Mortgage Exit Fees successes and failures

MarkyMarkD

Devonjem There is no logic in claiming that (for example) interest rate and mortgage product fee are price-setting terms but exit fees are not.

Nobody would claim with any hint of rationality that an up-front product fee is not price-setting, or that it has to be "fair". An exit fee, disclosed up-front, is no different in the slightest to an up-front product fee, and therefore doesn't have to be "fair" either.

I do not believe that UTCCR is intended to capture fees which are an inherent part of the mortgage, which is agreed and stated clearly up-front, and which every (or almost every) customer is liable to pay.

As the remainder of your post is written on the assumption that exit fees should be fair, there's no reason for me to answer those elements. But I wasn't raising the baked beans analogy in connection with price-fixing. Exit fees are not subject to price-fixing - they vary from £Nil (HSBC) to £295 (A&L) and many different values in between. That doesn't make £295 unfair, it just makes it different. Similarly product fees vary from £Nil to £tens of thousands, neither of which is unfair, and interest rates vary in the same way. Each is a price-setting core term, and each is not subject to a fairness test.

Devonjem

I dont know why you keep on about price setting clauses. The relevant legislation does not distinguish between price setting clauses and other clauses. The law does however treat core terms differently. What is a core term depends on the contract in question. Of course in a sale of goods contract the price is likely to be core. And as the vast majority of consumer contracts are in the nature of sale of goods or similar, then many books and articles on the subject simply say a term that deals with price (and I mean the main price for the goods - not other money clauses dealing with various eventualities) is likely to be a core term. That is right in regard to most sale of goods/similar contracts. But a mortgage contract is a different animal. In the context of a mortgage contract, an exit fee clause is simply not a core term. If a court, or indeed a group of average joes in the street, is asked to list the core terms of a mortgage contract, there is no way that the exit fee clause will appear on that list. Repayment period, interest rate and the like will be on the list, not a minor administrative clause tucked away in the small print. And forget that an exit clause deals with a money sum - that means nothing. Forget price setting terminology - it means nothing. What is important is whether the term is core. An exit fee clause is not core. It is subject to the fairness test, and rightly so. It is precisely this kind of boilerplate clause, that is not negotiated and only one side has the knowledge to justify, that the legislation is aimed at.

Regarding your third paragraph, it doesnt matter if you agree the fee upfront. That means nothing if the clause falls foul of the relevant legislation. If your argument was good (i.e. your point that the clause is agreed upfront so it must be honoured) then there would be no need for various peices of legislation, including the unfair contract terms legislation. All terms in contracts are agreed upfront, arent they, but the law still allows clauses to be avoided for various reasons. So that fact you agree a term upfront is not an end to the matter.

Finally, I suspect only bankers view an exit clause as part of the "price" of the mortgage. Bankers might look at all the cash to come in from the customer, from start to finish including arrangement fee, interest, and exit fee. Well thats all well and good from the banker's perspective, after all that is the banker's business and he wants to know what profit he is going to make. But from the customer viewpoint, an exit fee is an exit fee. That is what it is called, and the customer can legitimately expect such a fee to relate solely to the work required of the bank to end the mortgage. If the bank relies on the exit fee as part of his profit or "price", then the banker should make it clear that the exit fee does not just cover the work done to end the mortgage, but also includes a profit or price element. But of course banks dont say that. When asked, banks say the exit fee is meant to cover their charges incurred in ending the mortgage. Customers accept that because that is what the clause says - payment of the bank's charges for ending the mortgage. They dont say it includes a profit or price element. Fine - if it actually costs £300 to end a mortgage, show me. If it does not cost £300 to end the mortgage and the clause is actually meant to include more profit for the bank, then banks are lying to their customers, both in the wording of the exit clause itself and when asked by customers what the clause is all about. From the customers viewpoint, and the court's viewpoint I would suggest, an exit clause is supposed to do what it says on the tin (payment of the bank's costs of ending the mortgage) - nothing more.

I have asked the bank to "show me". You say that is blackmail. That is absolute rubbish.

MarkyMarkD

UTCCR very clearly states:

(2) In so far as it is in plain, intelligible language, no assessment shall be made of the fairness of any term which —

(a) defines the main subject matter of the contract, or

(b) concerns the adequacy of the price or remuneration, as against the goods or services sold or supplied.

You seem to be referring to the first part of this (core terms) and ignoring the second (price setting) which you mysteriously claim isn't in the legislation.

Mortgage exit fees are not a hypothetical eventuality - they are incurred in respect of almost all mortgages. That is why the exit fee is a core term (as well as a price-setting term). That is why the standard Key Facts Illustration is required to show it as prominently as any other fee. They are not hidden away in the small print.

Your argument about what the fee is called is rubbish. Mortgage application fees are not required to be equal to the cost of administering the start-up of a mortgage. Surely not even you would claim that. An exit fee is exactly the same, but at the end of the mortgage's life rather than the beginning.

Application fees and exit fee are given equal prominence on a KFI. They are equally part of the APR calculation. They are treated equally in every way legally. And consequently neither is subject to a fairness test.


I have previously argued this point but I'll do it again because you haven't dealt with it in anything you have posted.

Do you really claim that a contract which says:

£899 application fee, 5.69% fixed for 2 years, £Nil exit fee

is fair and cannot be legally challenged, but:

£599 application fee, 5.69% fixed for 2 years, £300 exit fee

is not and should be legally challenged?

That's simply stupid. I know which I'd prefer as a customer. Ah, but you'd prefer to take the second deal - which is actually cheaper overall, given time value of money - and then refuse to pay the £300. D'oh!

Devonjem

I am not ignoring the legislation you quoted. It simply is not relevant. MEAF is not price. It is not remuneration. It is an administration charge to allow the bank to recover its estimate of the costs incurred by the bank of closing the account. That is what the banks say when they are asked about it. The banks themselves, when asked, say it is to reimburse the actual cost of closing a mortgage account - or rather it is their honest reasonable estimate of those charges. (Go back to my very first message). So if the banks themselves admit that, why argue that its part of the price of a mortgage? It is not the price for anything. It is a clause that covers the bank's recovery of its costs. That is all it does - nothing else. And the banks say that clearly and publicly. The banks say the MEAF has nothing to do with price, and indeed it would be a very stupid bank that says the charge does not just cover recovery of costs incurred, but also includes a profit element.

A court would not be interested in how a bank views price or profit from a mortgage contract. A court is only interested in interpreting the words in the contract, and applying the unfair contracts legislation. The banks admit its a fee that estimates their charges of closing the account - if the fee demanded bears no reflection of the work done, then its unfair and also a lie. End of story.

The only bit (of the legislation you mention) that is relevant is the reference to core term - but even that, as I have said, does not apply to this boilerplate clause.

It does not matter that it appears in the KFI. Inclusion in the KFI means nothing. Agreement up front means nothing in the context of the application of the unfair contracts legislation.

Regarding the example you pose at the end of your message, you continue to make the mistake of approaching the issue from a business perspective, when you should be looking at it from a legal one. The court will only care about interpreting the words in the contract, and applying the fairness test. The MEAF, as I have said, covers recovery by the bank of its estimated costs of closing the account. Banks say this is the intention of the clause. If £300 does not reflect that, then the bank is lying and acting unfairly.

I dont care about the examples at the end of your message. I dont care about which deal can be challenged. I dont care about how the bank views its profit from a mortgage account. I care only about what is legal - which after all is the purpose of this discussion. And what is legal depends simply on interpreting the words in the contract, and in that regard the bank's admission that the MEAF covers only recovery of estimated costs of closing a mortgage will be the bank's downfall.

If the MEAF was meant to include profit/price, and the banks said that, then I would have no argument. But the banks say the opposite, dont they. So as they say the opposite, I have asked them to justify the fee. That is not blackmail or anything similar.

bloatylardfish

:beer: Checked the exit fees table....phoned Alliance & Leicester to enquire if I had been overcharged a couple of years ago...they said they'd look into it and get back to me.....3 days later received a cheque in the post for £100 for a 2 minute phone call!!! MONEYSAVINGEXPERTACULAR!!!

Keep up the good work...a champion for tightwads everywhere!!!

Devonjem

Missed a point.

You say the MEAF is not meant to cover just the admin cost of closing the account. That might be a bank's perspective, but that is not what they tell customers - and this is where we disagree.

Look at my first message. Look at many messages on this board where banks, in reply to queries about what the MEAF covers, say it covers their reasonable estimate of the costs involved in closing the account.

The bank has told me, and many others, very clearly that the MEAF just covers their admin costs.

I expect the bank views it differently and includes a profit element, but that is not what they say to customers - and as I said in the last message - that will be the bank's downfall on this point. Banks have lied to customers for years on this issue and have only recently been called to account.

If the bank does not want to admit TO THE CUSTOMER that there is a profit element in the MEAF, then the bank has no choice but to argue that the MEAF covers only reimbursement of actual costs. And if the MEAF is £300, the bank will never succeed in arguing that such a fee is fair. If the bank stopped lying and said the MEAF includes profit, then there would be no argument.

tiredredhead

Last wednesday i sent off a letter to Nationwide re exit fee from 2 years ago and Bristol and West re exit fee 5 years ago Sat morning received cheque for £90 from Nationwide. Nothing from Bristol and West yet but early days yet.

Steve_xx

tiredredhead wrote: »

Last wednesday i sent off a letter to Nationwide re exit fee from 2 years ago and Bristol and West re exit fee 5 years ago Sat morning received cheque for £90 from Nationwide. Nothing from Bristol and West yet but early days yet.

Well you should hang your head in shame. You must feel really guilty at taking money from the hapless banks! I'm just kidding you.

Did you know about these charges before you took out the deal?

MarkyMarkD

Devonjem There is no general requirement for companies to state that the price they charge for something includes an element of profit. Indeed, that is the general presumption as businesses exist to make profit.

Whilst I accept that some lenders have, on some occasions, claimed that exit fees are to cover the costs they incur on redemption, unless the contract states this then it's irrelevant. There is no such presumption simply because it is called an exit fee.

You might not care for my examples, but you clearly can't explain why something which is called an exit fee should not include profit, but something which is called a product fee can include profit.

Devonjem

MARKYMARKD: Wrong again. So very wrong.

Banks say the MEAF is to cover recovery of their administrative costs of closing a mortgage. All of the lenders I have used said this to me, and many others say the same - read the messages on this board.

Further, the FSA say the same thing. Read the FSA's statement of good practice on MEAFs dated January 2007. The FSA says:

"a 'MEAF term' is a provision in a contract between a lender and a customer that obliges the customer to pay a sum for the costs of administration services which a lender incurs when a customer exits a mortgage contract."

Whilst that is certainly not conclusive, the banks say the same thing - AND THAT IS CONCLUSIVE. You see - its an administration cost and has absolutly nothing to do with profit/price. And if it has nothing to do with profit/price, your whole argument in nonsense, isnt it.

Remember my first message on this thread - my bank said to me that the fee covers administrative charges - dont forget that.

Now lets look at what else the FSA says in the statement (a statement that the banks themselves are keen to say they agree with and follow).

The FSA says this:

"such costs [MEAF] may include deed release fees, Land Registry charges, staff processing cost, and a reasonable proportion of general overheads. However, we do not believe such costs could legitimately include the following (though this is not an exhaustive list):

• costs of arranging the mortgage;
• costs of running the mortgage account;
• initial costs not recovered if the loan does not run to full term, such as the
marketing cost of obtaining new customers;
• loss of profit on lending;
• loss of interest while the loan is reassigned; and

• costs of marketing for customer retention."

You see? Price/profit is not MEAF. The comments in your last message about presumptions of this and that are nonsense. MEAF is an admin charge and the banks and the FSA say so. If that is what the banks and FSA say, what court is going to imply any contrary presumption? Utter nonsense.

If the MEAF is not price/profit, as the banks and the FSA say very clearly, then the UTCCR clauses you rely on do not apply - do they. So the MEAF IS subject to the fairness test, isnt it. No mention of your price-setting argument in the FSA note, is there.

What else does the FSA say in this guidance note? Well well well, the FSA say this:

"In our view, if a MEAF term is drafted to enable the lender to recover the cost of the administration services which a lender provides when a customer exits the mortgage, the lender should ensure that the MEAF represents in fact the cost of the lender's administration services. A failure to do so is also likely to be a breach of contract."

The words in red are the FSA's highlights, not mine. Now whilst the FSA's comments on the law are certainly not definitive, most will agree there is a good chance they are correct. What does the FSA say - they say if the bank demands a fee that is not commensurate with the work done to close the mortgage, then that is a breach of contract.

THAT COULD NOT BE ANY CLEARER, AND THAT IS EXACTLY WHAT I HAVE BEEN SAYING TO YOU AND MY BANK. SO WHERE IS THE BLACKMAIL? I REMIND YOU AGAIN - MY BANK SAID TO ME THAT THE MEAF IS AN ADMINISTRATIVE FEE.

By the way, I do not think it is a breach of contract as the FSA said, but rather the MEAF clause would be unenforceable due to its unfairness.

As for your suggestion that I cannot answer your comments about arrangement fees - this is a forum about MEAFs, isnt it? If you want to discuss arrangement fees then go to another board. An arrangement fee is an arrangment fee, and an exit fee is an exit fee. Two completely different things, as the banks clearly acknowledge.

My sole purpose in this thread is to answer you and others who have accused me of blackmailing banks by merely asking them to breakdown their MEAF charge. I am not here to talk about arrangement fees.

Conclusion:

1. my bank has said the MEAF covers only admin fees (you now admit some banks say this - well as I said in my very first message, mine said this to me).
2. given the bank said that, I asked the bank to breakdown its fee.
3. if the fee bears no relation to the work done, the MEAF clause is unenforceable (this is the law under UTCCR, and the FSA say the same thing).
4. you say my breakdown request is blackmail or something similar.
5. you are wrong to accuse me, in the circumstances as laid out in my first message, of blackmail and should not make such libellous accusations.