Advice on FP second Mortgage early settlement

[herbert20]

Hi New to this site but I am confused on new rules CCA rules coming in May. I have a FP loan (second mortgage) took out in March 2005 for 75K I am thinking of settling this June. But have read that my would not be covered and still subject to the daft Rule 78. Can any help?:cry:

[ed.]

Re: Advice on FP second Mortgage early settlement

Herbie (if I can be so formal) you need to give us far more than that mate.

We need the whole history before anybody can give you any advice. You also need to explain why you think new CCA rules apply, and what you've been told about Rule of 78.

The more you give us matey, the better anybody can help.

[herbert20]

Re: Advice on FP second Mortgage early settlement

Thanks Ed, The full facts are that in March 2005 we took out a secured loan via Ocean Finance. We were put in touch with First Plus who agreed to advance £75k over 20 years.
We did not take out PPI. We are in a better financial position so wish to pay off FP since we are very unhappy with their business practice. From posts we have read FP do not follow the normal rules of giving early repayement rebates and more worringly charge exorbitant fees to settle. The new EU directive which will come in end of May does not seem to apply to our situation. We want to settle for the least cost. I have seen posts elswhere which suggest asking for a settlement figure and paying say 90% then asking for another settlement figure. Which should more afforable than paying all up front. My outstanding balance last year was £68k. Thanks for your help

[scoobydoo]

Re: Advice on FP second Mortgage early settlement

Do you have the original agreement that you signed ? The ERC should be clear in the Key financial Indicators

Do you have an idea from the original contract what the charges will be?

As far as I understand they will have to stick to the charges set out in the agreement - if these are excessive I guess you have to investigate further.

[herbert20]

Re: Advice on FP second Mortgage early settlement

The t&c's of my agreement say that we can settle in full at any time in accordance with the CCA 1974. If the settlement date is more than 120 months from the date of agreement (which is our case was 24/3/05), the amount payable shall be the balance of the loan including all arrears and charges applicable, if any, plus interest up till the settlement date (what does that mean???). In all other cases the amount payable will be a) the balan ce of the loan inc arrears and charges applicable, if any, plus interest up to the settlement date and (b)interest at the rate in force at the settlement date for the period from the settlement date up to the date 120 months from the date of this agreement (or, if earlier to the date when the agreement is due to end) less any statutory rebate, calaculated in accordance with the CCA (Rebate on early settlement) Regs 1983, to which you are entitled. You will also pay a service charge in accordance with our customer fees structure.


Does this mean we will get charged for the loss of interest for the remaining 5 years of our loan up to 10 years (our loan for was 20 yrs). Or, does it mean we will get a rebate under the terms of above regs which will offset this or have I misunderstood? I have heard about this use by the lender of rule 78 to calculate settlement figures but I wonder whether this applies in this case since I have not yet applied for a settlement figure or you feel that these terms are unfair in relation to unfair terms in consumer contract terms 1994. Grateful for views on this

Reg

[scoobydoo]

Re: Advice on FP second Mortgage early settlement

I think that I would be tempted in the first instatnce to ask for a settlement figure up to the end of March for example. You dont actually have to repay the loan but at least you will know where you stand.

I also find it difficult to understand the above - so if you ask for a settlement figure with a full explanation of the figure you will at least know where you stand.

You could just say that you have some options on your finances and you need the figure to make your final decision.

It should just be a computer generated letter and I dont think you should pay a fee unless you decide to repay.

The service charge for repayment as far as I know should be the fee in place when you took the loan out.

[herbert20]

Re: Advice on FP second Mortgage early settlement

Thanks for your prompt response. The extract I gave was direct from the T&C in my agreement, I glad I am not the only one who does not uncerstand the jargon!!

[WendyB]

Re: Advice on FP second Mortgage early settlement

Here's my take on this - I could be wrong....

[quote=herbert20;151348]The t&c's of my agreement say that we can settle in full at any time in accordance with the CCA 1974. If the settlement date is more than 120 months from the date of agreement (which is our case was 24/3/05), the amount payable shall be the balance of the loan including all arrears and charges applicable, if any, plus interest up till the settlement date (what does that mean???). This part doesn't apply, as you have had the load for less than 120 months. In all other cases the amount payable will be a) the balan ce of the loan inc arrears and charges applicable, if any, plus interest up to the settlement date this bit applies. and (b)interest at the rate in force at the settlement date for the period from the settlement date up to the date 120 months from the date of this agreement (or, if earlier to the date when the agreement is due to end) less any statutory rebate, calaculated in accordance with the CCA (Rebate on early settlement) Regs 1983, to which you are entitled. This means that you would have to pay the interest which would be due (at whatever rate is in force on the date that you settle) from the date that you settle until the 120 months was up. OR until the date when the agreement would have been due to end, if this is earlier than the 120 months. Less any stat rebate in accordance with CCA (Rebate on early settlement) regs 1983. I think, although it's a bit confusing from the wording, that the rebate would apply anyway,whichever part of b) applied, if you see what I mean.You will also pay a service charge in accordance with our customer fees structure. This should be clearly explained in their fees, but you will probably have to ask what it is.

That's my interpretation, anyway, although I have to confess I haven't read the CCA regs 1983 so don't know how this would affect it and what rebate you may be entitled to.

Does this mean we will get charged for the loss of interest for the remaining 5 years of our loan up to 10 years (our loan for was 20 yrs). Yes it does. Or, does it mean we will get a rebate under the terms of above regs which will offset this and Yes again. It means both, as far as I can see. or have I misunderstood? I have heard about this use by the lender of rule 78 to calculate settlement figures but I wonder whether this applies in this case since I have not yet applied for a settlement figure or you feel that these terms are unfair in relation to unfair terms in consumer contract terms 1994. Dunno, I'm not an expert in UTCRR, but I'm sure someone who is will appear soon..Grateful for views on this

Reg[/quote]

Purely asking what the settlement figure would be shouldn't cost anything, I would have thought, and it's info that you need in order to be able to make and informed decision about your financial affairs. I would do as Scooby suggested and ask them for a settlement figure and a breakdown of how it is calculated.

Hope this helps.

[WendyB]

Re: Advice on FP second Mortgage early settlement

Just had another thought too, but bear in mind its late and I could be barking completely up the wrong tree!!! As this loan in over 25k then surely it would be classed as unregulated? Therefore, wouldn't this bit apply? (I nicked it from Ed's post on Surfers thread about FP) I've put the bit that I think is relevant in bold black. Is the Rule of 78 specifically provided for in your loan agreement??? Unfortunately the other bits don't apply to you as your loan was taken out before May 2005.
And I really can't be arsed to delete all the rest of the other bits as my eyes are tired and I need my bed lol. Someone please shoot me down in flames if I am totally wrong here......#

Mortgage Redemptions – Problems With the Rule of 78 and Default Charges - Prepared by Paul Beevers 03/12/2007 .......blah blah blah very interesting but not especially relevant to Herbie...........As a result consumer organisations were lobbying for change, which was supported by the OFT. Some lenders began including terms in their non-regulated loan agreements entitling them to use the Rule of 78 to calculate settlement figures, once they realised how beneficial the formula was for them. The Guidelines for Non-status Lending published by the OFT in 1997 described the use of the Rule of 78 for the calculation of early settlement figures as unfair and oppressive[5], and City Mortgage Corporation was required by the OFT to give an undertaking not to use the Rule of 78 to calculate settlement figures for non-regulated loans[6]. After a long consultation the Consumer Credit (Early Settlement) Regulations 2004, which do away with the Rule of 78 in consumer credit lending, were issued and brought into effect on 31st May 2005 for agreements entered into after that date[7]. Once the Consumer Credit Act 2006 is brought fully into force all loans to individuals will eventually be regulated and the Rule of 78 will have no place in the calculation of settlement figures, but until then it is still a matter of borrower beware, particularly if your agreement is unregulated. It will have taken over 15 years[8] for the government to recognise the problem with the Rule of 78 and abolish its use.


Until its use was abolished the Rule of 78 applied automatically to loans regulated by the Consumer Credit Act 1974, but not to unregulated loans. To get the benefit of a Rule of 78 calculation on the early settlement of unregulated loans lenders have to include a specific provision in their loan agreement contracting into the use of the formula, and this proved to be their achilles heel. The OFT was able to use its powers under the Unfair Terms in Consumer Contracts Regulations 1994 to obtain an undertaking from City Mortgage Corporation, but appears to have embarked on general reform rather than tackling lenders piecemeal, which left it to individual borrowers to challenge their lenders. Not an easy task as the financial balance of power will almost always favour the lender. Recently in Evans v Cherry Tree Finance the High Court[9] decided that a contact term which permitted a lender to use the Rule of 78 to calculate a settlement figure fell foul of the Unfair Terms in Consumer Contracts Regulations 1999, and was therefore void. Mr Evans borrowed £105,000 from Cherry Tree Finance and when he wanted to redeem his mortgage 18 months later a Rule of 78 calculation gave them a windfall of some £34,000 over and above the capital balance actually outstanding. Mr Evans paid under protest and issued proceedings, which eventually resulted in a judgment in his favour. Cherry Tree Finance was ordered to repay his £34,000 with interest. The Court of Appeal is due to review the decision in February 2008, but only on the issue of whether Mr Evans was a consumer.
What does this mean for borrowers? Mr Evans judgment has set a precedent which other borrowers can use to either challenge settlement or redemption figures calculated using the Rule of 78, or to recover overpayments from their lenders. Claims for repayment can be made going back up to 6 years[10]. Check your redemption statements is you suspect you paid too much when you repaid your mortgage, your Solicitor should have kept a copy if you can’t find one.


Lenders who contract into the Rule of 78 may also use their contract terms to set default charges that their borrowers might feel are excessive. Default charges can also be challenged under the Unfair Terms in Consumer Contracts Regulations 1999, and if found to be excessive nothing will be payable. These challenges will not be affected by the test case brought by the OFT against the clearing banks, and should not be adjourned.

Paul Beevers
Chadwick Lawrence Solicitors

[herbert20]

Re: Advice on FP second Mortgage early settlement

Thanks Wendy, much appreciated. Have to admire your stamina being able to respond as you did at such a late hour! Not the easiest area to understand, Consumer Credit, particularly at that late hour, maybe you slept well afterwards! As I say, thanks again for your response, I am starting to piece things together a bit now and realise just how out of order they are.

R

[WendyB]

Re: Advice on FP second Mortgage early settlement

Well first off you definitely need to ask for a settlement figure and a breakdown of how it is calculated. You also need to check the loan agreement as to whether specific provision was made for them to use the Rule of 78, as my interpretation would be that if it wasn't, they couldn't. Then take it from there.

tbh I surprised myself last night but I don't think its necessarily about understanding the Consumer Credit stuff (cos I don't, not really lol) more about translating each term from gobbledygook into understandable speak by dissecting it a bit at a time, then sticking it all back together so it sort of makes sense.

I seem to be having another late one tonight as well, I am turning into more of a night owl than ever.....oh well, I was never a morning person anyway!

[WendyB]

Re: Advice on FP second Mortgage early settlement

I'm on a roll tonight lol. Try this, put in your figures and see what it comes up with. I haven't tried it myself so don't know how accurate it is, but it may give you an idea....

Rule of 78 Calculator

and also bearin mind that it's awell known fact on this forum that I am crap at links.....if it doesn't work, google "rule of 78 calculators" and I'm sure you'll find it.

[herbert20]

Re: Advice on FP second Mortgage early settlement

Thanks Wendy, found it ok and put the figures in and as expected they were pretty scary but will see what happens after end of May with Con Creditg Regs covering previously unregulated agreements. Living in hope of miracles!

Reg

[reaganalvin]

Re: Advice on FP second Mortgage early settlement

Sorry no idea....?

[WendyB]

Re: Advice on FP second Mortgage early settlement

Well first off you definitely need to ask for a settlement figure and a breakdown of how it is calculated. You also need to check the loan agreement as to whether specific provision was made for them to use the Rule of 78, as my interpretation would be that if it wasn't, they couldn't. Then take it from there.

Herbert, have you done this yet? It might help to find out now and possibly have more ammunition than wait till May then have to (possibly) start again.