OFT and Variable Interest Rates

The OFT has recently written to the British Bankers' Association ("BBA") in respect of the ability of banks to vary the standard rate of interest. The OFT considers that the unilateral ability to vary the rate of interest (i.e. the ability of a bank to change its base rate) may contravene the terms of the Unfair Terms in Consumer Contracts Regulations 1994 in relation to products such as mortgages and personal overdrafts. Of particular concern to the OFT are fixed rate mortgages which, after expiry of the fixed rate, require the borrower to continue on the lender's standard variable rate.

The BBA is concerned that the OFT's stance could prejudice the legal basis of many mortgages. Lenders should be aware that the OFT has the power to seek a court injunction to prevent the use of unfair terms.