Ulster Bank loses High Court appeal against findings in tracker mortgage cases

Ulster Bank has lost its High Court appeals against findings that two borrowers were entitled to tracker mortgage refunds and compensation, which could lead to the lender paying compensation to thousands of similar customers before exiting the Irish market.

Ms Justice Marguerite Bolger on Thursday dismissed the appeal against two decisions made by the Financial Services and Pensions Ombudsman (FSPO).

The bank failed to convince the court that the ombudsman had fallen into “serious and significant” error in his decisions.

The judge was satisfied she could uphold the FSPO’s decision on the basis that the bank’s conduct was contrary to its contractual and consumer-protection obligations.

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A spokeswoman for Ulster Bank, which has been in wind-down for the past two years, said the UK-owned lender “notes the judgment from the High Court today and will now take some time to look at this in detail”. She declined to say whether the bank would appeal the decision.

Ulster Bank, part of the NatWest Group, said in its latest annual report that the outcome of the cases “may have a materially adverse impact” on the company.

Counsel for the bank told the High Court last October that the cases may have an impact on “thousands” of customers and trigger “enormous financial” consequences for the lender.

The two borrowers that took their cases to the FSPO had been excluded from redress in an industry-wide examination overseen by the Central Bank between late 2015 and mid-2019, in which more than 40,000 cases of overcharging were identified across Irish lenders.

Ulster Bank initially appealed over the ombudsman’s binding decisions that customers in three cases had an “enduring contractual entitlement” to tracker interest rates – which are tied to the European Central Bank’s (ECB) main interest rate – after periods on fixed-rate loans.

At the hearing of the High Court appeals last October, the judge was told the parties had agreed one of the decisions being challenged would be set aside, with the ombudsman to consider the matter afresh. However, orders were on hold in relation to that to allow Ms Justice Bolger’s ruling to inform directions accompanying the remittal.

The appeals before the court focused primarily on one of the three cases. This case involved two borrowers who took out a mortgage in April 2004 that initially had a one-year reduced interest rate, before reverting to Ulster Bank’s so-called home loan rate, its standard variable product.

They signed a so-called flexible mortgage transfer form in 2006, entitling them to move on to a tracker loan. They subsequently applied in May 2007, as ECB rates were rising, to fix their interest rates until August 2010.

The relating loan documents said the bank may offer to extend the fixed period at the end of the fixed term or offer “alternative available products”. However, if these were not accepted, the contract stated, the borrowers would revert to the bank’s home loan rate.

When the fixed-rate period ended, the borrowers sought to revert to their previous tracker rate, but the bank refused as it stopped offering that rate to new customers since 2008.

In her ruling, the judge said a “significant factor” of the ombudsman’s analysis of the loan contract was the bank’s original commitment to offering “alternative available products” at the end of the fixed-rate period. The bank had never explained that the tracker rate might not be available when their fixed rates came to an end, she said.

The FSPO was entitled to decide that the borrowers’ contractual entitlement to the tracker rate continued at their election, the judge said.

Whatever interest rate the borrowers were entitled to must come from the contract they had entered with the bank, she said, noting there had been no rescission of the contract when the clients switched to other interest rates.

She refused the bank’s appeals and affirmed the ombudsman’s decisions.