The High Court has rejected the Co-operative Bank’s attempt to prevent the Financial Ombudsman (FOS) from reviewing the fairness of interest rate hikes beyond its statutory deadline.
In August last year, Ombudsman Emma Peters ruled that the service was only able to investigate a complaint about a borrower’s mortgage interest rate from 31 October 2012 to the subsidiary of the bank Mortgage Agency Number Five (MAS5).
However, Peters also decided that the service would also look at when the borrower’s mortgage would revert to the lender’s standard variable rate (SVR), which was January 2009.
The co-op argued that this was an error of law and exceeded the jurisdiction of the ombudsman.
The borrower took out an interest-only mortgage in 2006 with MAS5’s predecessor, GMAC-FRC, at a rate of 5.64%. This was expected to return to an SVR of 6.74% in January 2009, as stated in the borrower’s offer letter. It was noted that the variable rate was subject to change.
His mortgage was sold and transferred to MAS5 in June 2007 and in 2009 it changed to the SVR of MAS5 which was 4.99% until January 13, 2009. This then fell to 3.99% until to February 24 of the same year, then fell to 3.49%. percent until March 17.
It fell to 2.99% until July 1, 2009 before rising to 3.74% until October 1 of the same year.
It increased two more times to 4.5% and 5.25% before dropping to 5.75% from May 1, 2012 to September 1, 2016.
The borrower said she was unable to pay the principal of the mortgage, although she repaid the interest because the value of the property had fallen below the amount borrowed, putting her in a negative equity. She says she is unable to remortgage at a favorable rate and therefore considers herself “trapped” in the mortgage.
The Ombudsman said that with the borrower complaining that each rate increase was excessive, each charge is considered a separate act by MAS5 and therefore a separate event.
Accordingly, he will consider rate hikes before 2012 as “events” for context rather than complaints.
Judge Griffiths concluded: “The Ombudsman accepts that no complaint can be made about charges brought before 31 October 2012. In my view, it is wrong to say that it is unreasonable, or otherwise unlawful, that she takes into consideration, when she decides “what is, in [her] opinion…, fair and reasonable in all the circumstances of the matter’ that the prevailing rate itself should be reviewed, from the outset, and also that the track record should be reviewed to see what impact, if any, it has had on the rates applied on and after October 31, 2012.
“As the Ombudsman herself puts it in her final decision, ‘when considering the fairness of these interest charges from 31 October 2012, we will need to consider the impact of what may or may not have contributed to these charges, including contributing factors that may have occurred prior to the last six years”.
Griffiths added: “The relevance of the rate in effect and billed from October 31, 2012 is evident. It’s a little harder to see what help the ombudsman will get from a rate-setting review as early as 2008, but what she will do with it remains to be seen.
“I’m not suggesting that she will or should; nor do I limit its room for manoeuvre. All I have to decide is whether the course she offers in her final decision, including the upheld and repeated passages of her interim decision, as explained in her witness statement, demonstrates an irrational, unlawful error. or otherwise subject to judicial review. I concluded no.
“The application for judicial review is therefore dismissed.”
The cooperative’s response
A spokesperson for The Co-op said: ‘MAS5’s application for judicial review did not concern the underlying complaint itself, but a challenge to the jurisdiction of the FOS and the interpretation of the limitations rules set out in the Financial Conduct Authority’s Dispute Resolution Handbook.
“The decision impacts the general principle of how the statute of limitations is interpreted by the FOS and applied to complaints more generally and within the wider industry. It is disappointing that the application for judicial review of MAS5 has been rejected.”
The spokesperson added that the bank would continue to work with the FOS while it investigates the merits of the underlying complaint and the bank maintains that “the historical variations made to the customer’s mortgage account have been applied in a manner fairly and in accordance with the terms and conditions of the mortgage”. Contract”.
“In a 2014 Financial Ombudsman case (Ref: DRN3507504), we received a decision in which the FOS concluded that it was satisfied that we had not acted unfairly and that the historic increases in SVR MAS5 had been enforced in accordance with the mortgage terms and conditions,” the spokesperson noted.
MP asks Co-op to redress borrowers
An All-Party Parliamentary Group (APPG) on Mortgage Prisoners has called on The Co-op to pay reparations to MAS5 customers.
Regarding increases in SVR in 2009, an FOS investigator had previously found that MAS5 “provided no evidence that the cost of funds it used in its business had increased”. Compared to 2011 and 2012 SVR increases”[MAS5] didn’t provide anything that specifically relates to MAS5’s own costs, or how those might have changed.
MP for Seema Malhotra, co-chair of the APPG on Mortgage Prisoners, said: “Now that the cooperative bank has lost its judicial control, it must start respecting its ethical values and redressing the customers who have overpaid due to his misconduct.
“These unfair increases have had a devastating impact on customers.”
Shekina is the business writer for Mortgage Solutions. She has over four years of experience in the B2B publishing market, with previous industries including accounting, pets, funerals, hospitality, retail and jewelry. She currently reports mortgage market news and liaises with financial clients to produce sponsored content. Follow her on Twitter at @ShekinaMS