There is no tracker mortgage scandal. There is a tracker mortgage scam. There is, or ought to be, a crucial difference.
A scandal, at least in Irish public life, is an occasion when everybody gets outraged by appalling behaviour, inquiries are called for and perhaps actually held, reports are issued, reforms are promised – and no one is punished for anything.
A scam, in a functioning democracy, is an organised set of deceptions in which innocent people lose possession of their money or their property. The required response is not the wringing of hands or the issuing of reprimands or, as is the reported intention of the minister for finance Paschal Donohue when he meets the bank chiefs next week, an "admonishment".
It is the investigation of crimes and the punishment of the perpetrators. And this crucial difference is why we have to pay attention when the governor of the Central Bank, Philip Lane, invited on Thursday at the hearings of the Oireachtas finance committee to address the prima facie evidence of criminality, chose his words with apparent deliberation: "It's a scandal."
The Criminal Law (Theft and Fraud Offences) Act 2001 says: “A person who dishonestly, with the intention of making a gain for himself or herself or another, or of causing loss to another by any deception, induces another to do or refrain from doing an act, is guilty of an offence.”
There is an apparently strong prima facie case that some as yet unknown persons working in the banks deceived other people (over 20,000 of their customers) to take an action (agreeing to changes in their mortgages that put them onto much higher interest rates) with the intention of making a gain for others (the bank) and a loss for those customers.
The Central Bank doesn't just have the power to call in the Garda when it suspects that criminal offences have been committed by institutions under its supervision – it has a statutory duty to do so. Yet the evidence from Lane and from his colleague Derville Rowland this week was essentially the same as it was last April when they last appeared before the committee.
The Central Bank is “in discussions” with the Garda in relation to the tracker mortgages investigation. Meetings have taken place. Information has been shared.
But the bottom line is that the Central Bank has still not made a single report of suspected fraud. Hundreds of millions of euro were wrongly taken from 20,000 or so customers (some believe the true figure may be closer to 30,000) and put towards bank profits, but so far the Central Bank has not formed in even one case a view that a criminal offence might have taken place. It is still all nothing more than a scandal.
To grasp the depth of the problem this presents, we have to consider how the banks explain what happened – how, from their point of view, it came about that 11 different financial institutions all ended up ripping off their own customers in broadly the same ways at roughly the same time.
Everyone had their own challenges with regard to how they implemented that and clearly most people got it wrong with regard to the follow-on consequences for other customers
Let's take the story as told by the chief executive of the biggest bank involved, Allied Irish Banks, Bernard Byrne. Last month, he explained to the committee that, after the crash of 2008, the banks stopped offering tracker mortgages to new customers but ended up with a very complex set of different mortgage contracts: "We ended up with over 40 different types of customer."
He pointed to this complexity as the root of the problem: “It is a complete failure of the administrative system to track the complex products on it at the time. The withdrawal of the offering at that point was not properly thought through with regard to consequences of associated tracker issues.
“We are not surprised, when one looks at it, that everyone did it around the same time. It was as a result of what happened in the marketplace with ECB rates disconnecting completely from market rates. We are not surprised that occurred across the system.
“Everyone had their own challenges with regard to how they implemented that and clearly most people got it wrong with regard to the follow-on consequences for other customers.”
A miracle or a crime?
So let’s say each of the 11 different mortgage lenders involved had 40 “different types of customer” on its books – that’s 440 different mortgage contracts. But the chaos in each of these systems randomly produced the same result for each type. They all “got it wrong” in the same way, which is that customers who had a right to low tracker rates were told that they had to pay higher interest rates.
We have not been told of a single customer on any one of these 440 different mortgage contracts, where the complete failure of the banks’ systems worked the other way, that the customer was moved from a higher interest rate to a lower one.
If this is what happened, it is not a scandal. It is a miracle. The simultaneous “complete failure of administrative systems” in 11 different institutions produced a result that just happened to be excellent news for banks that were under enormous pressure to show that they were returning to profitability.
And this surely raises the question: if complete administrative failure is so enormously profitable, why don’t other businesses adopt it as a strategy? Shouldn’t business schools be radically revising their curriculums? Shouldn’t The Triumph of Failure be the new must-have business book?
But if all this was not a miracle, it was a crime. If there was no divine intervention, there was human intention. Decisions had to be made, and people with power had to make them. Philip Lane suggested that that the “culture” of the banks is to blame. But cultures don’t make and implement decisions – people do.
Who were these people? Did they talk to each other? What instructions did they give to branch managers about what was to be said to the customers who were losing their trackers?
There seems to be a remarkable incuriosity about the answers to these questions. It is not at all evident that the people at the top of the banks have asked them
What instructions did they give to ordinary decent bank employees about how to handle those customers when they were crying on the phone because they were losing their homes or going through hell trying to hold on to them?
Were employees told not to tell those customers that, in fact, they were fully entitled to their old, low interest rates?
There seems to be a remarkable incuriosity about the answers to these questions. It is not at all evident that the people at the top of the banks have asked them.
Bernard Byrne of AIB told the committee that "we have not done a report" internally on how it all happened because "we do not feel there was a systemic or organised effort to do anything other than that people got it wrong across the board".
Since the bank already knows the conclusion – that it was all a series of unfortunate events in which everybody just “got it wrong” – there is no need to investigate the possibility that people were actually getting it right, that they were in fact doing what the banks needed to be done.
The Central Bank seems to want to file the whole thing under “culture” and “scandal”. This is exactly what it did the last time the Irish banking system engaged in a system-wide fraud – in the 1980s and early 1990s when it operated bogus non-resident accounts on a massive scale.
That, too, when it was eventually revealed, was a scandalous reflection on the culture of Irish banking – which is to say there was not a single prosecution. Armed with this impunity, the banks went on their merry way to destroy the State.