What Does Your Bank Owe You?

In an interesting (and helpful) development for Claimants, the courts have found that there may be circumstances in which a bank owes an 'intermediate' or 'mezzanine' duty to customers when providing information about its products.

Facts of the case

The Claimants in this case were Mr and Mrs Thomas, a husband and wife team, who were also partners in an award-winning organic farming business which they built from scratch, Linscombe Farm. In 2006 they transferred their borrowing from Natwest to the Defendant, Triodos Bank, because the bank had a reputation for supporting businesses with strong green credentials.

In the summer of 2008, the Thomases decided they wanted to switch a sizeable proportion of their borrowing from a variable rate to a fixed rate. Like others who fixed the rate of their borrowing before September 2008, Mr and Mrs Thomas found themselves tied to a far higher rate of interest than the current market rate.

The Thomases switched the greater part of their borrowing to a fixed rate in June 2008, and did so in two tranches, at 6.71% and 7.52% per annum respectively. In each case the fix was for a 10 year term.

Clause 2.10 of the bank's terms and conditions referred to an 'early repayment fee' in the event of early redemption, and clause 2.11 provided that an additional 'extra repayment premium' was payable if a fixed rate loan was repaid early. It was for this reason, and prior to agreeing to switch to fixed rates, Mr Thomas queried whether the maximum likely redemption penalty would be in the region of £10,000 to £20,000. Mr Thomas' understanding of the amount of the redemption penalty was not corrected by the bank.

A few years later, and as a result of the global financial crisis, the Thomases began to have second thoughts about their decision to fix the interest rates and started to enquire about what the cost would be if they were to re-fix the loan. In response, the bank told the Thomases that the penalty would be £96,205.47; this was subsequently amended to £54,691.59. It became clear at the trial that the bank had had very little experience of a customer wanting to break a fixed rate on borrowing and that only a few senior personnel really understood how the clause referring to such costs was supposed to work. Although the early termination penalty decreased, it was still significantly more than the Thomases had expected, and it was more than the Thomases could afford.

The question then arose as to what the Thomases...