Penalties for overpayments - Unenforeable

jamesd

Bedsit_Bob wrote: »

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?

When you overpay you're due a rebate on the remaining amount you'd be charged. The 58 days reduces the value of the rebate. If using a lender that apples the 58 days rule you wouldn't be charged more, just the amounts of the remaining normal payments until the end of the loan term.

simpson_77

a little more insight, I'm sure I have a case here to not pay the penalty of 58 days interest. This is taken directly from the CCA regulations guidance for implementing the CCA:

Compensation payable under section 95A – full and partial early
settlement

14.17 Under new section 95A39, creditors are allowed to claim compensation
in certain circumstances for costs incurred as a result of full or partial early
settlement. This is subject to certain specific conditions and to an overarching
obligation that the compensation must be fair and objectively justified.

14.18 Compensation can only be claimed if the early settlement is made
during a period for which the credit agreement provides for the rate of interest
on the credit to be fixed. It cannot be claimed where the agreement allows for
the rate to be varied by the creditor. If there is an initial fixed-rate period,
compensation can be claimed only if early settlement occurs during that
period.

14.19 Compensation can only be claimed if the creditor has incurred a cost
as a direct result of the early settlement being made at that particular time. In
other words, the cost must be directly linked to the early settlement happening
at that time rather than at a different time or rather than resulting indirectly
from it. The creditor would need to be able to demonstrate this if challenged.

14.20 If the creditor has incurred a cost but that cost would have been
incurred regardless of when the early settlement was made, he cannot claim
compensation for it. For example, the creditor cannot claim compensation
under section 95A for the administrative cost of processing the early
settlement as this cost would have been incurred regardless of when the early
settlement was made. However, the creditor could claim compensation if
interest rates at the time of early settlement were lower than the rate in the
agreement and the creditor had to re-lend or invest the money at a lower rate.

14.21 In addition, compensation may be claimed only where the following
conditions are met:
 The amount of a single early settlement exceeds £8,000, or the total of
early settlements in any 12 month period exceeds £8,000. In the latter
case, compensation can only be claimed when the "trigger point" of
£8,000 has been passed. It can be claimed on the whole of the
payment that passes the trigger point and any subsequent payments
within the period, but not on payments made before the trigger point
has been reached. So, if the borrower makes a single repayment
of £9,000, the section 95A compensation can be claimed on the whole
amount. If the borrower makes multiple repayments of 4 x £2,000 and
1 x £1,000 (in that order), compensation can only be claimed on the
£1,000. If the borrower makes multiple repayments of 3 x £3,000,
compensation can be claimed on the third payment (because that is the
one that activates the trigger).
 The early settlement is not made to repay an overdraft on a current
account.
 The early settlement is not made under a PPI policy, whether provided
by the creditor or by a third party. This means a policy designed to
meet repayments on a specific debt or debts more generally (e.g. in the
event of loss of income through illness or unemployment) rather than a
policy designed to provide a lump sum to be used as the policy holder
sees fit.

14.22 Under section 95A(3), the compensation must be fair and objectively
justified. This is an over-arching obligation, which goes beyond merely
satisfying the above conditions. The creditor will need to ensure that he can
demonstrate, if challenged, that the compensation is fair and objectively
justified in the particular circumstances.

14.23 Finally, the amount of the compensation claimed cannot exceed certain
limits set in sections 95A(3)(c) and 95A(4). If the agreement has more than a
year to run after the early settlement is made, the amount of the
compensation must not exceed 1% of the amount repaid early. If the
agreement has a year or less to run, the compensation must not exceed 0.5%
of the amount repaid early.

14.24 The creditor must include information in both the PCI and the
agreement itself about his right to claim this compensation and the way in
which it will be determined.

14.25 Section 95A applies only where the borrower gives notice of early
settlement on or after 1 February 2011 and where the agreement has been
entered into on or after 11 June 2010.

jamesd

simpson_77 wrote: »

a little more insight, I'm sure I have a case here to not pay the penalty of 58 days interest. This is taken directly from the CCA regulations guidance for implementing the CCA

It's entirely irrelevant because it is not about the 58 days of interest in section 94, it's about the compensation part in section 95A.

The key insight that you are missing is that the compensation for actual expenses is not governed by the same rules as the 58 days. They are different parts of the Act with different rules.

If you try to use the 95A rules to object to a 94 interest rebate reduction the FOS will either reject your application or rule against you.

simpson_77

OK, so what part of this am i getting wrong? looking at section 94 and 95(a) It doesn't say the creditor can charge a penalty. Is the 58 days interest not a penalty?

Maybe i'm wrong on this, but I will give it a go

jamesd

simpson_77 wrote: »

OK, so what part of this am i getting wrong? looking at section 94 and 95(a) It doesn't say the creditor can charge a penalty. Is the 58 days interest not a penalty?

Neither of them is classed as a penalty. 95A is partial recovery of costs and the costs have to be identified. 95 (for the 94 repayment) is a reduced rebate amount for early settlement (repayment).

Nearlyold

simpson_77

All is explained here:-
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/34687/12-1264-consumer-credit-directive-guidance.pdf

In particular paragraphs 14.39 and 14.40 on page 67
In simple terms where a request is made to make an early full or partial settlement the settlement date (used in the rebate calculation) is set by default at 28 days after the request date, furthermore the lender can set that date a further 30 days later should they wish to (making 58 days in total)

simpson_77

uuummm, i see your point,:( but on page 61 and 63 it reads differently.

now confused :cool:

Nearlyold

simpson_77 wrote: »

uuummm, i see your point,:( but on page 61 and 63 it reads differently.

now confused :cool:

There is nothing to get confused about


Page 61 & 63 are in reference to 95A which allows for an additional charge to be made should the lender wish to do so subject to the conditions you have previously alluded to - this has no bearing on the 28/58 day interest charge which arises from the rebate calculation under the still existing early settlement regulations. In a nutshell nothing in 95A is intended to derogate the early settlement calculation rules used in 94


When a customer requests a full or partial early settlement the lender has to calculate a rebate of interest charges that would have otherwise been charged if the loan had continued as before. In calculating this rebate the assumed date of the full or partial early settlement is 28 days after the request or 58 days after (at the lenders discretion) if the loan has more than 12 months to run.


The customer then has 28 or 58 days in which to make the payment, if they make the payment earlier than the 28 or 58 day deadline the lender does not have to adjust the rebate of interest calculation already made, the customer is simply giving the lender some free working capital for a period.


NB The lender is always free to offer more generous terms than specified in the early settlement regulations - as some do of course