SECURISATION what is it & how it affects your credit card

[FANTASY CHARGES]

Asset-Backed Securities

 

 

Asset-Backed Securities

Asset-backed securities are bonds that are based on underlying pools of assets. A special purpose trust or instrument is set up which takes title to the assets and the cash flows are "passed through" to the investors in the form of an asset-backed security. The types of assets that can be "securitized" range from residential mortgages to credit card receivables.

 

All asset-backed securities are securities which are based on pools of underlying assets. These assets are usually illiquid and private in nature. A securitization occurs to make these assets available for investment to a much broader range of investors. The "pooling" of assets occurs to make the securitization large enough to be economical and to diversify the qualities of the underlying assets.

Residential mortgages, for example, provide some insight into the development of the asset-backed securities market. Before the development of the mortgage-backed securities market in the early 1980s, each residential mortgage underwritten was a unique transaction. Joe Q. Public would walk into his bank or trust company and enter into a mortgage. By way of example, Joe chooses Lack Trust Company. Joe enters into a mortgage on a specific real estate property, 100 Easy Street in the Hills of Richmond, with the good people of Lack Trust. Sounds easy. But think of what has to happen for this mortgage to be underwritten. Lack Trust must check Joe's credit (salary, assets, etc.) and establish the worth of the property through an appraisal. Joe and Lack Trust then negotiate and establish the terms. This includes the amount and interest rate of the mortgage, the amortization of principal, as well as the prepayment terms. Lack Trust then has to hire a lawyer to register the mortgage against the property with a property registry office.

It can easily be seen that Joe's mortgage is an unique thing. There are no other mortgages on 100 Easy Street with Joe as the borrower on those terms and conditions. That is why most mortgages were held by the financial company that originated them. Trading was awkward, as the mortgages had to each be evaluated and administered differently. The originating organization usually kept the servicing and were loath to part with their mortgages. Only very large institutional investors participated in this market. Smaller investors did not have the expertise to evaluate the mortgages, or a large enough portfolio to properly diversify. If a single mortgage was in the $200,000 range, a maximum 10% position would require a total portfolio of over $2,000,000 to be properly diversified. Therefore, for an individual investor, if their portfolio was to be properly diversified, a mortgage was an awkward asset to own.

If we combine Joe and five hundred other borrowers in a mortgage "pool" we have something that is bigger, which makes it more economical to issue, and better in credit quality, because of the diversification from the large number of mortgages. In a total pool of $100 million, no one mortgage of $200,000 is more 5% and not a large enough part of the pool to "skew" the pool's characteristics in any one aspect. If, for example, Easy Street turns out to be the site of a former radium factory, the fact Joe's house is worth less than we expected is not a fatal issue for the pool of assets as a whole.

Administration of the pool of mortgages is more systematic as well. We can have the same "servicing agent" collect all the monies from all the mortgages and "pass it through" to the investors via a central trustee. We can have the payments made to the investors at the same date each month. We can even supply aggregate data and statistics on the pool to investors, such as the "Weighted Average Coupon" (WAC), or "Remaining Amortization" (RAM).

One can now see that this unruly mass of mortgages is starting to look pretty much like a boring old bond to an investor. One payment from one source, once a month. Combined with a "book-based" custody system, we have now made a source of cash flows that "walks and talks like a bond". Not bad for something that used to be a lump of unique assets.

The wonder of securization is that it takes a wide variety of formerly illiquid and directly held assets and makes them available to many investors in the form of asset-backed securities. This simple process can be applied to all sorts of cash flow producing assets. If a retailer needs cash, it securitizes part of its outstanding credit card balances from its customers into a "credit card receivables trust". An auto leasing firm takes the outstanding automobile lease balances and turns them into an "auto receivables trust". A bank takes a group of its higher quality customers and creates an "evergreen revolving financing trust" which constantly takes high quality receivables and finances them by issuing bonds from the trust.

 

Special Fees

The Sponsor may in the future charge special fees on its credit card accounts. These special fees may be levied once or on an ongoing basis. Any special fees that are charged on Designated Accounts will be regarded as Finance Charge Receivables and collections of these special fees will be treated as Finance Charge Collections. The Sponsor may, however, by notice to the Servicer, the Receivables Trustee and the Rating Agencies, designate in a certificate to the Receivables Trustee that special fees will be treated as Principal Receivables. The Sponsor can only do this if it certifies that it has received legal advice that to do so will not give rise to certain adverse UK tax effects

 

===================

Defaulted Receivables

The Sponsor has entered into a call option under the Receivables Trust Deed and Servicing Agreement as amended from time to time. Under the terms of the Receivables Trust Deed and Servicing Agreement the Sponsor may, from time to time, exercise its option to purchase from the Receivables Trustee all receivables existing on any Defaulted Account (‘‘Defaulted Receivables’’) for nominal consideration (save for its obligation to account for sale recoveries as specified in ‘‘Recoveries’’ below). As noted above under ‘‘– Redesignation and Removal of Accounts’’, all (1) Principal Receivables that come into existence, or (2) Finance Charge Receivables in respect of receivables in existence, on an account before it is redesignated a Defaulted Account (and thus are not Defaulted Receivables), shall continue to be assigned to the Receivables Trustee as part of trust property and thus will not be subject to the option under the Receivables Trust Deed and Servicing Agreement

 

 

Recoveries

The Servicer will from time to time make Recoveries in respect of Defaulted Receivables which have been assigned to the Receivables Trust in accordance with the relevant Offer.

The Sponsor will from time to time make Sale Recoveries in respect of Defaulted Receivables that arise on Defaulted Accounts. As noted above under ‘‘Assignment of Receivables to the Receivables Trustee’’, under the terms of the Receivables Securitisation Deed and the relevant Offer, the Receivables Trustee has accepted an assignment of Sale Recoveries for each Monthly Period. Under the terms of the Receivables Trust Deed and Servicing Agreement, the Sponsor is obliged upon exercising the option, to pay any amounts of Sale Recoveries to the Receivables Trustee.

‘‘Recoveries’’ means any amounts, for the avoidance of doubt excluding Insurance Proceeds and Sale Recoveries, received by the Servicer with respect to Defaulted Receivables.

‘‘Sale Recoveries’’ means amounts received by the Sponsor (excluding Insurance Proceeds) in relation to Defaulted Receivables on Defaulted Accounts assigned to it under the Receivables Trust Deed and Servicing Agreement or the net purchase price paid to the Sponsor by third parties subsequently purchasing any such receivables.

Annual Fees

Receivables assigned to or held on trust for or to be assigned to or held on trust for the Receivables Trustee include any Annual Fees defined under the relevant credit card agreement and charged on the Designated Accounts ‘‘Annual Fees’’. All Annual Fees are and will be treated as Finance Charge Receivables. The Sponsor may, however, by notice to the Servicer, the Receivables Trustee and the Rating Agencies, designate in a certificate to the Receivables Trustee that Annual Fees will be treated as Principal Receivables. No designation of Annual Fees as Principal Receivables will be effective unless the Sponsor has certified that it has received legal advice that to do so will not give rise to certain adverse UK tax effects.

[FANTASY CHARGES]

MATERIAL LEGAL ASPECTS OF THE RECEIVABLES

 

Consumer Credit Act 1974

 

This section, entitled ‘‘Consumer Credit Act 1974’’, contains a discussion of the material consequences of the Consumer Credit Act for the Designated Accounts. A significant number of the credit transactions that occur on a Designated Account will be subject to the Consumer Credit Act because they have a credit limit of up to £25,000. Once the Consumer Credit Act 2006 is brought fully into force by secondary legislation, it will amend the Consumer Credit Act to remove this £25,000 limit in respect of credit for non-business lending. The Consumer Credit Act applies to these credit transactions and, in whole or in part, the credit card agreement establishing each Designated Account. This has certain consequences for the Designated Accounts, including the following:

 

Enforcement of Improperly Executed or Modified Credit Card Agreements

 

If a credit card agreement has not been executed, supplied, or modified in accordance with the Consumer Credit Act, then it may be unenforceable against a cardholder without a court order and in some instances may be completely unenforceable. As is common with many other UK credit card issuers, the Sponsor's credit card agreements may not in all circumstances comply in all respects with the Consumer Credit Act or other related legislation. As a result, these agreements may be unenforceable by the Sponsor against a cardholder without a court order.

 

The Sponsor gives no guarantee that a court order could be obtained if required. However, the credit card agreements that do not comply with the Consumer Credit Act are still legal, valid and binding obligations of the relevant cardholder and it will still be possible to collect payments from cardholders willing to pay their debt, notify relevant credit agencies and in many cases demand arrears from cardholders who are falling behind with their payments. Further, it is unlikely that the Sponsor will have an obligation to repay or account to a cardholder for any payments received by the Sponsor notwithstanding any such non-compliance with the Consumer Credit Act.

Liability for Supplier's Misrepresentation or Breach of Contract

Transactions involving the use of a credit card originated in the United Kingdom may constitute transactions under debtor-creditor-supplier agreements. A debtor-creditor-supplier agreement includes an agreement where the creditor, in accordance with pre-existing arrangements or in contemplation of future arrangements between the creditor and a supplier, advances funds to finance a purchase by the debtor of goods or services from that supplier.

 

Section 75 of the Consumer Credit Act provides that, if the supplier is in breach of the contract – whether such contract is express or implied by law – between the supplier and a cardholder in a debtor-creditor-supplier agreement or if the supplier has made a misrepresentation about that contract, the creditor may also be liable to the cardholder for the breach or misrepresentation. The liability of the Sponsor to the holder of a Designated Account in the circumstances described above is called the ‘‘Originator Section 75 Liability’’. In these circumstances the cardholder may have the right to reduce the amount owed to the Sponsor under his or her credit card account. This right would survive the sale of the Receivables to the Receivables Trustee. As a result, the Receivables Trustee may not receive payments from the Sponsor that it might otherwise expect to receive. However, the Sponsor will not be liable where the cash price of the item or service supplied concerning the claim is less than £100 or greater than £30,000.

The Receivables Trustee has agreed to indemnify the Sponsor for any loss suffered by the Sponsor arising from the Originator Section 75 Liability. This indemnity cannot exceed the original outstanding principal balance of the affected charge on the Designated Account.

The Receivables Trustee's indemnity will be payable from Available Funds on the Receivables. Any amounts that the Sponsor recovers from the supplier will reduce the Sponsor's loss for purposes of the Receivables Trustee's indemnity. The Sponsor will have rights of indemnity against suppliers under section 75 of the Consumer Credit Act. The Sponsor may also be able to charge-back the transaction in dispute to the supplier under the operating regulations of VISA® or MasterCard®.

If the Sponsor's loss for purposes of the Receivables Trustee's indemnity exceeds the Available Funds available to satisfy the loss, the amount of the excess will reduce the Originator Interest accordingly.

[FANTASY CHARGES]

Transfer of Benefit of Receivables

 

The transfer and assignment by the Sponsor to the Receivables Trustee of the benefit of the Receivables is governed by English law and takes effect in equity only.

The Receivables Trustee has agreed that notice will not be given to cardholders of the transfer and assignment of the benefit of the Receivables unless XXXXX long-term senior unsecured indebtedness as rated by Moody's, Standard & Poor's or Fitch Ratings (if Fitch Ratings is then rating a series of Notes) were to fall below Baa2, BBB or BBB respectively. The lack of notice has several legal consequences:

 

until notice is given to the cardholders each cardholder may discharge his or her obligations under the Designated Account by making payment to the Sponsor. Giving notice to cardholders would mean that cardholders would no longer be required to make payments to the Sponsor as creditor under the credit card agreements but would instead be required to make payments to the Receivables Trustee as assignee of the Receivables. If notice is given and a cardholder ignores it and makes payment to the Sponsor for its own account, that cardholder would nevertheless still be bound to make payment to the Receivables Trustee. The Sponsor, having transferred the benefit of the securitised receivables to the Receivables Trustee, is the bare trustee of the Receivables Trust for the purposes of the collection of the Receivables that are the property of the Receivables Trust and is accountable to the Receivables Trustee accordingly;

 

until notice is given to a cardholder who is a depositor or other creditor of the Sponsor, equitable set-offs may accrue in favour of that cardholder against his or her obligation to make payments under the credit card agreement to the Sponsor. These rights of set-off may result in the Receivables Trustee receiving less monies than anticipated from the Receivables;

 

the transfer of the benefit of receivables to the Receivables Trustee has been and will continue to be subject both to any prior equities that have arisen in favour of the cardholder and to any equities that may arise in the cardholder's favour after the assignment. Where notice of the assignment is given to a cardholder, certain rights of set-off may not arise after the date of the notice.

 

under the terms of the Receivables Securitisation Deed, the Sponsor represents that each receivable assigned to or held on trust for the Receivables Trust is an Eligible Receivable – unless the receivable is specified as being an Ineligible Receivable. The eligibility criteria include that each receivable constitutes the legal, valid and binding obligations of the cardholder enforceable – unless they are not in compliance with the Consumer Credit Act in which case they may only be enforceable with a court order and, in a small number of cases, may be unenforceable against the cardholder in accordance with its terms. They also include that each receivable is not, save as specifically contemplated by any rule of English law, currently subject to any defence, dispute, set-off or counterclaim or enforcement orders apart from in the limited cases described in the previous sentence;

notice to the cardholder and, in respect of any receivables assigned pursuant to an English law or Northern Irish law governed contract for assignment not in written form, a written assignment in respect of those English law or Northern Irish law governed receivables;

 

notice to the cardholder and where necessary assignation would prevent the credit card agreement from being amended by the Sponsor or the cardholder without the consent of the Receivables Trustee; and

 

lack of notice to the cardholder and where necessary assignation means that, for procedural purposes, the Receivables Trustee will have to join the Sponsor as a party to any legal action that the Receivables Trustee may want to take against any cardholder

[FANTASY CHARGES]

the above admissions "I am only quoting" look like dynamite from here & has anybody got any views on the section 75 they are potentially admitting to !!!!t

[FANTASY CHARGES]

TRUST SECTION 75 INDEMNITY

 

This Deed of Indemnity is made on XXXXXX BETWEEN:

 

(1) XXXXXX RECEIVABLES TRUSTEE LIMITED, a company incorporated in Jersey with company registration number XXXXXX and having its registered office at XXXXXX, St. Helier, Jersey, Channel Islands XXXXXX in its capacity as trustee of the Receivables Trust (the "RECEIVABLES TRUSTEE", which term shall include any successor of XXXXXX Receivables Trustee Limited in its capacity as trustee of the Receivables Trust); and

 

(2) XXXXXX , a company registered in England and Wales (registered number XXXXXX) having its registered office at XXXXXX (the "TRANSFEROR", which term shall include any successors or permitted assigns); and WHEREAS

 

(A) The Transferor is the legal owner of certain Receivables.

 

(B) The Transferor has entered into certain agreements pursuant to which it has agreed to make offers from time to time to transfer by way of assignment under English law certain of such Receivables to the Receivables Trustee.

 

© The Transferor has certain potential liabilities in its capacity as original Creditor with respect to Receivables under Section 75 of the Consumer Credit Act 1974 (each, a "TRANSFEROR SECTION 75 LIABILITY"). The Receivables Trustee has agreed to indemnify the Transferor pursuant to the terms of and subject to the conditions of this Deed in respect of such claims. NOW THIS DEED WITNESSETH as follows: 1. INTERPRETATION

 

1.1 Whenever used in this Deed and in the Recitals hereto, the words and phrases defined in the Master Definitions Schedule set out in Schedule 6 of the Receivables Trust Deed and Servicing Agreement dated XXXXXX among inter alios the Receivables Trustee and the Transferor (the "RTDSA") shall, unless otherwise defined herein or the context requires otherwise, bear the same meanings herein.

 

1.2 Wherever used in this Deed and in the Recitals hereto, the words "SUPPLIER", "CREDITOR" and "DEBTOR" shall bear the meanings ascribed thereto in the Consumer Credit Act 1974.

 

1.3 In Clause 3 of this Deed, with respect to the Series designated "XXXXXX" ("SERIES XXXXXX"), the terms "AGGREGATE INVESTOR INDEMNITY AMOUNT" and "EXCESS SPREAD" shall bear the same meanings herein as used in the Series Supplement, XXXXXX, to the RTDSA ("XXXXXX").

 

2. INDEMNITY The Receivables Trustee hereby undertakes to indemnify and hold harmless the Transferor in respect of any loss suffered by the Transferor arising from any claim or set-off by any Obligor with respect to any Transferor Section 75 Liability with respect to Receivables constituting Trust Property; PROVIDED, HOWEVER, that:

 

(i) any recovery by the Transferor:

 

(a) in accordance with its statutory right of indemnification from Suppliers; and

 

(b) made pursuant to its rights of "CHARGE-BACK" (if any) under the operating regulations of the relevant payment system in respect of the transaction giving rise to the Transferor Section 75 Liability, will be applied to reduce the loss of the Transferor for the purpose of ascertaining claims under this Deed; and

 

(ii) the maximum liability of the Receivables Trustee hereunder in respect of any Transferor Section 75 Liability will be limited to an amount equal to the Credit Advance relating to the transaction giving rise to that Transferor Section 75 Liability.

 

3. Claims made by the Transferor pursuant to this Deed will only be payable to the extent the amount of the Aggregate Investor Indemnity Amount allocable to XXXXXXcan be met from the Excess Spread available to XXXXXX for distribution for such purposes in accordance with the XXXXXX Supplement.

 

4. It is expressly agreed and understood that this Deed is a corporate obligation of each of the Transferor and the Receivables Trustee.

 

5. The Transferor agrees that it shall have no recourse, in respect of any obligation, covenant or agreement of the Receivables Trustee made under or pursuant to this Deed, against any shareholder, officer, agent or director of the Receivables Trustee.

 

6. Without prejudice to the rights of any shareholder, officer, agent or director of the Receivables Trustee described in Clause 5 to enforce the provisions of Clause 5, a person who is not a party to this Deed has no right under the Contract (Rights of Third Parties) Act 1999 to enforce any term of this Deed.

 

7. This Deed shall be governed and construed in accordance with the laws of England.

 

7.1 Each of the parties hereto irrevocably agrees for the benefit of each other party that the courts of England shall have exclusive jurisdiction to hear and determine any suit, action or proceeding, and to settle any disputes, which may arise out of or in connection with this Deed, and for such purposes, irrevocably submit to the exclusive jurisdiction of such courts.

 

7.2 Each of the parties hereto irrevocably waives any objection which it might now or hereafter have to the courts of England referred to in Clause 7.1 being nominated as the forum to hear and determine any suit, action or proceeding, and to settle any disputes, which may arise out of or in connection with this Deed and agrees not to claim that any such court is not a convenient or appropriate forum.

 

7.3 This Deed may be executed by the parties hereto in separate counterparts and any single counterpart or set of counterparts executed and delivered by all of the parties hereto shall constitute a full and original agreement for all purposes.

[Stornoway]

FC - I think where you are going with this is that if no notice of the securitisation has been given to the cardholder then the debt is unenforceable.

 

There are some flaws though;

1. the banks typically dont securitise their whole lending book only a portion of it so how would an individual cardholder know that their loan had been part of the securitisation.

2. I dont think a lot of credit card debt will have been securitised because it is unsecured and therefore the Bond Notes will have poor ratings 9ie. from Moodys, S&P, Fitch) - securitisations work best when the ratings are strong (ie. mortgages and large corporate real estate loans).

3. if this was a major flaw and you took legal action then the bond holders would simply refinance your debt out of the securitisation and replace it with someone else.

[Peterbard]

hI F

This is very interesting could you tell me the source of the MATERIAL LEGAL ASPECTS OF THE RECEIVABLES postinng.

Not that i doubt ints validity ,i would just like to see it in context.

 

Best regards

Peter

[Josie8]

subscribing

[Peterbard]

HI

Not withstanding the point of your argument i noticed this in the text which is why i am asking for the source. It is in relation to an ongoing concerne amongst many of us about the sharing of data on an unenforceable agreement."The Sponsor gives no guarantee that a court order could be obtained if required. However, the credit card agreements that do not comply with the Consumer Credit Act are still legal, valid and binding obligations of the relevant cardholder and it will still be possible to collect payments from cardholders willing to pay their debt, notify relevant credit agencies and in many cases demand arrears from cardholders who are falling behind with their payments. Further, it is unlikely that the Sponsor ****"

[Peterbard]

Hi Again

I am just a simple soul but i do not understand how this would make the debt unenforceable as far as i can see they are just reassigning your payments. It doesn't say that i they don't notify you the agreement is unenforceable does it perhaps i missed something.

On the simpler point of secton 75 applying to credit cards in that the credit supplier is liable for breaches of the agreement as well as the supplier, this is established and accepted.

Best regrds

Petr

[FANTASY CHARGES]

OK

 

for a starters this link to a house of lords appeal mbna v customs

 

gives us another definition of securisation and explains the way securisation and "designation of accounts works"

 

remember they might (i think very probably almost certainly ??? )have designated your account "when the account was in good order several years ago

 

MBNA Europe Bank Ltd v Revenue and Customs [2006] UKVAT V19413 (18 January 2006)

 

 

see

7. especially

 

 

1. The facts in outline

[*]MBNA enters into credit agreements with and provides credit card facilities and makes personal loans to customers. It raises some of its working capital from investors who wish to invest money in the bond markets by means of a process known as securitisation. That involves it equitably assigning some, but not all, credit card debts owing, and to become owing, to it to a Jersey based registered trust company it has created. The trust company used in MBNA's current series of securitisations is Credit Card Securitisation Europe Limited ("CCSE"), which is known as the receivables trustee. (In an earlier series of securitisations the receivables trustee was Credit Card Securitisation International Ltd ("CCSI"). For convenience throughout the remainder of our decision, except as otherwise plainly stated, all references to CCSE shall include CCSI). CCSE's capital is owned by a Jersey registered charitable trust. The debts owing, and to become owing, to MBNA are divided into three categories of "receivables". Existing debts are known as existing receivables, those to become owing as future receivables, and the interest and charges on the account as finance charge receivables. The trust capital consists of moneys provided by MBNA and receivables assigned to the trust. CCSE holds the trust capital on a bare trust for MBNA itself and one or more of three other beneficiaries, known as investor beneficiaries, of which Deva One Limited is currently the only active one. Deva One Limited, like CCSE, is Jersey registered, and was created by MBNA. Its capital is owned by the same charitable trust as owns CCSE's capital. Deva One Limited issues loan notes to financial institutions using its interest in the trust as security. The borrowed money is paid to CCSE which then pays it to MBNA. The institutions in turn issue interest-bearing paper coupons to the ultimate providers of the money raised by securitisations. CCSE and Deva One Limited are special purpose vehicles, or SPVs. SPVs are required to have no discretion by US regulators, i.e. they must do what is demanded of them by MBNA and thus protect the receivables from MBNA's, insolvency (US regulations are relevant as a result of MBNA being a subsidiary of an American Bank). The purpose of SPVs is to distance the money raising operation from MBNA's creditors in that hypothetical event. That enables MBNA to raise money on the money markets on the security of receivables at a rate of interest lower than MBNA would itself have to pay. (The risk is attached to the receivables as opposed to MBNA). Credit card holders' accounts which have been securitised are known as designated accounts. As holders of designated accounts pay their monthly bills, the receivables become "collections" and are replaced by new receivables, and the process is then repeated. The collections are repaid to MBNA providing it with "revolving" funds. The funds do not revolve for ever, being arranged for a specified term, and are eventually repaid to the coupon holding investors by MBNA in what is known as the "amortisation" period. Following a securitisation, MBNA continues to service both designated accounts, and non-designated accounts. For its work in servicing the designated accounts, for obvious reasons called servicer services, it is paid fees by CCSE

[FANTASY CHARGES]

FC - I think where you are going with this is that if no notice of the securitisation has been given to the cardholder then the debt is unenforceable.

 

There are some flaws though;

1. the banks typically dont securitise their whole lending book only a portion of it so how would an individual cardholder know that their loan had been part of the securitisation. ask them under the data protection law 1984 or CCAct 1974 ?????

 

 

2. I dont think a lot of credit card debt will have been securitised because it is unsecured and therefore the Bond Notes will have poor ratings 9ie. from Moodys, S&P, Fitch) - securitisations work best when the ratings are strong (ie. mortgages and large corporate real estate loans).

3. if this was a major flaw and you took legal action then the bond holders would simply refinance your debt out of the securitisation and replace it with someone else.

 

no you dont understand how securisation works

 

 

the answer to your point 2 is in item 7. of a posting i made today

about the house of lords ruling on vat and mbna

 

". The purpose of SPVs is to distance the money raising operation from MBNA's creditors in that hypothetical event. That enables MBNA to raise money on the money markets on the security of receivables at a rate of interest lower than MBNA would itself have to pay. (The risk is attached to the receivables as opposed to MBNA).

"

[Peterbard]

Hi

Thanks F

Tis makes fascinating reading and lets me into a world i was little aware of.

I still howecver am a little confused as to how this effects the card holder.

 

Many thanks

Peter

[FANTASY CHARGES]

Hi

Thanks F

Tis makes fascinating reading and lets me into a world i was little aware of.

I still howecver am a little confused as to how this effects the card holder.

 

Many thanks

Peter

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

[Peterbard]

Hi F

 

Empty now

 

Cheers

Peter

[FANTASY CHARGES]

FC - I think where you are going with this is that if no notice of the securitisation has been given to the cardholder then the debt is unenforceable.

 

There are some flaws though;

1. the banks typically dont securitise their whole lending book only a portion of it so how would an individual cardholder know that their loan had been part of the securitisation.

2. I dont think a lot of credit card debt will have been securitised because it is unsecured and therefore the Bond Notes will have poor ratings 9ie. from Moodys, S&P, Fitch) - securitisations work best when the ratings are strong (ie. mortgages and large corporate real estate loans).

3. if this was a major flaw and you took legal action then the bond holders would simply refinance your debt out of the securitisation and replace it with someone else.

 

 

re point 2

here is a formal statement to explain your point 2

 

"Capital One Bank (Europe) plc (COBE) was a UK company that operated a credit card business. COBE had a low credit rating and, therefore, it sought to securitise its credit card receivables so it could obtain cheaper funds at an interest rate appropriate to a borrower with a better rating"

 

and there is also an "insurance policy in the securisation"

 

even joe public knows when mbna lend money at 25% and borrow a few "spots" over base rate etc ther is good profit in it to absorb the insurance policy (underwritten)

[FANTASY CHARGES]

zz. ASSIGNMENT

 

zz.1 Successors and assigns

 

This Agreement shall be binding upon and shall inure for the benefit of

the Issuer and the Dealers and their respective successors and permitted

assigns.

 

zz.2 Issuer

 

The Issuer may not assign its rights or transfer its obligations, other

than pursuant to the Trust Deed, under this Agreement or any Relevant

Agreement, in whole or in part, without the prior written consent of each

of the Dealers or, as the case may be, the Relevant Dealer(s) and any

purported assignment or transfer without such consent shall be void.

 

zz.3 Dealers

 

No Dealer may assign any of its rights or delegate or transfer any of its

obligations under this Agreement or any Relevant Agreement, in whole or in

part, without the prior written consent of the Issuer and any purported

assignment or transfer without such consent shall be void, except for an

assignment and transfer of all of a Dealer's rights and obligations

hereunder in whatever form such Dealer determines may be appropriate to a

partnership, corporation, trust or other organisation in whatever form

that may succeed to, or to which the Dealer transfers, all or

substantially all of such Dealer's assets and business relevant to the

performance of such Dealer's obligations under this Agreement or any

Relevant Agreement and that assumes such obligations by contract,

operation of law or otherwise. Upon any such transfer and assumption of

obligations, such Dealer shall be relieved of, and fully discharged from,

all obligations hereunder and any Relevant Agreement, whether such

obligations arose before or after such transfer and assumption.

[Peterbard]

HI

So a certain amount of credit card agreements are financed by this fund,the ones that are under £25000 will be ok because they are correctly formatted for the cca as it stands with it's credit liit of £25000.

However when the repeal of the credit limit comes in on apil 6th 2008 the other agreements (above this limit)prevously unregulated by the cca 1974 will fall under its regulation due to the cca2006(Not secondarry legislation.) This means that these agreements wil not have been correctly executed to cca 1974 regs.And therefore may be unenforceable.

 

Section 75 which says that any breach of the agreemnt made by the supplier has joint liability with the creditor(on transactions between £100 and £30,000) or in this case designated accounts fund.

 

 

 

Regards

Peter

[shane5408]

subscribing

[FANTASY CHARGES]

think this deserves to be copied and pasted

 

Today, 14:31 #2754 (permalink) MoonHawk vbmenu_register("postmenu_1070013", true);

Basic Account Customer

 

 

Join Date: Oct 2006

Posts: 45

 

 

Re: Loan Company Cannot Supply The Original Agreement

Thanks Jeff. That was most useful

 

After looking through the Cabot threads and with the help of tomterm8 (thanks tom) I have put together the following letter:

 

Quote:

Thank you for your letter explaining that your position is unchanged on this matter.

 

In your letter you stated:

Thank you for bringing Section 189 (1) of the CCA 1974 to our attention. We are well aware of this section of the Act and must point out that as a Debt Purchase Company we take assignment of the rights of the creditor, not the duties. Pursuant to section 136 Law of Property Act 1925, we are entitled to collect / sue for any entitlement that remains due under the agreement.

 

I am confused as to your reference to section 136 Law of Property Act 1925, since this section only relates to an absolute (otherwise known as legal) assignment of all rights and duties under a contract or agreement.

 

I am aware than, under the Consumer Credit Act 1974 all parties to a contract are required to be included in any litigation, and (in the event of an equitable owner suing) I would apply for the original creditor to be included as a defendant in the litigation.

 

In any case, as you are well aware, nothing in the consumer credit act or any other legislation entitles you to sue while the original creditor is in default of their obligations under the Consumer Credit Act 1974.

 

I trust that you will ensure that the original creditor provides the documentation I have requested before you engage in any further collection activity.

 

I must also inform you that I have been advised, by the Trading Standards, that your claim regarding your duties are erroneous and misleading. They have confirmed that all credit agreements are regulated by the Consumer Credit Act. I refer you to Wilson v. Secretary of State for Trade & Industry [2005] for clarification on this fact. I have also been advised to forward your letter to the Office Of Fair Trading for consideration of your licence renewal.

[andrew1]

think this deserves to be copied and pasted

 

You confused me Fantasy reposting this - i thought it was yours and revised it as the grammar was awful. I also thought it referred to Cabot. Why are you reposting others posts?

[FANTASY CHARGES]

Finally Mr Cordara submitted that it was wrong in law to conclude that an income stream which MBNA had assigned could, let alone should, be included as part of MBNA's outputs. In my judgment it is Mr Cordara's submission rather than the Tribunal's conclusion that is wrong.MBNA never assigned the income producing property which gave rise to the stream of interest and finance charges from the designated accounts.

 

That property was, and remained, MBNA 's bundle of rights under its contracts with its credit card holding customers. All MBNA assigned was the income itself. As Mr Cordara accepted, that did not mean that the interest and finance charges ceased to be part of MBNA's turnover. The outputs for which the interest and finance charges were the consideration were and remained MBNA 's supplies of credit to its customers. A taxpayer does not escape from VAT liability to charge and then pay VAT on his outputs merely be assigning the income from it at the moment of receipt. The fact that these outputs were exempt is neither here nor there.

 

THIS IS taken from the appeal see 22nd sep 2006

 

 

what we learn above is that the words in blue were assigned --

however FC says it is still a form of equitable assignment

 

------ we are learning bit by bit about securisation -----

 

however some aparent contradictions will be posted regarging the 2 mbna v vat people in the fullness of time

 

=======================================

 

MBNA Europe Bank Ltd v HM Revenue & Customs [2006] EWHC 2326 (Ch) (22 September 2006)

 

as opposed to the original case

 

18 jan 2006 link below

 

http://www.bailii.org/cgi-bin/markup.cgi?doc=/uk/cases/UKVAT/2006/V19413.html&query=MBNA&method=boolean

[FANTASY CHARGES]

highlighted below are what are regarded as important parts of the original case (not the appeal)

 

 

 

===============================

 

23 business

1. MBNA is licensed to provide credit and is regulated within the UK by the Financial Services Authority ("FSA"). Its business is run in much the same way as any other credit card business: its customers are issued with cards which entitle them to make purchases, and obtain cash advances, up to an agreed aggregate maximum amount. MBNA is required to finance its customers' purchases by paying to retailers and other suppliers, through the banking system, the cost of the goods or services acquired by the customer, less a charge — a variable percentage of the price — to the merchant known as "interchange", and to make cash available, also through the banking system, to satisfy its customers' demands for advances. Monthly, customers who have any sum outstanding must pay to MBNA an amount between a specified minimum and the total then outstanding. Those who do not pay the full amount are charged interest and MBNA also levies some fees and penalties, for example for late payment by customers of the minimum amount. The interest, fees and penalties (that is, all of MBNA's receipts from its customers, other than of capital) are together known as "finance charges".

==============

note the choice of the word penalties !!!

=============

 

36.....Two of the exceptions are the consequence of US requirements. The first, which MBNA contends is reflected in substance and in form in the structure which has been achieved, is that the assignment must be a true sale. MBNA contends that there are five reasons why sales of receivables have to be true sales, namely:

 

i) a sale means that the receivables will not form part of

MBNA

s estate in the event of its becoming insolvent;

ii) the US accounting bodies' isolation criteria in FAS 140 require a true sale for the assets to be outside the control of

MBNA

. (FAS 140 has a control-based test for off balance sheet treatment, whereas the UK equivalent, FRS5, has a risk and rewards based test);

iii) there is no need to register any security interest because, by definition, there has been a sale. (Security over a shifting pool of assets is understood to be risky as possibly being ineffective – or it might be held to be a floating security, and thus be less effective);

iv) the FSA does not allow a bank to grant floating charges because a consequence thereof might be an administrative receiver seeking to take over its assets; and

v) if a securitisation were structured as a loan against security rather than as a true sale, the grant of security might put a bank in breach of covenants with third parties not to grant security.

No one other than the Commissioners has suggested that MBNA's securitisations are not true sales.

 

 

==================================

 

37 .....The second exception is that the SPVs which are used for the implementation of the securitisation must not, by US regulatory rules, be allowed any discretion. The evidence did not extend to a full explanation of the reasons behind those requirements (though it was apparent that the latter is in part designed to ensure that the operation of the arrangements cannot be upset), but what Mr Ingram told us was undisputed and we accept that the requirements were significant factors affecting the structure of the arrangements. The third requirement of significance, on which Mr Ingram laid considerable emphasis, is that the risk of cardholder default must be transferred from the originator to, ultimately, the investors. That requirement is not specifically US-driven. We shall return to the significance of these three points.

 

==========================

 

45 The Receivables Securitisation Deed grants MBNA the right to initiate "from time to time" what is described as a "possible securitisation" by first nominating any one or more of its customers' accounts, and then offering to assign the receivables, existing and future, arising on the accounts so nominated (but not the accounts themselves) to CCSE. MBNA is not allowed to nominate an ineligible account—that is, one where the customer is not an individual, has already defaulted, or is not resident in the United Kingdom, or which fails to satisfy some other formal requirements—and in practice it nominates very large numbers of accounts simultaneously. For regulatory reasons, nomination has to be undertaken on a random basis; this requirement is designed to prevent a credit card bank from securitising only the better quality accounts, thus giving the ultimate investors an advantage, and to eliminate the possibility that the bank will expose itself to excessive risk as a result of its being left with the less desirable accounts. Nomination requires no more than the identification by MBNA of the relevant accounts in its records. In practice this is done by its computer attaching a marker to each nominated account. Provided it respects the requirement that its nomination be random, MBNA can, and does, determine the aggregate value of the accounts which it nominates at any one time

 

 

===============

46

1. What MBNA may validly offer to assign is strictly defined. It cannot be selective; with some limited—and automatic—exceptions, to which we will return, once accounts have been nominated for the purpose of a securitisation the receivables attaching to them must be included in any offer made for the purpose of that securitisation. Moreover, it is necessary to offer to assign the entire benefit of each nominated account included in the offer, which benefit is allocated to six distinct categories, a division which reflects the intricacy of the arrangements. The six categories are:
   (1) "Existing Receivables", that is the amount owed to
   MBNA
   by the customer at the time the offer is accepted;
   (2) "Future Receivables which are not Finance Charge Receivables", being principal (in respect of purchases and cash advances) for which the customer will (it is assumed) incur a liability to
   MBNA
   in the future;
   (3) "Future Receivables which are Finance Charge Receivables", that is future charges of interest, fees and penalties to be levied by
   MBNA
   against the customer;
   (4) the benefit of guarantees and insurance policies (for example policies protecting a customer against the risk that he might become unable to discharge his debt by reason of redundancy);
   (5) "Acquired Interchange", representing the charge levied by
   MBNA
   on retailers and other suppliers accepting its card in payment for goods and services: this is a calculated amount, but it is not assessed on an account-by-account basis; and
   (6) "Acquired Recoveries", being an amount equal to the outstanding face amount of the Principal Receivables.

   The last three of those categories are of no immediate relevance, and we propose to ignore them for the purposes of this decision.

==============================

50 MBNA's offer, once accepted, is to assign the Existing Receivables, immediately, and the Future Receivables as they come into existence. The assignment is to take effect in equity only, although there are provisions which come into effect in certain eventualities (in essence, if MBNA becomes insolvent) one of which allows CCSE to give notice of the assignment to the debtor-customer (in the contracts called an "Obligor"), thus converting it into a legal assignment. In practice, no such notice has ever been given (and the affected customers remain entirely ignorant of the assignments affecting their accounts) but the possibility of giving notice remains in case it should become necessary for CCSE to enforce the debt and MBNA is unable or unwilling to join in an action to do so. Upon acceptance of an offer, the nominated accounts become "Designated Accounts".

 

================

59 From the customer's point of view, nothing changes when his account becomes the subject of a securitisation. As we have said, although the deeds provide for the giving of notice to the customers, this is a contingency provision and in practice the customers do not receive notice of the assignment, and indeed nothing at all is said to them. Their agreements with MBNA are unaffected; as the recitals to the RTDSA put it, MBNA "will continue to have contractual relationships with the Obligors on the terms set out in the Lending Agreements [MBNA's standard-form agreements with its customers] and accordingly will continue to be a grantor of credit in respect of both Existing Receivables and Future Receivables". The customers continue to receive monthly statements and other communications from MBNA, which renews their cards whenever necessary, provides the funds to finance their purchases and cash advances, and collects their payments. The majority of MBNA's UK staff, too, do not know whether an individual customer's account has been the subject of a securitisation; only those with access to the relevant part of the computer record are able to distinguish between those accounts which have, and those which have not, become Designated Accounts. Thus a customer who, for example, telephones with an enquiry is treated by MBNA's staff in exactly the same way, whatever the status of his account.

 

 

 

================================

63 Because there is no overt distinction between those customers whose accounts have become designated and those whose accounts have not (nor between accounts which have been designated for different securitisations) all receipts from customers (which are called "Collections") are initially paid into MBNA's general purpose Operating Account. Thereafter the money attributable to Designated Accounts (and so identified by MBNA's computer) is to be paid, within two business days, into CCSE's "Trustee Collection Account". In practice, a computer programme run by an MBNA company in the USA segregates its receipts correctly. Its first task is to separate receipts from customers with Designated Accounts from its other receipts (we ignore for present purposes the additional complication which results from there being two or more concurrent securitisations). The latter may be dealt with by MBNA as it pleases, but the former must be further allocated to six categories, as the RTDSA identifies them. The money itself is not divided at this stage, but is transferred as a single sum to the Trustee Collection Account.

 

At the same time MBNA's computer generates a daily report setting out the sums included in the total amount transferred which belong to the various categories, which is sent to CCSE. The report amounts to a set of instructions to CCSE, requiring it to apply the aggregate sum received each day in specified ways. CCSE has no facilities of its own by which it might undertake the task of identification, or which might enable it even to verify what MBNA has done, and it merely follows the instructions set out on the daily report. The deeds provide for the establishment by CCSE of a series of bank accounts, in order that the receipts may be held separately and payments may be charged against the appropriate source. CCSE makes inter-account transfers daily, with monthly adjustments. The monthly adjustments are made in accordance with another set of instructions which is generated (drawing on data provided by MBNA) by a computer owned by MBNA.

 

....................should this all be revealed on a dsar ?????

===========

70 Securitisation is not undertaken speculatively, in the hope that investors will be found who will take up the commercial paper, but is a carefully choreographed procedure. As mentioned earlier, CCSE has no assets of its own apart from the nominal payments made by the four beneficiaries; it is quite unable, from its own resources, to pay even the initial Acceptance Price of £10,000, yet it is required to accept any offer to assign receivables which MBNA chooses to make, regardless of value, and to pay the remainder of the capital sum due following acceptance, the Further Payment, almost immediately afterwards. The commercial paper is placed so that the interval between the acceptance of MBNA's offer and the funds' becoming available is minimised, but it is impossible to eliminate the interval altogether. The funds cannot be made available until the security is in place, since the commercial paper is, of its essence, asset-backed; yet the arrangements, as we have so far described them, do not cater for the putting in place of the security without immediate payment.

 

============

75 In order to insulate an investor from the risk of the originator's insolvency, Mr Ingram claimed that there must be a true sale of the receivables so that, once they are assigned, they cannot normally be returned to the originator. There are provisions in this structure—as in others—allowing for the return of receivables which have been incorrectly assigned, because they were ineligible at the outset, and enabling MBNA to buy back "defaulted" receivables (those where the debt has remained outstanding for an excessive period) so that enforcement action can be taken; in each case there are further provisions which deal with accounting for such returns and for indemnifying the investors against losses caused by defaults (the indemnity provisions have the effect, if losses are sufficient, of indemnifying the class A note holders at the expense of the class B holders) and, in the case of defaulted receivables which are later recovered, for the money obtained to be returned to the trust and the indemnity to be reversed. As long as such provisions remain within prescribed limits, they satisfy accounting requirements and the regulatory bodies and rating agencies accept them. It is also possible, Mr Ingram told us, for an originator to "undo" a securitisation altogether, and recover the receivables then assigned.

 

 

======================

117 On what appeared to Mr Paines to be the theory that the omission of the value of exempt supplies to designated cardholders – which reduced the denominator of the partial exemption fraction and thus increased the recoverable proportion of residual input tax – was balanced by the exclusion from the fraction of specified supplies (the assignment of receivables) which reduced the recoverable proportion of input tax, MBNA claimed that the exclusion under paragraphs 3(b) and © of the Agreed Method of both the value of assignments of receivables and the value of exempt supplies to designated cardholders constituted, by implication, a satisfactory compromise in relation to the treatment of the process of securitisation. Mr Paines rejected such a theory on the basis that assignments of receivables under a securitisation were not supplies for VAT purposes. He maintained that MBNA's contentions could be correct only were either the advance of credit to the cardholder to be made by CCSE, or no consideration in the form of payment and interest and charges were to be received by MBNA – neither of which was the case. The receivables trustee was not a party to any transaction between MBNA and the cardholder, or vice versa, and the cardholder did not even know that his account had been designated, unless he had been served with notice of assignment following a 'notification event' – a situation which had never occurred. The trustee did not obtain from MBNA any power to grant credit to MBNA's cardholders: all that was assigned to the trustee was the receivables arising on designated accounts. However, as between MBNA and the cardholder, the transaction remained one under which MBNA provided a supply of credit for a consideration to be provided by the cardholder to MBNA.

Mr Paines submitted that a taxable person who had entered into such a transaction could not prevent the consideration provided by the other party being consideration received by him simply by entering into a separate arrangement with a third party (the trustee) to pass the money on to that third person. Nor did it make any difference that the separate arrangement with the third party was underpinned by equitable obligations.

If it were otherwise any taxable person could avoid liability to tax by declaring a trust of his VATable receipts.

 

 

 

=========

149 Having most carefully considered the COBE tribunal's reasons for concluding that assignments of receivables are not supplies for VAT purposes, and taken account of all Mr Cordara's submissions in the instant case, we too hold the assignments to be security for loans, and thus not to be transactions which constitute "true sales". We adopt the reasoning of the COBE tribunal, but would add a number of observations of our own. We should also record that we have taken account of Mr Paines' submissions, but with the single exception of that dealt with at paragraph 151 below, find it unnecessary to rehearse them.

==========

150 The deeds by which securitisations are effected are so inter-linked and interdependent as to be incapable of interpretation separately from each other. All are essential if the process is to be successful, and in our judgment their interdependence means that their effect cannot, indeed must not, be considered separately but rather as a whole. So viewed, we have no hesitation in concluding that they deal with loans to MBNA which it has to repay, and do not deal with transactions which are supplies for VAT purposes.

 

 

==========

 

 

151 Mr Cordara's claim that there was complete alienation in assignments of receivables in that the debts were by nature ephemeral and did not come back to the originator was taken up by Mr Paines, who, quite correctly in our judgment, observed that receivables did not vanish without trace, but matured as collections. He submitted, and we accept, that as collections they could not be dealt with by the receivables trustee as it wished, but must be repaid to the originator in exchange for the next batch of receivables. In the ordinary way a true purchaser of receivables would keep the collections, but in the case of securitisations, assuming the originator had not become insolvent in the meantime, he was obliged by the structure of the transactions to repay the collections to the originator. That the majority of the money returned shortly after being received from customers (see paragraph 63 above), and the remainder only at each month end as part of the excess spread was neither here nor there.

 

 

================================================

 

43 note 43 is included just to give an insight to the complexity

==================================

 

43 The deeds cater for various contingencies, many of which are not material here and which we can ignore. They are long and extremely complicated; it is almost impossible to follow them by reading the clauses in numerical order and by reading them one after another; indeed, one of the key deeds is comprehensible only when read with its supplement, which adds clauses without which it is impossible to follow or understand the flows of money which occur. Among them there is a Master Framework Agreement, whose sole purpose is to provide definitions of the terms common to the various deeds; some other terms, used in a single deed, are defined only in that deed. We have simplified the following analysis as much as we think it is possible to do without omitting any feature which is germane to the parties' arguments and to our conclusions and we have focused on only two deeds and the two relevant supplements; even so, it will be apparent that the detail and complexity of the arrangements is formidable.

[FANTASY CHARGES]

think we all need to read this

[borisbeaver]

Crikey, it's longer than war and peace!