Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

My apologies for that. I will make sure that, in all my other appearances before the committee in the coming year, the members will get my statement when they need it and when I have seen it, as has been the case in the past.

I thank the committee for the opportunity to be here to deal with both the tracker mortgage issue and the Our Public Service 2020 initiative. I acknowledge the work of the committee in all its efforts to bring the tracker scandal to the fore and the progress it has made, in particular by taking testimony from people who have been significantly harmed by the unacceptable actions of banks. I assure committee members and the public that the Government is treating this matter very seriously and is determined that the situation be resolved to the satisfaction of impacted customers as quickly as possible.

Owing to the work of the Central Bank, particularly in its implementation of the industry-wide tracker mortgage examination, it has been clearly demonstrated that mortgage lenders failed significantly in their regulatory and contractual responsibilities to many tracker mortgage borrowers. The failure of the banks in this regard has imposed significant harm on their customers. It is now their responsibility to put that right and to do so without further delay.

The fair treatment of consumers is a key requirement of the financial services regulatory frameworks and the Central Bank consumer protection code. The code requires all residential mortgage lenders to act fairly and honestly in the best interests of their customers and not to mislead their customers about the products they provide. It also requires lenders to make full disclosure of all relevant information to a consumer in a way which seeks to inform the consumer and to enable a consumer to make an informed decision before entering into or changing a loan or other financial services agreement. Through their treatment of some of their mortgage customers, lenders have shown a complete disregard for the code and have demonstrated that within these financial institutions ethical and cultural issues remain that need to be addressed. The Central Bank has for some time made clear to lenders that they had and have a duty to act in the best interests of their consumers when recommending that a borrower switch a tracker mortgage to another type of mortgage product.

Prior to the commencement of the industry-wide tracker investigation, the Central Bank identified and pursued a number of tracker-related failings with a number of mortgage lenders. These failures related to issues ranging from a lack of transparency for the borrower, a failure to fully inform customers of the consequences of switching from a tracker mortgage, the application of incorrect tracker rates and a failure to afford customers their contractual entitlements to specified tracker interest rates. At the same time, the Financial Services and Pensions Ombudsman was receiving individual tracker mortgage-related complaints. The Ombudsman adjudicated on these cases. In addition, some of these cases came before the courts. The growing number of issues relating to tracker mortgages raised concerns in the Central Bank that there may have been other tracker-related issues. As a consequence of this, the Central Bank announced in October of 2015 that it had commenced a broader industry-wide examination of tracker mortgage-related issues.

The system-wide review was intended to cover, among other things, the transparency of communications with and the contractual rights of tracker mortgage borrowers. This has become the most complex and significant consumer protection review ever undertaken by the Central Bank. It covered 15 lenders who may at the time have sold a tracker mortgage product, from the time the lender commenced selling tracker mortgages until December 2015, and involved the review of more than two million accounts by lenders. As such, it covers both banks and other related mortgage lenders and also includes lenders who no longer provide new mortgage credit. It also covers mortgages which have been redeemed and borrowers whose tracker mortgages have been transferred to another creditor. The industry-wide examination requires all lenders to examine the extent to which they have been meeting their contractual obligations to their tracker mortgage customers or their compliance with their obligations under the Central Bank's consumer protection code.

The Central Bank has published a number of update reports since it began its work, the latest of which came last December. The latest update in the case showed that approximately 26,600 customers have been identified as having been impacted pursuant to the industry-wide examination. This is an increase of 13,600 on the position as outlined in the earlier update in October. The acceptance of further impacted tracker mortgage accounts by lenders, such as the 6,000 additional impacted accounts accepted by the Bank of Ireland in December, is proof that the Central Bank's strategy of continuously challenging lenders is having important benefits for consumers. In total, 33,700 customers have been identified as having been impacted owing to mortgage failures. This includes the 7,100 impacted tracker borrowers that were identified prior to the commencement of the industry-wide examination. The Central Bank now believes the vast majority of impacted tracker mortgage customers have been identified. It will continue to review, challenge and verify the work undertaken by lenders. Following the Central Bank's October progress update, and owing to my and the Government's concern on the very slow progress on the provision of revision and compensation to impacted customers, I met with the CEOs of the five banks and made clear to them that all affected customers are to be identified and provided with appropriate redress and compensation as a matter of urgency.

While some payments had been made at that time, they were small in number, they were too low, and many impacted borrowers were still unclear as to whether they would hear from their lender. Following these meetings, the banks in question made certain and specific commitments with regard to the payment of redress and compensation to impacted customers. I note that in December, the Central Bank confirmed that the five main mortgage lenders were on course to meet their October commitments, and that known issues around disputed groups in respect of certain lenders had been resolved to the satisfaction of the Central Bank.

As of the end of December, approximately €250 million in redress and compensation has been paid to 12,900 customers, as identified from the examination. This includes payments to 3,700 impacted accounts identified since last September. This is in addition to the €47 million awarded in compensation and redress. This payment to outstanding impacted borrowers is a key requirement, and it must be a practical demonstration of the regret that banks are now expressing for the harm they have inflicted on their impacted tracker borrowers.

The level of compensation offers are in the first instance a matter for the individual mortgage lender. It is the lenders that caused the harm to their customers, and therefore the primary responsibility for putting that right should rest with the lenders. The level of compensation should be proportionate to the harm and to the stress caused, and individual lenders should have regard to this when they make compensation payments to their customers. The provision of fair and appropriate compensation offers upfront will minimise the risk of causing further inconvenience and hurt to impacted customers, and will go some small way towards giving a practical expression to the words of regret heard in recent months. Of course, in more difficult cases, such as those where people lost their homes, the lender will need to consult closely with the impacted borrowers on the level of detriment which has occurred and, therefore, the total level of redress and compensation which is appropriate in their particular circumstances. However, urgent consideration should be given to these cases by the banks, and they should not be deferred and put to the end of the line for payment.

It is also important to have an independent appeals process in place to deal with the customers who are dissatisfied with any aspect of the redress package they receive from lenders, and the Central Bank tracker redress frameworkprovides for this process. This will give any customer the right to challenge any aspect of the redress and compensation offered. This can in the first instance be the appeals panel provided for under the tracker framework, but impacted tracker borrowers also have the right to take their course to the Financial Services Ombudsman or ultimately to the courts.

A fundamental element of the redress and compensation process is that the upfront payment by a lender cannot be reduced in any subsequent appeal made by the borrower, either through the appeals process under the tracker examination framework, or ultimately the ombudsman or the courts. The detailed appeals process set out in the Central Bank's framework for conducting the tracker examination allows borrowers to take the matter further without risk to themselves if they consider that the level of upfront payment is not appropriate in their particular case. This appeals process will also allow the individual borrower to set out the full individual circumstances, and to set out in detail the full harm imposed by them on the lender and consequently why a higher level of payment may be appropriate.

In terms of enforcement, I believe the existing supervision and enforcement powers of the Central Bank are strong and should be used to punish wrongdoing when supported by evidence. The Central Bank has also demonstrated that it is willing to use the full extent of its powers, as evidenced by its imposition in 2016 of a monetary penalty of €4.5 million on Springboard Mortgages Limited for serious failings. The Central Bank has also advised that it is pursuing enforcement investigations in relation to Permanent TSB and Ulster Bank, and has commenced another enforcement investigation. The Central Bank has stated that it expects that all the main mortgage lenders will face enforcement investigations in due course. The Central Bank also has statutory reporting obligations to the Garda Síochána, or another relevant statutory agency where information obtained by it, at any stage prior to, during or after an investigation gives rise to a suspicion that a criminal offence may have been committed.

In light of this appalling behaviour, I have taken a number of further actions. I have mandated, under section 6A of the Central Bank Act 1942, the Central Bank to prepare a report on the current culture and behaviour and the associated risks in the retail banks and actions that banks may take to ensure that customer interests are better prioritised in the future. On foot of this report, the Government will determine whether any additional legislative and regulatory changes are needed to enhance accountability in the banks. In addition, I announced two further measures, namely, to double the level of compensation to €500,000 that the Financial Services and Pensions Ombudsman may award to a consumer who has been adversely affected by the action of a financial services provider and to appoint two new members to the Central Bank Commission who have a strong consumer protection profile.

I also note and welcome the initiative from the banking industry to establish an Irish banking standard board to broadly mirror the approach adopted in the UK. However, this is an initiative from the banking sector and it will not minimise or reduce any existing or proposed legislative or regulatory change.

The examination has laid bare the facts that very poor cultural and governance issues still exist within lending institutions in Ireland post the banking crash and that if banks are to regain the trust of consumers, they must be prepared to change their attitude significantly. Customers of these lenders have been treated appallingly and, in some cases, have lost their homes, either directly or indirectly, due to the shameful behaviour of their lenders. This behaviour is simply unacceptable.

The Government will continue to support the Central Bank in its efforts to complete the tracker examination as soon as possible and I will receive a further update at the end of March of this year. If further sufficient progress regarding the payment of redress and compensation to impacted customers has not been made at that point, the Government will be prepared to consider further possible actions.