KBC denied me access to tracker rate when fixed term ended

I refer to your article in The Irish Times last month in relation to the tracker mortgage scandal. In it, you state that certain AIB customers in 2008 who were on fixed-rate mortgages should have transferred automatically to a tracker mortgage on completion of the fixed-term period.

Would the same be true of KBC mortgage holders? Attached is a copy of a letter where it states that anyone coming off a fixed-term mortgage would be automatically transferred to a tracker mortgage. I was on a fixed mortgage at the time but was never switched or offered the opportunity to switch to a tracker mortgage. Who would be at fault here? KBC or the broker to whom the letter is addressed?

Mr SB email

The issue of tracker mortgages, who should have had access to them and at what rates is a running sore for Irish banking.

Thousands of Irish homeowners signed up to fixed-rate mortgage contracts which offered them the opportunity at the end of the fixed period to transfer to a tracker rate, move to a standard variable rate or opt for another fixed-term period.

However, when their fixed term expired, trackers were no longer on offer to customers. But, and this is important, the banks still had many mortgageholders on tracker rates. So it was not a question of the product no longer being in existence, only that the bank had withdrawn it for any new applicants.

The problem for the banks is that they had entered a contract with existing customers offering them access to a tracker down the line. These were not “new” customers but existing customers with contractual rights to the product.

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This is now a matter of contention between the banks and the customers. And it is going on under the regulatory gaze of the Central Bank which recently admitted it is having to force the banks to accept liability for certain customers.

Most recently, Bank of Ireland was forced to multiply the numbers it now accepts were affected. And the Central Bank has said that all the big lenders will be subject to enforcement action.

A running sore, as I said. And the banks’ heel-dragging in addressing the issue transparently and generously is only further damaging the reputation of an already badly tarnished sector.

Not automatic

I just need to correct you on one thing. You say that I wrote that “certain AIB customers in 2008 who were on fixed-rate mortgages should have transferred automatically to a tracker mortgage on completion of the fixed-term period”. That’s not what I wrote. I said they should have had the option of moving to a tracker rate because that option was in their mortgage contract. It was not an automatic thing.

The bank view is that because these borrowers had never been on a tracker rate or had never asked for one, they are not entitled to that option because, at the time the fixed contract expired, the tracker option was no longer on the bank’s menu of available mortgage products.

Affected homeowners note that it was still an option within the contract and that the bank was still servicing tracker mortgages – and still is – for other customers.

They note, reasonably, that if they, as customers, had chosen to ignore a term of the contract because circumstances had changed – like, maybe, their losing a job – the bank would have been quick to enforce its rights under the contract. It should work both ways, these customers argue.

Marketing flyer

In your case, the letter – or marketing flyer more accurately – that you sent me, states baldly that, at the time in November 2006, IIB Homeloans as standard practice was transferring people on fixed mortgages to their tracker rate when those fixed terms expired.

“All IIB Homeloan fixed rates will roll on to tracker rates upon expiry,” it states under the headline: “Fantastic News from IIB Homeloans”. The tracker rate on offer at that time was either 1.25 per cent or 1.4 per cent, depending on the size of your mortgage.

IIB Homeloans was, at the time, fully owned by Belgian lender KBC and, in 2009, it changed its name to KBC Homeloans. KBC is still a lender in the Irish mortgage market.

The thing to note is that this document you sent me is effectively an advertising sheet. That doesn’t mean that it doesn’t have some weight but you would certainly need to look at the wording in your actual mortgage contract at the time. I assume it will say the same.

As far as I can see, your quibble is with the bank, not the broker, although you might have some case if you can show you were wrongly advised by the broker. Given the industry-wide experience – and how long it took to emerge – it might be a bit of a reach to argue a broker is liable.

But if your contract says you should have been offered the option – or the automatic rollover right – to a tracker rate, then you should certainly apply to the bank for restitution and, assuming you still have the mortgage, access even now to a tracker mortgage rate.

And what then?

Legal advice

The truth is that it is not yet clear. The banks and the Central Bank just want to get this sorted. They don’t want it dragging on. I can only assume the banks have legal advice that they are not liable for this particular tranche of customers. Some of the customers have legal advice of their own that is equally clear and contradicts the view of the banks.

The Central Bank has clearly already forced at least some of the banks to go further than they themselves were inclined to go in including more customers in any restitution and compensation programmes.

Ultimately, I suspect it will come down to money. If the banks can afford to make the problem go away, they will. Otherwise this might go to the ombudsman and, ultimately, the courts.

All of which will do nothing to allow banks restore their reputation and move on – to say nothing of their prospect of holding on to customers who feel they have been wrongly short-changed serious money by the lender they trusted to play fair.

Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice