Decision on tracker mortgage overturned

THE HIGH Court has overturned a decision of the Financial Services Ombudsman requiring a mortgage lender to allow a couple revert to a tracker mortgage for the remainder of their 35-year mortgage.

The ombudsman has been directed to reconsider the matter in accordance with the court’s findings.

In his judgment yesterday, Mr Justice Michael White noted he was not entitled to apply provisions of a new Consumer Protection Code, to be issued by the Central Bank in January 2012, to the case.

The code, under which regulated lenders will have to give written information and warnings about long-term effects of changing from a tracker interest rate and allow consumers a cooling-off period, was “a very desirable development”, he said.

It would have helped the couple in this case considerably as they were making financial decisions at a time “of great stress”.

Irish Life Permanent, trading as Permanent TSB, had brought the legal challenge to the ombudsman’s decision last February upholding a complaint by a couple that it had failed to clearly explain the consequences of switching from a tracker mortgage. The ombudsman found the lender should have made clear, and in writing, to the couple they would lose their right to revert to a tracker mortgage if they opted out of their fixed-rate term early.

The case arose after the couple took out a 35-year mortgage for €395,000 with the lender in 2007 with the interest rate fixed for the first three years, after which the rate would revert to a tracker rate following European Central Bank rates.

They changed from their fixed rate term to a variable rate in January 2009 after one of them became unemployed, but claimed the consequences of switching were not clearly explained.

It is believed a number of similar complaints have been made.

In his decision, Mr Justice White found the ombudsman made serious and significant errors in his finding upholding the couple’s complaint.

The ombudsman had failed to address a conflict of evidence between the couple and the lender as to what was said by it to them concerning switching from the tracker rate, he found.

The ombudsman had also incorrectly ruled there was a fiduciary relationship between the lender and the couple, he said. The parties were not in a fiduciary relationship with each other as, in law, the lender was entitled to have regard to its own financial interest. Any change in the interest rate had consequences for the couple and the lender, he noted.

The responsibilities placed on the lender were in accordance with the Consumer Protection Code, rather than any duty as a fiduciary, he said, insofar as there was any finding by the ombudsman the bank had misrepresented matters by silence because of a fiduciary relationship that was not correct in law.

The judge said the parties were in dispute about what was said to the couple by a bank official in a phone call of January 8th, 2009, and at a meeting between the couple and another official on January 9th, 2009.

There was a conflict of evidence as to what exact information was provided on those dates, he said.

The ombudsman, in considering the complaint, should have applied the provisions of the 2006 Consumer Protection Code, the lender’s obligations under its own rules, regulations and code of conduct, and general consumer law.

It was not appropriate for the court to comment on the likely outcome if those had been applied, he said.