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Home loan – fixed rate – loan agreement to be re-fixed before expiry – rates lower after expiry of fixed rate period – misleading information about need for new loan agreement
The bank wrote to Mr and Mrs A on 11 October, reminding them that their fixed interest rate loan was due to expire in approximately seven weeks, on 1 December. The letter provided information about various lending options, one of which allowed customers to fix an interest rate before the expiry of their current fixed interest rate term. The letter said: “If you are concerned that interest rates may rise and would like to lock in a new fixed rate, you don’t have to wait until your existing fixed rate term expires. … Once you have signed and returned a new loan agreement to us we will hold the rate for you. It will commence at the expiry of your current interest rate.”
The bank followed up its letter with a telephone call eleven days later, on 22 October. During that conversation Mr A agreed to re-fix the interest rate before the expiry of their current fixed interest rate term. Although the bank sent Mr and Mrs A a letter confirming this arrangement on the day of the telephone conversation, they were not sent a new loan agreement to sign, and were unaware of the bank’s view that they were bound by the agreement reached in that telephone conversation. On the basis of the information supplied to them and the telephone conversation they understood that, when the current fixed interest rate period expired on 1 December, the agreement to re-fix the interest rate reached on 22 October would come into force. They believed that, if they wanted to, they could change their minds about the structure of their loan up until 1 December.
In the meantime interest rates were shifting, and the rate agreed on 22 October was not as favourable as the rate available on 1 December. When Mr and Mrs A told the bank that they wished to take advantage of this interest rate shift, the bank informed them that they would incur an early repayment fee of $250. This came as a great shock to Mr and Mrs A, who considered that the bank should have made them aware that the agreement reached on 22 October was legally binding from that day onwards, and that an early repayment cost would apply if they changed their minds.
After a careful review of the events giving rise to this complaint I had concerns that the information given to Mr and Mrs A was misleading. The letter of 11 October had stated that customers would be bound from the time they signed and returned a new loan agreement: “Once you have signed and returned a new loan agreement to us we will hold the rate for you. It will commence at the expiry of your current interest rate.”
In fact the bank had adopted a new policy not reflected in the letter sent to Mr and Mrs A on 11 October. It no longer required the formal signing of a new loan agreement when a new interest rate was agreed for an existing loan. The letter of 22 October explained that Mr and Mrs A would be bound from the time Mr A agreed to the rate over the telephone, but Mr and Mrs A had not been asked to sign a new loan agreement.
If the bank intended the agreement given by Mr and Mrs A over the telephone to be binding, it should have made this clear to them in both the letter of 11 October and the telephone conversation of 22 October.
Having found the bank’s conduct to be misleading, it was difficult for me to determine whether Mr and Mrs A would have acted any differently if it had been explained to them in the telephone conversation on 22 October that they would be bound by their decision to fix the rate at that time. They may have decided to fix the rate on 22 October, or they may have opted to wait until closer to 1 December. However, I was satisfied that Mr and Mrs A had suffered a degree of stress and anxiety as a result of the bank’s inconsistent advice about when their contract became binding. I suggested, and the bank and Mr and Mrs A agreed, that compensation of $600 was appropriate in the circumstances. I also suggested that the bank review the information given in its letter advising customers that their fixed interest rate period was about to expire.