Excessive rates of charge for credit in Equity Release Product

The current value of your house LESS the amount you owe on it is called the “equity” in your property.

During the so called “property boom years” where a person over 55 owned their home outright (i.e. no existing mortgage), under an “equity release scheme”, financial institutions offered these property owners cash in return for the institution taking a share of their “equity” (which was effectively the value of the debt free property) in their home.

At the time these products may have seemed attractive as no repayments had to be made during the lifetime of the over 55 year old customer (which included many elderly and/or widowed people in their sixties and even seventies) until they vacated or sold their home on the open market at which time the total amount (capital plus interest) had to be repaid.

Recent media reports have highlighted the displeasure now of these customers and/or their relatives given that the financial institutions may now effectively own the property under these equity release schemes (with high interest rates and often punitive “exit” penalties) and as such many inheritances will now go to the institution and not the next of kin or desired beneficiary. It appears nothing can be done to assist these customers where the institution refuses to renegotiate the terms of the loan.

However the Consumer Credit Act 1995  may offer a glimmer of hope should the Oireachtas amend provision s47(4) which exempts “credit agreements relating to credit advanced by a credit institution or a mortgage lender” which may be deemed unfair, unjust and/or unconstitutional. These equity release schemes in reality were credit arrangements (ignoring any other label placed on them by a financial institution) and the fact that they were offered by now wholly or partly owned State financial institutions should not give that institution carte blanche to charge excessively for these ill fated products.

Section 47 of the Consumer Credit Act 1995 states that

s47(1) A consumer or a person acting on the consumer’s behalf may apply to the Circuit Court in whose Circuit the consumer resides or in which the agreement was made, for a declaration that the total cost of credit provided for in any agreement is excessive.

(2) Subject to this section, the Circuit Court may decide in any particular case coming before it, by an application under subsection (1), that the total cost of credit provided for in any credit agreement is excessive.

(3) In making the decision referred to in subsection (2) the court shall have regard to all relevant factors including—

(a) interest rates prevailing at the time the agreement was made or, where applicable, interest rates prevailing at any time during the currency of the agreement,

(b) the age, business competence and level of literacy and numeracy of the consumer,

(c) the degree of risk involved for the creditor and the security provided,

(d) the creditor’s costs including the cost of collecting repayments, and

(e) the extent of competition for the type of credit concerned.

(4) This section does not apply to any credit agreement relating to credit advanced by a credit institution or a mortgage lender.

(5) In any case where the application under subsection (1) is made by a consumer or a person acting on the consumer’s behalf the Circuit Court shall not make an order without first affording the Director the opportunity to be heard on the matter.

s48.—(1) Where the Circuit Court has decided by virtue of section 47 , that the total cost of credit is excessive, it may re-open the credit agreement so as to do justice between the parties and may decide to do any one or more of the following:

(a) relieve the consumer from payment of any sum in excess of the sum adjudged by the court to be fairly due in respect of such total cost of credit;

(b) set aside, either wholly or in part the agreement against the consumer;

(c) revise or alter the terms of the agreement; or

(d) order the repayment to the consumer of the whole or part of any sums paid.

(2) Where an agreement to which subsection (1) relates is a moneylending agreement the court may also order the Director to revoke, suspend or alter the moneylending licence of the holder concerned either immediately or as from such date as the court may decide.