A Cork couple have launched a High Court action over the "out of proportion" and "unfair" high rate of interest they claim they are being charged on their mortgage by the financial fund that acquired their loans from a bank.
In a case which the court heard may have implications for thousands of other mortgage holders, Darren Hennessy and Emer Barrett have sued Pepper Finance Corporation Ireland DAC.
The court heard that Pepper, the mortgage services provider used by a number of investment funds for Irish loans acquired after the financial crash, acquired the couple's mortgage, which was originally taken out with PTSB over their home at Argideen Lawn, Deanrock Estate, Togher in Co Cork.
They claim Pepper is currently charging them an unfair rate of 8.5 per cent interest, whereas had their loans remained with PTSB they would be paying just over 4.3 per cent.
They claim that Pepper remains bound as successor in title to the same corresponding rates of interest as those currently being offered by PTSB.
The couple took out a 35-year mortgage with Permanent TSB in 2005 on their home.
They made further borrowings in 2007 from PTSB to renovate the property.
These loans, which in 2019 were sold on by PTSB, had fixed interest rates for periods before a variable rate kicked in.
It is claimed that Pepper has justified its variable rate increases on market conditions, including recent increases by the European Central Bank to address high inflation.
'Excessive' interest rate
In their action, the couple, who dispute Pepper's justification, claim the rate they are being charged is "excessive" and "out of proportion with any legitimate rate they should be charged."
They claim that Pepper must abide by the terms of the loan agreements they entered into with PTSB.
The rate, they alleged is being "driven exclusively" by Pepper's desire to obtain "the maximum amount it can extract from its consumer base with a view to making a profit."
The couple, represented by John Kennedy SC, Peter McKenna BL and solicitor Eugene Carley, seek various orders and declarations from the court.
These include a declaration that the mortgage interest rate they are currently being charged is out of all proportion to any legitimate rate allowed under the loan contract, and that Pepper has been unjustly enriched at the couple's expense.
They also seek orders compelling Pepper to charge them the corresponding rate of interest as PTSB would be charging them.
They also want the court to declare that Pepper charging them an interest rate on their mortgage that is higher than the corresponding rate being charged by PTSB is unlawful and in breach of EU regulations on consumer contracts.
They further seek orders for damages for alleged breaches of contract, statutory duty and of codes of contact guaranteed in the 2013 Central Bank Supervision and Enforcement Act.
Mr Kennedy told the court that his clients, in proceedings that he said "may have a bearing on hundreds if not thousands of other mortgages", have kept up with all of their scheduled mortgage repayments.
However, he said that there was some urgency to the application as the increase in the interest rates, which amounts to them having to pay an extra €7,400 annually, was causing them difficulties.
Mr Kennedy said that their action is based on decisions made by the Irish and the UK Supreme Court.
Contractual discretion
They claim that by exercising their discretion to increase the interest rates Pepper has failed in its duty, known as the 'Braganza duty', to the couple.
This duty, which gets its name from English case law, is where contractual discretion must be exercised reasonably and in good faith, and not arbitrarily or capriciously.
Pepper, which does not operate like a retail bank, has allegedly failed to take into account relevant factors when arriving at the interest rate charged.
Pepper has not acted with honesty, good faith, and genuineness in arriving at its decision to increase the interest rate.
It is further submitted that even if Pepper took the correct matters into consideration in setting its interest rates, the result is unreasonable, and it should not be allowed stand as a matter of justice.
The action came before Mr Justice Mark Sanfey on Tuesday when the couple, on an ex-parte basis, asked the court for permission to serve short notice of a motion where the plaintiffs seek to have a timetable put in place for the exchange of legal documents in the dispute.
The couple have brought this motion because the longer the case takes to conclude the greater their losses will accrue.
The judge adjourned the case to a date later this month.
