RAMS loans transferred into RHG - is it legal?

[Nobody]

This question has been bothering me for some time.


Let's say, for arguments sake, ANZ bank moves all home loans settled by it in July 2008 into a holding company... let's call it Sucked In July Pty Ltd....

ANZ then continues to advertise its cutting edge interest rates and low fees under it ANZ brand....

At the same time the independent Sucked In July Pty Ltd has interest rates and fees raised violently, as it has no competition concerns. There is no front end, or "desk" for new loans after all.

Now in a months time ANZ spins of another new company, one full of home loans settled by it in August. Let's call it Sucked In August Pty Ltd...


This event has just happened in Australia in regards to RAMS and RHG.

Apart from the obvious anti-competition concerns, does anyone have any knowledge whether any laws have been broken here?

Is anyone aware of any Lawsuits, whether civil or criminal that have been launched against Westpac/RHG/RAMS?

Thanks.

 

[harb]

Didn't they sell part of the company's customers and the brand RAMS ?

 

[Rolf Latham]

Hiya

Rams and RHG have only 1 thing in common.................

1. They both used silly advertising that worked ( RAMS brand recognition was number for non banks as CBA was number one for banks)


New Rams is a totally different way of funding than RHG is and was.

RHG is simply OLD rams, hasnt been transferred per se, just is

ta

rolf

 

[Nobody]

Hi Rolf,

Thanks for your reply.

Yes nothing wrong with changing the name of a company, ie. RAMS to RHG...

Except in this case RAMS still exists, the fact debt funding is now courtesy of WBC is a mute point.

The situation is now such that RHG operates in an environment with no competition concerns (this is the key), while the RAMS brand continues to compete against other non-bank lenders.

This intentional re-structuring into a competitive and non-competitive entity is what can (and I imagine will) be tested in the Australian courts.

Just a matter of time imo, if not already under way.

 

[Belu]

But the policies etc signed up to under old rams and now RHG havent changed? It is still debt backed by RHG (their listed name) and they just sold the RAMS brand and shop-fronts pretty much.

have the T&C's changed?

 

[Ajax]

Nobody,

not quite the same thing. Westpac bought the brand only.

I would love to find a legal way to challenge RHG.

Perhaps an argument that their 2% break fees clause applying for the first 2 years is unconscienable in circumstances where they continue to raise interest rates out of line with market increases and in an environment where they are not actively promoting new loans (just looking for the most profitable way to run off their loan book).

Maybe a protest outside their Hombebush offices in Sydney by angry borrowers (to get some media attention).

Ajax

 

[Nobody]

Hey Belu and Ajax,

Yes, any defence by WBC/RHG would be awesome, so please test my thinking as best you can.

I agree with your thinking Ajax, the break fees should be waived - this whould be a satisfactory outcome, but you won't bring RHG/WBC to the table on conscience I suspect.

So yes, WBC and RHG will say as you guys rightly do "only the brand was sold".

But the situation that has come to exist from this simple, innocent little sale is very ugly, and could be argued to be in breach of Australia's anti-competition laws perhaps?

Regulatory bodies may have been caught napping here, or were desperate not to have RAMS fall into administration. A real possibility as there were no takers for its risky loan book.

I would propose that a satifactory and fair response from RHG to keep the WBC deal from being legally tested would be....

a) waive exit fees.

b) keep interest rates fixed to what WBC sets them under their RAMS brand.


Do you think this would be worth a shot?

I really believe WBC and RHG have left themselves wide open for a legal test here.

 

[Rolf Latham]

Hiya

I dont disagree that there is an issue............borrowers arent the only ones that are miffed I can assure you.

I suspect that brokers and Franchisee trail books will go by the wayside once the WBC 12 mth rescue package finished.......

I cant see a legal position there though as much as Id like.

We have had variable sucess with various lenders re the unconscionable conduct as Ajax has suggested,and sime still have some back bone left.

For many of them though, commercial reality has taken over..........

ta

rolf

 

[Peter_Tersteeg]

Perhaps an argument that their 2% break fees clause applying for the first 2 years is unconscienable in circumstances where they continue to raise interest rates out of line with market increases and in an environment where they are not actively promoting new loans (just looking for the most profitable way to run off their loan book).

I'd love this argument to be successful as it also applies to Macquarie and at least half a dozen other lenders over the last few years. This argument has already been taken to the obmadsman. The reply was that the home loan contract stated that as the funds were in a variable rate the lender has the right to increase the interest rate at their discression. This is a condition of the contract which every RAMS customer agreed to, along with the exit fees.

I agree that this is wrong and unconsionable, but the contracts are written in such a way that makes this legal. I've heard it said by a lawyer that finance contracts are so heavily weighted in the lenders favour that you'd be mad to sign it, but you do, because you want the money.

 

[Rolf Latham]

Just to add another point

Those break costs arent anything new, and brokers for a long time have been argueing that these things are an anti-competitive item.

No one can tell me that the cost of securitising a mortgage is 2 % plus.............

In some cases the effective get out cost for some funders is in the range of 3 to 4 %.

There are funders around whose rates have gone from 8.7 to 12.4 in the space of 6 months.........

As to legal options.....................all I know is that there is "justice", "ethics" and there is legal process and most often what I perceive is that the 3 are often very different.................but I suspect thats just me

ta
rolf

 

[Rolf Latham]

Are the increases over market ? ..............my gut says they arent.........for securitised lending

ta
rolf

 

[Belu]

it isnt just here either. Look at sub prime in the US, people have gone from say 2% to over 10%. yes the 2% was a honeymoon rate, but a 5 x multiple on repayments is massive!

 

[Nobody]

Thankyou all very much your prompt replies and thoughts, I do imagine a lot of this has covered by the regulars previously, I apologize for that....

Look... the break fees, 'x' amount of interest charged, changing fees etc.. would not be being contested. I should not have mentioned them perhaps.

Neither do conscience/ethics matter much legally when it comes to binding contracts, been tested 1000's of times in our legal system - forgot about that.

It is all about the WBC/RHG deal and the subsequent end products of the deal.

Now forgot about who has been shafted here, banks don't really concern themselves too much with that.

But the law is the law, even for banks. I have had this nagging feeling for the past few months that WBC have over stepped here.

There is a case here imo, go back to my very first post about the Sucked In Pty Ltd holding companies, this would be the alleged precedent....

Now forgot about the financial engineering undertaken to get from A to B. It is the facts that matter....

....and the fact is a company called RHG Pty Ltd has come to exist that operates outside the competitive constraints that exist for all other bank/non-bank lenders in Australia - this is as a direct result of the WBC deal.

This is the angle, the argument....

There is a case here?!

Should we test it!?

I shall do some reading on our anti-competition laws over the next few evening, maybe get something more tangible?

 

[Belu]

how do they operate outside of the ACCC? The ACCC can't say "your lending rate is higher then the others" they will just wait for the demand and supply to kick in. People arn't going to sign up to RHG (they cant now) and they have the same ability to leave now as they did when RHG was RAMS, nothing has changed except rates have gone up.

 

[Nobody]

Hi Belu,

Just quickly....

"how do they operate outside of the ACCC?"

Nothing to do with interest rates, forgot about them.

The allegation would be on the basis of their business model, in fact you already touched upon it in you response!

"..People arn't going to sign up to RHG (they cant now)..."

Beautiful in its simplicity, but we got them here I suspect...

Humour me, read my opening post again, keep the ACCC in your mind perhaps, and forgot about financial engineering, just the facts.

The facts may well be our friends here.

Anyway, best do some work this morning, maybe more tonight if there is interest.

Please understand I have given these issues a great deal of thought and do not post these comments lightly.

BTW... If we are talking USA - this situation would not have arisen there I suspect, legal system too strong, RAMS would have been left to go into administraion and then picked apart by the vulchers...

WBC was greedy and tried to out-maneuvre the vulchers, but did they break the law by doing so??

 

[Belu]

how are WBC involved in RHG besides giving funding? they bought an asset, part of the sale for which was emergency funding for 12 months - I don't see what is wrong?

 

[Nobody]

"I don't see what is wrong?"

Neither did WBC's corporate legal team at the time, lol...

The question is should we test them, my feeling is that WBC/RHG would most likely loose (which I suspect very strongly they now full well realise - these boys are not silly after all).

Unfortunantly the most likely result would be a ruling to dissolve the transaction between WBC and RHC, which would mean WBC would pull their interim funding and RAMS would go into administration.

Another ugly situation for all involved.

What to do then....

hmmmm.....

But the law is law and RHG Pty Ltd as it trades today, and the process involved to morph it to its current state, is in breach of the ACCC... imho

A final thought...

My reading of the debt securitization as some-one who makes their living from markets is.... RHG will not be able to make a satifactory market for several years to come, and will at some point in time go into administration regardless - unless a white knight appears.

What do RHG Pty Ltd Mortgage holders want to do?

Cheers.

 

[Belu]

hold on, you keep saying they breach the ACCC, how are they doing this?

Also - I suspect they will eventually sell their full business which is the loan book to someone.

 

[willfong]

Your debt is an asset to them as it should be perfectly fine for them to sell it on to someone else. Imagine your tenants telling you you can't sell your IP to another property investor (who is happy to honor the contract and keep the same tenants on), do you think that will be fair for you?

If you are not happy with the new provider as they increase their interests or fees, vote with your feet and switch. That's what I did when HSBC (whom I was with) sold all broker originated home loans to First Mac last year.

 

[Gremlin]

I have to say, it sounds to me like you're clutching at straws.

Where is the lack of competition? You, as a customer, have every right to shop to any other lender (including RAMS). Nothing in that has changed by the sale of the RAMS brand to WBC.

If you're unhappy about the potential cost of shopping to another lender then that's just tough. You signed a legally binding contract that stipulated those break costs and stipulated the right of the lender to charge a variable interest rate at their discretion. It seems to me that you're simply upset at RHG exercising their right to vary the interest rate when that's what you agreed to.

And the idea that RHG should have to peg its rates to those of a competitor (RAMS) is simply laughable. There's no obligation on any lender to charge its own customers identical rates, let alone relative to other lenders. Most lenders don't.

On what legal basis do you believe that, if tested, RHG/WBC would lose a challenge (obviously other than 'you've got a feeling' which tends not to stand up in court too often)?