Price variation clauses – an unfair term?

11/07/2018

In the June Gazette, Gary Fitzgerald suggests that banks’ absolute discretion to vary interest rates may be the next tracker mortgage scandal.

A legacy of issues

In recent years, there have been many problems in the Irish banking sector, from bogus non-resident accounts, excessive lending during the boom that led to a costly public bailout, to the current tracker mortgage scandal. Another significant problem may be facing the banking sector again, due to the way that certain Irish banks deal with interest – this time, attempts to reserve to themselves absolute discretion to vary interest rates in consumer loans.

Gary Fitzgerald, a barrister and Director of the Irish Centre for European Law, argues that this is not allowed under Council Directive 93/13/ EC on unfair terms in consumer contracts. If a court shared that view, this would mean that any such term is unenforceable against the consumer – with the consequence that a low interest rate cannot be raised during the life of the loan.

Implications of an unfair term

In the absence of clear and intelligible criteria covering the change in price, Fitzgerald writes, a term is unfair and unenforceable against the consumer. It is not necessary for a bank to have relied on a term for a court to rule that it is unfair, nor does the bank have to have used the term in an unfair way

According to the Department of Housing, between 1997 and 2016, banks entered into over 750,000 variable rate loans. Not all of these were consumer loans, and not all would have the above problematic clause. But this issue has the potential to affect hundreds of thousands of consumers, and be more costly to rectify than the tracker mortgage scandal.

Writing in the June Gazette, FitzGerald delves into the potential implications of the Unfair Contract Terms Directive for Irish residential mortgages, and looks at international jurisprudence on the issue.

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