Penalties for overpayments - Unenforeable

simpson_77

Ok,

Following on from my other post. I have spoken to the FCA and they agree that Section 95a of the CCA implies any personal loan taken out after 1/2/2011 should incur no penalty for any overpayment (upto £8kpa?). If your T&C's don't reflect this then they are not complying to the CCA and you have a right of redress through an unfair contract term in relation to section 95a of the CCA. this would need to be taken up with the FOS once you have exhausted your lenders complaints process.

Read more about it here:

https://www.lovemoney.com/news/15509/overpay-your-loan-without-penalty

My question now is if the Agreement I signed doesn't comply with the CCA, what is the redress?

jellie

simpson_77 wrote: »

Ok,

Following on from my other post. I have spoken to the FCA and they agree that Section 95a of the CCA implies any personal loan taken out after 1/2/2011 should incur no penalty for any overpayment (upto £8kpa?). If your T&C's don't reflect this then they are not complying to the CCA and you have a right of redress through an unfair contract term in relation to section 95a of the CCA. this would need to be taken up with the FOS once you have exhausted your lenders complaints process.

Read more about it here:

https://www.lovemoney.com/news/15509/overpay-your-loan-without-penalty

My question now is if the Agreement I signed doesn't comply with the CCA, what is the redress?

What did the FCA advise you about the redress you are entitled to, when you spoke to them?

simpson_77

I didn't ask them. I guess that would be up-to the FOS? or if the agreement is incorrect (i.e a mistake by the lender), is the interest on the loan repayable (as with NRAM a few years back)?

jamesd

Redress is any incorrect charges refunded and a little added for your time, perhaps £50. A question to customer service would probably get it explained or fixed, followed if necessary by a formal complaint and if that still doesn't work, the FOS.

Before going there, do note that there is a difference between penalties and permitted charges. You can be charged up to 58 days of interest from the time you pay and in the over £8,000 case also the permitted costs under 95a.

RBS customer service gave a good description of the state of the law here.

simpson_77

An extract from RBS customer Service:

'We decided not to utilise s95A , which means that on full or partial early settlement we continue to charge not more than 58 days' extra interest as permitted under s94 and 95 and do not supplement that by charging an additional amount under s95A (assuming we had a justifiable reason for charging such an additional amount).'

According to the FCA, the lender cannot choose to opt in or out, either its regulated or it isn't.

Plus the ruling only applies to loans started after 1st Feb 2011

Alice_Walker

simpson_77 wrote: »

An extract from RBS customer Service:

'We decided not to utilise s95A , which means that on full or partial early settlement we continue to charge not more than 58 days' extra interest as permitted under s94 and 95 and do not supplement that by charging an additional amount under s95A (assuming we had a justifiable reason for charging such an additional amount).'

According to the FCA, the lender cannot choose to opt in or out, either its regulated or it isn't.

Plus the ruling only applies to loans started after 1st Feb 2011

s.95A potentially allows them to charge more than the 58 days interest. They are not exercising their right to do so.

jamesd

simpson_77 wrote: »

According to the FCA, the lender cannot choose to opt in or out, either its regulated or it isn't.

That's right. But this doesn't mean that they have to exercise their options to make charges. They aren't forced to do that but can if they want to, up to the CCA limits. You'll find quite a lot of lenders that won't even charge the 58 days of interest even though they are allowed to.

simpson_77

When the lender can charge and what they can charge:

'You might have to compensate the lender, but only in extreme circumstances. All three of the following must happen before you have to pay a penalty:

- You have to overpay more than £8,000 in a 12-month period.
- Something must be significant about the particular time you make the early repayment. This might be that interest rates on new loans at the time are lower, so the lender gets less from re-lending the money.
- Over and above points one and two, the lender must still demonstrate the penalty is fair and objectively justified.

What penalty might you pay in those extreme circumstances?

Penalties cannot exceed 1% of the overpayment, or 0.5% if there is less than a year left to run.

[Deleted User]

jamesd wrote: »

You can be charged up to 58 days of interest from the time you pay

What happens if your loan has less that 58 days left to run?

Can paying it off early, mean you finish up paying more, in total, than the original amount payable?

Nearlyold

simpson_77 wrote: »

When the lender can charge and what they can charge:

'You might have to compensate the lender, but only in extreme circumstances. All three of the following must happen before you have to pay a penalty:

- You have to overpay more than £8,000 in a 12-month period.
- Something must be significant about the particular time you make the early repayment. This might be that interest rates on new loans at the time are lower, so the lender gets less from re-lending the money.
- Over and above points one and two, the lender must still demonstrate the penalty is fair and objectively justified.

What penalty might you pay in those extreme circumstances?

Penalties cannot exceed 1% of the overpayment, or 0.5% if there is less than a year left to run.

Think there may be confusion between the interest the lender can still charge when calculating the rebate on early settlement under section 94 (ie effectively reducing the rebate by up to 28/58 days interest as per the early settlement regulations) and a further penalty a lender might wish to apply under section 95A - my understanding is that they are different things.

jamesd

simpson_77 wrote: »

When the lender can charge and what they can charge

And they can also charge the 58 days of interest, under a different section of the CCA from the one that text is describing. You're quoting from an incomplete source but may not yet have realised that it is incomplete. Not that anything it's describing is a "penalty", it's all permitted charges.