Mortgage Decision Reference 2022-0277

• Case Outcome: Rejected
• Reference: 2022-0277
• Date: 22 August 2022
• Year: 2022
• Subject Matter: Mortgage
• Finantial Sector: Banking
• Conducts Complained Of: Application of interest rate

Decision Ref:

2022-0277

Sector:

Banking

Product / Service:

Mortgage

Conduct(s) complained of:

Application of interest rate

Outcome:

Rejected

LEGALLY BINDING DECISION OF THE FINANCIAL SERVICES AND PENSIONS OMBUDSMAN

This complaint arises from the interest rate applicable to the Complainants’ mortgage loan

account which the Complainants hold with the Provider. The complaint concerns the

contention that a clause of the agreement providing for a variable rate of interest is an unfair

term within the meaning of the European Communities (Unfair Terms in Consumer

Contracts) Regulations 1995 (UTCC Regs).

As the complaint was first received by the Financial Services Ombudsman’s Bureau (“FSOB”)

in 2015, reference to “this Office” should be taken to include both the FSPO and its

predecessor, the FSOB.

The Complainants’ Case

The Complainants entered into a mortgage loan agreement with the Provider in and around

12th January 2004. The Complainants assert that they agreed with the Provider to switch

their interest rate from a tracker rate to a standard variable rate in and around February

2006. The Complainants also switched from annuity repayments to interest only repayments

at that time, and at the time of making the complaint, were repaying interest only, on their

mortgage loan.

The Complainants contend that the Provider is not entitled to charge any interest rate it

chooses. The Complainants object that their mortgage interest rates have not reduced while

worldwide interest rates have dropped to all-time lows. The Complainants contend that the

Provider is in breach of the UTCC Regs. In April 2015, they stated that the interest rate

applied to their mortgage account was 5.965% per annum.

- 2 -

/Cont’d…

The Complainants argued that they were making monthly loan repayments of €397.49 by

standing order which is the amount they contended they should be paying i f they were on

the correct interest rate. The Complainants state that any term apparently allowing such

charges is an unfair term, not binding on them, and entitling them to a refund of all excess

interest so charged.

The Complainants contend that the Provider was, as of April 2015, offering new loans at

rates below the rate that the Provider was seeking to charge on their borrowings. They

submit that they should be entitled to know the margin which is being charged by the

Provider over and above the cost of funds, since the inception of the loan.

The Complainants argue that the previous decision of this Office in Millar v Financial Services

Ombudsman [2015] IECA 127 relied on by the Provider is not relevant because in that

complaint, the Complainants did not rely on the UTCC Regs. They submit that the UTCC Regs

provide the duty to give a valid reason for a change in the interest rate. They submit that

the provision in their loan agreement allowing the Provider to unilaterally vary the interest

rate, is a prima facie breach of provisions 1(j) and (k) of Schedule 3 the UTCC Regs. They

submit that subparagraph 1(j) must be read together with provision 2(b) which limits

subparagraph 1(j) to allow for variable interest rates but only “where there is a valid reason”.

They submit that a reason must be supplied by the Provider to justify the increase in the

interest rate and this Office must be satisfied that that reason is valid. If not, they argue, the

UTCC Regs are breached.

The Complainants submit that the Provider’s reference to Reg 4 UTCC Regs is misconceived

on the basis that their complaint is that the Provider’s clause allows for a unilateral variation

of the interest rate and it is the power to vary the rate that is unfair, rather than the price

itself.

The Complainants argue that the Provider’s reliance on the fact that it has not exercised its

discretion for an improper purpose, capriciously or arbitrarily is not the test to be applied.

They submit that the UTCC Regs require that a “valid reason” must be proven by the Provider

and therefore the Provider has to establish a valid reason to increase the rate by whatever

amount it was increased. Furthermore, the Complainants argue that administrative law

compels a decision maker to provide reasons for its decision. It submits on this basis that

the Provider is obliged to give the reason behind its decision to increase the interest rate.

The Complainants reject the Provider's argument that a variation of an interest rate does

not fall within provisions 1(j) and (k) of Schedule 3 to the UTCC Regs. They submit that the

rate of interest is a characteristic of the loan and if a term permits the rate of interest to be

altered, it falls foul of the relevant provisions. They submit that this argument is supported

by provision 2(b) which limits subparagraph 1(j) to allow for variable interest rates but only

“where there is a valid reason”. They submit that if the Provider was correct with its

argument, provision 2(b) would have been unnecessary.