Q&A: Tracker mortgage scandal has undermined public trust in banks

What is the tracker scandal about?

The Republic’s biggest bank overcharging scandal can be traced back to the start of the financial crisis. Banks moved in 2008 to stop offering cheap mortgages linked to the European Central Bank’s (ECB) main rate – trackers. In doing so they denied many borrowers on temporary fixed-rate mortgages the right to move back on to a tracker rate at the end of the fixed rate period.

In late 2015 the Central Bank finally told all lenders to look through their books for impacted customers. It instructed them to look beyond the legalese of mortgage contracts and to include cases where borrows would have had a reasonable expectation from the wording of their loan agreements to move to a tracker rate.

Banks were slow to do so. Forcing their hands has been the cause of most of the debate and delay in lenders acknowledging impacted customers over the past 3½ years. In its final report on the issue, published on Tuesday, the Central Bank said 20,000 of the 40,100 cases identified were the result of it challenging the banks.

Anti-trust investigations could take years to reach decisions

---

BoI shares down 30% since McDonagh unveiled ambitious target

---

Ulster Bank says no. But is a tie-up with PTSB inevitable?

---

2018 gave us falling AIB shares and the thorny issue of bankers’ pay

---

Some 60 per cent of cases were borrowers who were put on the wrong product. A further 19 per cent were put on the wrong rate. The remainder comprised other issues that cropped up during the review, including where borrowers did not roll on to a tracker rate on the correct date.

Why did banks stop offering tracker loans in 2008?

Tracker mortgages, introduced to Ireland in 2001 by Bank of Scotland, were a profitable way for banks to lend as their own borrowing costs in financial markets dropped significantly following the establishment of the euro in 1999. The product served to fuel an increasingly competitive market at the time.

However, when the financial crisis struck banks’ funding costs soared and tracker mortgages became a loss-making line for lenders. They stopped offering the product that year, and tried to prevent existing borrowers moving on to tracker loans – typically after a fixed-rate period came to an end.

Was this a concerted effort by banks to deny customers their rights?

Regulators have not found evidence of deliberate decisions being taken to deny customers their rights. Indeed, the Central Bank has said that in many of the cases the banks would win the argument in court.

The regulator, which is pursuing enforcement investigations into the State's lenders – having already fined Permanent TSB €21 million for its tracker failings – continues to look for evidence on whether banks, or individuals within them, deliberately set about refusing borrows their entitlements.

Banks have certainly been found to have failed to have customers at the heart of their decisions or to have in place proper systems to make sure they met their obligations to customers.

AIB and its EBS unit, Bank of Ireland, Permanent TSB, Ulster Bank and KBC Bank Ireland account for 98 per cent of all tracker cases, though former mortgage lenders in the State, including Bank of Scotland and Danske Bank, were also responsible for hundreds of cases.

So has it been plain sailing for tracker victims to receive compensation?

If only. The scandal escalated in October 2017 when the Oireachtas Finance Committee and Minister for Finance Paschal Donohoe hauled bank chief executives before them as they continued to drag their heels in acknowledging impacted customers and in paying compensation in a timely manner.

While most of the banks worked at pace from then to offer redress and compensation, the number of acknowledged cases continued to climb. Ulster Bank was particularly behind the curve in making payments due to issues with its IT systems. It only caught up with payments at the end of April.

In its report the Central Bank judged some of the banks’ initial redress and compensation plans to be “materially deficient”. It said it had to look over more than 30 versions of schemes to drive improvements in the amount on offer and appeals processes for borrowers.

Banks paid out €683 million by the end of May – representing 98 per cent of impacted cases. The remainder is mainly made up of former customers the banks have been unable to locate even with the help of tracing agents. The Central Bank has insisted money owed to this cohort be set aside so the lenders don’t profit from the fiasco.

How has the appeals process worked?

Banks have offered borrows a minimum of 12 months to appeal the amount on offer. As of the end of May, 3,300 customers have made appeals through independent panels set up by lenders.

Some 1,800 cases had been determined by then. In 55 per cent of those cases, borrowers succeeded in having all or part of their appeal upheld. As a result, the banks concerned were forced to hand over an additional €7 million in compensation.

Cashing refund and compensation payments sent by the banks did not preclude affected borrowers from making an appeal. About 20 per cent of those affected still have time to lodge appeals with their lenders, according to the Central Bank. Borrowers also have further recourse to the Financial Services and Pensions Ombudsman and the courts.

Have things changed in Ireland?

The Republic’s banks have responded to the tracker crisis by setting up a new Irish Banking Culture Board in recent months with the stated aim of “rebuilding trust in the sector and promoting fair customer outcomes”.

Meanwhile, the Government plans to push through new laws that would make it easier to hold individual senior bankers accountable for failings and wrongdoing under their watch.

Customers of Irish banks would be forgiven for remaining sceptical as to whether either will deliver change in how lenders behave.