Ciarán Hancock: Banks still not putting customers first

There is merit in criticism of Central Bank’s role in mortgage tracker rate scandal

There was little by way of Christmas cheer at the Oireachtas finance committee as Central Bank of Ireland governor Philip Lane was taken to task for the regulator's handling of its tracker mortgage examination.

It started with Fine Gael Senator Kieran O'Donnell, continued with Michael McGrath and John McGuinness (who chairs the committee) of Fianna Fáil and endured under Sinn Féin's Pearse Doherty, who accused the banks of "theft" by either denying customers a tracker rate or by overcharging them on their rate.

Lane faced a barrage of criticism of the Central Bank’s handling of the tracker issue, even though most of it didn’t happen on his watch.

It required a suspension of proceedings before Lane could put some shape on how many account holders have been been affected in this examination.


On Monday, the Central Bank said 8,200 cases had so far been verified, but this number doesn't tally with the 9,000-plus cases that the banks themselves have admitted to in public.

The figure also doesn't take account of the 2,100 Bank of Ireland customers who were offered redress in 2010 or the 1,372 borrowers of Permanent TSB who it emerged last year were affected by its failure to apply the correct rate. PTSB has set aside €145 million for redress and compensation.

In the finish, the total number of borrowers affected could exceed 15,000, of which 100 or so could have lost their homes as a result of their bank’s failure.

Enforcement powers

Why did it take until December 2015 for the Central Bank to instigate its industry-wide tracker review? Why is it taking so long to complete the review and to determine, once and for all, how many borrowers were affected and how much they will receive in redress and compensation?

Was the regulator bullied by the banks in dealing with this issue?

Lane denied the latter charge and said the delay in getting to grips with the issue was because the Central Bank did not have sufficient enforcement powers (they were beefed up in 2013) and was stymied by a legal case involving PTSB.

He said the regulator was now better resourced and more intrusive in its dealings with the banks. Yet it has just seven internal staff working on the tracker examination, which involves 15 lenders.

Criticism of the Central Bank’s role in this scandal isn’t without merit. The regulator has a consumer protection mandate and the public rely on it to keep manners on the banks, which have been found wanting in their treatment of customers on many occasions over a long number of years.

Lane urged the committee to await the final outcome of its examination and the enforcement cases against the banks that will subsequently flow; it has already fined former PTSB subsidiary Springboard Mortgages €4.5 million for its failure.

However, this will be cold comfort to those who have lost their homes or whose relationships broke up under the strain of the situation or to those who suffered from the stress of simply not being able to make ends meet.

Culture change

The banks themselves must ultimately shoulder the responsibility for having treated their customers so badly. As noted by Lane, this problem was systemic by virtue of the fact that it occurred across all lenders at the same time.

The governor called for a change in culture at the banks so that they “truly put the customer first”. He urged board members and shareholders to take the lead on this matter.

While it takes a long time to change the culture in any organisation, it is still jarring that eight years after the worst banking and property crash in living memory occurred, the head of the Central Bank feels the need to publicly urge our retail banks to put customers first. It should be at the core of everything they do.

Lane’s seven-page opening statement also contained some interesting revelations about the current lending practices being pursued by the five retail banks left in the market.

“Among these weaknesses found during recent supervisory activity were: a need for better oversight and challenge from boards in relation to the risk appetites of banks, which are used to govern and quantify lending decisions across sectors and borrower types; strategies focused on driving increased volumes without sufficient consideration of risk associated with long-term lending; and the use of league tables to incentivise staff to drive lending volume without consideration of quality,” he said.

It is extraordinary that some financial institutions are still engaged in loose lending practices and unsatisfactory for taxpayers who bailed out the sector that the regulator won’t name and shame them.

The banks have done much good work to repair their balance sheets since 2008 but continue to fall short of the mark in terms of treating their customers fairly.

If the crash didn’t prompt a change of culture, you have to wonder what will.

Twitter: @CiaranHancock1