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[LENDER'S REGISTERED OFFICE ADDRESS]
Penalty & unfair charges - request for refund for [YOUR NAME, SORT CODE, and LOAN ACCOUNT NUMBER].
[INSERT the amount of charges applied i.e. 'Since 2006 you have applied mortgage 'arrears charges' to my account in the sum of £1,000'. - if you don't know send the 'Data Protection' letter on the Step 1 page].
I believe these charges are a penalty charge and legally unfair in terms of the 1999 Unfair Terms in Consumer Contract Regulations (SI. 1999/2083). I believe this because:
charges have been imposed on my default, namely because I incurred mortgage arrears;
default charges at common law must reflect actual costs and the penalties you have imposed far exceed any actual additional administrative costs that my default has incurred; and
imposing fixed monthly charges because I am in arrears with my mortgage requires me to pay a disproportionately high sum in compensation to you, particulary as during most months I am in arrears you have little or no contact with me; and therefore these charges are legally unenforceable under reference to para 1(e) of schedule 2 to the 1999 Regulations.
Your mortgage default charges are very similar to credit card default charges.
On 5 April 2006 the Office of Fair Trading (OFT) announced that credit card default charges which are set at more than £12 will be presumed to be unfair and unenforceable in terms of the 1999 Regulations. Charges above this sum will be subject to legal action by the OFT (press release 68/06 - online here: http://www.oft.gov.uk/News/Press+releases/2006/68-06.htm).
The OFT stated that a charge is not fair simply because it is below this sum, and I believe that a reasonable charge would be no more than your loss of base rate interest on the sums I have failed to pay. For example, if I was in arrears of £500 for one month your loss would be:
(base rate interest) x (level of arrears) x (length of time in arrears)
5.75% x 500 x 1/12 = £2.39
Please refund all charges applied to my account within the next 7 days. I reserve the right to commence court proceedings without any further notice, and to seek an additional award for distress and inconvenience, together with legal expenses.