Corporatism Generali Style

Degenerate

Thrugelmir wrote: »

So the N&P offer their depositors low interest rates on their savings. Causing a mass withdrawl of funds from the society. Then how does the N&P funds its mortgage book. It cannot lend money that it doesn't have.

Indeed, and this is why I suspect they are in serious trouble.

The N&P like any financial institution is accountable to the FSA under capital requirement regulations. So "we can do as we like" clause is not unfair if it protects the society.

It's entirely unfair for one party to attempt to use a catch-all clause to rewrite the terms of a contract in their favour. It won't stand up in court either. The clause is too vague, people were sold a lifetime tracker with no floor and that's what they're entitled to get.

Its not as if the proposed increase in interest rates is excessive or uncompetitive.

That's irrelevant, it's a breach of contract.

If the N&P were to go under. The cost of levies imposed by the FSA would increase further and be burdened onto other mortgage holders with other lenders.

No arguments there. Seen plenty of this over the last year or so.

I'm not suggesting what they are doing is ethical.

I don't think it's legal either.

But survival requires difficult decisions.

If this really is a "survival" decision, they're already toast.

tomterm8

Degenerate wrote: »

I don't think it's legal either.
.

I wonder under what legal basis you think it is unlawful? It sounds lawful to me.

Degenerate

tomterm8 wrote: »

I wonder under what legal basis you think it is unlawful? It sounds lawful to me.

Firstly, are we talking about the same thing? For clarity, here is the clause that the N&P are invoking:

For the avoidance of doubt the Borrower hereby declares that it is noted that the Society may at any time (but subject to compliance with the procedural requirements set out herein and subject to the provision of the Act where the Agreement is a Regulated Agreement and subject to the terms of the Agreement) during the subsistence of the Agreement increase the Interest Rate or any element thereof at its absolute discretion without reference to any conditions or restrictions.
Where;
The “Act” means the Consumer Credit Act 1974
The “Agreement” means the entire agreement regarding the Loan (including without limitation the terms set out in any Facility Offer) together with the Mortgage.

And having read and digested it again, I'll backtrack on my previous statements, it's not a "We can do what we want if we deem it necessary." clause. It says they can increase the interest rate subject to the terms of the agreement. With the agreement being for a lifetime base rate tracker, I think they're completely in error to think they can invoke the clause at all.

My original point was simply that any contract that has a clause deliberately written in legalese and buried far in the small print that entitles one of the parties to basically tear up the contract by changing the fundamental basis of the whole agreement is likely to be found unfair by a court. And rightly so.

tomterm8

Degenerate wrote: »

Firstly, are we talking about the same thing? For clarity, here is the clause that the N&P are invoking:


And having read and digested it again, I'll backtrack on my previous statements, it's not a "We can do what we want if we deem it necessary." clause. It says they can increase the interest rate subject to the terms of the agreement. With the agreement being for a lifetime base rate tracker, I think they're completely in error to think they can invoke the clause at all.

My original point was simply that any contract that has a clause deliberately written in legalese and buried far in the small print that entitles one of the parties to basically tear up the contract by changing the fundamental basis of the whole agreement is likely to be found unfair by a court. And rightly so.

My question though was under what legal powers you think the court has the right to consider whether the term is unfair? I simply don't think it falls within the courts powers to alter the agreement.

Degenerate

tomterm8 wrote: »

My question though was under what legal powers you think the court has the right to consider whether the term is unfair? I simply don't think it falls within the courts powers to alter the agreement.

It is well within the powers of courts to rule contract terms unfair and unenforceable. It happen quite a lot. There is a specific Law - the Unfair Contract Terms Act 1977.

tomterm8

Degenerate wrote: »

It is well within the powers of courts to rule contract terms unfair and unenforceable. It happen quite a lot. There is a specific Law - the Unfair Contract Terms Act 1977.

Broadly speaking, in order for a power to be established under the Unfair Contracts Terms Act 1977, it needs to fall within a explicit section of the act. It's not clear to me that any section of the act allows a change in the price of a contract to be considered unfair by the courts. The nearest section is s3... which covers rendering a contractual performance substantially different to that which was reasonably expected. Unfortunatly, this appears to explicitly refer only to the performance by the business not the consumer, and in any case the the Unfair Contracts Terms Act 1977 appears to exclude mortgages from contemplation under s3, in schedule 1 paragraph 1(b).

Degenerate

tomterm8 wrote: »

Broadly speaking, in order for a power to be established under the Unfair Contracts Terms Act 1977, it needs to fall within a explicit section of the act. It's not clear to me that any section of the act allows a change in the price of a contract to be considered unfair by the courts.

This is not a "change in price of a contract". The contract specifically allows the mortgage rate to vary - that's the very nature of a tracker mortgage. What this is is a breach of contract. The contract was for the rate to track a certain amount above the base rate, the N&P are attempting to renege on that.

The nearest section is s3... which covers rendering a contractual performance substantially different to that which was reasonably expected. Unfortunatly, this appears to explicitly refer only to the performance by the business not the consumer,

Why unfortunately? It is indeed the business rendering a contractual performance different to that reasonably expected. The reasonable expectation when taking out a lifetime base rate tracker mortgage at +1.15% with no floor, is that it will track the base rate at +1.15% for its lifetime.

Breaking down s3, irrelevant clauses snipped and my annotations in bold:

(1) This section applies as between contracting parties where one of them deals as consumer[mortgage customer] or on the other’s[mortgage provider] written standard terms of business.

(2) As against that party[mortgage customer], the other[mortgage provider] cannot by reference to any contract term—

(b) claim to be entitled—

(i) to render a contractual performance substantially different from that which was reasonably expected of him,[such as the reasonable expectation that a lifetime base rate+1.15% tracker with no floor, as agreed at the outset, will remain as such.]

except in so far as (in any of the cases mentioned above in this subsection) the contract term satisfies the requirement of reasonableness.

and in any case the the Unfair Contracts Terms Act 1977 appears to exclude mortgages from contemplation under s3, in schedule 1 paragraph 1(b).

(b) any contract so far as it relates to the creation or transfer of an interest in land, or to the termination of such an interest, whether by extinction, merger, surrender, forfeiture or otherwise;


To me that would appear to be about conveyancing, not mortgages.

tomterm8

Degenerate wrote: »

This is not a "change in price of a contract". The contract specifically allows the mortgage rate to vary - that's the very nature of a tracker mortgage. What this is is a breach of contract. The contract was for the rate to track a certain amount above the base rate, the N&P are attempting to renege on that.

Why unfortunately? It is indeed the business rendering a contractual performance different to that reasonably expected. The reasonable expectation when taking out a lifetime base rate tracker mortgage at +1.15% with no floor, is that it will track the base rate at +1.15% for its lifetime.

Breaking down s3, irrelevant clauses snipped and my annotations in bold:

(1) This section applies as between contracting parties where one of them deals as consumer[mortgage customer] or on the other’s[mortgage provider] written standard terms of business.

(2) As against that party[mortgage customer], the other[mortgage provider] cannot by reference to any contract term—

(b) claim to be entitled—

(i) to render a contractual performance substantially different from that which was reasonably expected of him,[such as the reasonable expectation that a lifetime base rate+1.15% tracker with no floor, as agreed at the outset, will remain as such.]

except in so far as (in any of the cases mentioned above in this subsection) the contract term satisfies the requirement of reasonableness.

(b) any contract so far as it relates to the creation or transfer of an interest in land, or to the termination of such an interest, whether by extinction, merger, surrender, forfeiture or otherwise;


To me that would appear to be about conveyancing, not mortgages.

I guess its a matter of construction; I would interpet s3 as talking about the contractual performance of the mortgage lender. I.e. the mortgage lender couldn't just decide to refuse to lend money. Whereas, this is a change in price, and therefore a change in the contractual obligations of the customer.

In any case, I suspect the case would be much more complex than you would expect, as the Unfair Terms in Contacts act has to be interpreted in line with european law, particularly the Unfair Terms in Consumer Contracts Directive.

I've been investigating, and I think there may be a very strong case under s150 of the Financial Services and Markets Act 2000, since the communication in this case is almost certain to be misleading (i.e. the consumer believed that the tracking rate was fixed), and hence a breach of the rules in the FSA handbook. But, its a question for the lawyers, and too complex for me.

Generali

Degenerate wrote: »

Cobblers.

No it's not. In this case, the Government has given, it seems, preferential access to cheap funds to large banks making it tough for small banks to compete.

Wookster

Generali wrote: »

No it's not. In this case, the Government has given, it seems, preferential access to cheap funds to large banks making it tough for small banks to compete.

That is going to stop soon, very soon after the election I imagine.