Unfair Terms in Consumer Mortgage Agreements

A recent Supreme Court decision provides important guidance on whether a borrower's mortgage agreement contained any unfair terms under the EC (Unfair Terms in Consumer Contracts) Regulations 1995 (S.I. 27/1995) (the Regulations).

Facts

This case concerned an Order for repossession of the borrowers' home by the County Registrar. The borrowers failed to appeal that decision on time. The High Court refused their application for an extension of time. This refusal was subsequently appealed to the Supreme Court.

The substantive issue in the appeal was that the County Registrar failed to assess the fairness of the terms of the borrowers' mortgage agreement with the lending institution as required under the Unfair Terms in Consumer Contracts Directive (implemented here by way of the Regulations).  The borrowers argued that AIB v Counihan ought to be applied. In that case, Mr Justice Barrett held that a Court, when considering a consumer contract, must conduct an assessment of whether it contains any unfair terms. The lender argued that this case was, in fact, considered by the County Registrar.

The borrowers argued that the following terms of their loan agreement were unfair:  

1. The "price variation" clause. This is the provision that the interest rate would vary at the lender's discretion;
2. The "acceleration" clause. This is the provision entitling the lender to demand early repayment if there is a failure to pay on the due date. It also refers to the power to enter into possession of the property in the event of a missed payment or other breach; and
3. The "transfer of rights" clause. This is the entitlement of the lender to sell on all or part of the security without notice to the borrower.  

Decision

The Supreme Court decided:  

1. On the face of it, the "price variation" clause comes within the exemption in the Regulations permitting a lender to reserve the right to alter the interest rate without notice where there is a valid reason. The Court also noted the protection afforded by the 2016 Consumer Mortgage Credit Agreements Regulations, which includes an obligation that a lender must inform borrowers of any change in their interest rate. 
2. An "acceleration clause" might well be found to be unfair if it permitted the lender to call in the entirety of the debt and enforce the security in the event of a single late or missed payment. However, the court noted a number of measures that prevented such a result. These included the obligation to serve notice on a borrowers in the event of default and the Central Bank Codes of Conduct.
3. There have been a considerable number of decisions endorsing the views of Peart J. in Wellstead v Judge White & Featherstonehaugh that "transfer of rights" clauses are neither unusual, mysterious nor unlawful. The Court also noted that the borrowers had not given any indication as to how the clause in this case would have been unfair to them. The Court also held that County Registrars, in possession cases, should consider consumer contracts for the purpose only of deciding whether there is a potential defence to the lender's claim. If there is a potential defence, the matter should be transferred to a Circuit Court Judge.

Takeaway

This decision gives welcome guidance by the Supreme Court on key terms contained in virtually all consumer mortgage agreements as borrowers will now have difficulty in arguing that these terms are prima facie unfair. The decision also clarifies the role of County Registrars in possession proceedings.  

Pepper Finance Corporation (Ireland) DAC v Brian Cannon and Christina Cannon [2020] IESC 2