Bank of Ireland offers compensation after arrears ‘technical error’

Bank started legal proceedings against 400 mortgage holders without first issuing letters

Bank of Ireland has offered compensation to 400 mortgage borrowers that were deep in arrears, after the lender failed to send necessary "calling in debt" letters before starting legal proceedings against them.

The majority of the cases relate to buy-to-let mortgages and almost all of the affected borrowers are being offered €5,000 in compensation and the coverage of legal costs. The total bill may be as high as €10 million.

“Early last year we contacted a number of customers to inform them that, due to an internal technical error, correspondence which was part of a suite of communications to customers in arrears was not sent to them,” a spokesman for the bank.

“While the error did not impact the arrears balance on accounts, and debt recovery steps were necessary, these steps should not have been taken until all appropriate letters had been sent. Where any legal proceedings were pending these were immediately withdrawn.”


The bank has written again to the borrowers in recent months after completing its review.

About 250 of the cases had been involved in legal court proceedings at the time the error was discovered. It is understood that about 70 borrowers had receivers appointed to their buy-to-let properties, a further 50 had seen their units sold by a receiver and 10 cases had been through the legal process. Others had sold their properties and cleared up their arrears.

“Where legal proceedings were not progressed and where we withdrew from the process, we are covering the legal costs for customers, we are compensating customers for the error and re-engaging with the customer in respect of any arrears,” the spokesman said

Where legal proceedings had already taken place, where a property was sold or where receivers were appointed, the bank is paying the costs of the legal proceedings, receivership and compensation.

Tracker scandal

News of the issue comes after Bank of Ireland has had to set aside €250 million in recent years to cover the cost of refunds, compensation and an expected regulatory fine in relation to its involvement in the wider industry's €1.5 billion tracker-mortgage scandal.

The Irish regulatory and legal systems make it one of the most difficult places in Europe for lenders to repossess houses or apartments when borrowers are in default. Banks typically issue about 25 individual letters to borrowers in arrears before a case ends up in court, according to industry sources.

"Irish people are paying the highest mortgage rates in the euro zone because of the difficulty banks have in getting possession orders against people that are not paying," said Brendan Burgess, founder of online consumer forum Askaboutmoney. com.

“This is yet another example of one of the hurdles making repossession so difficult. These people owed the money. They were in deep arrears, yet the banks cannot get the property. The ordinary mortgage holders are paying for this bureaucratic nightmare.”

The scale of the arrears problem in Ireland following the property crash means that the country’s banks are required by regulators to hold €50 of capital against every €1,000 of mortgage lending, compared with an average of €16 in Europe, according to an analysis by Goodbody Stockbrokers last year.

The average rate charged on new mortgages in the State over the past 12 months was 2.91 per cent, compared with a euro-zone average of 1.35 per cent, according to Central Bank figures published earlier this month.

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times