KBC Ireland to refund up to €12.9m of legal costs in arrears cases

KBC Bank Ireland is set to refund up to €12.9 million of legal fees and interest to borrowers who have been in arrears across 4,500 mortgages.

Most would see the balance of their mortgage loan accounts lowered, though a limited number would receive a direct payment.

It comes after the Central Bank of Ireland (CBI) ruled in November last year that mortgage lenders cannot impose legal fees on customers in arrears if they are co-operating and engaging with their lenders.

The regulator also concluded that charging interest on any legal costs applied is in contravention of the EU’s Consumer Mortgage Credit Agreements Regulations.

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Permanent TSB (PTSB) and EBS, which is part of the AIB group, also each moved this year to refund legal costs to borrowers.

“In late 2019, following consultation with the CBI, KBC Bank Ireland changed its policy in respect to the application of legal fees and third-party costs to mortgage accounts in arrears, including interest accrued on such costs,” the bank said in statement in response to questions from The Irish Times.

“KBC decided to apply this policy change retrospectively, ensuring that customers benefit from the same outcomes, and over the course of 2020 has engaged in a review of all affected mortgage accounts. KBC has identified customers whose mortgage balance will be adjusted downward as a result.”

The bank has begun writing to 7,000 customers across 4,500 mortgage cases that were affected by the matter.

The average balance adjustment in respect of legal fees is about €2,875 across initial cases being addressed, including interest that had been charged. While this points to a total figure of €12.9 million for the bank, sources said the final figure when all cases were dealt with was likely to be lower.

The cost of the refunds will be absorbed by existing loan-loss provisions that have already been set against non-performing loans, meaning that the bank will not have to take an additional financial hit.

PTSB said in September it was making refunds of legal costs, averaging €2,400, plus interest, to almost 400 borrowers who had been in arrears in the past, following a review of legacy cases.

Meanwhile, EBS has refunded 11,000 borrowers an average of €400 in interest on legal and other third-party charges applied before engaging with the Central Bank last year.

KBC Bank Ireland, part of Brussels-based KBC Group, posted a €41 million net loss for the first nine months, driven by a €95 million provision taken in the first half of the year for an expected surge in bad-loan losses due to the Covid-19 economic shock.

The lender extended payment breaks to 6,900 borrowers between March and September as part of an industry-wide initiative to ease the financial distress caused by the pandemic. While most have rolled off the relief measure, chief executive Peter Roebben said last month that "a number of customers" would need further forbearance and restructuring.