Banks are real villains in tracker mortgage abuse of customers
Banks compound denials and rate error of mortgages with sluggish efforts at redress
Central Bank governor Philip Lane: will be grilled by the Oireachtas finance committee on the saga of the tracker rate scandal. Photograph: Cyril Byrne
Remember that television ad from the Financial Regulator in 2007 where the grey-haired man stands up on the double decker bus and declares “I don’t know what a tracker mortgage is”?
It was a campaign designed to help the public understand personal finance issues in plain English. Given what we now know from the Central Bank’s “examination of tracker mortgages”, the ads should have been aimed at bankers not the public.
The regulator’s trawl has so far found that various lenders in Ireland failed to comply with the contractual and regulatory obligations relating to tracker mortgages in some 13,000 cases.
Customers were either denied a tracker rate that they were entitled to, or they were charged the wrong rate. The number is expected to top 20,000 by the time this examination, which is already 22 months old, is finally completed.
We’ve yet to be told by the banks why these failures happened. Nor has it been explained why this happened at virtually all of the lenders in the market at around the same time. It seems like a remarkable coincidence.
We also now know that 23 families were put out of their own homes as a result of this failure by the banks to apply the correct rates to their mortgages. Their lives will have been turned upside down by the loss of their homes, and no amount of money can ever compensate them for that stress.
In another 79 cases, investors lost their ownership of buy-to-let properties, an event that probably destroyed their credit ratings while also causing them untold stress and possibly discommoding those who were renting the properties.
Again, these figures are likely to rise before the Central Bank completes its examination. To date, some €163 million has been paid out by a small number of lenders in financial redress and compensation with much, much more to come.
Before you punch the air in delight at banks being hit where it hurts them most, just remember that the majority of this money belongs to Irish taxpayers through their shareholdings in Permanent TSB (75 per cent), AIB (71 per cent) and Bank of Ireland (14 per cent).
PTSB has so far paid out €36.8 million to resolve its failures, in addition to €6.2 million for its former subsidiary, Springboard Mortgages. It also paid a fine of €4.5 million on behalf of Springboard and is facing its own enforcement proceedings and a fine with the regulator.
In total, PTSB has set aside €145 million to cover the costs of its tracker failures. As if all of that isn’t bad enough, we now learn that some banks are dragging their feet in their engagement with this examination. Both Bank of Ireland and KBC have been parsimonious in the details they have made public.
The Central Bank told us yesterday that it is “engaged in challenging” two lenders to ensure that they undertake further review work and that this is completed “without delay”.
In addition, the Central Bank is “concerned that two lenders may have failed to identify populations of impacted customer or failed to recognise that certain customers have been impacted by their failures”.
The Central Bank believes that some of these customers are entitled to redress and compensation and the lenders are “reconsidering certain outcomes” and are due to revert to the regulator by the end of this month.
We also now know the Central Bank has had to “challenge lenders repeatedly” to improve the level of redress and compensation they were going to offer to impacted customers. To date, only 3,300 customers have received any redress.
The only disappointment is that the Central Bank hasn’t named and shamed the lenders in its latest report. Why not?
And, as noted by Fianna Fáil’s finance spokesman, Michael McGrath, some customers have now been put on “exceptionally high” tracker rates of 3-4 per cent as part of their redress. This is outrageous when you consider that European Central Bank rates are practically zero and the cheapest standard variable in the market is 3.15 per cent.
These and many other questions will be posed to the Central Bank on Thursday when the Oireachtas finance committee grills governor Philip Lane on this sorry saga. Not that he should be expected to have all the answers.
The real villains of the piece are the banks through their shabby treatment of their own customers.