Irish banks have paid out more than €120 million in the past two years in redress and compensation to mortgage customers who were denied a tracker rate, the Governor of the Central Bank Philip Lane has told the Oireachtas finance committee.
Mr Lane said this comprised €78 million paid to 2,600 customers by the end of February as part of its current industry-wide examination that it ordered at the end of 2015.
It also includes €36.8 million and €5.8 million in redress and compensation that has been paid by Permanent TSB and its former mortgage subsidiary Springboard Mortgages Ltd in respect of 1,374 accounts affected as part of a redress programme that the lender announced in July 2015.
In March, the Central Bank said some 9,900 customer accounts had been identified as affected by lenders as part of its tracker mortgage examination.
Of these cases, 90 per cent of accounts have had the rates rectified with redress and compensation paid in 25 per cent of instances.
The governor said he could not provide a lender-by-lender breakdown of customers and the redress paid to them for legal reasons.
Mr Lane said it was clear that lenders had “failed their customers” by denying them tracker rates. Some 7,100 tracker cases were resolved before its current examination process began.
Systemic aspect
The governor said there was a systemic and widespread aspect to this issue that “manifested itself in different ways across lenders”.
At its heart, was a culture in interpreting contracts whereby banks favoured themselves rather than the customer, he added.
Some 15 lenders have featured in the industry-wide examination ordered by the Central Bank in December 2015, of which 10 have been identified as having issues.
Based on the data provided to date, Fianna Fáil’s finance spokesman Michael McGrath said the cost of this tracker mortgage issue could top €500 million. Mr Lane said this was a reasonable extrapolation to make but did not put a figure on the likely final costs to lenders.
Some customers lost their homes as a result of not being offered the correct tracker rate. The regulator has so far fined Springboard €4.5 million for its failures and has commenced enforcement proceedings against PTSB and Ulster Bank on tracker-related matters.
“Moreover, I am acutely aware of the unacceptable impact that these failures have had on tracker mortgage customers, from the burden of paying more than they should, up to instances involving loss of ownership of mortgaged properties.
Mr Lane noted that many lenders had apologised for their failures in applying the correct rates to mortgage accounts but said these would be “meaningless” unless the bank stopped the harm to all affected customers and provided the appropriate redress and compensation for the “suffering caused”.
The governor said the Central Bank would review house price data in November to determine if it needs to take any action to calm the market. This follows recent sharp rises in house prices, particularly in Dublin.
Steep increases
Sinn Féin’s Pearse Doherty noted that average house prices in Dublin had risen by €18,000 in the first quarter of this year and asked if the regulator should consider the issue sooner to help prevent further these steep price increases.
In response, Mr Lane said it wouldn’t make sense to intervene every couple of months and that it was important to make it “crystal clear” to borrowers that its review would take place once a year.
He also noted that the loan-to-income ratio of 3.5 times that applies to mortgage approvals was a “fairly severe restriction” and that only people with relatively good incomes could afford to buy a home.
The governor said that the issues around house prices were about a lack of supply of new units rather than the credit rules. He said the Government’s Help-to-Buy scheme had fuelled demand but had not dealt with supply issues in the short term.
On Brexit, Mr Lane said the outlook for the Irish economy remain "subject to uncertainty" and poses a number of "risks and challenges".
He said Brexit had so far had a “benign impact” on the domestic financial sector while it remains “too early” to predict any Brexit-related effects on foreign direct investment.
Mr Lane said the Central Bank had increased engagement with a range of entities including banks, markets firms, insurance authorisations and queries regarding payments and electronic money.
“Inquiries have taken the form of discussions on potential new authorisations, possible balance sheet expansion or changes to business type,” he said.
Mr Lane said that where the Central Bank was asked to consider the authorisation of a firm in Ireland, it would need to be satisfied that it was authorising a business or line of business that would be run from Ireland.
Safeguarding stability
“To fulfil our mandate in safeguarding stability . . . and ensuring a robust and transparent authorisation and approval process, we established a Brexit taskforce within the bank prior to the referendum,” he said. “Our internal taskforce is a cross-departmental structure involving 15 divisions across the bank. We have increased our capacity to deal with this, and contingency resourcing plans have also been developed.”
On motor insurance, the governor said the Central Bank was looking at implementing two recommendations from the department of finance’s working group on the cost of insurance.
This includes a recommendation that the premium renewal notification period be extended from 15 to 20 working days. Mr Lane said this change would take place next year, after a consultation process with stakeholders and industry.
It is also working with the department on the establishment of a national claims information database, which is also slated to start in 2018. This will require a legislative change.
