Redemption Penalty - Are They Legal???

furndire

I have just realised I said the charges are illegal, SORRY, they are legal, just UNLAWFULLY High. Please have a look on https://www.consumeractiongroup.co.uk and ask the same question. There are people on there who can explain how to try to get them back and an explanation of why you should be able to get them back. I sort of got the gist of it, but can't explain well enough.

furndire

I have just been on site and found these cases, which you can only access when signed in
http://www.consumeractiongroup.co.uk/forum/search.php?searchid=408663

TEDDYRUKSPIN

Redemption fees are not illegal. Once you sign the contract you are legally binding to that contract. Its not like you can't read, is it? Its only legal if you were mislead. Sorry for being cheeky but thats the case. Thats whats fixed means!!! Applies to savings accounts also! If you don't keep that amount in that set period, you would'nt expect the discount. :j

furndire

I wish I could post the link without you having to log in to CAG, and then you will see what I am saying is correct. However, if you do it this way, but you do need to login in to CAG.
When you are on the site, click on Forums, Log in, (or register).
Scroll right down to Other Institutions,
Click on other Institutions successes and you will see several that have claimed back.
They have not been reclaimed because the mortgage has been mis-sold. Particularly look at Zootscoot v Halifax *** settled in full ***.
I feel that this is a bit like when bank charges were being claimed back, people were very skeptical, but it is happening, and at least now you have the help to do something about it.
Sorry, I am like a dog with a bone, I can't let go

Paulxo

Hi folks

Thanks for all your comments, esp furndire, I am glad to say that he is right, it is possible to claim, and win.

Here's a sample letter from Zootscoot which I've copied (sans permission) for you to get an idea what to use.

ACCOUNT NUMBER: XXXX

Request for repayment of charges

Dear XXXX,


Our request


We are writing to ask you to refund the charges which you have levied from our account in respect of late payment fees to the sum of £XXX , the sum of £XXX representing the contractual rate of interest applied by yourselves in respect of the said charges (Please find enclosed schedule of charges detailing dates, amounts and interest) and xxx in respect of a redemption fee. We now understand that such fees are unlawful at Common Law, Statute and recent consumer Regulations.

In the case of Castaneda and Others v. Clydebank Engineering and Shipbuilding Co., Ltd. (1904) 12 SLT 498 the House of Lords held that a contractual party can only recover damages for actual or liquidated losses incurred from a breach of contract as oppose to a charge which represents a penalty. This law was confirmed and upheld in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79. A charge will be held to be a penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison to the greatest loss that could conceivably be proved to have followed from the breach. A penalty clause is void in its entirety and unenforceable. (You may want to add something here relevant to how the charge they levied could not amount to a genuine pre-estimate. This will obviously vary depending on the particular product and lender)

In addition your charges appear to represent an unfair term of contract which is contrary to the Unfair Terms in Consumer Contracts Regulations 1999 (SI. 1999/2083). Our account falls within the ambit of Regulation 5 of the Unfair Terms in Consumer Contracts Regulations 1999 as we are consumers. Your charges constitute an unfair penalty under Schedule 2 of the said Regulations which provide an indicative and non-exhaustive list of terms which may be regarded as unfair. Under paragraph 1(e) of schedule 2 this specifically includes terms which have the object of requiring any consumer who fails his obligation to pay a disproportionately high sum in compensation. We would vigorously contend that this is the position regarding the fee of XXXX which you deemed fit to apply to our account.


Furthermore a fee levied requiring us to indemnify you against any commercial risk to yourself in offering us a reduced interest rate in order to attract our cutom is also contrary to s.4 Unfair Contract Terms Act 1977. We are confident that a court is likely to consider this clause to be unreasonable within s.11 of the said Act as a large commercial institution such as yourselves is in a far better placed position than us as consumers to bear the burden of the vicissitudes of business.



I would like to bring your attention to the following statement by The Office of Fair Trading:

"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."

We believe that the charges you have levied of XXXXX for late payment, return of debit fees and early redemption far exceed any true cost to yourself as a result of our breach and any genuine pre-estimate you could conceivably reach. If you disagree, then will you please demonstrate this by letting me have a full breakdown of the costs to which you have been put to as a result of our breaches, in order to reassure us that your charges really do reflect your costs.

Your responsibilities


We would draw your attention to the terms of the contract which you agreed to at the time that we took out the loan. It is an implied term of that contract that you would conduct yourselves lawfully and in a manner which complies with UK law.

We are frankly shocked that you have operated our account in this way as we had always reposed confidence in your integrity and expertise. We consider that your repeated representations that your charges are fair and reasonable are deceptive and that they have deceived us into agreeing to pay them. Your concealment of the true nature of your charges has prevented us from asserting our rights until now.


Our targets to resolve this matter

We really hope that this matter can be resolved amicably and without the need for redress to the courts. Thus we are asking that you refund the charges which have unlawfully been levied on our account. Failure to refund all the money unlawfully taken from us will result in us taking further action. We will give you 14 days to reply accepting, unconditionally, our request in principle and letting us know a date by which we will receive payment. If you do not respond, or you do not respond positively, within this time period, we shall send you a letter before action giving you a further 14 days in which to reflect. We believe that these targets are more than sufficient for a large company such as yours with dedicated staff and departments.

After that, there will be no further communication from us and we shall issue a claim at the expiry of the second deadline. Thus take this letter as 28 days written notice of our intention to issue a court claim should you not comply with my request. I hope that you will enter into a sincere dialogue with me about this matter and I am writing this letter to you on the assumption that you will prefer to do this than merely respond with standard letters and leaflets.

Yours faithfully,

XXXX


The over riding thing may be the time left on your deal however. If they charged you an redemption fee, and it was a week or a month before, it would seem unfair. But perhaps a year before is reasonable. I suppose you might as well try.

So, ADDICTED TO SAVING MONEY, get letter writing.

Further, it may similarly be shown that an Early Repayment Charge is a penalty also and therefore claimable.

Cheers guys

Paul

Noz

I don't quite understad how an ERC is related to a breach of contract - what part of the contact was breached?

furndire

Its basically because they are not allowed to make money on penalties - I think. If I had been charged a penalty such as a lot of others have, I would be certainly having a try.

Noz

that's not really what I was asking, the letter makes several references to a breach in contract, I was wondering what the breach was

regularsaver1

As said before - when you get a mortgage offer on a fixed rate & tracker, the early repayment charges will be on there. ie - 2 year fixed rate. year 1 3% penalty, year 2 2% penalty.

They can't charge more than this. if you leave during this time the fee will be charged, unless your mortgage is portable to new property depending on amount and application.

so how are they illegal if it is on the mortgage offer and the key facts illustration. the only ones that are varible are the administration fees and deeds fee - ie A&L charge £295 to leave.

If you were offered a fixed rate tomorrow of say 4.39% that tied you in for 2 years, many people may go for it. You have benefited in the rate so an early repayment charge would be payble to the lender should you leave during that time, as it costs them to borrow the money to lend to us.

alternativly - you could have rates lets say 5.5% with lower penalties, and some without.

There is no breach. The borrower is choosing to leave early and therefore they pay the charge.

regularsaver1

furndire wrote:

Its basically because they are not allowed to make money on penalties - I think. If I had been charged a penalty such as a lot of others have, I would be certainly having a try.

The penalties are covering their costs. its all in the offer though