Bank loses case for not explaining fixed rate loans

Jan Samuel

In the recently decided High Court case of Thomas v Triodos Bank, the Court was critical of a bank which had not properly explained the implications of taking out a fixed rate loan to a customer.

The bank's customers owned an organic farming business. When they went to the bank, they already had significant loans, with variable interest rates.

The customers made enquiries about switching to fixed rate loans and were given information about this by the bank, in writing and verbally. The bank's customers decided to take up the offer of the fixed rate loans.

The fixed rate loans were taken out before the financial crisis, which gave rise to a fall in interest rates generally. The farmers struggled to keep up the loan payments, and were unable to get out of the agreement because of redemption penalties in the fixed rate loan agreements.

Eventually, the farmers brought a claim against the bank and the High Court found in favour of the bank's farming customers.

The High Court said the bank had "misrepresented the position", and that it was in breach of its duty to give a balanced view of the consequences of entering into a fixed rate loan. 

However, the High Court was careful to point out that the bank did not have to volunteer this information to their customers, but in this case, as the customers had made specific enquiries, the bank had a duty to explain the consequences fully to them. 

This case sends a strong message to banks that where a customer asks for advice, that advice must be given in a full, frank and balanced manner. 

If you are struggling to pay a fixed rate loan and think you may have been misled by a bank, contact us today for a free discussion about how we can help.