A bank has lost a High Court appeal against the Financial and Pensions Ombudsman’s finding that a couple were not adequately informed they would lose their mortgage tracker rate when they switched to a fixed rate for three years.

Ms Justice Niamh Hyland rejected Danske Bank’s claim the ombudsman was not entitled to uphold a complaint from Martin and Martina Moore over a loan to buy their home in The Avenue, Lakepoint Park, Mullingar, Co Westmeath.

The ombudsman had directed Danske to rectify the mortgage to the tracker rate, repay interest overpaid and awarded them €4,000 in compensation.

In August 2005, the Moores took out a home loan with National Irish Bank (NIB), which was later taken over by Danske, at the European Central Bank (ECB) tracker rate plus 0.99 per cent per annum.

Eight months later they decided they wanted to fix their interest rate and NIB gave it to them at a rate of 4.18 per cent with a “rollover” date in three years.

In 2015, they complained to the ombudsman that, when they applied to fix their rate for three years, NIB (subsequently Danske) did not inform them the ECB tracker rate which they had when they took out the loan in 2005 would not be available to them at the end of that fixed-rate period.

Clarity and transparency

They said they did not realise that, in 2006, they were taking out a new loan facility with different terms and conditions than the 2005 mortgage. They also assumed the mortgage loan would revert to a tracker rate and only learned otherwise in 2009 when the fixed rate expired.

Danske urged the ombudsman to dismiss their complaint on grounds including that the 2006 loan agreement had been clear and transparent about the terms and conditions which would apply.

In April 2020, the ombudsman upheld the complaint because the conduct (of NIB/Danske) was unreasonable, unjust, oppressive or improperly discriminatory or otherwise improper under the Financial Services and Pensions Ombudsman Act 2017.

Among the ombudsman’s findings were that the fixed-rate loan documentation did not disclose the real nature of the transaction and the bank failed to adequately inform the Moores that, if they wanted a fixed rate, their existing (2005) mortgage would have to be redeemed.

He found the Moores did not know that they were entering into a new mortgage subject to different conditions.

Bank obligations

Danske appealed the decision to the High Court arguing, among other things, that its obligations to the Moores was delineated by the contract documents. It said the ombudsman was in serious error in holding the bank owed additional obligations to the couple as part of the contractual relationship.

Ms Justice Hyland found Danske’s argument failed to recognise the import of the jurisdiction being exercised by the ombudsman under the 2017 Act which permitted him to find conduct was unreasonable, unjust, oppressive or improperly discriminatory.

Even where a complainant has signed up to a mortgage where a bank had no statutory duty to give specific information in relation to redemption of the 2005 mortgage, and consequent inability of a customer to return to the tracker rate, the ombudsman was still entitled to find an ambiguity and lack of clarity in the information provided, she said.

The statutory scheme, and case law, make it clear that the “mere absence of a breach of law” did not immunise a bank from the ombudsman finding of unreasonable and improper conduct, she said.