Early Settlement Charges

[jaime]

Hi - I have a secured loan against my property and am currently going through a remortgage to consolidate outstanding bits and pieces into one place. However, having asked for an early settlement figure, they are adding on some £5 THOUSAND in charges, etc. - this can't be right!

 

To cap this off, having spoke with an IFA, they have now refused a deed of postponement, essentially knowing that the mortgage company will need to settle before this gets completed.

 

Having had some success already from battling bank charges, I wondered if I had any arguments in my favour on this, as it seems grossly unfair to essentially hold me to ransom purely because my circumstances change.

 

Much appreciated,

 

Jaime.

[nathal]

is the 5k an erc

[Surfer01]

We had a secured loan via Firstplus and ended up with £6000 interest charges when we settled.

[meagain]

If the charge is anything more than it costs them to process it, then it's unlawful, and you can get it back. They can't argue about lost interest, since you are only liable for their losses, and their interest is merely a reduction in profit (as well as charging interest on money you don't owe).

[S. James]

I think you may find that the same principles that apply to 'normal' charges do not necessarily apply in the same way to the matter raised.

[meagain]

A fee of thousands of pounds for cancelling and repaying a loan is not reasonable. Paying off a loan early is a breach of contract - you are breaching the term of the contract that says you will repay the money over a given term. When you settle the loan, the lender will have received the fair present value of the original principal and then some more - hence you have caused them no losses, and all you genuinely owe them is the portion of the principal that remains unpaid. If you were to ask for the fee back at a later date, the onus would be upon the lender, not the borrower, to provide a reasonable figure.

[S. James]

Entirely the wrong reasoning but if the Op wants to pursue a claim then good luck.

[meagain]

Entirely the wrong reasoning but if the Op wants to pursue a claim then good luck.

 

Are you suggesting that profiting to the tune of £5000 on early settlement might not be unjust enrichment?

[S. James]

That appears to be even more misguided. The principle you now refer to has no application in this case.

[meagain]

Last chance: put up or shut up.

[S. James]

Another one who likes to talk and have everyone take it as gospel. You are the one making the assertion so you 'put up', if you are able to. That means to provide a legal basis rather that the standard 'it is so because I said it is..' Is there a legal basis for any of the nonsense you have posted....??

[Bookworm]

Is there a legal basis for any of the nonsense you have posted....??

 

Er, yeah :

 

- Campbell Discount Co Ltd v Bridge [1962]

- Lord Elphinstone v. Monkland Iron and Coal Co

 

amongst others... as anyone who spends a few hours actually reading up on this site can find out.

 

And to see how it's done by people who do know the law, hardly nonsense, one would think, seeing the results:

 

http://www.consumeractiongroup.co.uk/forum/other-institutions-successes/19501-zoot-halifax-mortgages.html

 

This is assuming OP is talking about an ERC, which he still hasn't confirmed.

[S. James]

Perhaps you should actually read and understand the cases you refer to before brandishing them around. In the thread (Zoot case) you refer to, it was resolved by a gesture of good will. The key distinction there is the charges applied with only 2 days remaining on the term. It seems people are being misled into thinking that all the charges can be recovered in full at any stage....its simply not the case. To hold that it does is nothing more than misconceived and negligent.

[meagain]

Good for you. Would you like some cheese with your whine?

 

If you're so adamant that we're looking at it the wrong way, clue us in on what you think to be the right way.

[jaime]

To confirm, I argued the point with the company in question immediately, stating that under common law, their charges are unjust and threatening court action should they not do something. The result was a reduction in charges "due to a miscalculation" by around 40%.......

 

The fee of which I speak is I believe an ERC - there would be no charge if settled after 3 years and I am only 1 year in, so they have charged 6 months "interest". As it stands, I have decided that they are unlikely to do anything further without serious action, so have asked my IFA to proceed with settlement and am 90% certain that I will then try and claim the charges back.

 

As it stands, the unfairness comes from the T's & C's of the contract, which states that this amount will be owed under early settlement. My feeling is that these actual terms are unfair, particularly considering I have repaid a year and got little from that. Any further advice (and less bickering!!) would be appreciated - thanks for the responses thus far.

 

Cheers,

 

JL.

[meagain]

Since they have reduced it, it may well be that they have removed the "pure" profit element (i.e. beyond reduced interest). I would be tempted to challenge the notion of paying interest on a sum of money that wasn't owed, but would also seek specific legal advice on this. Remember that by settling early, you have not in fact caused the lender any losses at all - the interest covers the effect of inflation.

[willj010]

Can I just be clear as I got a bit confused with all that before. An early redemption charge attached to a mortgage is stated in the contract to be around £7,000.00. We challenged the lender that this in no way reflected losses under the contract and have written to the FSA to determine whether this is an unfair term or not. Is there any other action we could take at present, as the lender referred us to the terms and conditions and the fact we had agreed to them when we signed.

[meagain]

Signing a contract agreeing to forfeit your firstborn child does not entitle the creditor to actually take it. If it's fixed in the contract as £7,000, then it is de facto unfair. As we know, it is only fair to pass on any losses that might be sustained. In this case, if the repayment of the remaining principal does not restore it to its fair present value, then the lender is entitled to add extra to do that. For instance, given the current rate of inflation, if the bank lends you £100,000 this year, by next year it is worth £102,500. The bank will charge you a higher rate. If you borrow £100,000 at 6%, then after one year, the total value of the debt is £106,000, which is more than its fair value, hence the bank is not entitled to any further charge beyond its reasonable costs, as it has actually made a profit over the year. Regardless of how the bank has allocated its payments, you don't owe them interest beyond the 1 year for which you have owed them the money. Hence, the amount you need to pay back is £106,000 minus whatever has been paid for the first year. When they refer to early repayment charges, they are usually added on top of this figure, which is already generous enough to them, hence it is a disproportionate penalty for cashing in early.

 

If you haven't yet been made to pay it, you can happily continue, knowing you can get it back should you have to pay it at a later date. Because the charge is unfair, it would be also unfair for them to refuse to accept the full settlement without the charge, but taking legal action at that point might be more difficult, given that your property would still be on the line.

[jaime]

Meagain - that's perfect info. I was concerned, as firstly I need this mortgage completed ASAP, plus there is the issue of the house being part-held by them. My theory was that I should state, clearly, that I felt the charges were unfair and have it on record. They then re-evaluated the charge, and I shall now wait until they have been repaid, then re-assess just how much they took. I will then look back over the 12 month period I have had the loan and see just how much has been repaid, then deduct this from the final settlement. That should leave a true settlement value and I should be in a position to reclaim the difference.

 

Let me know if I'm overlooking anything obvious, else I shall be glad to post the results when they happen.

 

Cheers,

J

[Doublebogey7]

Sorry...made a mistake. See new thread

[Poppy07]

Hi Jaime, just been reading this thread and its all a bit confusing for me!! Could you tell me what the outcome was on your claim, as I had to pay early settlement charges on a secured loan I had when I remortgaged, and it seems extremely unfair. Any advice would be greatly appreciated.

Thanks

[jaime]

Hi Poppy,

 

I have started a new post on this topic, as I think it could be the next target for the consumer. I am hoping there's some advice already out there, but the only issue is whether the terms of the contract, which states that I will be forced to pay an early settlement charge, is unfair or not.

 

Jaime.

[skipraider]

Hi Folks, a bit late posting this new thread but it is relevant. I worked for a company who used First Finance as do many others especially double glazing companies.

 

As with any loan where the interest is charged daily, when you come to settle the balance early they look at the remaining term & calculate a percentage of the interest on the whole amount. The way around these extortionate charges is to pay off all but the final installment of the debt & allow this final payment to leave your bank on it's due date. You will only pay that final payment with no extra charges.

 

I was taught this when I attended a finance sales course, but believe I shouldn't have been as these finance companies do not want their customers to know this.

[jaime]

They may have already circumvented this knowledge, as they wouldn't accept part settlement.

 

I am certain there is illegal activity in here somewhere.

[skipraider]

It's not a part settlement. You pay the capital less the final last payment. Once this last payment leaves your bank the finance company calculates the interest based on the closing balance only. This obviusly will be your usual monthly installment.