QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| THE QUEEN
on the application of
MORTGAGE AGENCY SERVICE NUMBER FIVE LIMITED
- and -
|FINANCIAL OMBUDSMAN SERVICE LIMITED
James Strachan QC (instructed by Financial Ombudsman Service Ltd) for the Defendant
Hearing date: 15th June 2022,
further written submissions 16 and 20 June 2022
Crown Copyright ©
The Honourable Mr Justice Griffiths :
Mrs Davies' mortgage
"Changes to the standard variable rate
If the interest rate is the standard variable rate we may vary it for any of the following reasons:
(a) to re?ect a change which has occurred, or which we reasonably expect to occur, in the Bank of England base rate or interest rates generally;
(b) to reflect a change which has occurred, or which we reasonably expect to occur, in the cost of the funds we use in our mortgage lending business;
(c) to re?ect a change which has occurred, or which we reasonably expect to occur, in the interest rates charged by other mortgage lenders;
(d) to reflect a change in the law or a decision by a court; or
(e) to reflect a decision or recommendation by an ombudsman, regulator or similar body."
Of these, it seems that the Claimant wholly or mainly relies on (b), changes in the cost of funds, to justify the increases that Mrs Davies complains about.
i) A decrease to 4.99% from 1 January 2009 to 13 January 2009.
ii) A decrease to 3.99% from 13 January 2009 to 24 February 2009.
iii) A decrease to 3.49% from 24 February 2009 to 17 March 2009.
iv) A decrease to 2.99% from 17 March 2009 to 1 July 2009.
v) An increase to 3.74% from 1 July 2009 to 1 October 2009.
vi) An increase to 4.5% from 1 October 2009 to 1 March 2011.
vii) An increase to 5.25% from 1 March 2011 to 1 May 2012.
viii) An increase to 5.75% from 1 May 2012 to 1 September 2016.
Mrs Davies' complaints to the Claimant and the Financial Ombudsman Service
"I took a mortgage in 2007 with GMac and they have gone out of business but MAS [the Claimant] have taken over this mortgage. Not long after I took this mortgage the Banking Crisis occurred and the house went into negative equity and so I had no chance of remortgaging to another company. I have had to pay high interest rates on this interest only mortgage and now the mortgage term has come to an end. MAS are threatening to repossess the house. I have asked them to extend the mortgage term but they are not willing to do so. It is an interest only mortgage and l have no way of repaying this mortgage balance. I can afford the repayments but I feel trapped because I am paying a high interest rate and have no chance of remortgaging to another company whilst the house is in negative equity. Also as I am nearly 70 it will be difficult for me to move this mortgage. I am extremely distressed about this… I really do hope you can help."
"In my opinion, to examine the fairness of the interest rate being charged to Mrs D, you would need to look at all of the factors included in my previous email – these are:
• Whether the variation term and the way in which MAS 5 and the Co-operative bank group have applied it to set the SVR in a one-sided manner is fair?
• The specific reasons MAS 5 / Co-operative bank group have used to justify each increase in the rate since 2008/09?
• The funding costs which relate to the mortgage and how they have changed over time?
• Why the SVR being charged to Mrs D is different from the SVR of 4.99% being charged by the Co- operative bank and the specific reasons which justify the difference? (Noting the previous FOS decisions about dual SVRs)
• Whether MAS 5 is taking advantage of the fact that many of its customers are 'trapped' borrowers by increasing the SVR and keeping it at a different level from the Co-operative bank and is therefore in breach of Principle 6?
• What percentage of MAS 5 borrowers are trapped borrowers and why the Co-operative bank is not offering Mrs D access to its own mortgage products?
• Why the Co-operative bank is not applying the UK Finance voluntary agreement to MAS5 borrowers and offering them new deals, particularly in the light of Caroline's comments that it represents good industry practice?"
"As the complaint about our SVR was raised on 23 July 2019, we would only grant consent to you looking at matters which occurred over the course of the previous six years, i.e. since 1 July 2013, as per DISP 2.8.2."
The decisions of the Ombudsman
The provisional decision of 12 February 2021
i) Identifying the complaint, she said "Mrs D is unhappy about the interest rate that's been applied to the mortgage by MAS5 since December 2008. Mrs D's complaint is that this rate is unfairly high."
ii) She noted that the Claimant "has said that under our rules it thinks we can only look at Mrs D's complaint about the fairness of the interest applied to her mortgage for the six years before she raised this complaint… MAS5 won't give consent for us to look at the interest rate before 2013."
iii) Ms Peters noted the (non-binding) view of an investigator that the Ombudsman "could look at the rate of interest that was applied from 31 October 2012". She said this date was relevant because it was six years before the first record that Mrs D made a complaint "about the interest rate that applies to her mortgage being unfairly high".
iv) She referred to DISP 2.8.2 R, i.e. Rule 2.8.2 in Chapter 2 of the "DISP Dispute Resolution: Complaints" section of the FCA Handbook, which sets out Rules and Guidance on the Ombudsman's compulsory jurisdiction (the Claimant having declined to agree to voluntary jurisdiction). I will set out and consider DISP 2.8.2 R in detail, presently.
v) She noted that there was now agreement that 31 October 2018 was the date when the Claimant "received Mrs D's complaint about the interest rate that applied to her mortgage".
vi) To the question "What is this complaint?", the Ombudsman said "the complaint is about the interest charged on the borrowing". She then said:
"Mrs D complains that the interest charged is excessive. More recently, her representative has complained about MAS5's operation of the variation clause in the mortgage agreement, and whether it has fairly exercised its power under the mortgage contract, and has compared the rate to the SVR charged by other lenders in the same group."
i) The Ombudsman noted that interest was charged monthly, and said "Mrs D's complaint that the interest rate is unfairly high is actually a series of complaints about a series of monthly events."
ii) She elaborated on this as follows:
"Mrs D's complaint is that each time MAS5 charges her interest, the interest it charges is excessive by reference to base rate and other rates - such as those offered by The Co-op. Each interest period leads to a separate calculation by MAS5 of what interest it thinks is applicable, and a separate charge for that interest is added to Mrs D's account. Each interest period is therefore a separate act by MAS5 and a separate event. Each gives rise to a separate complaint about the fairness of MAS5's decision to apply that interest charge. These monthly acts of MAS5 applying interest are separate "interest charging events"."
"As a result, I think we can only consider the complaints about the interest charging events in the six years to October 2018. The complaints about the interest charging events before October 2012 are out of time."
There is no challenge to this passage.
"There are many factors that lead to the decision MAS5 makes each month about how much interest to charge.
There are therefore many matters relevant to each interest rate charging event – and thus matters relevant to each complaint Mrs D has made about each interest charging event."
"In my view, MAS5's decisions to vary the interest rate in what it considered to be the exercise of its contractual powers during the period 2008 onwards have now become the subject of Mrs D's complaint. Those decisions are relevant to what Mrs D has complained about and which has occurred within the last six years – each of the monthly charges. In considering the fairness of each of the monthly charges from 31 October 2012 onwards, we need to consider all relevant matters contributing to those events. That means we will need to consider the whole history of the interest rate, including before 31 October 2012. That is because the interest variation decisions taken by MAS5 from 2008 to 2012 are important context for the later monthly charges. MAS5 may have determined, in part, the rate that was charged during the period we can consider.
If, to take an example, there was no contractual power to increase the interest rate by 0.75% in November 2011, that could potentially affect whether a monthly charge made in 2015 was fair and reasonable."
Also (after a sentence which is not challenged, saying "In summary, therefore, we can only consider the fairness of the interest that Mrs D was charged each month from 31 October 2012 onwards."):-
"But in considering the fairness of those interest charges, we will need to look at the impact of what may or may not have contributed to those charges – including contributing factors that may have happened before the last six years. We will consider the whole history of the MAS5's SVR since Mrs D's mortgage reverted to it on 31 December 2008 in order to determine whether charges from 31 October 2012 onwards were fair."
The final decision on 26 August 2021
"My decision is that we're able to investigate Mrs D's complaint about the interest rate that's applied to her mortgage from 31 October 2012. As part of this we will be reviewing the history of Mrs D's mortgage from the time it reverted onto the SVR."
The reasoning of the final decision letter
"I'll clarify why I have reached my decision.
Both parties have highlighted that there are different issues that can be complained about in relation to the interest rate applied to Mrs D's mortgage. I completely agree. I see that there can be concerns about how an interest rate has been calculated; the level at which an interest rate has been set; or about the fairness or legality of the variation made to the underlying interest rate at a specific point in time. I also appreciate the representative's argument [on behalf of Mrs Davies] that a general complaint about interest rate is a different matter to a specific argument about a variation that is made outside of the terms and conditions of a mortgage contract.
Mrs D's complaint about the interest rate that applied to her mortgage once it reverted to SVR following the expiry of her fixed rate product on 31 December 2008 raises various separate concerns. I'd like to remind all parties that the purpose of this jurisdiction decision is to define the period of time we can consider the issues raised by Mrs D (and if this complaint were to be upheld the period of redress). It is not my intention to explore the merits of the various aspects surrounding the interest rate that's been raised by Mrs D and her representative. These concerns will need proper investigation as part of our subsequent exploration of the merits of the various issues made in Mrs D's complaint.
MAS5 has now accepted that we are able to investigate Mrs D's complaint about the fairness of the interest rate applied to her mortgage from 31 October 2012."
"I set out in my provisional jurisdiction decision that as part of our investigation into Mrs D's complaint, we'd need to review the history of Mrs D's mortgage from the time it reverted to the SVR on 31 December 2008.
[MAS5 has made it clear that it strongly disputes whether this is something permitted under our rules, and that in doing so I would be acting outside of DISP 2.8.2 R.] I disagree with this interpretation of our rules. I consider that we're able to look at historic variations as part of the wider circumstances and background of Mrs D's complaint.
As I explained in the provisional jurisdiction decision, I consider that historic interest rate changes which predate the six years we can look into are relevant to our investigation into Mrs D's current complaint. In considering the fairness of those interest charges from 31 October 2012, we will need to look at the impact of what may or may not have contributed to those charges – including contributing factors that may have happened before the last six years.
And so I consider it appropriate and proper that we now take into account the whole history of the MAS5's SVR since Mrs D's mortgage reverted to it on 31 December 2008 in order to determine whether charges from 31 October 2012 onwards were fair. The historic changes made to the interest rate are relevant factors to the interest rate applied over the period I can consider. I believe that it's important background Mrs D's complaint about the interest rate applied to this mortgage from October 2012 onwards.
I see this as being an essential part of establishing the fairness of Mrs D's interest rate from 31 October 2012 onwards. Whether historic variations have led to unfairness during the period of time we can consider Mrs D's complaint is a matter that would be explored as part of the merits investigation of this complaint. Otherwise we won't be looking at the full picture and all the circumstances of the case when we consider whether charges from 31 October 2012 were fair."
"Whilst I consider such historic rate variations to be important context for considering the complaint about high monthly charges, I have concluded that under DISP 2.8.2 freestanding complaints about those historic variations (as well as about monthly payments from before October 2012) are outside the ombudsman service's jurisdiction due to having not been made in time. Thus, for example, whilst I consider that I can take account of historic variations in relation to the complaint about unfairly high monthly payments from October 2012, I do not consider any complaints about those historic variations to be within my jurisdiction and I could not award any redress for any period before October 2012, even if I were to think that any such past variations were unfair."
DISP 2.8.2 R, section 228 FSMA, and the statutory regime
"The Ombudsman cannot consider a complaint if the complainant refers it to the Financial Ombudsman Service:
(2) more than:
(a) six years after the event complained of; (…)
(3) in the view of the Ombudsman, the failure to comply with the time limits in DISP 2.8.2 R or DISP 2.8.7 R was as a result of exceptional circumstances; or
(5) the respondent has consented to the Ombudsman considering the complaint where the time limits in DISP 2.8.2 R or DISP 2.8.7 R have expired".
"any oral or written expression of dissatisfaction, whether justified or not, from, or on behalf of, a person about the provision of, or failure to provide, a financial service, (…) or a redress determination, which:
(a) alleges that the complainant has suffered (or may suffer) financial loss (…)"
"The FCA must make rules providing that a complaint is not to be entertained unless –
(a) the complainant has referred it under the ombudsman scheme before the applicable time limit (determined in accordance with the rules) has expired…"
"3.6 – Determination by the Ombudsman
Fair and reasonable
3.6.1.R The Ombudsman will determine a complaint by reference to what is, in his opinion, fair and reasonable in all the circumstances of the case.
3.6.2.G Section 228 of the Act sets the 'fair and reasonable' test for the Compulsory Jurisdiction (other than in relation to a "relevant complaint" within the meaning of section 404B(3) of the Act) and DISP 3.6.1 R extends it to the Voluntary Jurisdiction.
3.6.4.R In considering what is fair and reasonable in all the circumstances of the case, the Ombudsman will take into account:
(a) law and regulations;
(b) regulators' rules, guidance and standards;
(c) codes of practice; and
(2) (where appropriate) what he considers to have been good industry practice at the relevant time."
The Claimant's arguments
"…it is both permissible and necessary to have regard to the whole history of that relationship. This history includes not only the 1992 agreement but also the earlier loan agreements…"
The Defendant's arguments
"…we can only consider the complaints about the interest charging events in the six years to October 2018. The complaints about the interest charging events before October 2012 are out of time" (see para 21 above).
Therefore, no jurisdiction is being claimed over interest charging events before 31 October 2012 and the Claimant's objections are misconceived.
"2.4 In the jurisdiction decision I concluded that I do not have jurisdiction to consider complaints about charging events that took place more than six years before the complainant made her complaint, but I do have jurisdiction to consider complaints about charging events made within six years (i.e. from October 2012 onwards), since each time the Claimant charges interest, there is an act that has the potential to cause a consumer financial loss. I concluded (for the reasons set out in my jurisdiction decision) that those complaints about the interest charging events before October 2012 are out of time, whereas those complaints about interest charging events from October 2012 onwards are in time and will have to be determined. I understand that the Claimant is not challenging that determination.
2.5 My jurisdiction decision also went on to explain what matters that I could take into account when considering the complaints about interest charging events from October 2012. I explained that when considering what is fair and reasonable in all the circumstances of the case (as will be required when determining that part of the complaint that is within jurisdiction) it may be appropriate to look at historic interest rate variations as part of the wider circumstances and background of the complaint. As I explained in the jurisdiction decision, there can be many factors that lead to the decision the Defendant takes each month about how much interest to charge, and the interest variation decisions the Defendant took from 2008 to October 2012 (the historic variations) are important context for the later monthly charges. I was articulating in my decision that I considered it would be difficult to consider 'all the circumstances of the case' if I was required to ignore matters such as historic rate variations when these continue to have an effect on the interest rate charged."
"The very concept of 'unfairness' is very wide, and permits reasonable people to disagree. But its very width serves as a caution against over-active judicial intervention in the approach adopted by the Ombudsman, in the criteria which he develops or in the application of those criteria or of the concept of unfairness to the circumstances of the case.
It is only if the Ombudsman has committed such errors of reasoning as to deprive his decision of logic that it can be said to be legally irrational. The court should be very wary of reaching such a conclusion. Its own views as to what would be fair are not to be substituted for the Ombudsman's views when what is at issue is a question of the substantive merits of a decision as to unfairness."
"…where a statute conferring discretionary power provide no lexicon of the matters to be treated as relevant by the decision-maker, then it is for the decision-maker and not the court to conclude what is relevant subject only to Wednesbury review."
Decision and conclusion
Mortgage Agency Services Five Limited Registered No. 13884190