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Businesses complain over hidden redemption charges

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  • 10/08/2001
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An increasing number of complaints are being received from businesses concerning early repayment cha...

An increasing number of complaints are being received from businesses concerning early repayment charges on commercial mortgages, according to the Financial Ombudsman.

According to the organisation, redemption charges are outlined using much more complex language than for residential mortgages. As businesses are not consumers, lenders do not have to abide with the same regulations regarding clarity of information. But many smaller, inexperienced businesses and sole traders who are not used to dealing with such contracts are finding themselves caught out by hidden charges.

In an article written for its website, the Ombudsman said: ‘Some lenders’ business loan agreements and domestic mortgage agreements contain similar contract provisions, but are very differently worded. The business loan agreement is usually the one the lender has not reviewed as recently, so its language is generally much less plain. There seems no good reason for that. Businesses are not consumers. So the regulations do not apply to business loans. This can produce unfortunate results for inexperienced sole traders.

‘The way in which some lenders calculate their charges does not always agree with the ‘explanations’ that appear in their own loan agreements. Some of those ‘explanations’ appear unnecessarily complex or ambiguous. And there are some common principles that lenders could adopt to achieve reasonableness and fairness.’

Alistair Smith, spokesman for Barclays, said the issue was not so much about simplifying wording, but more about educating small businesses to seek professional advice before they sign a contract. ‘In our view, we do make redemption charges clear and tell our business customers in general to seek advice before signing contracts,’ he said.

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