Birmingham Midshires ERC ***WON***

[lickthewallfatboy]

they were mentioned separately in one letter,and the LBA expires monday,I believe.

[thunderpuss2k]

OK, so Monday is D-Day?

[lickthewallfatboy]

ok

 

full and "final" response to my claim received this morning.

 

first of all,out of "goodwill" they have decided to refund us £165 as a full settlement!!

 

 

anyway,they go into a spiel about the history of the account,product changes

and the fact that we signed up under the terms laid out in the T&c's,agreeing to ERC's etc.

 

"during the course of my investigation,I've established that the TAF (Transfer Authority Form) clearly stated that ERC's would be applied to your account if you patially or fully redeemed your mortgage prior to the end of it's tie-in period.

 

As a result of this,i cannot agree to the refund of the applicable ERC's,as this would contradict the information detailed within the TAF.

 

For these reasons I am not upholding your complaint,and although i appreciate that this is likely to come as a disappointment to you,I hope my explantion is helpful

 

furthermore,with regards to your comment about our fees equating to penalties,this is not the case.You would only be penalised if you breached our contract,and switching your mortgage product or redeeming your mortgage early does not constitute this"

 

well,actually it isn't as they have failed to provide me with a breakdown of actual losses incurred as a result of switching/teminating the account.

 

Helpful comments are invited please....

[lickthewallfatboy]

did a search for any info on these and this is what I found....

 

House of Commons Hansard Debates for 25 Apr 2001 (pt 5)

 

see 25 Apr 2001 : Column 136WH

 

"The FSA will shortly consult on detailed rules for mortgage regulation. My hon. Friend asked when mortgage regulation is likely to happen. We expect that it will come into force no later than August 2002, just over a year away. I am glad to see that the process will be that rapid. My hon. Friend also referred to unfair contract terms. Under the Unfair Terms in Consumer Contracts Regulations 1999, consumers cannot be bound by contractual terms that are weighted unfairly in favour of the lender, such as terms that purport to give the lender the right to charge excessive early redemption penalties. However, as my hon. Friend has pointed out, it is one thing to be able to say that and another to get a court to agree with it. It is very difficult to provide the cast iron evidence needed to prove that such distortions have taken place, especially in cases that took place nine years ago.

The DGFT and every local authority trading standards department have the power to prevent the use of unfair contract terms, if necessary by seeking a court injunction. The Financial Services Authority will gain those powers on 1 May 2001. The regulations also give individuals the right to challenge unfair terms in contracts into which they have entered with lenders.

[lickthewallfatboy]

been looking for a definition of breach of contract-found this instead....

 

Mortgage Regulation - Inducements and Excessive Charges - TLT Solicitors

 

Excessive charges

 

The FSA is concerned with the level of charges that may be imposed on customers. The FSA is keen to ensure that customers are protected from unfair and excessive charging practices. The FSA’s requirements on charges amplify Principle 6 of the Principles for Businesses, which requires lenders, administrators and brokers to pay due regard to the interests of their customers and to treat them fairly. Only MCOB 12.5.2R applies to administrators.

 

The FSA requirements on excessive charges are contained in MCOB 12.5.

 

MCOB 12.5.1R states: “a firm must ensure that any regulated mortgage contract that it enters into must not impose, and cannot be used to impose excessive charges upon a customer.”

 

The FSA has identified four occasions when a customer needs to be protected:

1. when a customer seeks to terminate a regulated mortgage contract before the end of term and the charges imposed do not reflect the cost of termination to the firm;
   
2. when a customer is in payment difficulties and the additional charges arising from this are not based on the costs incurred by the firm;
   
3. when the overall charges (including rates of interest) are excessive and contrary to the customer’s interests; and
   
4. when the fees of the firm for arranging or advising on a regulated mortgage contract or variation of the terms are excessive.

[lickthewallfatboy]

found this article and it makes for interesting reading.....

 

Mortgage Finance Gazette :: ERCs – penalty or necessity? - UK

 

ERCs – penalty or necessity?

 

July 2006

When an early redemption charge (ERC) kicks in, what felt like a good deal at the time may look less attractive for the borrower now. Ian Hastings and Rob Payne discuss the legal implications

 

A fixed rate protects the borrower against rising interest rates. In order to lend at these rates, the lender usually borrows on the market at a fixed rate. If the loan is repaid early and interest rates have fallen, the lender will have to pay to break its own market deal. That cost is passed on to the customer as an ERC.

Typically, an ERC is a percentage of the original loan or the amount repaid to date, an amount of interest or a sum calculated at a later date, with reference to movement in market interest rates.

It is a common misconception that an ERC can be categorised as a penalty. This arises from common usage of the term ‘early redemption penalty’, particularly in the media. The distinction between an ERC and a penalty is that an obligation to pay an ERC does not arise on a breach of the lending contract by the customer, nor is it intended to deter the customer from early repayment. It is payable when the customer decides to redeem the loan before the expiry of a fixed period against which the interest rate was set. The ERC is to compensate the lender for genuine commercial risk or loss, not to penalise the customer.

Clarity

Most residential mortgages are regulated by the FSA, which requires a section in the Key Financial Information given to the customer, and also in the mortgage offer itself, describing whether and when any ERC may be payable, with a least three cash examples showing the range of charges that may apply.

For mortgages that are regulated by the Consumer Credit Act (CCA), it is doubtful whether ERCs can be charged at all because of the combining effect of sections 94 and 173(1) CCA.

The essential point is to ensure that documentation is clear and the relevant paragraphs prominent.

The following points must be identified and clearly explained, particularly if the ERC can only be calculated at the date of redemption with reference to matters such as the amount repaid or movement in interest rates.

• When the ERC becomes payable
  
• How the ERC is calculated
  
• The applicable period
  
• How it relates to the fixed or discounted period
  
• Whether there is an extended tie-in and provision for the transfer to another product with the same lender and for the purchase of a new property

Checklist

• Are your loan agreements and supporting literature clear and intelligible?
  
• Did you avoid using the term “early redemption penalty”.
  
• Do you calculate the ERC
  
• precisely as the contract allows – and does the calculation stand up to scrutiny? Are you confident that it fairly represents your loss on breaking the loan?
  
• Do you mitigate your position by looking to re-lend and/or discounting the ERC to reflect receiving the money in one lump sum?

DisputesEven lenders with clear documentation are not immune from disputes. The Unfair Terms in Consumer Contracts Regulations 1999 (Regulations) will apply if the term is not individually negotiated (which it rarely will be). The court or Financial Ombudsman Service (FOS) will consider whether, with regard to the circumstances prevailing at the date of the contract, the term is one, which contrary to the requirement of good faith, caused a significant imbalance in the parties’ contractual rights and obligations to the customer’s detriment. Paragraph 1(e) of Schedule 2 to the Regulations provides that a term “requiring any consumer who fails to fulfil his/her obligation to pay a disproportionately high sum by way of compensation” may be unfair.

FOS or court?

Customers can choose whether to apply to the FOS or the court. If the customer loses before the FOS, he or she can still take the dispute to the court. However, a lender who loses before the FOS is bound by the decision.

Most customers will go to FOS, at least to begin with, as a cheap and consumer-friendly service. FOS statistics, while not breaking down the number of mortgage complaints relating to ERCs, do show that the number is decreasing. This seems to be due to a greater understanding of the reason for ERCs and clarity of documentation.

The FOS has advantages in terms of cost and speed but lenders are bound by FOS decisions without any effective right of appeal. The judgement in IFG Financial Services Ltd v Financial Ombudsman Service has confirmed that the FOS, in deciding what is fair and reasonable in a given case, must take into account – but does not have to apply – the law. Judicial review is highly unlikely to provide an effective avenue of redress against an adverse decision.

If a complaint does proceed to the FOS, there is value in an oral hearing before the final determination (particularly where an initial adjudication has failed to recognise the wider considerations or effects of a decision).

The court system has the advantages of a strict application of the law and full rights of appeal for both parties. However, in ERC cases costs can easily exceed the sum in dispute and if the value of the ERC is below the small claims limit (£5,000), the general rule is that lenders will not recover their costs even if successful. When embarking on litigation, lenders will need to decide whether they are just fighting a particular case or fighting to avoid an adverse precedent on a widely distributed product.

It is also important to realise that either route can bring publicity to an adverse decision. Disgruntled customers can and do go to the financial press. FOS decisions can be publicised through the FOS’ monthly news bulletin and court hearings are generally in public.

Ian Hastings is a partner at Addleshaw Goddard LLP and Rob Payne is an associate

[zootscoot]

Fantastic find

 

every local authority trading standards department have the power to prevent the use of unfair contract terms, if necessary by seeking a court injunction.

 

Nice to know- If this means what I think it means we can all pressure trading standards into taking out injunctions to prevent banks levying all unlawful charges?

 

You might want to post this in the campaigns forum.

 

VERY nice find indeed!

 

Zoot

[dolly]

That is interesting although it took a few read throughs to understand it properly (and not sure that I still do after just 4.5hrs sleep)

 

I particularly like these:

 

 

The Unfair Terms in Consumer Contracts Regulations 1999 (Regulations) will apply if the term is not individually negotiated (which it rarely will be).

 

For mortgages that are regulated by the Consumer Credit Act (CCA), it is doubtful whether ERCs can be charged at all because of the combining effect of sections 94 and 173(1) CCA.

 

[lickthewallfatboy]

if anyone who can help with this would reply,it would be a great help.In another thread Alanfromderby pointed out that mortgages were not covered by the CCA.

They come under the Financial Services and Markets Act 2000.

 

I have looked this act up,and on The Financial Services and Markets Act 2000 (Consequential Amendments) Order 2005

I found this-

 

EXPLANATORY NOTE

 

(This note is not part of the Order)

 

This Order amends two sections of the Consumer Credit Act 1974 (c. 39). The first section that it amends, section 82, deals with variation of agreements. The amendments exclude a certain type of modifying agreement from the provisions of subsections (2), (3) and (5) of section 82. The type of modifying agreement excluded is an agreement which is not regulated under the Act because it is secured by a land mortgage and entering into that agreement as lender is regulated under the Financial Services and Markets Act 2000 ("the 2000 Act"). Mortgage agreements regulated under the 2000 Act are therefore not regulated under the Consumer Credit Act 1974 where they otherwise would be by virtue of modifying an agreement that is regulated under that Act.

 

Am I correct in thinking that if you took your mortgage out prior to the 2000 Act,that it comes under the CCA 1974?If so,it opens up the point in the first post ie-

 

The Unfair Terms in Consumer Contracts Regulations 1999 (Regulations) will apply if the term is not individually negotiated (which it rarely will be).

 

For mortgages that are regulated by the Consumer Credit Act (CCA), it is doubtful whether ERCs can be charged at all because of the combining effect of sections 94 and 173(1) CCA.

 

Could we be onto something?If I'm wrong,no harm done,but if this turns out to be right-well.......

[lickthewallfatboy]

I posted this in the mortgage section,but it's starting to get technical,so if any knowledgeable guys would have a look please-

 

http://www.consumeractiongroup.co.uk/forum/mortgage-companies/25072-very-interesting-article-ercs.html#post196109

[lickthewallfatboy]

Dolly

have you a chance to have another look at this?I'd love a few opinions on this...

[zootscoot]

Unfortunately the CCA 1974 only applies to loans under 25,000 which would certainly preclude most mortgages.

 

 

I would take issue with several of the points made in the article asserting that ERCs are lawful. (I lecture in contract law so do have some idea of what I am talking about-not claiming to be right on all issues this is simply my interpretation of the law in relation to the article. Any comments or disagreements appreciated)

 

Firstly you need to consider the context in which this is written. It is written by solicitors and the target audience is mortgage providers thus it is highlighting arguments that they can use against any claims, at the same time, if any interested consumers are reading it is aimed at putting them off claiming.

 

Secondly the article states that ERC are not related to breach of contract. This is simply not true. When you take out your mortagage you will generally do so for a specified number of years eg 15, 20 or 25. This is a term of your contract. By ending early you are in breach of that term.

 

A fixed rate protects the borrower against rising interest rates. In order to lend at these rates, the lender usually borrows on the market at a fixed rate. If the loan is repaid early and interest rates have fallen, the lender will have to pay to break its own market deal. That cost is passed on to the customer as an ERC.

 

 

 

Again this can be challenged. According to Dunlop v New Garage there is a distinction between a penalty clause and liquidated damages clause. (Penalty being unlawful, liquidated lawful). To amount to a lawful liquidated damages clause it must be shown that the fee levied amounts to a genuine pre-estimate of losses. As interest rates can not be predicted with any certainty, how can they argue that any fee was a pre-estimate?

 

Also we all know that they offer these fixed and discount deals in order to remain competitive. With fixed rates the consumer also takes a risk in that interest rates could fall. Can they then recoup their losses? I don't think so!

 

Typically, an ERC is a percentage of the original loan or the amount repaid to date, an amount of interest or a sum calculated at a later date, with reference to movement in market interest rates.

 

Mine was a set fee for redeeming year one, reduced year two, then again year three and therefore in no way relates to any actual losses.

 

From what I've read regarding some of the Sub prime lenders. They charge excessive interest during the mortgage and therefore can hardly claim to be suffering a loss. They then charge hugely excessive fees: 9,000 is not untypical. I'm no mathematician but this does not seem to me to add up. Under the Dunlop case a fee is a penalty if the sum stipulated is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to follow from the breach. Which to me seems to hold true with such fees. In my case the fee of 900 pounds for ending two days before the ERC period would end again seems excessive.

 

nor is it (ERC) intended to deter the customer from early repayment.

 

Any one fooled?

 

The ERC is to compensate the lender for genuine commercial risk or loss, not to penalise the customer.

 

So who compensates the customer if a fixed rate turns out to be unfavourable to them?

It is unacceptable to place their commercial risk on to consumers. Huge institutions are more than capable of absorbing this commercial risk. It is common for businesses to take commercial risks in trying to attract customers. You do not go in to Tescos and see buy one get one free offers subject to terms that you might be required to pay a fee later if you never buy their products in the future in order for you to cover their commercial risks. Also this is where Unfair Contract Terms Act s.4 comes in - a business can not impose a term that requires a consumer to indemnify their loss. This is subject to the requirements of reasonableness in s.11 but to be honest I can't see a court in the land concluding that the loss should fall on the consumer as oppose to the bank in these circumstances.

 

As we all now the fees also amounts to an unfair term under the Unfair Terms in Consumer Contracts Regulations 1999

 

Checklist

• Are your loan agreements and supporting literature clear and intelligible?
  
• Did you avoid using the term “early redemption penalty”.
  
• Do you calculate the ERC
  
• precisely as the contract allows – and does the calculation stand up to scrutiny? Are you confident that it fairly represents your loss on breaking the loan?
  
• Do you mitigate your position by looking to re-lend and/or discounting the ERC to reflect receiving the money in one lump sum?

 

This is particularly interesting - this is the author's clever get out clause! Its basically saying I am advising you that these ERC's are lawful but if you do not follow this check list don't sue me if they are found to be otherwise. The classic here being 'did you calculate the ERC precisely?' which is pretty much impossible. A nice one for us is the last about mitigating their loss.

 

DisputesEven lenders with clear documentation are not immune from disputes. The Unfair Terms in Consumer Contracts Regulations 1999 (Regulations) will apply if the term is not individually negotiated (which it rarely will be). The court or Financial Ombudsman Service (FOS) will consider whether, with regard to the circumstances prevailing at the date of the contract, the term is one, which contrary to the requirement of good faith, caused a significant imbalance in the parties’ contractual rights and obligations to the customer’s detriment. Paragraph 1(e) of Schedule 2 to the Regulations provides that a term “requiring any consumer who fails to fulfil his/her obligation to pay a disproportionately high sum by way of compensation” may be unfair.

 

 

This is virtually admitting they are unlawful... although not quite just that they are being disputed.

 

FOS statistics, while not breaking down the number of mortgage complaints relating to ERCs, do show that the number is decreasing. This seems to be due to a greater understanding of the reason for ERCs and clarity of documentation.

 

 

Or maybe a greater understanding you get better results if you sue their a***s rather than relying on FOS!

 

The judgement in IFG Financial Services Ltd v Financial Ombudsman Service has confirmed that the FOS, in deciding what is fair and reasonable in a given case, must take into account – but does not have to apply – the law.

 

Interesting therefore if FOS finds in favour of a bank this does not mean that a court action will fail.

 

Judicial review is highly unlikely to provide an effective avenue of redress against an adverse decision.

 

 

Roughly translated means: banks do not attempt to appeal any findings of the FOS which favour the consumer as you have no hope in front of a judge applying the law and this will set a precedent against you.

 

However, in ERC cases costs can easily exceed the sum in dispute and if the value of the ERC is below the small claims limit (£5,000), the general rule is that lenders will not recover their costs even if successful. When embarking on litigation, lenders will need to decide whether they are just fighting a particular case or fighting to avoid an adverse precedent on a widely distributed product.

 

 

Sound familiar? So final advice to the bank is: do exactly what you are doing in relation to other bank charges: pay out at the last minute in a last ditch panic to avoid going to court!

 

It is also important to realise that either route can bring publicity to an adverse decision. Disgruntled customers can and do go to the financial press. FOS decisions can be publicised through the FOS’ monthly news bulletin and court hearings are generally in public

.

 

So banks don't forget those confidentiality agreements! (which incidentally are not worth the paper they are written on)

 

Hope this helps put people's minds at rest. An excellent find Lickthewall! Nice to know we can expect pretty much the same reaction to the ERCs as other bank charges!

 

Others' thoughts and comments would be greatly appreciated.

 

Zoot

 

 

 

 

[dolly]

When I get time, I will have a good read through all this...need to do it when there are no kids around.

[lickthewallfatboy]

Secondly the article states that ERC are not related to breach of contract. This is simply not true. When you take out your mortagage you will generally do so for a specified number of years eg 15, 20 or 25. This is a term of your contract. By ending early you are in breach of that term.

Could you put this into a form of words(legalese!! )so that I can put it in a letter to BM challenging this?I know what I would like to say,but I'm looking for a watertight form of words to use.... thanks

[sues35]

Lickthewall....what a find!!

 

Having read the article over and over it does seem to show that ERCs are unlawful, and yes this may be the link in the missing chain for claiming back the excessive charges that are placed. Hope you dont mind but i have added a link to this piece into me sig so as many ppl as poss can have a look at it.

Having been on the receiving end of excessive charges (see ssvswift in mortgage companies forum) i will be definately watching for updates and any news on this matter....thanks again!!

[zootscoot]

Could you put this into a form of words(legalese!!:grin: )

 

The charge you have levied in the form of an early redemption fee (substitute any other name which your mortgage provider has used) represents a charge in relation to a breach of contract on my/our part in that I/we terminated the mortgage contract before the contractually agreed period of XX years.

 

you could stop here if you are simply wanting to make a point, however, if they are contesting that there is no breach continue:

 

This term of the contract was clearly stated in the written mortgage offer signed by myself (and XXX?). The terms of which were incorporated by reference into the mortgage deed which was not only signed by us but also witnessed. There is clearly no room for doubt that such a clause existed in the contract. Similarly, there is no question that we in fact redeemed the mortgage on the xx/xx/xxxx as evidenced by our final redemption statement. This date is clearly well before the contractually agreed date of xx/xx/xxxx and thus represents a clear breach of the contract.

 

Furthermore the fact that you may have contemplated us ending the contract early in no way prevents my/our actions from amounting to a breach. To draw an analogy from criminal law, the fact that a policeman contemplates that a particular known offender may offend again in the future does not make the offender's actions lawful when he does in fact offend.

 

Thus the only plausible analysis that can be applied is that you have contemplated my breach of contract and provided for this eventuality with your ERC. English contract law requires such a fee to be a genuine pre-estimate of your losses if it is to be lawful following the case of Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79

 

(You could stop here, or, if you want to really drive home the issue and go into full patronising mode!)

 

The actual issues involved here really are quite simplistic. I find it astonishing that I, as a lay person, am having to explain such basic concepts to an experienced legal expert as yourself.

 

You could continue:

 

If you require any further assistance in grasping the fact that you have my money, there is a particular gorilla in outamongolia I could recommend to help explain it to you.

 

...0r may be not!

 

Hope this helps Lickthewall

 

Lets see them wriggle out this one?!

 

 

Zoot

[lickthewallfatboy]

thanks very much for that.I have drafted a letter to BM with all the salient points included.

 

I am very grateful for this.

[thunderpuss2k]

thanks very much for that.I have drafted a letter to BM with all the salient points included.

 

I am very grateful for this.

All very interesting so far. Hate to say it, but if you send anything like this to Birmingham Midshires they'll just cut and paste a paragraph or two from your letter into their template and send it back. I spent about an hour drafting a letter to them explaining how much it'd cost them if it went to court, the fact they'd have to explain in a court room how they calculated their penalty, and by virtue of the fact they haven't explained their calculations so far then it can only be assumed it's a penalty, and therefore irrecoverable etc. Then I offered to settle for about £200 less than the amount they owed me.

 

Template letter back. 'We understand that your complaint is as follows: You are unhappy with the charges incurred, and wish to settle for £XXXX".

 

Duh.

 

Just need to turn all this lot into something suitable for Moneyclaim and off we go.. I'm writing up the claim against BM as we speak, and plan to put it in early next week - so will be reading this thread with interest in the coming days.

[zootscoot]

Hi Thunderpuss.

This is what I used for my money claim which just about fitted when you add the standard bit about claiming the statutory interest.

I am claiming the return of money taken by the defendant in the way of a redemption penalty charge in Feb 06. This charge relates to my breach of contract in that I terminated the contract before the agreed period. The defendant's charge for our breach is a disproportionate penalty and therefore unenforceable as it is contrary to common law as established in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79. Further, as a disproportionate penalty it is invalid under the Unfair (Contracts) Terms Act 1977 s.4 and under the Unfair Terms in Consumer Contracts Regulations 1999. Para.8 and sch.2(1)(e). I have repeatedly asked the defendant to justify their charges but they have declined to do so.

 

 

 

 

Hope this helps

 

Zoot

[thunderpuss2k]

Cheers Zoot, you're a star

[:Boy:]

I used this paragraph in my letter to i group for the return of my ERC

 

 

OFT stated:

 

3. A term in a mortgage agreement which requires the borrower to pay more for breaching the contract terms than actual costs and losses caused to the lender by the breach (or a genuine pre-estimate of that) is likely to be regarded as an unfair penalty and to be unenforceable both at common law and (in a consumer mortgage) under the Unfair Terms in Consumer Contracts Regulations. A redemption charge may be regarded as a penalty even if it is expressed as the price for exercising a right rather than a consequence of breaking the agreement.

Best regards

[lickthewallfatboy]

this is starting to shape up nicely.If all this goes according to plan and word gets out on the street,can you imagine the sheer panic which will ensue in mortgage lenders the length and breadth of the country??

 

I would love to know if any ripples of worry are starting to appear.Surely someone on the inside could let us know if they are getting perplexed....?????

[lickthewallfatboy]

I wrote back to BM using words kindly supplied by zootscoot

 

got an even shorter sod off reply back today-

 

"we are sorry you remain unhappy and have now progressed your complaint to stage 2 of out Internal Complaints procedure

 

we will now review your complaint and write to you with our findings....."

 

then they kindly offer me the Ombudsman's service.....WOW

 

this is starting to sound familiar isn't it?This was the standard reply to our bank and credit card complaints at the start.....

 

question-as I am in Northern Ireland with a £2K small claims limit,am I able to use a friends address in England as a "care of" address for Moneyclaim, to lodge 2 claims which will total around £8K,one for "swapping mortgage product" charge,and one for an early redemption penalty when the account was closed?

 

I really want to slay this in one go if possible.....

[lickthewallfatboy]

I live in Northern Ireland,and the small claims limit is £2000.

 

I have a big claim pending against Birmingham Midshires,and I was wondering if a friend in England permits me to use his home address,can I use it on Moneyclaim as a "care of" address to be able to use the facility?

[jonni2bad]

Is the next stage in NI the same as fast track in England? If so, would you not be better off claiming the full £2k there?