Mortgage Account Charges - A Long one I'm afraid!

[half ax I]

Sorry this is going to be a bit of a long post. Helping my eldest on this one.

Have started trying to get charges back from a mortgage with a subsidiary of a bank. Actual mortgage was redeemed early and had an ERC but the current case is trying to get the calculations correct and charges returned rather than going for the ERC given other experiences including one with this provider even though I cannot see any terms and conditions allowing them to recover legal costs for actions I raise!

First letter was to get the calculation of ERC clarified and a full list of other charges - Letter 1.

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I refer to the Redemption Statement supplied to our solicitors dated xx-xx-xx.

The statement is a bit difficult for me to understand fully and it is probably just me but I cannot get the sums to work. I would appreciate some clarification if you could. There are 2 items on the Redemption Statement where I could do with some help and would appreciate your comments.

1. The Early Repayment Charge is quoted as £xxxx. I would be grateful if you could tell me how you have calculated this.

2. Other Debits totalling £xxxx. Could you please itemise specifically what these other debits are as I cannot find any details anywhere?

Many Thanks. I hope my questions make sense.

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The response was basically:-

 

Thank you for your letter dated xx-xx-xx.

 

The ERC is a penalty for redeeming the mortgage account whilst been on the x.xx% Fixed until xx xxxx 20xx which you were on. The ERC for the above product were worked out at 5% of the total balance outstanding.

 

I have enclosed a copy of the offer, which states the rate at which the erc would be applied upon redemption and all details regarding them.

 

With regards to the miscellaneous debits on the statement I will breakdown below what the amount of £xxxx entails.

 

There followed an itemized list.

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Followed this up with a further letter after reworking the calculations.

 

Thank you for your reply dated xx-xx-xx

With reference to the first point in my letter of xx-xx-xx, I asked how you had calculated the Early Redemption Charge. I guess that wasn’t a specific enough question as the answer you have provided of 5% of the total balance outstanding isn’t really what I was after. Thank you for providing a copy of the offer but this wasn’t necessary as I already had the originals. What I was trying to determine was how you had calculated the total balance outstanding as I couldn’t get to your figure although I think having tried various options I am now somewhere near the answer.

If the Early Redemption Charge equates to £xxxx and if this figure is 5% of the balance then the balance must have been £xxx,xxx. For now, if we ignore the reduction of £xx per day as the mortgage was redeemed prior to the Redemption Date of xx-xx-xx stated on the redemption statement and we just use the figures on your statement.

The total on the redemption statement is £xxx,xxx

Now to get to the balance on which you are claiming the 5% is payable then naturally we need to subtract the Early Redemption Charge itself of £xxxx which leaves £xxx,xxxx which doesn’t match so let’s also remove the £xxx Redemption Admin Fee as obviously this doesn’t form part of the balance and that gives us £xxx,xxx. That is close although I don’t understand the xxp difference!

I now draw your attention to section xx of the offer document and in particular the column headed “The maximum charge you could pay”. You will note that the maximum charge is specifically stated as £xxxx. I am assuming you regard this document as encompassing the terms and conditions of the mortgage and I can see that there could be some confusion between what is stated in the first 2 columns of section xx. I would point out where such terms in a contract are not clear then favour is applied against the drafter of the terms. As such I have set the maximum in the breakdown in my statement as the £xxxx.

Given the breakdown in your reply of the item referenced Other Debits I can only assume that you are including all “charges” in the balance on which you are charging the Early Redemption Charge.

I would draw your attention to the charges you have itemised as “Subsequent redemption statement request”. The covering letters with all redemption statements specifically stated that the redemption statement had been provided free of charge yet you have charged for these. I enclose an example of the letter sent with statement for the charge you have dated as xx-xx-xx which must have been for the statement sent with the letter which was dated xx-xx-xx.

I would be grateful therefore if you would refund the charges you have made for 2 x “Subsequent redemption statement request” totalling £50.

As you have added these to the account balance then an additional 5% of this £50 has been charged on this in the Early Redemption Charge. In order to more accurately calculate a correct Early Redemption Charge I have enclosed a breakdown/statement which includes the reduction of £xx per day for x days and the removal of the £50 charges for “Subsequent redemption statement request”.

I note also the charges of £25 for “unpaid direct debit charge”. In my view this is an unfair penalty which does not reflect your true costs. I am sure you are aware of the interest in this particular subject. I would suggest that your charges in this respect can be regarded as an unfair penalty, although I would be more than happy for you to provide me details of the specific costs incurred on each and every occasion that show the charge is “fair and reasonable”. At this time I do not feel that I need to expand on this as I will merely request you to refund these charges on the basis set out above.

As you have added these to the account balance then an additional 5% of this £50 has been charged on this in the Early Redemption Charge. I would therefore request the return of these charges amounting to £100. The breakdown/statement I have provided also accounts for removal of these charges.

I hope the calculations I have provided are clear. I would be grateful if you would refund the total of £xxx in respect of this account.

I hope that you will be able to deal with this request sympathetically without either of us having to prolong this matter.

 

 

Their response to this was:-

 

I refer to previous your recent letter.

 

The erc on your mortgage were £xxxx based on an outstanding balance of £xxxxxx on xx-xx-xx.

 

The erc are 5% based on the amount repaid or transferred and not on the original balance. This is clearly stated in your mortgage offer.

 

Section xx to which you refer, is a set format which we have to include to comply with the regulations we are set by the Financial Services Authority. The figure is based on the fact that all mortgage payments are made in line with those set at annual review.

 

I can appreciate that the covering letter to the redemption statement issued xx-xx-xx clearly states "you have not been charged for this statement". This appears to be a system error and although you were advise in our letter of xx-xx-xx that any subsequent requests would be subject to a charge, we are prepared to refund the £50 you have been charged as a result of this.

 

We are not however, prepared to waive the failed direct debit charges. These charges were incurred through no fault of the Society. We feel we are fair and justified in charging them and point out that the £25 fee does reflect the true cost to the Society of these failed transactions.

 

We believe that our customers should be treated equally as far as this is practical and so we do not believe that any individual should be subsidised by others. We do not believe therefore that it would be right to waive any of the financial conditions of your loan, as it would be providing a favourable treatment at the expense of others.

 

I am therefore prepared to offer you £xx.xx in full and final settlement. The figure is a refund of £50 for the subsequent redemption figures and £xx.xx early repayment charge refund, based on 5% of a balance of £xxxxxx on redemption.

 

I realise this may not be the reply you were hoping for but I hope that it explains our position in trying to protect the interests of all our customers.

 

I believe that we have been fair and reasonable in dealing with your concerns. However, we are obliged to tell you that ultimately you may refer your complaint to the Financial Ombudsman Service if you remain dissatisfied. Please come back to me if you feel that we haven't resolved this for you but if I don't hear anything within 8 weeks, I will assume there are no further issues and close your file.

 

 

Proposed response is :-

 

Thank you for your reply dated xx-xx-xx .

I can understand the concept of a set format of Section 10 of your offer document to comply with FSA regulations; however my point is that the section clearly states “The maximum charge you could pay” and specifies a specific amount below. This heading is in bold print and therefore has some emphasis. No where in the offer document does it make reference to the phrase you have used stating “all mortgage payments are made in line with those set at annual review”. The charge is also clearly calculated on the principal of the loan in the offer document. In terms of a contract term this is clearly a confusing item as you and I have differing views of the interpretation. Mine are solely based on what is specified in Section 10 whilst you are clearly applying additional connotations as indicated by your reference to the phrase “all mortgage payments are made in line with those set at annual review”, a statement that does not appear in any contractual terms as far as I can determine.

In my letter of xx-xx-xx I mentioned that “where such terms in a contract are not clear then favour is applied against the drafter of the terms”. I refer of course to The Unfair Terms in Consumer Contracts Regulations 1999 as amended by Statutory Instrument 1999 No. 2083 Section 7(2) which states “If there is doubt about the meaning of a written term, the interpretation which is most favourable to the consumer shall prevail but this rule shall not apply in proceedings brought under regulation 12”. For the avoidance of doubt regulation 12 does not apply in this case as any proceedings would not be in relation to injunctions preventing continued use of unfair terms.

I do not dispute that failed direct debits were not the fault of the Society. As per my previous letter I suggested that your charges in respect of failed payments can be regarded as an unfair penalty and said that I would be more than happy for you to provide me with details of the specific costs incurred on each and every occasion that show the charge is “fair and reasonable”.

You have failed to provide any details other than your statement that £25 does reflect the true cost. Frankly I cannot see how it costs £25 to send an automatic computer generated letter. If anyone actually looked at the account to make a decision on whether to charge or to make a decision to send a standard letter then that decision process cannot possibly have taken more than a few minutes. The letters were clearly not even signed by hand! If as you state, these charges reflect the true costs to yourselves, then you will have no problem in justifying the detail of how you arrive at a figure of £25. Without such detail I can only assume that they are an unfair penalty. In order to help you track down the information that you would require to satisfy my request I could suggest that as part of Yorkshire Bank you may wish to consult the system known internally to the Bank as “CYNthesys” which details the costs of any activity within the bank. Whilst not specifically dealing with the activities of the Accord subsidiary you will no doubt be able to draw reasonable comparisons or you may indeed have a more specific version for your own operations.

I have some empathy with your suggestion that your customers should be treated equally and should not be subsidised by others. I would counter suggest that I should not subsidise other costs or contributions to profits by being charged an excessive penalty. I would be quite happy to be charged a fair fee for the work involved in dealing with the failed payments as I am sure would all other customers. All I ask is that you show that the fee you are charging in these circumstances is fair.

I would again draw your attention to the Unfair Terms in Consumer Regulations 1999 and in particular Regulation 5 as I am a consumer. It is my view that your charges constitute an unfair penalty as described in paragraph 1(e) of schedule 2 of the said regulations:

I would further draw your attention to the precedent set in the case of Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor co Ltd [1915] AC 79 and also in Murray v. Leisureplay [2005] EWCA Civ 963 which are just 2 examples. In essence the conclusion is that penalty charges are irrecoverable at common law.

The clearest statement is that by Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor co Ltd [1915] AC 79 where it was held that a contractual party can only recover damages for an actual loss or liquidated losses. It is clear that your charges in respect of failed direct debits do not reflect any actual and or real loss.

I had hoped that given the relatively modest amount of £xxx that I asked you to return that this matter could be dealt with swiftly without any admission of fault and without need to protract correspondence or spending disproportionate time and resource to resolve this.

I would be grateful if you would reconsider this matter and that we can then put it to rest.

Yours faithfully,

 

 

If you have got this far then thanks for your perseverance.

Any thoughts gratefully received before we send off this last letter. Interesting that the first response we had stated specifically that the ERC was a penalty for redeeming early! Maybe one for another day.

S

[zootscoot]

Excellent!

 

Get it in the post

[half ax I]

Thanks zootscoot. Your valued opinion is appreciated. Will get it off this coming week.

 

S

[mattfromnotts]

Thank you for your letter dated xx-xx-xx.

 

The ERC is a penalty for redeeming the mortgage account whilst been on the x.xx% Fixed until xx xxxx 20xx which you were on. The ERC for the above product were worked out at 5% of the total balance outstanding.

 

I have enclosed a copy of the offer, which states the rate at which the erc would be applied upon redemption and all details regarding them.

 

Am I missing something here? The bank has admitted this charge is a penalty!!

[half ax I]

No you're not missing anything. That's exactly what it said.

[elliejay39]

Hi Half ax I,

Great letter and Good Luck!

 

Do you mind if I use the penultimate paragraph in my LBA - the one about modest amount etc.

http://www.consumeractiongroup.co.uk/forum/mortgage-companies/80636-elliejay39vfuture-mortgages-penalty-charges.html

 

(would have used one of those new fangled link/ping/ref back thingies but couldn't work it out!)

 

Ellie

[half ax I]

Hi Half ax I,

 

(would have used one of those new fangled link/ping/ref back thingies but couldn't work it out!)

 

Ellie

 

Feel free - I don't know what one those new thingies are let alone how to use one.

[half ax I]

The reply – My changes/comments in italics!

 

I would firstly wish to point out that Mortgage Company is not a subsidiary of, or indeed in any way connected with, Yorkshire Bank. Mortgage Company is a subsidiary of a different company. Furthermore the Society does not use the CYNthesys costing model. OK my error!

 

Turning to the other specific points you have raised in connection with the Unfair Terms in Consumer Regulation 1999 and other legal precedents, I would comment as follows:

 

In Dunlop Pneumatic Tyre Co Ltd v New Garage & New Motor (1915) AC 79, a charge in relation to a breach of contract is deemed a 'penalty' and, therefore, unenforceable if it is 'for an extravagant and unconscienable [sic] amount in comparison with the greatest loss that could conceivably be proved to have followed the breach'.

 

You will note from the overview provided below that Mortgage Company's charge of £25 cannot reasonably be considered either 'extravagant' or 'unconscienable' [sic] in this context. The charge levied by Mortgage Company is intended to be compensation for Mortgage Company and not a threat to deter breach.

 

Furthermore you are probably aware that Mortgage Company's charge is in fact cheaper than a number of other lenders who are currently charging between £30-£35 for similar services.

 

In Murray v Leisureplay plc (2005) EWCA Civ 963, the Court recognised the difficulty in estimating the amount of genuine compensation and acknowledged that it had to give a degree of leeway and would only strike out a term if it was truly excessive. In other words, there is no requirement that the charge must exactly reflect the firm's costs.

 

The Unfair Terms in Consumer Contracts Regulations 1999 refers to a disproportionate penalty being invalid. The term, in order to be considered unfair must, contrary to the requirement of 'good faith', cause a 'significant imbalance' in the parties' rights and obligations under the contract, to the consumer's detriment.

 

'Good faith' is a requirement of 'fair and open dealing'. Fairness refers to the substance of the contract and requires the supplier not to take advantage of a customer's necessity, lack of experience, weak bargaining position etc. Openness requires the term to be expressed fully, clearly and legibly, containing no concealed pitfalls or traps, with appropriate prominence being given to terms that might disadvantage the customer.

 

Our charge provision is expressed clearly, legibly and transparently. The charge is referred to in our Mortgage Tariff, a copy of which is provided to customers with the mortgage offer and annually thereafter with the annual mortgage statement. Additionally, all borrowers are informed of the fee immediately following the first missed direct debit collection which is not charged for.

 

Finally, with over 120 mortgage lenders in the market, we believe that any prospective customer is in a strong position to shop around and consider all likely charges in the context of the overall pricing of the mortgage offering; particularly if they considered the level of all charges as an important aspect of the deal.

 

In considering 'significant imbalance' Mortgage Company believes it is important to examine the circumstances at the time of the contract. In this context market practice is relevant and I would refer you to my comments above regarding the level of fees adopted by other lenders.

 

Mortgage Company firmly believes that it is appropriate for defaulters to pay when in default, rather than spreading the burden of the cost to include the majority of customers who do not default. We therefore uphold the view that whilst there is some financial detriment for a defaulting customer, it is not significantly detrimental given the need to balance the interests of all customers, including those that do not default.

 

In conclusion, taking all the circumstances at the time of the contract (including other providers' charges and rights of non-defaulters) it is our opinion that the charge is levied in good faith and does not cause a significant imbalance in the rights and duties of the parties to the consumer's detriment.

 

 

By way of further background, I detail below the broad assumptions used in assessing the level of fee charged.

 

In determining a reasonable fee level, Mortgage Company has attempted to calculate the total costs incurred in undertaking and supporting the task. This means that:

 

• There has been a genuine estimate of the total number of expected instances which would give rise to the fee and the work supporting this. For unpaid direct debits, this means the number of failed direct debits anticipated in a calendar year, projected forward with appropriate adjustments based on a reasonable set of assumptions.

• Total costs are divided equally between the numbers anticipated. In other words there has been no attempt to try and personalise the charge to individual borrowers or types of borrowers. However, in determining total costs, consideration has to be given to the costs of all relevant services which may be encountered. For example, all borrowers will have received a prior warning that subsequent unpaid collections will attract a fee. In some instances borrowers will contact the Society over the phone to discuss the unpaid item, others will write in. Either of these could, and often do, result in an amendment to future collection dates or the setting up of an arrangement to collect the payment again.

• Numbers have been be rounded up to allow for a reasonable element of inflation and to ensure fees remain reasonably stable over a period of time

 

Finally, in determining the level of cost, all external costs, staff processing costs and a proportionate element of general overheads have been taken into account.

 

 

High level breakdown of costs:

 

Total staffing resource (FTE) involved, based on the timings of specifically related tasks and volumes recorded:

• Failure related activity in Lending Services

• Telephone support activity in Lending Services

• Telephone support activity in MCC

• Financial control/banking

• IS admin support/post room activity

• Team leader & management support 2 FTE

 

In addition, the following overhead costs of operating the business require to be apportioned across this activity. These include:

Head Office

rent payable insurance

rates payable metered utilities

Computer overheads

purchase / lease / maintenance

Business Support functions Facilities

Human Resources Information Systems

Treasury, Risk, Audit and Legal Network services

Directors & General Management costs External Auditors

- VAT

- repairs and maintenance

- shared services / restaurant

- cleaning

- Health & Safety

 

Overhead costs apportioned on an individual basis (in addition to actual salary and other related benefits received by the staff members involved) equate to approx £25,000 per head.

 

Other costs

Stationery

Postage

BACS charges associated with representations

 

In 2005 the Group processed approx 5,000 unpaid direct debits where a fee was levied.

 

Unfortunately Mortgage Company can not agree to refund the charges as you have requested and I hope my letter clarifies why Mortgage Company have come to this decision, however our previous offer of £x remains open to you should you wish to accept it. I am obliged to inform you that you do have the right to ask the Financial Ombudsman Service to look into it and this letter will confirm that we have reviewed your case. You will find enclosed a booklet setting out the Ombudsman's procedure, which I hope will be useful. You will see for instance, that you will need to approach the Ombudsman within 6 months of the date of this letter.

 

Yours sincerely

 

 

A named person

A specific position

So I guess the next step is the FOS and if their “free” cases are used up they will be charged a case fee of £360 which is more than the total I asked for. Where’s the commercial sense in that?

Any comments my CAG friends?

[mrsfoot]

They seem to be going down the sme route and Swift are with me, in the fact they are saying their costs are not excessive.

 

I am at the point with Swift that the Judge at the last hearing agreed that the charges were not a penalty. However he then suggested looking at the contract again, especially the clauses where it stated the borower would be charged a "reaonable" amount and the he sugested was the amount charged "reasonable". He then gave a clear idea of what he thought would be a "reasonable" charge for a letter (lot less than actual as it stands!)

So I would suggest having a further look at the clauses and the word reasonable as i think this is the way it will be going. I would shape your claim around this word if it appears in the contract, when you take it to FOS.

My hearings are now with a commercial judge who is more knowledgeable (allegedly) than a district in matters concerning business and contracts, so I feel he has given me a lifeline and so, i took his comments about the "penal" side of charges seriously.

[half ax I]

mrsfoot

Thanks - I'll take another read of the t&c's and see what it specifically says about the charges bit.

 

S

[half ax I]

Latest update - Fairly obvious that they didn't want to play ball so have eventually decided to exercise the right they suggested and have sent off details to Financial Ombudsman Service.

[bally35]

"Overhead costs apportioned on an individual basis (in addition to actual salary and other related benefits received by the staff members involved) equate to approx £25,000 per head. "

 

Aye right, Hmm wonder if this is what they actually report as being their costs.

If this is in addition to salary, how the hell do they make any money at all. I assume they do

[half ax I]

2 x FTE equivalent apportioned must equate to a max of £50k plus the overhead of £25k per head (ie x 2) totals £100k divided by 5000 failed DD's equals £20 per time. OFT reckons £12 should be all it costs and some bank seemed to have proved to them £16 is OK. Must make this lot quite inefficient by comparison.

 

2 x FTE at say 45 weeks and a 7 hour working day suggest it takes about 45 minutes to deal with each payment failure. I bet that could be reduced through efficiencies to 10 minutes, but that would mean they wouldn't be able to justify the penalty!

[half ax I]

FOS are really bogged down it seems. They keep sending a we are busy and we'll update you in another four weeks.