Multiple rates instead of 'prevailing board rate'

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April 5, 2006
Multiple rates instead of 'prevailing board rate'

I HAVE a similar experience with United Overseas Bank (UOB) as that described in the letter, 'Why do existing customers pay a higher 2nd-year rate?' (ST, March 31).

The interest rate for my housing loan was fixed for the first two years, followed by a floating rate pegged to 'UOB's prevailing board rate'. Since the floating rate took effect in August last year, I have had five 'board rate' increases totalling 1.25 per cent.

When I enquired as to why my 'prevailing board rate' was higher than the one currently published and offered to new customers, I was given the same explanation - that the cost of funds had gone up.

This may be the case, but it does not justify the bank charging me a higher board rate than that offered to new customers. If the bank failed to hedge its exposure to rising rates, it should not try to recover the higher cost by implementing a policy of multiple board rates, whereby existing customers are subjected to higher rates.

This policy of multiple board rates was not made known to me at the time I took up the mortgage, nor was it stated in the loan agreement. The agreement merely stated 'prevailing board rate'.

The meaning of 'prevailing board rate' is clear. I should be able to access the rate through a public channel, and it would be the current (prevailing) rate.

I was thus shocked that when I called the hotline to check the board rate, I had to furnish my account number to find out the rate applicable to my account. How can I be assured that this is indeed the rate applicable?

I signed a contract stating I would enjoy X per cent discount on the 'prevailing board rate', and I believed that the rate was a number that was published by the bank and is applicable to all housing-loan customers.

The reason one negotiates a discount to the board rate is so that one can lock in a position with regard to future rates.

If the bank can unilaterally decide on different 'prevailing board rates' for different customers, why bother negotiating at all? You would still end up paying whatever the bank decides.

Gan Li Lian (Mdm)