Case Notes
Search results
Home loan – fixed rate – no advice/change of process on re-fixing – no documents required – customer did not intend to re-fix loan
Mr and Mrs H had a house loan with an interest rate which had been fixed for a period of two years. Because that period was about to expire, Mr H phoned the bank to discuss what renewal options were available. He spoke to his bank’s loans specialist about the interest rates which would be available if he decided to continue with the loan. He then asked the loans specialist to send him the details of the available rates by mail, to enable him to discuss the options with his wife, who was a signatory to their joint loan account.
When a week elapsed without the promised information being received, Mr H again telephoned the bank and left a message requesting it to contact him. In the meantime he had made inquiries at another bank and had decided that, as he had not heard back from his previous bank, he would refinance there.
About a week later his solicitor wrote to the previous bank, asking it to provide him with the details of the exact amount required to pay off the loan. The bank replied with a letter detailing, not merely the principal amount of the loan and accrued interest, but also an early repayment fee. When Mr H asked the bank why the latter fee had been charged, he was told that, because of his telephone call to the bank’s loans specialist, the interest rate had been fixed for a further two-year period, and the early repayment fee was required because he was repaying the loan before the expiry of that period.
Mr H protested, saying that he had definitely not requested the bank to extend the fixed interest rate for a further two-year period. Mr H asked the bank to refund the fee. When it declined to do so, he asked me to investigate.
During the investigation it was found that Mr H had re-fixed the interest rate for this loan on an earlier occasion, when he and his wife had formally signed a document requesting the bank to provide the new facility. The bank said that its policy had changed since then, and that its customers were no longer required to sign a document re-fixing the interest rate on housing loans, provided that all other terms and conditions of the loan remained unchanged. As a result, bank staff were authorised to accept such instructions less formally, for example, by telephone or email. The bank was not able to provide a recording of the customer’s telephone instruction, and also lacked either a diary note or a written summary of the telephone conversation recording the customer’s agreement to enter into a new arrangement.
I noted that the bank had changed its policy, and concluded that, in the absence of evidence that its customers had been advised of this, they could quite reasonably expect the process to be as it had been before. They expected to have to sign a document before committing themselves to a new fixed rate period. It was also discovered that a letter which, according to the bank, had been sent to confirm the new arrangement, either may not have been sent or had not been received by Mr H. Accordingly, the Banking Ombudsman recommended that the bank should refund the early repayment fee in full, together with any interest which had subsequently become payable on it. The bank agreed to repay both the fee and any interest paid on it, and the complaint was settled on that basis.