Paragon personal finance early redemption

[susanmom]

Hi

 

We were charged an early redemption penalty on our loan amounting to almost £2000 (which was 6 months interest). This was on one of those secured debt consolidation loans which was secured on our home. We had to take it out as we couldn't afford our debt repayments even though we knew we were planning to sell our house.

What is the chance of challenging that?

Thanks

 

Susan

[susanmom]

HI

 

We sold our house in 2005 and therefore had to rent as we had no equity after paying our debts, including a £40,000 secured loan to Paragon. We took it out mid 2003 when it was £22,500 then increased to £40,000 in mid 2004. The redemption penalty was £1,700 and due to interest rate of 8.9% we had made no inroads into capital. As the amount is below small claims level I am thinking of having a go. I have drafted the following after trawling your site and google: (would be grateful if anyone is able to give an opinion. I do realise the jury is still out on these charges, but worth a go!!!!)

 

Paragon Personal Finance

Request for repayment of redemption penalty

 

Dear Sir/Madam,

 

Account number XXXXX

 

 

My request

I am writing to ask you to refund to me the charges which you have levied from my account over the last 3.5 years.

 

While under common law, a supplier would have a right to compensation for breaking of a contract, but this would only be fair and unlawful where the supplier is able to prove that the compensation charged is an actual reflection of the loss suffered as a result of non-performance. A penalty calculation that has some element of recognition of the customers part performance of the deal and some proportinality to the actual cost to the lender is likely to be "fair". A redemption penalty that increases with the term of the deal or is simply a fixed sum that does not decrease as the deal goes on cannot represent "fair compensation" and hence is legally "Unfair".

I bring to your attention clause 5 of your agreement where you require a sum of 6 months interest on repayment of the loan at any point in the first 5 years of the loan.

I

Your responsibilities

I would draw your attention to the terms of the contract which you agreed to at the time that I opened my account. It is an implied term of that contract that you would conduct yourselves lawfully and in a manner which complies with UK law.

 

You need to justify the level of your charges with reference to your actual loss in terms of my repayment of the loan on the sale of our property.

 

What I require

I calculate that you have taken £x.

 

My targets to resolve this matter

I hope that you will enter into a sincere dialogue with me about this matter and I am writing this letter to you on the assumption that you will prefer to do this than merely respond with standard letters and leaflets.

 

I will give you 14 days to reply to me accepting unconditionally my request in principle and letting me know a date by which I will receive payment.

 

If you do not respond or you do not respond positively within this time period, I shall send you a letter before action giving you a further 14 days in which to reflect. I believe that these targets are more than sufficient for a large company such as yours with dedicated staff and departments.

 

After that will be no further communication from me and I shall issue a claim at the expiry of the second deadline.

Another point to note (thanks to OFT website) is that institutions should not tie you in if there is an unfair interest rate increase, sadly the interest rate had not been increased before we settled but might be useful for some people.

Unrestricted rights of banks and building societies to change interest rates are unacceptable

 

PN 13/00 22 February 2000

Unrestricted rights of banks and building societies to change interest rates are unacceptable says Director General of Fair Trading.

Contracts which allow banks and building societies to vary interest rates effectively at will for 'captive' savers and borrowers are unfair and unacceptable and must be changed, the OFT said today.

The Government's consumer protection body has issued detailed guidelines to the industry which set out what is considered acceptable and unacceptable in the way interest rates can be varied. The OFT said it would seek court injunctions against the use of contract terms that did not satisfy the principles of fairness set out in the guidelines.

John Bridgeman, Director General of Fair Trading, said:

'It is unacceptable for banks and building societies to vary interest rates uncompetitively for savers and borrowers who are 'locked' into accounts.

'Typical lock-ins include mortgage redemption penalties or loss of interest on withdrawal of their savings.

'Non-status borrowers in particular are vulnerable to interest rates that go up but do not come down especially when they are combined with unaffordable exit charges. Many of these borrowers are not in a position to shop around for better deals because they have poor credit ratings.

'When someone is financially locked into a deal, banks should not be able discriminate against them in the way interest rates are varied. For example, terms that allow a bank or building society to change rates 'to maintain the profitability of the bank' or 'in the interests of shareholders' allow the institutions to move rates in an unpredictable and non-transparent way to the clear detriment of consumers.

'I am not seeking to set the level of interest rates or to stop rates from changing but I am saying that institutions need to limit their freedom to act to the detriment of consumers by clearly stating how they intend to operate. The OFT's guidelines say that it is acceptable for interest rates to be varied at will only if consumers are allowed to end the contract immediately and without penalty. It is also acceptable to vary rates according to the movement of an external index not controlled by the institution, such as the rate set by the Bank of England.

'Many banks and building societies have already improved their contracts terms following the action I took against Northern Rock early in 1998. Regrettably there are stragglers who have yet to strike a fair balance in the terms that allow them to change interest rates.'

The guidelines also state that:

Lenders who do not effectively limit their discretion to change rates must:

• Notify each affected customer in writing at least 30 days before the change and
  
• Allow them to repay the whole loan during the following three months without having to pay an early repayment charge

Deposit takers who do not effectively limit their discretion to change rates must:

• Notify each affected customer in writing at least 30 days before the change, or if greater
  
• Give the same length of notice to each affected customer in writing as the customer has to give for withdrawal of money
  
• And, in either case, allow the customer within the following 30 days, to withdraw funds, close the account and switch to another account with the deposit taker without loss of interest or charge

The guidance takes account of extensive discussion and consultation with the Council of Mortgage Lenders, the British Bankers' Association, and the Building Societies Association. The Consumers' Association endorses the guidance, which was drawn up in response to a request from the trade bodies for a clear statement of what the Director General of Fair Trading requires of lenders and deposit-takers.

The OFT's action is being taken under the Unfair Terms in Consumer Contracts Regulations which allow the Director General to seek court injunctions against the use of unfair terms if companies do not voluntarily make changes. The Regulations do not apply to 'core' terms such as the initial level at which interest rates are set, but do apply to right to vary the agreed rate subsequently.

NOTES

1. The OFT can take action under the Unfair Terms in Consumer Contracts Regulations which came into force on 1 July 1995. These were superseded on 1 October 1999 by the Unfair Terms in Consumer Contracts Regulations 1999. The regulations implement an EC Directive (EC Directive 93/13) in the UK. They apply to standard contract terms used with customers in contracts made after 1 July 1995. The Regulations say that a consumer is not bound by a standard term in a contract with a seller or supplier if that term is unfair. They also give the Director General of Fair Trading and other bodies powers to stop the use of the standard term by businesses and prevent anyone recommending such terms, if necessary by obtaining a court injunction.

2. Following intervention by the OFT, Northern Rock changed contract terms for its savers in line with today's published guidelines.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Please stay on 1 thread, the Moderators have spent time cleaning up the forum due to this reason, thanks!

 

Louise

[BankFodder]

As you say, the jury is still out. My own view is that redemption penalties are not recoverable. Most mortgage companies offer a range of different products. Very often you can choose from a mortgage which has a fixed term or reduced interest that has accompanied by a redemption penalty, or a cashback mortgage once again accompanied by a redemption penalty, or you can accept a higher level of interest with no redemption penalty or a lower rate of interest but with a redemption penalty.

In other words you have a choice. Although the banks are trying to say that the penalty charges are really service charges and of course everyone knows that this is not true, with mortgages the situation is rather different. I think it can be said reasonably legitimately that your agreement to be tied in to the mortgage for a certain number of years is simply the price that you have agreed to pay for the reduced interest or the cashback or whatever it is you have chosen.

Of course the jury is out. There has been some discussion of this on this forum but personally I think that what I have explained here is probably the answer.

As you say, it is less than the small claim limit and so there is nothing to stop you having a go but be prepared to disappointment.

[tomthumb]

be thankefull that "rule 78" wasnt applied..... then you WOULD BE COMPLAINING!!! wish my loan had only 6 months interest for early settlement.

i wouldnt bother taking it any further.....not unless theres a serious breach in the "terms and conditions" that you can find.

[daisy lighter]

Hi susanmom

I'm not 100% sure on how this effects your end of the deal but I know that when a lender or broker rebrokes a regulated loan (under £25000) with an unreg one over 25000 that the new loan deal has to treated as a regulated deal. Do you remember when you took the further advance whether you did it directly with Paragon ?

Did you have a consideration period ? (no contact from lender or broker for 8 days for you to decide if figures suited?)

If you had the 8 day period then you may be able to argue that you have a reg loan which should then come under the terms and conditions in the CCA Act

Good luck

[susanmom]

HI catflap

 

Second advance was direct with lender, while original loan was through broker. What is CCA act? (Consumer credit???) and does it say anything about redemption penalties? Let me know any more you might know so I can research

Thanks so very much for the help

 

Susan

[susanmom]

Hi

 

Would like some advice as it looks like we are going to court

By the way I would like to point out that there was no discount rate, fixed rate or anything that we gained advantage from, just a redemption penalty at the end:

 

My letter to them is earlier on this thread

 

Their reply dated 30th May 2006:

 

I note from your letter dated 16th May that you request a refund of £1701.84 representing the charge for early settlement and representing 6 months interest.

 

They then blah blah on about media coverage of unfair bank changes but point out that their charge is not a breach of contract charge like unfair bank charges but rather a "charge to reflect the additional costs incurred by us in you electing to repay your loan early"

Then they point out that they generously did not charge me redemption when I increased by loan form 22K to 40K!

They did not justify the charges though!

 

I wrote back on 5th June stating that they can call it a breach penalty or a charge but its still unenforceable if they can't justify the actual loss incurred and quoted a bit of case law around that.

 

They reply on 9th June (still no justification of charges).

 

They at this point again say its a fee for exercising a right, and not a breach penalty like other bank charges (which is rubbish as far as I can see, other bank charges are being argued as unfair charges/fees).

 

and they refuse to refund me and tell me this is their final response.

 

Their 14 days before legal action is up on 19th June.

 

I am planning to argue the same as other bank charges, what does everyone think?

 

Susan

[susanmom]

Just to let everyone know the latest in the paragon saga. They have filed a defence to the court action, prepared by a solicitor they have hired, does not seem to make that much sense but if it actually goes to court I will beg some further advice. We have both completed our allocation questionaire's and I have had a number of letters from the solicitor trying to intimidate me into dropping the case. They have put in an application to have the case dismissed now on the grounds that it has no chance of success in the courts. (awful lot of effort for £2000 - must have run up that much in legal fees already!)

 

Will keep you posted

 

Regards

 

Susan

[gizmo111]

Just to let everyone know the latest in the paragon saga. They have filed a defence to the court action, prepared by a solicitor they have hired, does not seem to make that much sense but if it actually goes to court I will beg some further advice. We have both completed our allocation questionaire's and I have had a number of letters from the solicitor trying to intimidate me into dropping the case. They have put in an application to have the case dismissed now on the grounds that it has no chance of success in the courts. (awful lot of effort for £2000 - must have run up that much in legal fees already!)

 

Will keep you posted

 

Regards

 

Susan

 

What tactics have they used along the way - I think you are furthest ahead so any info on this that we can all share would be great.

[mickey_0]

Hi susanmom, this may be of interest to you considering what they have written in their letter to you re this being a fee for excercising a right -

 

"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."

 

This is written by zootscoot in a thread in mortgage companies called harsh letter received from kensington by jamorgan. There is also a really good thread in there called Thunderpuss2k v birmingham midshires (halifax) definately worth a read if you haven't already. Hope this info helps you in some way.

 

Just one more quick point, as someone wisely said on here somewhere!! there is a very distinct difference between their actual losses incurred and them not making as much profit as they would have like to!!!

 

 

 

[zootscoot]

Hi Susanmom,

 

I would be very interested in what they have put in their defence if you get the chance to post it.

 

Best of luck

 

Zoot

[susanmom]

Hi

 

First response about two weeks before their due date to file a defence was a letter telling me that (1) I had no chance of winning, (2) if it went to court I would be ordered to pay their costs so they immediately requested me to withdraw my claim. - I ignored it.

 

Then received a call from the solicitor at work. He called my old work number from 2005 when we repaid loan. I have subsequently moved within the company. My colleague who has my old number refused to hand out my new number (quite rightly as he didn't know who this chap was). Solicitor then tells my colleague to get me to call him ASAP as it was to do with "a court action" - don't know what data protection would say about that! I called him back and he said that he intented filing defence and that I musn't file for judgement by default until he did (cheek) so I told him he had his 28 days as laid down by the courts, nothing more.

 

Then they filed a defence (which I will post the essence of later next week as i am off on business tomorrow and will only be back Wed night) and wrote to me saying that I had no chance of winning as I knew there was a redemption penalty when I exercised my right to repay the loan (!!), and informed me that they had filed an application to have my case dismissed as there was zero chance of me winning.

 

I completed my allocation questionaire and waited.

 

This morning I received word that the court has given us a date - 10 November, therefore not allowing them to have the case dismissed - YES!!!!!

[zootscoot]

Hi Susanmon,

 

Good news that the court have not allowed them to strike out the case. Chances are they will back down by then in any event. I'm pretty confident the ERCs are unlawful. There have been a couple of success so far. I'm currently claiming mine back from the Halifax who have another week to file a defence.

You can have a look at my thread here: http://www.consumeractiongroup.co.uk/forum/mortgage-companies/19501-zoot-halifax-mortgages.html

 

If you need any help preparing your case I will be happy to help.

 

All the best

 

Zoot

[ladymoonray]

Go you SusanMom! I'm about to start my Moneyclaim against Paragon, so I'm really interested to see what happens in your case.

 

ladymoonray

[KJBoutcher]

Hi all,

 

I have also got a battle on with Paragon which so far has reached the stage where they will refund the charges (late fees, letters, phone calls etc) but not the admin fees or redemption penalty. This was their response to the LBA sent last Friday.

 

It is interesting reading your thread susanmom, you are ahead of me and doing exactly what I will be doing in a few weeks time I'm sure! I also received the standard fob off letter (gesture of goodwill payment, get lost regarding the redemption penalties and admin fee) but am happy to challenge it as the statement actually says redemption PENALTY. How can they get round that one by saying it isn't actaully a penalty at all?

 

I'll be watching all developments here with interest! Good luck to all, feels like we are like pioneers striking out into unchartered territory!

 

KJB

[KJBoutcher]

Well, things are sort of moving with Paragon. Had a cheque through for the charges (£185.00) after I sent them a letter saying I'd accept it as part payment only. My LBA expires tomorrow (14th Sept) so then it's MCOL time for the ERC and daffy admin charges.

 

Ladymoonray & Susanmom, how are your claims against Paragon going? Any developments yet? Please can you post an update if you hear anything? I think I am just behind you with my Paragon battles... Good luck!

[ladymoonray]

Hi KJ, my Moneyclaim against Paragon was issued on 8 September. It hasn't been acknowledged yet. Good luck, and I will post to say what happens next.

 

ladymoonray

[KJBoutcher]

Hi KJ, my Moneyclaim against Paragon was issued on 8 September. It hasn't been acknowledged yet. Good luck, and I will post to say what happens next.

 

ladymoonray

 

Hi Lady M,

Good luck with the MCOL, I am right on it now too. LBA expires today so MCOL tonight just after 12am... Exciting!

[KJBoutcher]

Hmm. Interesting things happening...

 

After I fired off my LBA we got a letter back breaking the charges into distinct groups: Late fees etc and then the admin and redemption penalty. The late fees/returned payments came to £185 and the remaining redemption and admin clock in at just over 2K. But! In the very same letter was an offer to refund the £185 with no questions asked and no conditions that it was a full and final offer of settlement either!

 

Ok, I write back saying thanks for the partial refund but I'll chase the rest in court... Then a few days later a cheque for £185 shows up! Result!

 

Now today I get a letter saying that the redemption penalty and admin won't be refunded, even though I sent them a third letter asking them to prove that the charges were proportionate to their claimed losses. This was their entire argument, that the redemption charge is, and I quote from their letter:

 

'The charges reflect the additional costs incurred by us in you electing to repay your loan early'.

 

Ok, so now they have come back once again saying that they acted fairly and the redemption is a genuine reflection of their loss, but they still have given us no proof of this!

 

I have the MCOL all ready to roll, but still feel like giving them one final chance to show how the charges are made up. If they still refuse and then can provide evidence in court, what happens to us then? Surely the court will look upon Paragon as badly as we all do. I think this is the key to the whole argument about ERCs, if they can't prove they are a realistic representation of their loss, how can they claim otherwise without the evidence?

 

Lets keep fighting!

 

KJB

[gizmo111]

Hmm. Interesting things happening...

 

After I fired off my LBA we got a letter back breaking the charges into distinct groups: Late fees etc and then the admin and redemption penalty. The late fees/returned payments came to £185 and the remaining redemption and admin clock in at just over 2K. But! In the very same letter was an offer to refund the £185 with no questions asked and no conditions that it was a full and final offer of settlement either!

 

Ok, I write back saying thanks for the partial refund but I'll chase the rest in court... Then a few days later a cheque for £185 shows up! Result!

 

Now today I get a letter saying that the redemption penalty and admin won't be refunded, even though I sent them a third letter asking them to prove that the charges were proportionate to their claimed losses. This was their entire argument, that the redemption charge is, and I quote from their letter:

 

'The charges reflect the additional costs incurred by us in you electing to repay your loan early'.

 

Ok, so now they have come back once again saying that they acted fairly and the redemption is a genuine reflection of their loss, but they still have given us no proof of this!

 

I have the MCOL all ready to roll, but still feel like giving them one final chance to show how the charges are made up. If they still refuse and then can provide evidence in court, what happens to us then? Surely the court will look upon Paragon as badly as we all do. I think this is the key to the whole argument about ERCs, if they can't prove they are a realistic representation of their loss, how can they claim otherwise without the evidence?

 

Lets keep fighting!

 

KJB

 

If they could prove it in court they would have done it by now - GMAc are asking for an extension to work out their costs hardly a genuine pre estimate!

[niterider]

but am happy to challenge it as the statement actually says redemption PENALTY. How can they get round that one by saying it isn't actaully a penalty at all?

 

I've been thinking of that for a while, now, that the wording the banks use is 'Early Redemption Penalty', not 'Charge'. That in itself gives you some grounds to try and reclaim them back!!!

 

'The charges reflect the additional costs incurred by us in you electing to repay your loan early'.

 

Ok, so now they have come back once again saying that they acted fairly and the redemption is a genuine reflection of their loss, but they still have given us no proof of this!

 

When are these institutions going to realise that they have to give us proof as to what it really costs them!!! I think this line gives you all the proof you need, as if they really meant it, they would have included a breakdown of costs to justify it!!!!

 

I think you have a great case, as does susanmom, so the very best of luck to you both. I'll hopefully be taking a couple of banks on myself for these ERP's, but I really need to make sure I know what I'm doing. I'll be keeping my eye on you!!! Like you say, lets keep fighting!

 

nite:)

[KJBoutcher]

I've been thinking of that for a while, now, that the wording the banks use is 'Early Redemption Penalty', not 'Charge'. That in itself gives you some grounds to try and reclaim them back!!!

 

I think you have a great case, as does susanmom, so the very best of luck to you both. I'll hopefully be taking a couple of banks on myself for these ERP's, but I really need to make sure I know what I'm doing. I'll be keeping my eye on you!!! Like you say, lets keep fighting!

 

nite:)

 

Exactly. I quoted that bit about 'penalty' back to Paragon in our last letter and asked them to provide, once and for all, proof that the ER penalty is a true reflection of their costs as that is what they have been claiming all along...

 

I finished up by saying 'we look forward to your breakdown of how the charge is a true reflection etc' and also that 'if not then we will have to wait until court to finally see the information you have been keeping from us'. Now we sit and wait...

 

KJ

[susanmom]

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