Tracker mortgage rulings can only be overturned on ‘serious and significant’ error, court told

Three ombudsman decisions that found customers of Ulster Bank were entitled to tracker mortgage compensation can only be overruled if the Financial Services and Pensions Ombudsman fell into “serious and significant error”, the High Court was told on Friday.

Lawyers for the ombudsman’s office submitted that the case before the court is “fairly straightforward” and the bank’s claim that there were errors in the decisions does not meet the “high threshold” that would enable Ms Justice Marguerite Bolger to overturn the findings.

Ulster Bank is challenging the ombudsman’s decisions in three cases of borrowers who were excluded from redress in an industrywide examination overseen by the Central Bank between late 2015 and mid-2019.

The ombudsman issued binding decisions that customers in the three cases had an “enduring contractual entitlement” to tracker loans, which are tied to the European Central Bank’s (ECB) main interest rate, after periods on fixed-rate loans. The ombudsman also found the borrowers were entitled to redress based on their entitlements.

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The court has heard the outcome of the three cases could have a bearing on thousands of other borrowers who had tracker mortgages with the bank.

Eileen Barrington SC, for the ombudsman, said some of the issues raised by Ulster Bank in the preceding three days of the hearing had not been pleaded in court documents, while others were “disconnected” from the ombudsman’s findings.

Referencing case law that dealt with previous ombudsman decisions, Ms Barrington said judges often referred to findings that were “reasonably open” to the ombudsman, who was “entitled” to reach a conclusion that a judge disagrees with. She said the ombudsman’s decision-making process was not as formal as the court process.

Eoin McCullough SC, for the bank, previously submitted that there were serious errors in the decisions that warranted them being set aside. The finding that the borrowers had an “enduring contractual entitlement” to tracker loans was not backed up by the loan contracts the borrowers had entered, he said.

Mr McCullough has focused on one of the three cases. He said the ombudsman did not say in its case decision last year how Ulster Bank breached the Consumer Protection Code 2006 by not allowing the borrowers to return to a tracker rate.

The contested case involved two borrowers who took out a mortgage in April 2004 that initially had a one-year reduced interest rate, before reverting to Ulster Bank’s so-called home loan rate, its standard variable product.

The borrowers signed a so-called flexible mortgage transfer form in early 2006, entitling them to move on to a tracker loan. As ECB rates were rising, in May 2007, they subsequently applied to fix their interest rates until August 2010.

The loan documents said that Ulster Bank may offer to extend the fixed period at the end of the fixed term or offer alternative available products. However, if these were not accepted, the contract stated that the borrowers would automatically revert to the bank’s home loan rate.

The borrowers moved automatically to the home loan rate, as they did not avail of the alternatives. Ulster Bank had stopped offering tracker products in October 2008 as the funding costs of banks soared during the financial crisis.

The ombudsman will continue presenting its case on Tuesday.