Loans Decision Reference 2021-0280

• Case Outcome: Upheld
• Reference: 2021-0280
• Date: 19 August 2021
• Year: 2021
• Subject Matter: Loans
• Conducts Complained Of: Fees & charges applied
• Finantial Sector: Banking

Decision Ref:

2021-0280

Sector:

Banking

Product / Service:

Loans

Conduct(s) complained of:

Fees & charges applied

Outcome:

Upheld

LEGALLY BINDING DECISION

OF THE FINANCIAL SERVICES AND PENSIONS OMBUDSMAN

Although the complaint is made jointly by the Complainants, the loan account the subject

of this complaint is in the sole name of the First Complainant. The First Complainant

restructured existing loan facilities pursuant to a Letter of Offer dated 23 June 2010. These

facilities were restructured again pursuant to a Letter of Offer dated 29 February 2012. The

First Complainant defaulted in his repayment obligations and surcharge interest was applied

to his loan account by the Provider. The Complainants dispute the Provider’s entitlement to

charge surcharge interest in respect of these facilities.

For the purpose of setting out the position of each party to this complaint, it is important to

note that the parties have separately indicated that the submissions made in the course of

a linked complaint, connected to the parties, apply equally to this complaint.

The Complainants’ Case

The Complainants state that the Provider applied a generic surcharge interest rate to the

First Complainant’s loan account totalling €1,677.72 including compounding. An Interest

Audit Finding dated 25 April 2018 prepared by the Complainants’ representative has also

been furnished. It is submitted that surcharge interest is not a true reflection of the cost to

the Provider nor was it negotiated. Therefore, as per the numerous legal cases on the issue

of surcharge interest, including a recent decision of the Court of Appeal, render this

provision unenforceable. The Provider is now refusing to refund the surcharge interest

despite legal precedent on the charging of this type of interest.

- 2 -

/Cont’d…

In a letter dated 17 January 2019, the Complainants’ representative has referred to three

High Court decisions: ACC Bank plc v Friends First Managed Pensions Funds Limited [2012]

IEHC 435; AIB plc v Fahy [2014] IEHC 244; and Sheehan v Breccia [2016] IEHC 67, stating

that all three deal with the issue of surcharge interest. In an email dated 3 April 2019, the

decision of the High Court in Benray v Breccia (13 August, 2015) is also referred to.

In a letter dated 7 March 2019, the Complainants’ representative explains that it has sought

to identify whether the surcharge interest applied to the loan met three criteria, as set out

in the various judgments, stating:

1. The interest rate applied was not negotiated with the First Complainant;

2. The surcharge rate applied (9% per annum) was a generic rate contained in the terms

and conditions; and

3. The surcharge interest rate did not represent a genuine pre-estimate of loss arising

from default.

It is submitted that the Provider has failed to show the interest rate applied was a genuine

pre-estimate of probable loss, and that it was negotiated with the First Complainant and not

a generic rate. In a submission dated 4 November 2019, it is submitted that the rate applied

by the Provider is significantly higher than the surcharge rates considered by the courts in

several judgments and it well above the modest uplift allowable under Irish law.

In resolution of this complaint, the Complainants want a refund of the surcharge interest

(including compounding) applied to the loan and reimbursement for all professional costs

and expenses incurred in resolving this issue.

The Provider’s Case

The Provider wrote to this Office on 19 February 2019 requesting that it decline to

investigate the linked complaint pursuant to section 52(1)(f) of the Financial Services and

Pensions Ombudsman Act 2017 (the Act) on the basis that the subject matter was of such a

degree of complexity, the courts were a more appropriate forum to determine the dispute.

The Complainants’ representative disagreed with the Provider’s position on the matter as

outlined in its letter of 7 March 2018. On the basis of the Provider’s position that the

submissions made in respect of the linked complaint are to be taken as applicable to this

complaint, I consider the same objection to have been made in respect of this complaint.

By letter dated 27 March 2019, the Provider addressed the matters arising in this complaint

under three separate headings: (i) Accord and Satisfaction; (ii) Limitations Periods; and (iii)

Specific Issues Raised by the Complainant.