Irish Banks Approach Armageddon

eeja

Hungerdunger wrote: »

I have no idea what the "English Court" has ruled. A Google search showed up only an earlier thread of yours when you were banging on about the same topic.

You may well be right, but looking at it from the bank/building societies' point of view, they enter into a clear agreement with you. They agree to pay you an attractive fixed rate of interest, knowing that your funds will stay with them until a certain date, and that you won't be bothering them during the course of that term.

If, having entered freely into that agreement you then decide not to stick to it, I can't see anything wrong with them activating the penalty to which you originally agreed. I have several fixed rate accounts. I believe I will not need the funds until their maturity dates, but if I do, I have no problem being penalised in accordance with the Ts and Cs.

Read the Unfair Contract Terms Act ....nobody can impose penalties without proper justification other than the government and its agencies .
If your kids kicks a ball into your garden can you impose a £100 fine on the parents ?
This all started with the Courts of Equity several hundred years ago when the Court of Star Chamber was overtaken . That Court insisted on total enforcement of agreements however unfair they were. Ie if you broke an insignificant clause in a lease your home for example could be forfeited.
Germany and other Mainland European countries have similar laws and insist all contracts must be fair and reasonable to be enforced ,
Thank goodness for equity and the Unfaiir Contract Terms Act !

Hungerdunger

OK, so tell me what is so unfair about "fining" you 60 or 90 days interest if you close your account before maturity.

If you are so sure that the English Court has ruled on this, can you you quote chapter and verse? As I said, a quick Google search didn't dig up anything relevant.

opinions4u

eeja wrote: »

CAVEAT : Has the English Court not ruled that such penalties charged by banks if excessive are in contravention of the Unfair Contract Terms Act.?

The penalty is fair and equitable. Simply because if the penalty didn't exist, and fixed rates available rose, everybody would pile out of their old fixed rates and in to new ones, further destabilising the banking system.

The same applies to fixed rate mortgages as rates fall.

Or mobile phone contracts.

eeja

Hungerdunger wrote: »

OK, so tell me what is so unfair about "fining" you 60 or 90 days interest if you close your account before maturity.

If you are so sure that the English Court has ruled on this, can you you quote chapter and verse? As I said, a quick Google search didn't dig up anything relevant.

Please try to distinguish between receiving compensation for loss the bank has suffered and a fine or penalty on the customer..
Of course you can always claim your loss arising from someone's breach of contract....thats called damages What you cannot do unless Parliament has specifically authorised it is to fine someone so as to benefit from a breach of contract.
The perfect example is with leases. Almost all leases contain forfeiture clauses. The lease might be worth a substantial sum. Were you to breach one of the clauses in the lease accidentally, the lessor could benefit by taking over the property. Equity ( or fairness) steps in to protect you and does not allow the lessor to make a huge windfall for a small mistake.

Now back to the case in point...an investor being paid 7% fixed wants out early.
If interest rates have dropped below 7% then the bank no longer has to pay 7% but say 5%. The bank thus is benefiting by the customer breaking the deposit and so no penalty should be charged. Had interest rates risen to say 9% then the bank loses out as it has to pay more interest so the customer should be charged to compensate the bank.
Therefore what should happen when a fixed deposit is broken is that the bank should only be allowed to recoup any loss and admin charges caused by the customer's breaking of the deposit.
This indeed is what happens in most countries when fixed deposits are broken..

masonic

When you agree to provide your funds to the bank for a fixed period, presumably the bank invests your funds accordingly. If you later renege on that agreement, might that not lead to the bank having to pull out of its investments under unfavourable circumstances, suffer a loss as a consequence and share that liability with you in the form of an interest penalty?

gunnaknow

This thread is wondering off track.

eeja

masonic wrote: »

When you agree to provide your funds to the bank for a fixed period, presumably the bank invests your funds accordingly. If you later renege on that agreement, might that not lead to the bank having to pull out of its investments under unfavourable circumstances, suffer a loss as a consequence and share that liability with you in the form of an interest penalty?

Thank you for that. Finally some one got the poInt !
It is exactly as you write ...if the bank makes a loss due to the breaking of the deposit.....sure ...it is indeed entitled to recoup that loss PLUS admin charges
BUT .....if the bank has made a profit from the breaking of the deposit then it is unconscienable to make a charge.
I am pretty certain that the Unfair Contract Terms Act would not allow a penalty in that case , hence Anglo's waiving of their penalty as their lawyers had informed them they could not get away with such behaviour.

masonic

eeja wrote: »

BUT .....if the bank has made a profit from the breaking of the deposit then it is unconscienable to make a charge.
I am pretty certain that the Unfair Contract Terms Act would not allow a penalty in that case , hence Anglo's waiving of their penalty as their lawyers had informed them they could not get away with such behaviour.

The only scenario I can envisage where this could apply is if it became impossible for Anglo to secure a return greater than the interest rate it was paying on the funds. If it was possible to generate a sufficient return, then whether or not breaking a fixed deposit would have been profitable for the bank can only be known after the fixed term had ended.

If it becomes impossible for Anglo to secure sufficient returns to cover the interest it is paying out, then it should be positively encouraging people to break these bonds. Openly removing any penalties associated with doing so would be something it would make sense for the bank to do. So, whether or not there is some legal restriction on these penalties, it would make business sense for Anglo to drop them if it became profitable to start breaking these fixed deposits.

eeja

masonic wrote: »

The only scenario I can envisage where this could apply is if it became impossible for Anglo to secure a return greater than the interest rate it was paying on the funds. If it was possible to generate a sufficient return, then whether or not breaking a fixed deposit would have been profitable for the bank can only be known after the fixed term had ended.

If it becomes impossible for Anglo to secure sufficient returns to cover the interest it is paying out, then it should be positively encouraging people to break these bonds. Openly removing any penalties associated with doing so would be something it would make sense for the bank to do. So, whether or not there is some legal restriction on these penalties, it would make business sense for Anglo to drop them if it became profitable to start breaking these fixed deposits.

Thank you for that masonic.
I agree fully with your views.
Of course nobody would want to break a fixed deposit where they were getting 7 percent for the specific period / dates in question in order to get a return of 4 percent for the same period/dates it would be uneconomic for them to do so. Getting into financial difficulties is one possible reason why a depositor would do this .But we must look at it from the bank's and the court's point of view in any case the unfairly penalised depositor were to go to court.
In fact this discussion is rather redundant as the courts are at this very moment dealing with this very same issue in relation the the bank's charging fixed pealty amounts in relation to their customers overdraft's , going into the red for one day etc etc and there is a huge amount of info and discussion in this forum and elsewhere on the subject of the banks' penalty charges on cutomers !
My point is that the principle and legal position is exactly the same namely that any penalty charge must be related to the banks' loss and not a windfall gain for the bank and a fine for the customer.

gunnaknow

AI share price down 20% this morning!