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Sub Prime Mortgages

There is a lot of bad press on companies who challenge unenforceable credit agreements, but what people fail to see is that the Consumer Credit Act was developed to prevent unscrupulous business from taking advantage of vulnerable consumers.

Over the years we have seen substantial growth in sub-prime lending (loans given to people in financial difficulties at a higher interest rate than high street banks). Some of these agreements contain dual interest rates, a standard (default) rate and a discount rate, the second of which applies only while certain conditions are met, for example, while payments are up-to-date and the client pays by direct debit. If a payment is overdue, usually by seven days, the lender can raise the interest rate to the standard rate, which will often be much higher.

The OFT suggests that dual interest rate schemes could constitute a penalty on default, that is, the sum payable on default exceeds a genuine estimate of the lender's loss arising from the client's breach of contract, and therefore amounts to the lender punishing the client. If this is the case, the agreement could be unenforceable through the courts, because of common law rules on penalties. Relevant factors that the court would take into account include the extent of the difference between the two interest rates, and whether the agreement stated that the default rate, once it came into operation, would continue to apply indefinitely.

The Office of Fair Trading (OFT) has suggested that these schemes can be unfair and oppressive where there is a large difference between the two rates.

For loans signed on or after 1 July 1995, they could be challenged under the Unfair Terms in Consumer Contracts Regulations 1999. The view of the OFT is that, while some dual interest rate schemes may be acceptable, those with a large difference between the two interest rates may be deemed to be unfair, so the higher rate would not be enforceable against the client.

If you have a secured loan, it may be possible to reduce the cost of the loan by one of the following ways:

We often find that people leave it too late to seek advice to prevent repossession. Our advice is:

If you are in doubt, call one of our consultants today for advice.

Tel: 0845 8450140
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