot et al!

 

In response to the defence filed by the Defendant, I wish to respond to each point made by the Defendant as follows:

 

(1) The facts stated by the Defendant in item 1. are not in dispute. The Claimant agrees with the facts as stated by the Defendant. It is not disputed that the Claimant took out a mortgage with the Defendant on the terms stated.

 

(2) The facts stated are not in dispute. The Defendant’s offer, containing standard and special offer Conditions were signed by myself, at that time, in the belief, as was generally accepted, that the Defendant’s conduct was lawful and complied with UK law - otherwise, I would not have signed the agreement. For reasons stated in the Particulars of Claim and further, below, this is no longer my belief.

 

(2.1) Irrespective of the nature of practices and methods prevailing in the UK mortgage / banking industry today; I recently became aware through reports in the UK media, that there may be a basis for a legal challenge. And I wish to take this opportunity to take up to challenge application of ERCs in the Courts of justice.

 

(2.2) The Claimant, as an individual was at the outset already at a substantial disadvantage as the Defendant is a large financial institution with ready access to legal advice, extensive marketing and financial expertise. At the outset, the Claimant thus relied on the integrity and expertise of the Defendant and their introducing broker.

 

(2.3) The Claimant attests that the Defendant’s concealment of the true nature of the ERC charges has prevented the Claimant from asserting her rights until now. In addition to the existence of the ERC in the manner stated, the Defendant’s repeated representations that the ERC charge was fair and reasonable were and are deceptive and expressly deceived the Claimant into agreeing to pay them.

 

(3) The facts stated are not in dispute. It is the lawfulness of the clause that is disputed here and now, not its existence in the mortgage contract.

 

(3.1) The Claimant accepts the contention that redemption of the mortgage was expressly provided for in the mortgage offer. Condition 13 provides that an early redemption charge was payable in the event of redemption and thus represents a charge that is payable in anticipation of the event of a breach of contract. This term merely anticipates a breach and does not represent the exercising of a right under the contract.

 

(3.1.1) The fact that the Defendant contemplated early redemption, in no way prevents my actions from amounting to a breach. To draw an analogy from criminal law, the fact that a policeman contemplates that a particular known offender may offend again in the future does not make the offender's actions lawful when he does in fact offend.

 

(3.2) Nonetheless, in the event that the court were to find the said term as exercising a right and without prejudice to the above paragraph it is submitted that the fact that such a term exists does not prevent a court finding of breach of contract following the House of Lords decision in Bridge v. Campbell Discount Co Ltd [1962] AC 600

 

(4) The facts stated are not in dispute. For expediency, the Claimant accepts the Defendant’s amount of £12,389.44 rather than the amount stated in the Particulars of Claim.

 

(5) The Claimant strongly refutes the Defendant’s assertions. The contractual term agreed for the loan was 25 years; the Claimant redeemed the loan fully before the expiration of the contractual term.

 

(5.1) The particular term in the mortgage, which was breached, was an express term relating to the period of 25 years for which the mortgage was to run. This term of the contract was clearly stated in the written mortgage offer signed by the claimant. The terms of which were incorporated by reference into the mortgage deed, which was not only signed, but also witnessed.

 

(5.2) There is clearly no room for doubt that such a clause existed in the contract. Similarly, there is no question that the claimant in fact redeemed the mortgage on 12/11/01. This date is clearly well before the contractually agreed 25year redemption date and thus represents a clear breach of the contract. The event of early repayment by the Claimant clearly constitutes a breach of the expressly agreed mortgage term,

 

(5.3) The Defendant expressly specified via Condition 13 that in the event of a breach of contract specified by the Defendant as early repayment, an ERC charge would be made.

 

(5.4) To further the contention that a breach of contract did in fact occur, it is submitted by the Claimant that the Claimant was clearly under a contractual obligation to pay monthly instalments to the Defendants for the agreed 25-year term and clearly has not made such payments since the redemption of the mortgage.

 

(5.5) Condition 6.1 is a standard term of the mortgage expressly permitting the Claimant to repay early.

 

(5.6) Condition 13 is a special Condition imposed by the Defendant that has the overriding effect in practice of varying or nullifying preceding Condition 6.1. The Claimant could only exercise her right to repay early on a payment of the ERC specified by the Defendant.

 

(5.7) In the circumstances, the ERC is a payment due only on the occurrence of a specific event, expressly specified by the Defendant in Condition 13 as an early repayment event.

 

(6) The Claimant asserts that the amount charged, as the ERC is disproportionate because it far exceeds any actual loss the Defendant could possibly have suffered.

 

(6.1) Commercially, an applicant compensates the mortgage provider for the costs (from application to account creation), via a series of fees set and levied by the mortgage provider (via arrangement fee £345, valuation fees £320+£360), legal fees etc). The mortgage provider sets the level of compensation required to cover costs at the level of working capital.

 

(6.1.1) Once the loan is active, the mortgage provider applies a rate of interest to the ongoing account calculated to further compensate the mortgage provider for the assessed ongoing risk and deliver an ongoing profit element to the mortgage provider.

 

(6.1.2) The mortgage provider borrows funds at a low inter bank rate and lends to the applicant at a higher rate, a margin made up of future interest and profit to the provider.

 

(6.1.3) On early repayment, the mortgage provider will no longer receive instalments over the duration, but receives the loan amount immediately and the loan having been repaid in full, quite rightly forgoes future interest and profit. Excluding the ERC, the applicant is also charged upfront for the administrative costs of early repayment (Mortgage Administration Fee £115). The Lender rarely gives the Borrower any credit by discounting the early lump sum repayment to present value to account for the fact that Lender is getting its money in one go, earlier than it would have done if the loan had continued for the full fixed rate period.

 

(6.1.4) Commercially, even where market interest rates are falling, the question of a significant loss of future interest does not arise; In the real world, any risk is passed to Customers as banks / mortgage companies all delay lowering interest rates till spare funds are routinely and systematically re allocated to new applicants / markets at the prevailing (higher) rate using standard methods and without significant loss or high re allocation costs to the mortgage provider.

 

(6.1.4a) In a rising market, the banks obviously benefit from reallocating funds at a higher lending rate. Consequently, it is very difficult to comprehend how GMAC RFC can claim a significant loss on this account.

 

(6.1.5) On the issue of "losses" to the Lender, the remaining element is future profit. Compensation charged for the profit element is unlawful, as it inflates the actual "damage".

 

(6.1.6) To my current understanding, the Defendant is in law entitled to recover reasonable actual losses suffered as a result of my breach via a reasonable pre estimate of actual costs. The Defendant is not entitled a disproportionate charge for actual costs nor to compensation on redemption for a perceived loss of future profit over the mortgage term.

 

(6.1.7) To my current understanding, it is not equitable to levy interest on money that is no longer owed. Creditors are entitled to charge interest on the amount that it is owed for the time that it is owing, and no more. If account holders no longer owe the money, then mortgage providers are no longer entitled to charge interest on it.

 

(6.1.8) Furthermore it is submitted that the Defendant must take into consideration the duty that an innocent party to a breach is under a legal duty to mitigate their loss in accordance with the principles set out in Payzu v Saunders [1919] 2 KB 581. In practice, Lenders should be looking to re-lend the money as advantageously as possible and rely on penalty clauses to hedge against commercial risk.

 

(6.1.9) For reasons stated, I submit that the ERC charged is a disproportionate penalty for lost future profit not actual loss incurred

 

(6.2) The claimant denies any contention by the Defendant that the term relating to the early repayment charge is a liquidated damages clause.

 

• Bridge v. Campbell Discount Co. Ltd. (1962) In this case a Customer bought a car under a hire purchase agreement. He paid the initial and first payments and then cancelled the agreement. The company tried to recover the sums specified in the contract for canceling the agreement, but the courts held that the sums payable were excessive and constituted a penalty clause. It was, therefore, unenforceable.

• According to Dunlop v New Garage there is a distinction between a penalty clause and liquidated damages clause. (Penalty deemed unlawful, liquidated damages as lawful). To amount to a lawful liquidated damages clause it must be shown that the fee levied amounts to a genuine pre-estimate of losses.

• A contractual term which provides for a specified amount payable (whether by a fixed sum or calculated by way of a percentage) must represent a genuine pre-estimate of loss if it is to be regarded as a liquidated damages clause Dunlop Pneumatic Tyre Co. Ltd. v New Garage & Motor Co. Ltd. [1915] A.C. 79.

• Under the Dunlop case a fee is a penalty if the sum stipulated is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to follow from the breach. In this case, the judges reached the conclusion that the sum to be paid for a breach of the contract was substantial and arbitrary and bore no relation to the potential loss of the other party. It was, therefore, a penalty.

(6.3) The claimant has repeatedly asked the Defendant to provide the claimant with details of how their charge was calculated to represent a genuine estimate of their loss. In correspondence dated 21/09/06, 28/09/06 and 10/10/06, the Defendant has failed to respond to my requests to give a breakdown of its actual losses or provide a response as to how it came up with a genuine pre-estimate of its losses.

 

(6.4) Thus the claimant is of the opinion that no genuine pre-estimate indeed took place. The claimant thus makes a respectful request to the court that disclosure of this information is provided to the claimant forthwith to bring an expeditious termination to the proceedings.

 

(6.5) It is further submitted by the claimant that the Defendant’s failure to provide such information is for the reason that such information would reveal that the term is in fact a disproportionate penalty. Had the Defendant been able to demonstrate that the charge was indeed a liquidated damages clause it has had ample opportunity to do so and the claimant would not have need to initiate these proceedings. Again, it is thus respectfully submitted by the claimant that an order to disclose this information is made so as to satisfy the claimant that the charge is indeed a liquidated damages clause. The Claimant will not accept the Defendant’s assertions that the ERC represents a genuine pre estimate of the loss the Defendant suffered in the event of early redemption.

 

(6.6) For reasons stated above, the ERC therefore amounts to an unenforceable penalty.

 

(7) It is respectfully submitted by the claimant that a breach of S.4 of the Unfair Contract Terms Act 1977 is applicable because it provides that a business can only require a Consumer to indemnify their loss where it is reasonable (in accordance with s.11) to do so. Consequently, special Condition 13 should be regarded as unreasonable under s.11 of the said Act, as, the term effectively deprives the claimant of the right to exercise early repayment without payment of disproportionate penalty costs to the Defendant.

 

(7.1) I believe a huge financial institution like GMAC RFC is better placed to bear the loss of its own commercial risk freely undertaken than myself, as a private, individual Consumer, relying of the expertise and integrity of the finance industry.

 

(7.2) The practice of offering premium or discount rates are commonplace in the world of business and but few companies have the audacity to pass such commercial risk on to their Customers. It is a fact that Lenders offer and price fixed and discount deals in order to remain competitive.

 

(7.3) The premium interest rate offered with my mortgage product represents a legitimate considered commercial decision by the GMAC RFC to attract my custom. A fixed rate protects the Borrower against rising interest rates. In order to lend at these rates, the Lender usually borrows on the market at a fixed rate. If the loan is repaid early and interest rates have fallen, the Lender will have to pay to break its own market deal. In theory, any liquidated damages cost is passed on to the Customer as an ERC. With fixed rates the Consumer also takes a risk in that interest rates could fall and bears all the risk.

 

(7.4) In the real world, fixed rates are most attractive to Consumers in during periods of generally rising rates. The Lender is able to re allocate funds at the new higher prevailing rate at a higher profit – which of course is not shared with the redeemed Customer who provided them the opportunity. In addition, the Lender may already have collected an ERC from the redeemed Customer for the same funds re allocated at a higher lending rate / profit margin. This is the current status quo of a very happy ‘win-win’ situation for Lenders.

 

(8) The Claimant submits that Para. 1(e) of Schedule 2 of the Unfair Terms in Consumer Contracts Regulations 1999 is applicable for the following reasons:

 

(8.1) The court or Financial Ombudsman Service (FOS) will consider whether, with regard to the circumstances prevailing at the date of the contract, the term is one, which contrary to the requirement of good faith, caused a significant imbalance in the parties’ contractual rights and obligations to the Customer’s detriment. Paragraph 1(e) of Schedule 2 to the Regulations provides that a term “requiring any Consumer who fails to fulfil his/her obligation to pay a disproportionately high sum by way of compensation” may be unfair. As stated in 5) above, the express entitlement to redeem was varied by special Condition 13, which effectively placed this entitlement beyond the reach of the Claimant unless the Claimant paid the ERC specified.

 

(8.2) The claimant contends that if the Defendant complies with the claimant’s request to provide a breakdown of losses to which the Defendant has been put to, it would reveal that the charge levied would in fact be revealed to be a disproportionate penalty under the Unfair Terms in Consumer Contracts Regulations 1999 (SI. 1999/2083).

 

(8.3) The claimant’s account falls within the ambit of Regulation 5 of the Unfair Terms in Consumer Contracts Regulations 1999 as the claimant is a Consumer.

 

(8.4) The charge constitutes an unfair penalty under Schedule 2 of the said Regulations, which provide an indicative and non-exhaustive list of terms, which may be regarded as unfair. Under paragraph 1(e) of schedule 2 this specifically includes terms, which have the object of requiring any Consumer who fails his obligation to pay a disproportionately high sum in compensation. The claimant vigorously contends that this is the position regarding the fee of £12,389.44 charged to the claimant’s account.

 

(9) The Claimant does not dispute the fact that terms and Conditions including the ERC clause were signed. The basis of the claim is that the ERC charged was not a genuine pre estimate of actual loss on breach and is a disproportionate penalty and therefore unlawful.

 

(9.1) The ERC in Condition 13 applied to my account was clearly not designed to reflect the true cost to the Lender of liquidating my mortgage early, because it lacks entirely those attributes or badges, which would give a result that approximated to actual cost, except perhaps by pure chance. The disguised intention is to impose a disproportionate penalty as follows:

 

· The ERC was not based on the absolute movement in market interest rates, rationally any downward movement from the fixed rate at which the Lender actually lent to the Borrower.

· The ERC was not based on a relative movement from a starting rate (eg. Fixed rate at start of loan) to some current rate – typically either the current fixed rate at which the Lender says it will lend money to new Borrowers or the current fixed rate it says it can get by reinvesting the money on the money market.

· To calculate the ERC, an interest rate differential was not applied. I.e. differential rate then multiplied by the amount being repaid early and the unexpired term of the original fixed rate period.

· There was no discounting to give a ‘net present value’. This would take into account the fact that the Lender is in fact getting its money in one go, earlier than it would have done if the loan had continued for the full fixed rate period. This adjustment has been recommended by the Financial Ombudsman in several rulings even where not specifically stated in the contract, but continues to be ignored by most Lenders.

· The ERC was charged on redemption and had to be paid before the Lender would consent to close my account. It was applied as a matter of course and upfront; implying that the Lender did not in fact and as a matter of course, look to re-lend the money to mitigate any actual loss on my breach. Any consideration of actual commercial risk is therefore excluded. This to my mind operates as an indemnity against any commercial loss without any action to mitigate.

· Effectively a single fee is levied irrespective of the actual loss of interest, perhaps for perfectly understandable practical reasons, as interest rates cannot be predicted with any certainty in practice. For this reason, it is difficult to see how GMAC RFC can argue that the ERC fee was a pre-estimate of actual loss.

 

(9.3) The finance industry has traded on their reputation for integrity to foist their unfair practices and penalty charges onto an acquiescent public. In recent years, Consumers have started to fight back on a number of well-publicised issues with many uncompetitive practices being challenged in Court, the most relevant here is the penalty nature of bank charges levied by all UK banks and credit card companies lead by ‘Which’ magazine and the Consumer Action Group. In April 2006, the OFT forced credit card companies to reduce their penalty charges - it set a "threshold for intervention" at £12, above which point it will presume the charge is unfair. Non-personal services, to small businesses for example are also subject to continuing controversy and allegations of profiteering from Customers.

(9.4) It is disingenuous for the Defendant to present the mortgage industry as delivering transparent choice to Consumers. It is very much a part of the wider finance industry and employs a raft of unfair practices of its own - from the way it operates the credit register, to the rate of increase and nature of fees. For example, due to the nature of products offered, ERCs are hard to avoid – they are applied to fixed, capped, cash back, discounted and some base rate tracker mortgages – their application by Lenders have become remarkably standardised in recent years as Lenders manipulate fees to support margins.

(9.4.1) Common practices such as the "bait and hook" which is an extended tie in, where for example a Borrower can get a lower fixed rate, say 5.5% for five years (the bait), but is then locked in (or "hooked") for another two or three years on a higher, variable rate or "bundling". This is where Borrowers are offered an interest rate lower than most others on the market. The snag is that Borrowers must buy overpriced buildings insurance from the Lender. The Lender gets a chunky commission from the insurer, which issues the policy. Customers typically end up paying as much as they would if the interest rate had been at the market rate. This marketing gimmick is particularly controversial because it prevents Customers shopping around for better insurance deals. Buying buildings insurance from a Lender typically costs much more than buying direct from an insurer. Another is annual interest calculation. This is where the interest on a loan is worked out every year rather than every day or every month. It means your payments don't reduce the nominal value of the loan, and therefore the amount of interest you pay, until the end of December each year. A Borrower with a £75,000 mortgage loses £75 a year because of this. Multiply this by a few thousand Customers and there is your motivation.

 

(9.4.1a) The penalties are normally expressed in one of four ways by all the mortgage companies, some methods more reflective of true cost than others. In some cases early repayment charges are set at the start of the mortgage term and remain flat throughout the deal period, in others the penalty reduces each year.

· As a number of months' interest

· As a percentage of the advance (the amount you originally borrowed)

· As a percentage of the sum repaid

· As a percentage of the outstanding balance

(9.5) Most residential mortgages are regulated by the FSA, which now requires a section in the Key Financial Information given to the Customer, and also in the mortgage offer itself, describing whether and when any ERC may be payable, with a least three cash examples showing the range of charges that may apply. The Claimant acknowledges the existence of Condition 13 but with hindsight now submits that the clause is defective in terms of clarity, by reference to industry guidance for ERCs in the following respects:

· The term “early redemption charge” is clearly stated

· No example calculations of the ERC were included, at least 3 are recommended precisely as the contract allows

· The calculation for the ERC does not stand up to scrutiny as specified in (9.1) above.

· The Defendant cannot demonstrate that the ERC charged fairly represents actual loss on my breaking the loan

· The Defendant cannot demonstrate any mitigation of their position by looking to re-lend and/or discounting the ERC to reflect receiving the money in one lump sum

(9.6) Choice or not, an early redemption penalty is an attempt to charge interest on money no longer owed. The Claimant does not dispute the Defendant’s right to make a charge to recover actual costs (or a reasonable pre estimate of costs). It is the basis / nature of the ERC actually charged in substitution for actual costs incurred by the Defendant, due to the Claimant’s breach of contract, that is challenged here.

 

9.7) There is a very clear rule of law that says that the Lenders are only allowed to make certain charges. Consumers are not exploiting a legal loophole just demanding their rights by petitioning the Courts to bring Lenders back to lawfulness.

 

(9.8) The mortgage industry has substituted 'not making as much profit' for 'making a loss'. To my mind, the two things are completely different. Common law permits recovery of 'liquidated losses' only. The only way they can justify the ERC is if that sum is the actual cost to them of ending my particular mortgage early. In other words, they would have to be able to point to specific expenditure, which they had to make in order to end my mortgage, and that is what the penalty is there to recover. I am petitioning the court because I believe the law says a mortgage Lender cannot charge more than the actual costs or losses incurred. And Borrowers are entitled to have their charges calculated accurately and the basis of the charge explained fully. The Defendant has in my opinion failed to act lawfully in these respects.

 

(9.9) I would respectfully draw the court’s attention to the following statement from the OFT website ‘ 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 expressed as the price for exercising a right rather than a consequence of breaking the agreement’’

 

(10). It is submitted that the early repayment charge applied by the Defendant was unfair, unreasonable and disproportionate. For this reason, the Claimant contends that it is unenforceable entirely.

 

(10.1) The Claimant contends that such a charge represents a disproportionate penalty and a fee calculated by terms of a percentage of the sum repaid can not amount to a genuine pre-estimate of the Defendant’s loss, but moreover represents a fee levied with a view calculated to profit from the claimant’s breach, to act as a clog on the equitable right to redeem and or to punish the claimant for its breach of contract.

 

11) The Claimant claims a refund of the ERC charge of £12,389.44 plus statutory interest on the grounds stated above and below plus court costs.

 

12) A claim for interest on the ERC charged from 12/10/01 to date is submitted.

[ukaviator]

Well done Sarounia. Simular to mine against Birmingham Midshires.

Great work.

 

Uk...

[saraounia]

Thanks UK!

[paulpb123]

Great stuff Saraounia. Looks like you are a busy bunny at the moment! Well done with the other ERC.

[dolly]

That is a fantastic response and one I am sure will be helpful to many of us.

[Tazz]

Great stuff!

 

One question - as your claim is well over £5000, what would your liability be if you were to take them to court and lose ?

 

I am about to go after GE Money for £8000; according to my legal advice line (courtesy home insurance) I would be liable for all their costs as I am over the £5000 small claims limit. Is that correct ?

[saraounia]

Technically, I were i to loose, I could be made liable for costs by the judge - but in practice it would be very very unlikely for even an unsuccessful claimant / individual to have costs awarded in favour of a large commercial enterprise. There is an existing precedent (but cannot find the thread, wish we could bookmark messages....). Your are right, there is always a risk, technically, but in practice, I am prepared to take that risk. The banks risk being exposed, I think their risk is more profound. And GMAC are not counterclaiming for costs in my case.

[rayclarke]

Hi

 

I wondered if you can help me. i am just about to redeem my mortgage with GMAC, I have 3 months to go before my ERC would be dropped. they are going to charge me £ 15500, which is outragious, i sent a letter asking if thet could reduce the cost before i found this on here. it was just a nice letter asking if they could help. but they wrote back saying we have enough equity so, tough basically.

 

Can you advise me

 

Thanks

 

ray

[saraounia]

Hi there,

 

If they are claiming it, then most people pay it then reclaim it back via the county courts. I think it would be dubious not to pay it in the circumstances - I mean that it is only just being established via court claims / rulings that ERCs to the extent charged are unlawful.

 

I would suggest you select all threads for GMAC, spend a few hours reading through diligently, before you decide if you want to plunge in. Banks respond differently amongst themselves and on each case, and it will give you a good idea of their range of response, the processes and risks you would have to go through to claim.

 

If you do, most people have used the following process (all letters etc illustrated in the GMAC threads)

1) Send a priliminary letter to registered address, stating facts and requesting a refund on the basis that it is unlawful (give case references etc), and a response date

2) If they do not reply, send a 'Letter Before Action' LBA after the deadline

3) Issue a county claim

 

If you wanted to, you could try saying if they insist on collecting you will pay, but immediately claim back and put it at the top of a prelim letter.

 

I am sorry there is not abc, you really have to look at how to do it (which is on the site) and if given your unique and personal circumstances, state of mind, time available etc etc, it is worth it to you.

 

Poor you, it is an awful lot of money and I know what I would do, but there are risks with any legal process and you should feel very sure it is what you want to do.

 

It is really worth looking through the 'mortgage' and 'other institutions' threads to see how people started and how they have progressed (start with GMAC threads only under each section). If you need a mentor for the whole process, shout out and someone will respond, and the site runs a court buddy system. The site works on good faith with people helping each other out. Also, do make sure you read all postings by Zootscoot.

 

I didn't sleep for 2 days when I first came across the site!! It was all so alarming and perturbing - how could I have been so stupid? Then a righteous rage kicked in!

 

Good luck.

[zootscoot]

Hi Saraounia,

 

 

Fabulous response to their defence - truely stunning!

 

Gmac doesn't know whats about to hit them.

 

All the best

 

Zoot

[saraounia]

Thank you very much indeed, high praise indeed! Am thrilled!!

 

17/11/06 - Have now received the court allocation questionnaire. Given the amount £12,389.44 plus costs and interest, they have sent me N150 for allocation to the fast track. I am asking the judge, that notwithstanding the amount, given the nature of the case and in the interests of justice , that we be allocated to small claims or full disclosure is ordered in fast track. Have come up with the following comments. Any advice greatly recieved. I really do not want to end up in fast track.

 

I think I need to add something about the imbalance between the parties....?

 

Many thanks

 

(13.1) Not withstanding the amount , the Claimant respectfully requests that the case be allocated to the Small Claims Track for the following reasons:

· The case concerns a petition to the Court to apply existing law to bring the Defendant back to lawfulness. Evidence and arguments from Claimant and Defendant are based on existing law. And extended timetable is not necessary for Parties to gather evidence, make arguments etc. The matter could therefore be judged swiftly under present conditions without extended preparation time or wasteful application of Court resources.

· To my understanding, cases allocated to the fast track will generally require only limited 'disclosure'. However as stated in (6.2 and (8.2) above, full disclosure by the Defendant is required in order to judge the true nature of the ERC., this can be achieved by allocation to the Small Claims Track.

· Nonetheless, should the Court feel Fast Track is appropriate, the Claimant would ask that the Court makes an order for full disclosure in Fast Track as per (6.4) and (6.5) above.