Senior Reporter
derek.achong@guardian.co.tt
A Maraval couple has sued First Citizens Bank Limited (FCB) over its decision to increase the interest rate and corresponding monthly instalment on their mortgage.
In April last year, the couple, whose names were withheld by this newspaper on the request of their attorney, filed the breach of contract lawsuit.
When the case came up for hearing before Justice Joan Charles on Thursday, directions were given for the disclosure of evidence in the case.
In their court filings, obtained by Guardian Media, in January 2017, the couple entered into a mortgage agreement with the bank for $1,988,200 to purchase a house in a gated community at Morne Coco Road in Maraval.
Ten months later, the bank wrote to the couple informing them that it had decided to increase their interest rate from five to six per cent effective February 2018.
The couple claimed they did not receive the correspondence as it was sent to their previous address in Arima.
When their monthly instalment increased as a result of the changed interest rate, the couple raised concerns with the bank.
However, they continued to make the monthly payments between February 2018 and December 2020 to avoid incurring further debts and penalties.
The couple then obtained a loan from another financial institution at a rate of four and a half per cent, which they used to pay off the mortgage with FCB.
In July 2021, the couple wrote to FCB enquiring why the increase was applied.
Several weeks later, the bank wrote to them indicating that the increase was as a result of the Mortgage Market Reference Rate (MMRR) re-pricing of existing mortgages, which is done annually. It also contended that the increase was also as a result of the risk premium or the couple’s credit worthiness (spread).
After the couple’s lawyers sent a pre-action protocol letter threatening the lawsuit, the bank pointed out that the increase was permitted under the mortgage agreement.
In a response, the couple’s lawyers acknowledged the bank’s contractual discretion but claimed that the decision was irrational based on the insight provided.
In December 2022, the bank’s Legal Manager sent correspondence seeking to provide further clarity.
The manager claimed that the interest rate the couple received when they entered into the mortgage was based on a Christmas promotion.
The manager also claimed that the Central Bank permitted banks to re-price mortgages once annually on the anniversary date of the mortgages.
They were careful to note that the increase was not based on the couple’s risk rating being elevated as initially contended but rather due to the bank’s operating costs increasing during the period.
In the court filings, the couple’s lawyers relied on the Residential Real Estate Mortgage Guideline issued by the Central Bank in October 2017.
It states that the actual mortgage rate charged to consumers will be the most recent MMRR rate plus a margin determined by licensees or financial institutions.
“The margin to be set by the licensees will reflect, inter alia, the borrower’s credit rating, the amount of the down payment , and the location of the property,” the guideline states.
The MMRR between 2016 and 2021 remained unchanged at three per cent.
The couple’s lawyers contended that the increase was unlawful.
“The defendant’s use of its purported increase in operating costs as a consideration to exercise its contractual discretion to increase the claimant’s interest rate was in breach of contract and/or arbitrary and/or capricious and/or an irrational basis without sufficient cause and/or justification and/or in breach of its duty of good faith,” their lawyers said.
Through the lawsuit, the couple is seeking damages for breach of contract as well as $78,744.49 in compensation, which represents the additional fees they were required to pay as a result of the interest increase.
In its defence, FCB denied any wrongdoing.
“The defendant at all material times, exercised its discretion in accordance with the Guideline and/or the Mortgage Loan Agreement and therefore did not act arbitrarily, capriciously, or irrationally and/or without justification or good faith as alleged,” its lawyers said.
The couple is being represented by Dinesh Rambally, Kiel Taklalsingh, Rajiv Sochan, and Kavita Moonesar, of Sovereign Chambers.
The case is scheduled to come up for hearing on May 2.