Are Early Settlement Fees Illegal Now?

Thingy

I work for a financial services company. I'm more IT than actual finance, so I don't know rules and regs inside out. But about a year ago, I know that the company stopped all early settlement penalties on loans because of a change in regulations. Now they just charge the interest that's accrued so far at the point of settlement.

So anyway, about a month ago I bought a kitchen, using finance that the kitchen company arranged. Now the APR was pretty high on the loan, but when we were talking with the representative, he said how early settlement fees were abolished now, so we could get a low interest loan and pay the kitchen loan off with no penalty. This reminded me what I'd heard in work, so I thought that was the case.

Sounded good to us, so that's what we did. Anyway just called the finance company to pay off the loan, and not only do you pay the interest that's accrued, but also one months interest as penalty.

I checked the credit agreement, and it does state about the penalty, I really should have read the fine print.

So my question is basically are these early settlement fees still legal?

Also in a sense, even though I did sign the credit agreement I was mis-sold the loan by the representative. It's my word (and my wife's) against his, but I was definately mis sold it.

I've held of settling for today while I try to answer this question, but I don't want to leave it too long as it's just accruing interest at the moment.

Any advice would be much appreciated.

regularsaver1

The thing is - its on the agreement that you signed

grumbler

Charges that many people successfully claim back now are in the signed agreements too. However, these are punitive charges that generally have nothing to do with early settlment fees.

mrcow

Hi Thingy,

I think that whoever sold you the loan may have been getting slightly confused.

The Rule of 78 interest method was stopped last year, but this had nothing to do with early settlement fees. It did however use to hit hard if a loan was settled early.

Lots of loans still have a one month's interest charge to pay if you settle early. Examples are AA, Cahoot, Direct Line, Abbey, A&L, Marbles etc etc.

If you want to pursue with a complaint as you feel that you were missold (but as you admit yourself, you should have read the T&Cs yourself) then fair enough. How much interest are we talking here over one month?

Gorgeous_George

I think it's reasonable to charge something to end a loan agreement early. How much is reasonable is questionable.

I suppose a fixed amount to administer the additional burden and a %age of the amount outstanding to cover losses while the money is redistributed/invested may be reasonable.

Personally, I'm not entirely comfortable with the claims against banks. I think changing the ruiles should not be backdated but that's another argument. This case has much less conviction than those cases.

Now, let's look at interest penalties on high interest earning savings. Maybe the 90 days interest penalty on a 90-day notice account is illegal.

There's another sales scam that I've heard of. You ask for a loan of £5K. The lender's rep (salesperson) suggests you borrow £20K, because the APR is lower, and repay without penalty the £15K. You end up with a loan of £5K at the lower APR. Of course, the salesperson has increased their sales and you have gained little if anything.



GG

MarkyMarkD

GG

Given the "scam" you describe, you would have gained a lot - the lower APR on the amount you originally wanted to borrow.

Thingy

mrcow wrote:

If you want to pursue with a complaint as you feel that you were missold (but as you admit yourself, you should have read the T&Cs yourself) then fair enough. How much interest are we talking here over one month?

Thanks for the input MrCow, and everyone else. We're talking about £300 or so. Not a huge amount, but enough that it stings to lose it.

Thanks evryone for the advice. I'll have a think about whether to pursue it or not.

Cheers!