Misselling

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Misselling is the deliberate, reckless, or negligent sale of products or services in circumstances where the contract is either misrepresented, or the product or service is unsuitable for the customer's needs. For example, selling life insurance to someone who has no dependents is regarded as misselling. There is no legal definition of "misselling" in the UK [1]

Contents

Types

Various common types of misselling may occur. More recently, banks have been at the center of misselling with products such as ISAs and investments. [2] [3] Another type of misselling is the one that took place in Cyprus during the period 2003-2010 where over 900 victims were missold foreign currency loans (mainly CHF) to finance the purchase of Cypriot lease holds. [4]

Material misrepresentation

This may include misrepresentation of the commercial situation. [5]

Suitability

The sale of unsuitable products, such as invalid insurance, is misselling, and has led to substantial compensation orders. [6]

Financial misselling

Financial misselling refers to deliberate false statement made by individual, usually a financial organization representative to sell off their financial products or services usually not profound to the customer. For example, HomeServe, an emergency home repair insurance company based in the United Kingdom, was fined £30m for misselling to its customers by the Financial Conduct Authority in February 2014, as they had failed to explain the actual price and the coverage of their financial products. [7] [8] According to a news in The Telegraph, Britain's financial services industry has PPI (payment protection insurance, (sold with credit cards) claims worth around £13bn from 2008 to early 2014. [9] Another on going misselling scandal relates to interest rate swaps sold to small and medium enterprises by UK banks. [10] [11]

Cyprus misselling

Between the years 2003 and 2010, Cypriot banks suggested to buyers interested in acquiring property in Cyprus to take out a mortgage in foreign currency loans (mainly CHF) because the interest rates were lower. Thousands of mainly British residents took this advice but this backfired when the franc soared after the financial crisis, and mortgage repayments doubled. Lawyers say that the banks often failed to explain the potential risks of currency fluctuation that could cause repayments to rise, and also applied heavy interest rate rises. [12] Many people have struggled to keep up with their repayments.

Moreover, instead of an absolute title to their property, the Republic of Cyprus gave them rights to a property, which if and when built, would be in someone else's land and be subject to charges by lenders and other creditors until the titles could be separated. The separation of titles could take many years because instead of separating them before sale, the state accepts separation after the development is completed and proves fully compliant with planning. The chances of compliance are slim considering that planners require that they meet building regulations at the time of final inspection and not at the time permission was granted which ends up becoming a catch-up game between planners and developers. In the meantime, purchasers are at risk that the land could be foreclosed by creditors. In this way, the state punishes the purchasers for possible planning breaches by the developers while allowing creditors to have the benefit of security over the land on which off-plan units have been sold. All at the expense of foreign purchasers and in favor of local creditors. [13]

This has resulted in property owners facing unsaleable and unlettable apartments, gigantic loan obligations and negative equity following the collapse of the Cypriot property market.

Mortgage misselling Ireland

During the Celtic Tiger, 2002 to 2008, mortgage sales saw unprecedented growth. In order to establish greater market share, mortgage providers created variations in products that were unsuitable for the consumer but allowed the bank to issue larger mortgages to meet the demand caused by house price growth. Such variations included Interest Only, Payments passed Retirement Date and Self Certification of Income. As a result of these mis-sales, 113,000 home mortgages have since been sold to private equity firms. The problem is further compounded by the fact that there is no State body responsible for Consumer Protection. The Central Bank of Ireland<ref>https://centralbank.ie<ref>is responsible for both Prudential Supervision and Consumer Protection. Consumers who think they might have a mis-sale claim should refer to the Irish Financial Services and Pensions Ombudsman (FSPO)<ref>https://FSPO.ie<ref>or contact their provider. The FSPO upheld only 2% of consumers' complaints in 2022<ref>https://www.fspo.ie/publications/overview-of-complaints.asp<ref>. Alternatives routes are through claims managers such as<ref>https://misselling.ie<ref>

Related Research Articles

A lien is a form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation. The owner of the property, who grants the lien, is referred to as the lienee and the person who has the benefit of the lien is referred to as the lienor or lien holder.

A creditor or lender is a party that has a claim on the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property or service to the second party under the assumption that the second party will return an equivalent property and service. The second party is frequently called a debtor or borrower. The first party is called the creditor, which is the lender of property, service, or money.

<span class="mw-page-title-main">Landsbanki</span> Failed Icelandic commercial bank

Landsbanki, also commonly known as Landsbankinn which is now the name of the current rebuilt bank, was one of the largest Icelandic commercial banks that failed as part of the 2008–2011 Icelandic financial crisis when its subsidiary sparked the Icesave dispute. On October 7, 2008, the Icelandic Financial Supervisory Authority took control of Landsbanki and created a new bank for all the domestic operations called Nýi Landsbanki so that the domestic bank could continue to operate, the new bank continued to operate under the Landsbanki name in Iceland.

An endowment mortgage is a mortgage loan arranged on an interest-only basis where the capital is intended to be repaid by one or more endowment policies. The phrase "endowment mortgage" is used mainly in the United Kingdom by lenders and consumers to refer to this arrangement and is not a legal term.

A home equity line of credit, or HELOC, is a revolving type of secured loan in which the lender agrees to lend a maximum amount within an agreed period, where the collateral is the borrower's property. Because a home often is a consumer's most valuable asset, many homeowners use their HELOC for major purchases or projects, such as home improvements, education, property investment or medical bills, and choose not to use them for day-to-day expenses.

<span class="mw-page-title-main">Egg Banking</span> British internet bank

Egg was an internet bank headquartered in Derby, that is now a trading name of Yorkshire Building Society. Egg was born out of the banking arm in the United Kingdom of Prudential plc, which was established in 1996, and the Egg brand was launched in October 1998. The first online credit card was launched in September 1999.

Hypothec, sometimes tacit hypothec, is a term used in civil law systems or mixed legal systems to refer to a registered non-possessory real security over real estate, but under some jurisdictions it may sometimes also denote security on other collaterals such as securities, intellectual property rights or corporeal movable property, either ships only as opposed to other movables covered by a different type of right (pledge) in the legal systems of some countries, or any movables in legal systems of other countries. Common law has two main equivalents to the term: mortgages and non-possessory liens.

<span class="mw-page-title-main">Credit</span> Financial term for the trust between parties in transactions with a deferred payment

Credit is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately, but promises either to repay or return those resources at a later date. The resources provided by the first party can be either property, fulfillment of promises, or performances. In other words, credit is a method of making reciprocity formal, legally enforceable, and extensible to a large group of unrelated people.

A shared appreciation mortgage or SAM is a mortgage in which the lender agrees to receive some or all of the repayment in the form of a share of the increase in value of the property.

HSBC Finance Corporation is a financial services company and a subsidiary of HSBC Holdings. It is the sixth-largest issuer of MasterCard and Visa credit cards in the United States. HSBC Finance Corporation was formed from the legal entity that had been known as Household International—shortly after Household International settled for US$486 million in charges pertaining to predatory lending, after burning through $389 million in legal fees and expenses—and is now expanding its consumer finance model via the HSBC Group to Brazil, India, Argentina and elsewhere.

This article gives descriptions of mortgage terminology in the United Kingdom.

Payment protection insurance (PPI), also known as credit insurance, credit protection insurance, or loan repayment insurance, is an insurance product that enables consumers to ensure repayment of credit if the borrower dies, becomes ill or disabled, loses a job, or faces other circumstances that may prevent them from earning income to service the debt. It is not to be confused with income protection insurance, which is not specific to a debt but covers any income. PPI was widely sold by banks and other credit providers as an add-on to the loan or overdraft product.

An individual voluntary arrangement (IVA) is a formal alternative in England and Wales for individuals wishing to avoid bankruptcy. In Scotland, the equivalent statutory debt solution is known as a protected trust deed.

A secured loan is a loan in which the borrower pledges some asset as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan. The debt is thus secured against the collateral, and if the borrower defaults, the creditor takes possession of the asset used as collateral and may sell it to regain some or all of the amount originally loaned to the borrower. An example is the foreclosure of a home. From the creditor's perspective, that is a category of debt in which a lender has been granted a portion of the bundle of rights to specified property. If the sale of the collateral does not raise enough money to pay off the debt, the creditor can often obtain a deficiency judgment against the borrower for the remaining amount.

Stanton Fisher is a financial claims firm in United Kingdom. It deals in products such as payment protection insurance (PPI), interest rate swaps and mis-sold mortgages claims.

<span class="mw-page-title-main">Mortgage loan</span> Loan secured using real estate

A mortgage loan or simply mortgage, in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any purpose while putting a lien on the property being mortgaged. The loan is "secured" on the borrower's property through a process known as mortgage origination. This means that a legal mechanism is put into place which allows the lender to take possession and sell the secured property to pay off the loan in the event the borrower defaults on the loan or otherwise fails to abide by its terms. The word mortgage is derived from a Law French term used in Britain in the Middle Ages meaning "death pledge" and refers to the pledge ending (dying) when either the obligation is fulfilled or the property is taken through foreclosure. A mortgage can also be described as "a borrower giving consideration in the form of a collateral for a benefit (loan)".

<span class="mw-page-title-main">Vanquis Banking Group</span> British sub-prime lender

Vanquis Banking Group, formerly Provident Financial plc, is a British bank headquartered in Bradford, England which specialises in credit cards, loans and consumer vehicle finance. It primarily services customers with a sub-prime credit history who have been declined for credit from mainstream lenders. It also offers fixed-rate and notice savings accounts under the trading name Vanquis Savings. It is listed on the London Stock Exchange and is a constituent of the FTSE 250 Index.

Cardif is an international insurance company based in France with a presence worldwide. The company is part of the BNP Paribas Group.

Marks & Spencer Financial Services plc, trading as M&S Bank, is a retail bank operating in the United Kingdom. It was originally formed as the financial services division of the British retailer Marks & Spencer in 1985 and adopted its current name in 2012.

The Mortgage Credit Directive (MCD) is a body of European legislation for the regulation of first- and second charge mortgages and consumer buy-to-let (CBTL) lending. It was originally adopted by the European Commission on 4 February 2014 and Member states had to transpose the regulations in their national law by March 2016. The European Commission is currently planning to propose amendments to the directive in Q1 2024.

References

  1. ↑ "Misselling Definition". Investopedia. Retrieved 2012-03-23.
  2. ↑ "Investment Mis-selling: The Facts". goodwinbarrett.co.uk. 2016-01-20. Retrieved 2016-01-20.
  3. ↑ "ISA Helpline - Banks not giving proper ISA advice". isahelpline.co.uk. 2013-03-27. Retrieved 2013-03-27.
  4. ↑ https://commonslibrary.parliament.uk/research-briefings/sn06578/ [ bare URL ]
  5. ↑ "Fed up with doorstep cold callers? | Which? Conversation". Conversation.which.co.uk. 2011-05-19. Retrieved 2012-03-23.
  6. ↑ "BBC News - Santander profits hit by PPI mis-selling costs". Bbc.co.uk. 2011-07-27. Retrieved 2012-03-23.
  7. ↑ Hilary Osborne (13 February 2014). "HomeServe fined £30.6m for poor complaints handling and mis-selling". Theguardian.com. Retrieved 3 March 2014.
  8. ↑ Nicole Blackmore (13 Feb 2014). "HomeServe fined £30m for mis-selling to 70,000 customers". Telegraph.co.uk. Retrieved 3 March 2014.
  9. ↑ Szu Ping Chan (22 Feb 2014). "PPI mis-selling claims 'have yet to peak'". Telegraph.co.uk. Retrieved 3 March 2014.
  10. ↑ "Interest rate hedging products (IRHP)". FCA. 18 February 2016.
  11. ↑ "Home". misselling.org.
  12. ↑ "Cyprus property owners urged to make mortgage mis-selling claim". TheGuardian.com . 4 December 2013.
  13. ↑ Click Law Partners Residual Losses Claim pdf
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