Santander are now refunding interest payments on Cahoot flexible loan's

farmer1971

Power to vary interest rates

Like Mr and Mrs XXX, I have noted that the conditions booklet Cahoot initially provided is dated June 2006, almost two years after they took out the loan. However, the bank has now provided a copy annotated “CAH1 0037 Feb 014”, which I am satisfied applied when the XXXs entered into the agreement. Having reviewed those terms and conditions I am satisfied that they do provide – albeit under clause 12.2, rather than 13.2 – for Cahoot to vary the interest rate applied to the account.
The bank did not have a general discretion to change the interest rate at will; it could only do so from time to time to the extent permitted by Section 12.2. This section sets out a list of reasons why the rate might be changed:

farmer1971

“We may change our interest rate or our day to day charges at any time for one or more of the following reasons:

a.To maintain the competiveness of our business as a whole, taking into account
actual or expected market conditions;

b.To reflect actual or expected changes in money market interest rates;

c.To ensure that our business is run prudently…”


As Mr and Mrs XXX have correctly identified, in recent years the Bank of England has reduced its base lending rate. Between mid-2006 and the end of 2007, however – when most of the Cahoot rate increases took place – the Bank of England base rate was actually rising, indicating that money market interest rates were rising too. I take Mr and Mrs XXX’s point that their rate has not fallen since, while the base rate has. But the account terms allowed Cahoot to change the interest rate to reflect market changes; market changes go wider than simply changes in the Bank of England base rate and would include, for example, changes to the costs of funding for lenders. And I am not persuaded that there was anything in the contract that said or implied that the interest rate would track an external marker such as Bank of England base rate.
Cahoot has gone into some detail in its explanation of the reasons leading to its decision to increase the interest rate on its flexible loan book. It is not necessary to repeat that information in full here – Mr and Mrs XXX have received a copy of it – but I note that it has mentioned provision for increasing bad debt and maintaining profitability, which it considers to be covered by the provisions that enable it to vary the rate to maintain the competitiveness of its business.
I can see that consumers might interpret the use of the term ‘competitiveness’ in 12.2 (a) to mean that the rate was likely to keep pace with those offered by other providers, rather than that it would be varied to maintain profitability for the lender. Equally, I can see that the provision is open to a different interpretation in keeping with that which Cahoot has put forward.
What Cahoot seems, essentially, to be saying is that it increased the rate because the flexible loan as a whole was not profitable – that is, that these changes were required to ensure its business was run prudently. If that is the case, then the provisions of 12.2 (c) would, arguably,allow Cahoot to make the interest variations it has. Taken overall, then, I am not persuaded that Cahoot was not entitled to make these changes to Mr and Mrs XXX’s interest rate.

farmer1971

I am not in a position to investigate the structural profitability of Cahoot and the wider Santander group, or to assess how the specific interest rate changes made on Mr and Mrs XXX’s account were assessed in relation to the overall profitability of the flexible loan product and how that related to the prudent running of the business.
That is an assessment more suitable for the Financial Services Authority, which provides prudential regulation of Cahoot. Given that, I would also propose that the ombudsman service notify the Financial Services Authority of Mr and Mrs XXX’s complaint and of the arguments that Cahoot has put forward for its variation of the interest rates on the flexible loan product.

Notification and Removal of the Additional Borrowing Facility

I can readily appreciate that Mr and Mrs XXX wished to continue to have the flexible borrowing facility on the account, which had been an important factor in their decision to take the account in the first place. However, both the agreement and the terms and conditions said that the loan limit would be what Cahoot said it was going to be, ‘from time to time’.
 
Cahoot was not bound to continue with that arrangement for as long as Mr and Mrs XXX wanted it. The nature of the agreement was open-ended; that is, Cahoot would provide the flexible loan facility for as long as both parties were prepared to continue with this arrangement.
The contract provided for either party to terminate the agreement within the terms of the contract, simply by giving written notice. The account terms said Cahoot would give at least 30 days’ notice by email, secure message on the customer’s online access and on its website.
Cahoot says that, prior to the interest rate changes, it sent a secure online message to Mr and Mrs XXX giving them 30 days’ notice of each change. It says it told them what options were open to them, though Mr and Mrs XXX have said that they did not receive these notifications.
However, their online account was still active and access was not removed until some time after the last rate change. On balance, I see no reason why they would not have been included in the electronic mailing. I am satisfied that Mr and Mrs XXX were given the notice they were entitled to.

farmer1971

Having had 30 days’ notice of the rate changes, Mr and Mrs XXX’s options were either to move their borrowing to a different product with Cahoot at a better rate or to refinance the loan with another lender.
The loan terms placed no restrictions (such as repayment charges) on their
repaying the balance, should they wish to do that. I have carefully considered Mr and Mrs XXX’s explanations of why they did not find either of those options attractive or convenient for their circumstances, but I do not consider that this meant Cahoot was obliged to continue to provide a flexible loan facility.

Credit file

Mr and Mrs XXX say that the information on their credit files shows that they have available credit on the loan, when they do not. Santander says that it is unable to report a flexible loan such as this one through a standard loan reporting facility. I agree with Mr and Mrs XXX that the information is not accurate – if the line of credit from Santander is not actually available to them, then the credit reference information that Santander registers should not say that it is.
This is no longer a ‘flexible loan’ and so should not be registered as though it were.
I consider that Santander should amend the credit reference information to reflect the true position going forward. I cannot see, however, that the historical registration has caused Mr and Mrs XXX any loss or inconvenience such as to warrant a payment of compensation.

The End!

Duncton

Just a couple of immediate thoughts:

• What was the basis of any previous adjudications against Santander (there have been some?).
• Santander set a precendent by giving "good will" payments in late 2011, early 2012. This surely should be seen by the FOS as an acceptance of fault. If not why would they have offered the refunds?

VanGoghsEarhere

Hi farmer71
I'm sorry to see that the adjudication did not find in your favour. However, (and I think I speak for everyone in this thread) I appreciate the time and effort you have taken to post your response from the FOS. We now know what to expect. Apart from the questions posed by Dunction above, I see that there is no mention of the fact that Santander statements mention one interest rate when they are in fact charging a higher interest rate in the majority, if not all, cases.

kenny_straw

What I would love to see is a copy of an adjudicators report that ruled in favour of the claimant.(From late 2011\early 2012) I find it hard to believe how two seemingly identical complaints can have differerent rulings under the same body.
I would also question Santanders statement that the product was losing them money - did they provide evidence of this?
Since 2008 Governments have been making capital available to banks at rock bottom prices , as well as the base rate being at record lows, so without question the exorbitant rate rises should have came down significantly in the past few years. I havent heard one instance of a rate reduction since Santander took over.
You only have to have read a paper or watched the news in the past four years to know that Banks are scum that will shaft the consumer at every turn for profit, you expect that - but when someone like the FOS whom you rely on cant even get their story straight its rather annoying and frustrating to say the least.

MHO_2

Does anyone know how to work out the actual percentage rate on the flexiloan?

Jakeface

Hi, would you be able to help me with my app to FOS as I have just got a refusal letter.

Thanks

Denza

farmer1971 wrote: »

I can see that consumers might interpret the use of the term ‘competitiveness’ in 12.2 (a) to mean that the rate was likely to keep pace with those offered by other providers, rather than that it would be varied to maintain profitability for the lender. Equally, I can see that the provision is open to a different interpretation in keeping with that which Cahoot has put forward.

Essentially it looks like the adjudicator has accepted that the T&Cs are not clear and are open to (mis)interpretation. With that in mind I am therefore surprised that they have then ruled entirely in favour of Cahoot as opposed to brokering a settlement.

Cahoot, after all, will still have enjoyed their pound of flesh at the agreed interest rate plus or minus base rate amendments (which I consider wholly justified).

To be honest, the clause in question struck me as an indication that Cahoot could DECREASE the APR in order to remain competitive as opposed INCREASE it.

Increasing costs to existing and potential borrowers is in fact an uncompetitive exercise with respect to retaining or gaining customers and hence revenue stream.

I personally think that Cahoot are confusing competitiveness with profitability and the two are not the same. Of course "confusing" is being too kind, what they are actually doing is exploiting the semantic void in their own T&Cs at the expense of existing customers.

Staggered that the FOS in this instance have not been willing or able to determine this for themselves and very disappointed with their apparent lack of understanding and clear bankside bias.

What they appear to be saying in effect is that, with regard to the T&Cs, Cahoot would be perfectly within their rights to increase the APR exponentially should they so desire.

So taking an extreme theoretical example; I go to the FOS and tell then that I find my 1000% APR (non)flexible loan unfair having signed up for a 7% fully flexible loan.

I am pretty certain they would agree (Jesus help us if not!).

The justification however remains the same for 20% or 1000% and as above has been recently ratified by the FOS.

So where would they draw the line?