I did a note on MSE a while ago trying to outline why Barclays FirstPlus customers (yes call them by their real name) should complain.
Below is a copy of my complaint to the OFT - feel free to use. I sent this in May and it's only just being looked at.
I write with regard to a contract I have with FirstPlus Financial Ltd. I am of the firm belief that Clause 7 of the Terms and Conditions of my contract is unfair. Clause 7 states: -
“We may from time to time vary our interest rate. We may increase or decrease our interest rate to reflect a change which has occurred, or which we reasonably expect to occur in interest rates generally, or to ensure that our business is carried on prudently, efficiently and competitively. The interest on your account will not in any twelve month period, vary by more than twice the variation in the Finance House Base Rate published by the Finance and Leasing Association during the same period. If for any reason, the Financing and Leasing Association ceases to publish the Finance House Base Rate we may refer the variation in our interest rates to any other Base Rate which in our reasonable opinion best matches that rate.”
It has become abundantly clear that this clause is not being applied fairly and is being used to arbitrarily raise the Annual Percentage Rate applied to my loan account.
To any reasonable person the above clause would be interpreted as there being a direct link to the FHBR. The more financially astute would have realised that the FHBR was not the only driver but would still have expected FHBR to be followed to some degree.
It is now clear that it doesn’t matter what the FHBR does. What matters are two things:
What the FHBR does with respect to its value of one year ago, and
What my own First Plus interest rate is today with respect to one year ago.
Then there are ONLY 3 possible cases:
1. If FHBR falls with respect to one year ago, then if my First Plus rate is lower than it was one year ago, First Plus will not change it. If my First Plus rate is higher than one year ago, First Plus will reduce it to its level of one year ago.
2. If FHBR is the same as one year ago, then if my First Plus rate is lower than it was one year ago, First Plus will rise it to its level of one year ago. If my First Plus rate is higher than it was one year ago, then First Plus will reduce it to its level of one year ago.
3. If FHBR rises with respect to one year ago, then it doesn’t matter whether my First Plus rate is lower or higher than one year ago, First Plus will increase it, by up to twice the FHBR increase from one year ago.
In particular, if the FHBR rises but it still remains below its level of one year ago, then First Plus will always move you to your First Plus rate of one year ago, which can be higher or lower.
You may ask where is the unfairness in this?
Firstly, my concern as to the fairness of this clause is brought about by applying the above methodology to the future, when FHBR will start to climb again.
Secondly, it is a mechanism asymmetrically applied: First Plus always increases its rate in case 3, so it could and should also always decrease in case 1, but it doesn’t.
Thirdly, especially when you look at case 2, the arbitrariness is clear. It doesn’t really matter what FHBR does from month to month, they just apply a formula that makes sure that their rates stay on an INCREASING TREND, by pegging my current rate to what it was one year ago.
Applying this to my APR.
Month
First Plus APR
FHBR
Reason
March 07
9.2%
6.0%
May 07
9.7%
6.0%
Bank of England rise
August 07
10.0%
6.0%
Bank of England rise
February 08
10.3%
6.5%
FHBR rise
April 08
9.2%
6.0%
See case 2 above
June 08
9.7%
6.0%
See case 2 above
September 08
10.0%
6.0%
See case 2 above
February 09
10.0%
3.0%
See case 1 above
April 09
9.2%
2.5%
See case 1 above
I fully expect my rate to increase to 9.7% in June 09 and back to 10% in September – even if the FHBR stays at 2.5%.
If the FHBR rises over the next 5 years at a rate of 1% a year my APR could have the following effect.
Month
First Plus APR
FHBR
April 2009
9.2%
2.5%
April 2010
11.2%
3.5%
See case 3 above
April 2011
13.2%
4.5%
See case 3 above
April 2012
15.2%
5.5%
See case 3 above
April 2013
17.2%
6.5%
See case 3 above
April 2014
19.2%
7.5%
See case 3 above
This would bankrupt me. Even by matching FHBR, if FHBR rose to 5% like it was at loan inception my APR would rise to 11.7% - some 3.3% (£130 per month) more than it was when it was sold to me.
You state in your literature on the Unfair Terms in Consumer Contracts Regulations 1999: -
When a contract is made, obligations are accepted in return for benefits. If one party can unilaterally change agreed terms, to its advantage, the balance of the transaction is lost. So a term is likely to be unfair if it gives the supplier the right at its discretion to force the consumer to accept changes to the bargain. A right to change any term in the contract, or to vary its core terms – the price or description of the product – is particularly open to objection.
Fairness, and the law, require that consumers get what they agreed to buy. Goods, in particular, must be of the agreed description and purpose, not just of 'equivalent quality'. A right to raise prices at discretion, where consumers are locked into the contract, is also highly suspect.
At loan inception I agreed to a 8.4% APR (Variable) which at the time was 3.4% above FHBR. As it stands now I am paying 10% (7.5% above FHBR).
I have had explanation for variations ranging from base rate, house prices, equity, commercial judgement. This is clearly not true. I am in a situation now where my APR will never go below 9.2% but it can rise exponentially.
Your literature also states: -
Where the supplier's freedom to vary is more restricted, there may be no unfairness. Terms which allow only technical product modifications of no significance to the consumer are usually acceptable. Even a right to make more substantial variations may be unobjectionable if the changes permitted are precisely specified, so consumers do effectively know what they are agreeing to. Alternatively, a variation clause that confers no real discretion, for instance, a right to raise prices in line with a published price index, may be fair. This applies particularly to terms in a range of specialised financial transactions terms allowing price variations due to fluctuations in an independent index, or published market rates, or currency values.
Clause 7 does not precisely specify the variations. I did not know I was agreeing to this process of varying the APR – who would, it’s so one sided? I would have no objections if my APR varied alongside an independent index, i.e. FHBR, this is what I thought I was agreeing to.
Finally you state in your literature that “A standard term is unfair if it creates a significant imbalance in the parties' rights and obligations under the contract, to the detriment of the consumer, contrary to the requirement of good faith.”
I hope you agree that Clause 7 has created a significant imbalance to my detriment. I also hope you can work with FirstPlus Financial Ltd to arrive at a suitable methodology for future APR variances.
I have attached a copy of my complaint to the Financial Ombudsman that includes all my personal information and correspondence to date.
Edit - post was moderated to exclude link. Google FirstPlusComplaints - there hundreds of us taking them to task.
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