The Rate Lock and the Delayed Settlement
A bank offers customers a 90-day rate lock on fixed-rate home loans for a fee of 0.25% of the loan amount. The customer, Ms. Tan, locks a $700,000 loan at 5.80% and pays $1,750. Settlement is delayed 45 days because the vendor's title has an unresolved caveat - a delay outside Ms. Tan's control. During the delay, market fixed rates fall to 5.20%. The bank's rate-lock terms say the lock expires after 90 days and that if settlement occurs after expiry, the prevailing rate applies. The bank's officer tells Ms. Tan the lock 'protects you either way'. Ms. Tan settles at 5.80% while new borrowers are offered 5.20%. She complains that she paid for protection that did not protect her and that she was misled.
1. Analyse whether Ms. Tan was misled and whether the rate-lock outcome was fair.
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Was she misled? The statement 'protects you either way' is inaccurate on the bank's own terms. A rate lock protects the borrower against rates rising; it does not protect against rates falling, and it expires. A reasonable customer hearing 'either way' would believe both directions are covered. That is a misrepresentation of the product's effect, even if made casually. The written terms may be correct, but a correct document does not cure an incorrect verbal assurance - particularly where the customer paid a fee in reliance on it.
Was the outcome fair? The outcome is defensible only if the delay is the customer's risk. Here it is not: the caveat is a vendor-side title issue. The bank's terms allocate the expiry risk to the customer regardless of cause, which is one-sided where the delay is outside her control. She has paid $1,750 for protection and, because rates fell and the lock expired, she receives neither the benefit of the lock nor the benefit of the market. That is a poor outcome that the bank should be able to explain convincingly - and on these facts it cannot.
The distinction to draw: the rate-lock mechanism itself is not inherently unfair; the combination of an unqualified verbal assurance, a delay outside the customer's control, and a fee retained with no benefit is what makes it unfair here.
2. What should the bank do for Ms. Tan, and what product and process changes follow?
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For Ms. Tan.
- Acknowledge the 'either way' statement was inaccurate and apologise.
- Assess remediation. Options: apply the prevailing 5.20% rate from settlement; or refund the $1,750 fee; or both, depending on the loss calculation. The customer paid for protection and did not receive it, so a fee refund alone may not make her whole if she is locked into a higher rate than the market.
- Consider whether the lock should be extended where delay is outside the borrower's control, and apply that to her case.
- Record the complaint outcome and the reasoning.
Product changes.
- Rewrite the rate-lock terms to address delay caused by third parties - e.g. extension of the lock for documented delays outside the borrower's control, or a fee refund if the lock expires through no fault of the borrower.
- Clarify in plain terms what the lock does and does not do: protects against rises, not falls; expires on a date; what happens on expiry.
- Script and train staff: ban 'protects you either way' and similar shorthand; require the direction of protection to be stated explicitly.
- Add a fee-refund trigger where the lock expires and the customer settles at a rate worse than the locked rate through no fault of their own.
Process. Review other customers who settled after lock expiry to see whether the same issue affected them, and report the conduct issue through the bank's complaints and compliance channels.