RAMS loans transferred into RHG - is it legal?

[ruroshin]

Hi Nobody,

RHG are still in competition with other lenders because they must retain their clients. Doesn't matter if they don't have any new ones. Say RHG raised their interest rates to 20%. You wouldn't stay with them, right - competitive pressure means they lose your business at that point.

It's really the break fee which is anticompetitive, rather than they fact they're not attracting new customers.

I agree that the break fee is anticompetitive. But I have to ask, why get a loan with a huge break fee, if there are other lenders which don't charge it? And if the answer is because the break fee product came with a lower overall rate, well haven't you reaped the benefit of that lower rate? Perhaps they would waive the break fee if you would repay them the interest savings...

If the break fee was hidden from you going in, then that's a whole other ball game.

If I understand Nobody correctly, If RHG was still taking in new clients then they wouldn't arbitary raise their rates to say 20% because they would become uncompetitive and nobody would join up. But since they don't have to take in new clients they can just raise rate to 20% and don't care because they have nothing to lose and a lot to gain by constantly raising rate and either reap high interest or collect huge exit fees.

Most people originally signed up knowing about the exit fees but thought that RAMS/RHG wouldn't raise rate so significantly because they would have to stay at market rates to be competitive. That competitiveness condition no longer applies and there isn't anything holding RHG back.

If I was RHG I wouldn't want my clients either because I got bad debts that need to be paid off and I can't take in new business to increase revenue so I'm only left with one real choice. I would want them to refinance to another lender so I can pay off my bad short term debts and collect a nice exit fee in the process. Then when all the clients are gone the company can wind down and close up shop, they can even start up a new company with a new name and start all over again.

 

[Belu]

Nobody - what is stopping current clients leaving RHG to go elsewhere?

As mentioned by Dave, it is most likely the break fee, which was signed as a condition of the contract. It is a different type of lending.

Look at it from RHG's point of view.

They lend you $1mil at 8%, to get that, they may have borrowed that $1mil on short term 90 day terms at 7.5%.

Now it is 6 months on, they have just rolled over their short term $1mil facility and you decide to take your business elsewhere. If they can't sign that $1mil to someone else they have to hold it at 7.5% for 3 months (1.875%).

There you have the potential loss. The business model they used (which worked in good times but has fallen over now) was to borrow cheap, put a low mark-up, get a large market and cream say 0.5% off the top of the whole lot. They tried to cover themselves with the break fee which is needed in the short-term market more than say a normal banking business.

At the end of the day, RHG signed customers up at a rate that reflected the cost of their funding, they disclosed the fees (something has to be at the back of the mortgage docs?) and people signed up.

Now, you have a case where the cost of funding has gone up, they have sold their shop front business but have KEPT THE SAME BUSINESS MODEL. i.e they are funding from the same source which has increased in cost more than normal banks as they don't have deposits and they - like other non-bank lenders - are passing the costs on.

They still compete under the same terms, people are as free to leave them now as they were when they retained the RAMS brand. WBC didnt buy the RAMS loan book or business, just the assets of the brand name and shop fronts (which are franchises anyway).

I don't see a legal arguement here. People signed up with RHG under terms and conditions, they are still with RHG under the same terms and conditions with the same fees. Yes - rates have gone up. BUT they were lower than banks for a while as well, so as dave said, people did reap the rewards for risk, and the risk was greater than originally thought - so you loose out.

Sorry for the above ramblings, but I still cannot see a legal arguement. People signed a contract, the details of which have not changed. The WBC purchase didnt change them, they can still get out if they wish, yes they need to pay a fee to leave but if RHG was still RAMS and all was rosey they would still have to pay that fee. If you are saying break fees are anti-competitive that is one thing, but I dont think the purchase has made any illegal complications.

Please continue to try and prove me wrong though

 

[Gremlin]

So who do RHG compete against? Nobody.

Honouring a contract to allow loan discharge or whatever RHG calls their variant is not competing.

Starting the see the problem with all this.

Who are RHG competing against?

You seem to have confused the concept of anticompetitive behaviour with what you perceive to be a lack of competition.

RHG are competing against every other lender in the country. That they are competing only to retain their existing business does not mean that they are not competing. Nor does it mean that they are being anticompetitive.

Anticompetitive behaviour usually means creating artificial barriers to competition OR colluding on price. I don't see how you are arguing that they have done either?

Have they set their prices in collusion with any other market participant? Nothing you've suggested indicates that prices have been set in collusion with either RAMS or WBC. In fact, your suggestion that to be 'fair' they could consider pegging their price to RAMS/WBC is a lot closer to collusion than what appears to have occurred.

Have they created artificial barriers to competition? A couple of people here have argued that their high break costs constitute anticompetitive behaviour. I completely disagree. When you took out the loan you had the option to choose other products without such stringent break costs. You had the choice of competition and you freely chose an option with high break costs. Nothing anticompetitive there.

You freely signed away the right to a fixed interest rate and freely accepted that the break costs were what they were. The lender has no obligation to you to continue to offer new loans to other parties. The lender has no obligation to you to continue to offer you a rate that you perceive is competitive or aligned with any other market participant. You signed away those rights. It's irrelevant what price is being set in the market for RAMS or WBC or any other lender.

You have a choice to move to any other lender who set their rates and fees independently of RHG (ie without collusion). The only cost to that are the break fees that you agreed to up front. They are a barrier placed there by you through your choice of RHG in the first place (when you could have chosen a lender without such costs) and, as such, are not an artificial barrier to competition.

I feel sorry for you, as this is clearly an emotive issue for you. But the reality is your loan contract has been honoured and they have no obligation to you or any other customer to set their prices in line with other market participants (including RAMS and WBC).

 

[Belu]

Gremlin +kudos, well presented arguement.

 

[Ajax]

Was told by an RHG manager that the contract borrowers signed with old RAMS permits the lender to vary interest and all fees.

He explained it was open to RHG to vary the break costs that apply (suggesting it was open for RHG to increase the break costs).


Ajax

 

[Nobody]

Hi Ruroshin,

"If I was RHG I wouldn't want my clients either because I got bad debts that need to be paid off and I can't take in new business to increase revenue so I'm only left with one real choice. I would want them to refinance to another lender so I can pay off my bad short term debts and collect a nice exit fee in the process. Then when all the clients are gone the company can wind down and close up shop, they can even start up a new company with a new name and start all over again."

That is exactly it my friend, that is what we suspect is their LT plan.

Unfortunantly you will have trouble getting RHG board to admit this in a court room.

Therefore you must go after their current business model and the process involved in its inception.

There is a lot of talk here about break fees, interest rates etc... but why bother to keep bringing up these variables that can't be changed.

The contract is binding, it is law - like it or not, so please people get over the break fees/interest rates etc...

Hi Gremlin,

Nice post, but please forget about break fees/interest rates, I feel I am flogging a dead horse as members seem pre-occupied with these two variables.

One more time...

Interest rates/break fees can't be challenged. Can't. Contract is binding. Can't be challenged. Forget about them.

It is ok you can't see how RHG as it exists today conflicts Australia's anti-competition laws.

You keep going back to break fees/interest rates etc... So I understand your view point.

Please spare me the sympathy spiel - you do not know who I am or whom I represent.

I don't feel sorry for you, emotion has little place in big business. Besides, I am sure you are very talented in your own field.

I fully understand a few may have a vested interest in not seeing RHG go into administration, hence my challenging posts to get a feel for anything that we have not considered in a possible defence.

Your responses have been most helpful.

I will leave it alone now.

Thank you all for your input.

 

[Gremlin]

There is a lot of talk here about break fees, interest rates etc... but why bother to keep bringing up these variables that can't be changed.

The contract is binding, it is law - like it or not, so please people get over the break fees/interest rates etc...

Hi Gremlin,

Nice post, but please forget about break fees/interest rates, I feel I am flogging a dead horse as members seem pre-occupied with these two variables.

One more time...

Interest rates/break fees can't be challenged. Can't. Contract is binding. Can't be challenged. Forget about them.

Hmmm, okay Nobody. I think you'll find that you raised break fees and interest rates well before I did...

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?

You've then repeatedly asserted that RHG don't have any competitors. I, for one, believe that to be blatantly wrong, but even if it's not that does not imply they're anticompetitive.

It is ok you can't see how RHG as it exists today conflicts Australia's anti-competition laws.

I'll ask one more time. Can you please indicate how you believe RHG is engaging in anticompetitive behaviour?

Have they colluded on price? Have they created artificial barriers to entry?

If so, how?

Have they engaged in asset stripping (not an anticompetition issue, but it appears you're alluding to it in your response to Ruroshin)? If so, to who's benefit and how?

 

[harb]

What's happened to the online access for RHG customers, can you still log on ?

 

[redwing]

*bump*


Pertinent thread at the moment I guess

see also Angry RHG Customers

Interesting to see how this pans out

Just saw the Exit Fee story (via web) on TT
Today Tonight Video

 

[Ripped_Off_21]

RHG - A total disgrace

Well,
For the first time ever I am posting my comments on the internet. I don't really know the legalities of what Rams did, but let me tell you, the RHG entity is abolutely arrogant, and at the very least deceptive about their business practices. I won't go into details here, but suffice to say that I was not allowed to talk to anybody outside of their "call centre". Additionally I was refused phone numbers to any executives, and was supplied only with a fax number, which I was assured would reach somebody in authority. The reply received was completely condescending, and totally insulting to my intelligence.
More importantly, nothig was rectified -nothing was adressed. They were not interrested in the fact that I had been a first class customer.

Thankfully I had sufficent means to simply pay out RHG and move on, but my heart goes out to those who trusted Rams, and do not have the ability to finalize their RHG account.

Remember the golden rule:

DO NOT ENTER INTO ANY BUSINESS ARRANGEMENT WITH RAMS - NOT UNDER ANY CONDITIONS.

 

[RaymondBDM]

Well,
For the first time ever I am posting my comments on the internet. I don't really know the legalities of what Rams did, but let me tell you, the RHG entity is abolutely arrogant, and at the very least deceptive about their business practices. I won't go into details here, but suffice to say that I was not allowed to talk to anybody outside of their "call centre". Additionally I was refused phone numbers to any executives, and was supplied only with a fax number, which I was assured would reach somebody in authority. The reply received was completely condescending, and totally insulting to my intelligence.
More importantly, nothig was rectified -nothing was adressed. They were not interrested in the fact that I had been a first class customer.

Thankfully I had sufficent means to simply pay out RHG and move on, but my heart goes out to those who trusted Rams, and do not have the ability to finalize their RHG account.

Remember the golden rule:

DO NOT ENTER INTO ANY BUSINESS ARRANGEMENT WITH RAMS - NOT UNDER ANY CONDITIONS.

Interesting thread to read through start to finish. A lot of people still see Rams today as the Rams of 12 months ago (now RHG) which is understandable. Rams today is completely seperate from RHG, i can vouch 100% for that. i dont deal with RHG at allbut i do with the old and new Rams...

Seems people are looking for someone to blame...as someone who was involved in both old Rams & new Rams internally (but not RHg), i know exactly who i have/would be venting my anger at. Back up 18 months ago and and you look at the convenient timing of the float, if anyone should be angry it's the employees during this time. A lot had RHG mortgages transferred to RHG, a lot had bought shares (they weren't told to but it was implied that they would do well), and all had no idea what would happen to their jobs. so while people are furious with their loans being transferred to RHG, there are others who are shafted on all 3 fronts with what happened.

I don't deal with any RHG staff, except for when i refinanced away from them, but i know most (new Rams) staff today are that of the old Rams who i couldn't fault at all. I know who i blame and i know more than most...just look who the previous owner was, but then count your losses and move on as the new Rams is not associated with what happened in the past...

 

[Perp]

If RHG can demonstrate that their interest rates have moved exactly in parallel with their cost of funding, and Token Funder seems to suggest that they may well be able to do that, then none of the below applies. If, however, there's been any increase in their profit margin, then I think there's a very good chance the ACCC would be interested in this.

When you take out a loan with, say, CBA, you rely on the fact that CBA have a reputation and will be wanting to attract new customers to protect you from them behaving reprehensibly after you sign up. Because the lending contract is so heavily weighted in favour of the lender, you have to rely on this goodwill element to have any faith whatsoever that you won't be royally screwed.

The way that RHG has been structured deliberately voids the one protection that its customers had that they would be treated in a manner that the market would find acceptable.

I hear all the arguments that RHG customers can transfer to another lender by paying the break fee. Yes, they can, but I would think an argument could be mounted that the customers signed up never intending to have to pay the break fee, trusting that the above mechanism - the need to compete for new business - would keep the conditions of their loan attractive.

I believe that the combination of these three elements:

1) the existence of a break fee,
2) the substantial increases in interest rates (if and only if these go beyond the cost of funding),
AND
3) the fact that RHG no longer competes for new business,

may constitute a breach of S51 of the Trade Practices Act relating to unconscionable conduct.

For those, such as Gremlin and Belu, who want to know in black and white what the breach is... well, the law's not as simple as that! Not every single possibility has been thought of, and that's why judges need the ability to interpret legislation. But when you consider the intent of the provisions the TPA, it seems clear to me that there's a breach of some of its principles.

In particular, customers who signed up in a particular competitive environment, have been deliberately transferred into a different competitive environment, and when you combine that with the existence of a barrier to transfer (break fees), I believe that's a breach. The customers agreed to pay a transfer fee in a particular competitive environment, not in the substantially altered environment that they're now in.

 

[lenojd]

Interesting discussion!

Who’s to blame though? Hasn’t this potentially happened inadvertently as a result of a poor business model? Is it still a breach?

Although I don’t see how WBC have done anything wrong in this situation.

 

[Token Funder]

If RHG can demonstrate that their interest rates have moved exactly in parallel with their cost of funding, and Token Funder seems to suggest that they may well be able to do that, then none of the below applies. If, however, there's been any increase in their profit margin, then I think there's a very good chance the ACCC would be interested in this.

When you take out a loan with, say, CBA, you rely on the fact that CBA have a reputation and will be wanting to attract new customers to protect you from them behaving reprehensibly after you sign up. Because the lending contract is so heavily weighted in favour of the lender, you have to rely on this goodwill element to have any faith whatsoever that you won't be royally screwed.

The way that RHG has been structured deliberately voids the one protection that its customers had that they would be treated in a manner that the market would find acceptable.

I hear all the arguments that RHG customers can transfer to another lender by paying the break fee. Yes, they can, but I would think an argument could be mounted that the customers signed up never intending to have to pay the break fee, trusting that the above mechanism - the need to compete for new business - would keep the conditions of their loan attractive.

I believe that the combination of these three elements:

1) the existence of a break fee,
2) the substantial increases in interest rates (if and only if these go beyond the cost of funding),
AND
3) the fact that RHG no longer competes for new business,

may constitute a breach of S51 of the Trade Practices Act relating to unconscionable conduct.

For those, such as Gremlin and Belu, who want to know in black and white what the breach is... well, the law's not as simple as that! Not every single possibility has been thought of, and that's why judges need the ability to interpret legislation. But when you consider the intent of the provisions the TPA, it seems clear to me that there's a breach of some of its principles.

In particular, customers who signed up in a particular competitive environment, have been deliberately transferred into a different competitive environment, and when you combine that with the existence of a barrier to transfer (break fees), I believe that's a breach. The customers agreed to pay a transfer fee in a particular competitive environment, not in the substantially altered environment that they're now in.

Indeed, I certainly didn't agree to the global credit markets shutting down but, then again, I could have missed the meeting.

The "particular competitive environment" isn't part of the loan agreement...it's part of reality

Can't see point (3) as an issue though you could possibly run an argument of an implied representation to remain competitive. Given the meltdown, can't see that one as a goer.

Presumably the argument to make would be that the exit fees are unconscionable in combination with the quantum of the rate rises and that the latter is only occurring at the scale they are because the former makes leaving too difficult.

I'm fairly familiar with the funding mechanisms previously used by RHG and the ballpark numbers they would have had to pay when the world went pear shaped and I think it would be a tough ask to show under current conditions that they are genuinely profiteering.

Still, given the last year or so, I expect the unexpected.

 

[Perp]

Indeed, I certainly didn't agree to the global credit markets shutting down but, then again, I could have missed the meeting.

But the GFC is applicable to everybody; your lender didn't manipulate your mortgage so that only a certain group of customers were subject to it.

I'm fairly familiar with the funding mechanisms previously used by RHG and the ballpark numbers they would have had to pay when the world went pear shaped and I think it would be a tough ask to show under current conditions that they are genuinely profiteering.

That would be the show-stopper for any legal action.

But those who think the loan agreement is the only thing relevant to the courts, are wrong, IMHO. TF, the competitive environment doesn't have to be part of the loan agreement; the existence of a loan agreement doesn't negate the requirement to comply with all other statutes. The competitive environment most certainly is a factor with regard to whether or not an arrangement complies with the Trade Practices Act. A huge number of legal actions originate from alleged breaches of laws outside the primary contract between the parties.

 

[Nobody]

Nice thinking ozperp..

You will find RHG are currently conducting a share buy back (how could they have money for this !?!).

I think that pretty well says it all as to the intentions of the board.... no interest in investing here... just protecting the share registry to protect the pig trough....

Government bodies at all levels are aware of the RHG debacle but it is a hot potato... any legal challenge will have to be privately funded... for eg. Dept of Consumer Protection in one state has allocated a legal officer solely for RHG clients.

If RHG can't provide a similar interest rate environment to the one clients signed into (ie. competitive rates and fees) then it is of the administrator... and the dole queue for the directors... while the RHG clients will make payments to the adminstrator who will determine rates and fees.

Of course that should have been the outcome all along... unless WBC bought the whole show (like CBA did to Wizard this week).

Maybe NAB might have a look at the loan book after being gazumped by CBA last week in re: to Wizard... maybe not..

Good luck with it all...

 

[bindertoo]

I know who i blame and i know more than most...just look who the previous owner was, but then count your losses and move on as the new Rams is not associated with what happened in the past...

The new Rams cherry picked the old Rams and imposed a ban on new lending as one of the conditions. The fact that they are not associated NOW makes little difference to anyone left over at RHG, the new Rams are partly to blame and if they wanted the Rams brand they should have bought the whole book or none at all. Even if WBC had nothing to be blamed for, which they do, mud sticks and the Raymond is covered in it.
The only way to make the problem disappear is for the new Rams to buy the rest of the old Rams customers. Which probably is not such a bad idea, if they managed to make the repayments at 10%+ the risk of defaulting now at 7% would be negligible.

 

[Token Funder]

If RHG can't provide a similar interest rate environment to the one clients signed into (ie. competitive rates and fees) then it is of the administrator... and the dole queue for the directors... while the RHG clients will make payments to the adminstrator who will determine rates and fees.

I'm sure a tenant making this argument when rents went up would have gone down a treat in this forum

" I want you to provide a similar rental environment to the one I signed into!!"


If RHG are at a cost-of-funds disadvantage relative to other lenders, their costs to borrowers broadly reflect those funding costs and they are not behaving unconscionably, it is difficult to see a TPA case getting up.

In legal terms, "stercus accidit".

It is worth remembering that unconscionability covers concepts like harsh or oppressive exploitation of weaker parties, serious misconduct and the like. Mere unfairness does not (currently...there is a parliamentary review happening) make the grade.

You would need to show that RHG's behaviour amounts, essentially, to victimisation and that would seem a stretch given (a) there is nothing novel about their exit fees and (b) the GFC screwed them.

FWIW

 

[turk]

Hi Token Funder

"" I want you to provide a similar rental environment to the one I signed into!!"

I think that most people on here would think it fair that if a tenant signed into a lease at fair market rent the rent should remain a fair market rent be that dropping, increasing or remaining static when reviews were due.

Tenants can appeal rent increases at tribunals if they consider them unfair, not a very good analogy on your part.

However agree with your arguments regarding RHG,


Cheers

Pete

 

[ffc1883_1996]

http://www.consumeraction.org.au/downloads/MR-RHGcase230109.pdf

...the test case legal action against RHG Mortgage Corporation ... has settled on confidential terms