John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I welcome Mr. Padraic Kissane. By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the joint committee. However, if they are directed by it to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or an entity by name or in such a way as to make him, her or it identifiable.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official, either by name or in such a way as to make him or her identifiable.

I invite Mr. Kissane to make his opening statement.

Mr. Padraic Kissane:

I thank the Chairman and members for inviting me to appear before the joint committee. In my opening statement I wish to give it the up-to-date facts on the ongoing tracker mortgage investigation. As the investigation develops, it brings up more questions every day, some of which remain unanswered for affected customers. I will address some of the key issues that remain outstanding and update members on the key matters that remain unresolved by some of the lenders.

Of the lenders affected by the investigation, the following still have "cohorts" of customers whose accounts have not been corrected, as well as customers who have been deemed not to have been impacted on. I will deal with the banks in alphabetical order.

First, there is AIB and its subsidiary the EBS. The mortgage accounts that remain outstanding are those of homeowners who took out mortgages with the EBS and have not been returned to the tracker mortgage rate. The number affected could be up to 3,000. The key matter in the case of this cohort is that no customer was told that he or she was forgoing the variable rate basis of the loan in applying for a fixed rate for a period of the loan. The other issue is that the variable base rate tracked the ECB rate perfectly until 2008 and then magically transformed into a standard variable rate. There are outstanding issues that must also be dealt with by the EBS in a satisfactory manner. There are issues for the staff who took out mortgages with AIB. The question I pose is whether AIB or its subsidiary the EBS is sorry for the manner it is treating its customers?

Cases remain outstanding in Bank of Ireland, especially of the bank staff who availed of a fixed rate for two years on the understanding their loans would revert to the tracker mortgage rate of the ECB, plus a margin of 0.75%. Of the cases corrected, I have seen none that has been restored to the ECB rate, plus a margin of 0.75%, as was supposed to happen as per the infamous letter. There is a small cohort of customers who could have availed of the tracker mortgage rate but who instead chose a two year fixed rate as there was certainty, given that the roll-over position was the ECB rate, plus a margin of 0.75%. There remain outstanding cases that became tracker mortgage loans after the loan offers were issued and that have not, as yet, been restored to the tracker mortgage rate. In total, there could be approximately 800 cases.

Danske Bank also has outstanding cases that it has deemed were not impacted on. The stated position of the bank which it seems to have forgotten was that the customer on a tracker mortgage rate prior to moving to a fixed rate would at the end of the fixed rate period revert to the ECB rate, plus a margin. Danske Bank has many questions to answer about tracker mortgages, especially as it is the lender that began the race to the bottom in the margin being charged on tracker mortgages. In October 2006 it introduced a product called the LTV, loan to value, tracker product. It resulted in all other lenders immediately putting in place retention departments in their mortgage departments as it became clear to the other lenders that retaining their book of business was just as important as garnering new business. It was more important to some banks, especially the main lenders which wanted to protect their market share. This is a very important issue for all lenders, as well as in the investigation into the crisis. This key issue had a dramatic fall-out effect on other lenders, as has become clear in the investigation.

In summary, many customers of Danske Bank have not been restored to their tracker mortgage product, even though the bank stated in its communications that I have seen and hold in my office: “You have the option to choose between one of the following: To move to a Variable Rate; To Agree a new fixed rate period; To revert to an ECB Tracker rate (with the margin which had applied before your fixed rate period)”. This has not occurred and remains an ongoing issue. The statement is from the lender’s own communication, that it should be applied to the loans affected, but to date that has not been done in the accounts I have reviewed.

KBC Bank, formerly known as IIB Homeloans, resisted all matters related to tracker mortgages for many years. It consistently attempted to suggest it never had an issue in denying people their right to a tracker mortgage, even though it was clear to me from the outset that the opposite was the case. The bank's loan offers stated clearly: "The interest rate shall be no more than [a factor] above the European Central Bank Main Referencing Operations Bid Rate (“REFI” Rate) for the term of the loan". I have listened to statements made by KBC Bank representatives to the committee and want to pose the following question and thoughts to the committee: have they been given the communication to which they made reference in their most recent presentation which supposedly had been issued in February 2008? The communication sent to all brokers which is now being described as a "flyer" was never removed or discontinued in any subsequent communication that I know of and if it was, I should have been sent an email. The communication, now known as the "flyer", did not reference any preference that it only applied to homeowners. That is simply not true. It is clear that there seems to be an agreed or negotiated position adopted on the issue between the Central Bank and KBC Bank, but it is wrong to try to dismiss the other affected cohorts within KBC Bank.

The communication was crystal clear. It stated: "Fantastic News From IIB Homeloans ... All IIB Homeloan fixed rates will now roll onto tracker rate upon expiring. Offering your clients even better value". It did not apply to new business only because all lenders at the time were reacting to the launch by Danske Bank of the loan-to-value tracker product. KBC Bank did so with this announcement in late 2006. It applied to existing business, as well as new business, but it was primarily directed towards existing business. The new business aspect of the communication was covered in bold print, with a further offering which was available to "ALL NEW CUSTOMERS* who want to take out a mortgage with IIB Homeloans". I reference this to highlight the differentiation in the communication between existing and new business . I will be asked what is the current position on these matters and, unfortunately, I do not know the answer, as I do not know what was agreed to by KBC Bank in its discussions with the Central Bank. The numbers the bank has issued are on record. However, I know for certain that the communication of November 2006 was not withdrawn in February 2008 as claimed.

Another matter that has not yet been addressed by KBC Bank in the investigation concerns the loan applicants who began on a fixed rate for three years or more. The only reason KBC Bank did this was, astonishingly, fixed rates for three and five years were not stress-tested by the bank which allowed it to lend more money than any other lender could have. Other lenders would have had to stress-test the rate, which was generally done at a rate of 2% above the rates on offer. To now suggest the reason customers cannot go to a tracker mortgage rate is the bank lent more money as a result of the non-stress-testing of the loan cost is wrong and utterly unfair. The "flyer" issued in late 2006 addressed this issue of concern at the time among customers and brokers alike. There are still many of these cases with KBC Bank. However, I am pleased to report that I met KBC Bank management recently and hope to expand on these issues in future meetings, but, for now, large cohorts of customers are still in the waiting room of not knowing what is going to happen.

The level of ongoing issues with PTSB is staggering. What is more remarkable is that this lender will inform the committee that it believes it has addressed the issues surrounding tracker mortgages. It has not and many issues remain. However, I am pleased to report that I have reopened lines of communication with this lender and its senior management and hope some of the key matters that remain will at least be discussed at the coming meetings. I believe there is a growing acceptance within PTSB that if it is serious about putting its customers first, it needs to revisit some matters that remain unresolved. I have begun recently, including yesterday, with broad-based matters such as the treatment of appeals and the restoration of accounts that were moved to another bank.

The margin issue has not gone away. I am certain that I am 100% right on the issue which is central to the big remaining issue within PTSB. I am 100% certain that the position I hold on what the correct margins should be for each individual loan account is the right one. The loan offer and the ESIS sheets applicable to each loan inform, with 100% accuracy, what the correct rate should be. I want to give an example of what is occurring on this matter. Many of the loans that remain unresolved were commenced on what was called a "discounted tracker rate". I have only one question: what was the rate from which it was discounted? A parent rate applies to enable the discount to apply from it and that is the rate to which the loans should be returned. PTSB never had what is now calls "The non-price promise tracker". It simply did not exist in 2006, 2007 or 2008. The Danske Bank matter is the reason the margins were not included in the loan offers. The margin could be improved but not increased. I will report later on the progress I make on this matter and continue to challenge the Central Bank to deal with the margin matter properly.

The key ongoing issue with Ulster Bank relates to First Active account holders, few of whom have been reimbursed and restored to their tracker mortgage rates. There is also the ongoing delay in the issuing of redress letters and statements. Ulster Bank, in its replies to me during the years in respect of First Active, seems to be satisfied that the documents customers signed to apply a fixed rate for a short period were clear and that the forms also included what Ulster Bank now titles "A Tracker Removal letter". Of course, it was not titled or stated or even indicated when customers went to fix their interest rates, but nobody was told directly that he or she was forgoing the tracker mortgage rate. Not one person was told by a member of staff of First Active that fixing his or her interest rate also had the effect of removing and altering the variable interest rate basis of his or her loan. If it was the case, this is what should have been printed and stated in all communications between the customer and the bank: "If you fix the interest rate on this loan, you will lose the right to go back to the tracker rate". If it had been stated and printed in this clear fashion, I would have no argument and that applies to all lenders. Ironically, the terms and conditions of a First Active Tracker loan include the following clear and unequivocal condition: "In order to transfer from the Tracker Mortgage product to another mortgage product the Borrower must [among other things] first redeem the tracker mortgage loan". No loans were, or have ever been, redeemed by First Active when a customer chose to fix the rate and the reference number never changed for the accounts I have reviewed. On the first page of the same book of conditions the following is stated: "(m) "fixed rate period" means the period during which First Active has agreed to fix the interest on the loan". That is the key. First Active agreed to fix the interest rate for a period without first redeeming the loan; therefore the underlying variable rate basis of the loan continues to remain in force.

Overall, there are outliers which are outstanding across all lenders, but they are more individual and singular arguments by nature. The issues I have covered comprise large cohorts in each bank that have not as yet been addressed. It raises the question as to whether the relevant lenders are sorry for these customers or apologetic for their actions, or whether they are glad that, to date, each has not been forced to fully correct the position on the accounts. It is important to acknowledge that the investigation is ongoing.

Another matter that still comes up on a regular basis is the churning of loans. This has occurred in different volumes across all lenders. I mention as an example, with permission, Ms Marian Kenny who took out an interest only loan with PTSB for €550,000 for the full term through a broker. She then applied for a top-up loan of €80,000 but went directly to a branch of PTSB and ended up with a new interest only loan for the entire amount of €630,000 but only for three years. She lost not only her competitive tracker mortgage rate but also, crucially, the basis of the agreement for the main loan. The branch gained a "new" lending figure of €630,000 when all that needed to change was the top-up facility of €80,000. That is just one example of how churning affected customers when the drive for new lending was at its highest and it occurred across all lenders. I was told by a bank branch manager in 2007: "I have to get €7 million out that door each week and they don’t care how I do it."

I had established a triage process to deal with appeals directly with AIB, but that has now been set aside, wrongly. I must submit all aspects of an appeal through the relevant appeals process. I have spent the past few weeks putting in place a process that will assist customers who have grounds for appeal to submit same in a detailed and formatted way. I have a sample of an appeal. They do not come easy to customers. I hold grave concerns, however, about the issuing of data access requests, as some pertinent documents seem to be withdrawn by banks. It is utterly unfair and wrong that a process that requires a high level of proof to substantiate an appeal is restricted because banks are not making paperwork or evidence such as telephone calls available to support a position. This is relevant to appeals and in proving if a case should be deemed to have been impacted on.

Importantly, not all customers submit appeals but for some the impact of this issue on their lives has left scars that will not heal if an appeal is not brought.

In summary, I have not heard from the Competition and Consumer Protection Commission. I am meeting the Financial Ombudsman in the coming weeks. I have held meetings in the recent past with senior management of Ulster Bank, Bank of Ireland, KBC, AIB and Permanent TSB in the hope of resolving outstanding matters for their customers. I am also in ongoing communication with the Central Bank.

The appeals process is difficult for people to complete simply because the customers who most need to bring appeals are the ones most affected by what has occurred. Travelling back over that period of time is not easy. I began working on this issue in 2009 and it is not acceptable that some matters remain unresolved nine years later. I am aware of the customers watching who know that I may not have covered all the relevant accounts affected. However, they can be certain that I am aware of them. There could be another 5,000 cases outstanding and while tracker fatigue could become a factor, it is vitally important that we continue to work for all those families who have been deemed by the banks not to have been impacted. In that context, the following considerations must be borne mind by those lenders that still have issues with tracker mortgages. First, where there is doubt about the meaning of a term, the interpretation most favourable to the consumer should prevail. This is not just a desire but is the law. Second, if there is any doubt about what was to occur following a fixed rate period, lenders should disregard the fixed rate period and behave as if it never occurred. That will address the lack of clear information. Third, if a tracker mortgage was one of the options then the lender should offer the customer the tracker rate even if tracker mortgages are no longer available. That comes from the CCMA. Fourth, if the lenders' apologies are sincere and if their desire to put customers first is real they should resolve these outstanding matters immediately. This will send the clearest signal yet that attitudes and the culture within banks has changed for the better.

I was asked by a reporter recently if I would do it all again, given the tough journey involved for me and my staff. I said that I would do it all again but that the question should be whether the banks would do it all again. I fear the answer to that question might be "Yes" but I hope I am wrong, for once. Finally, I want to thank this committee for all of its work on behalf of the people affected. I believe that saying sorry is just not good enough for what has happened. I am happy to take questions from members now.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I thank Mr. Kissane and call Deputy Pearse Doherty.

Mr. Padraic Kissane:

There are probably four main areas involved there. Ironically one key sector, which is the margin issue, would already be classified as impacted cases, even though they are on the wrong margin. I would consider them not concluded but they would be included in that figure. The outstanding cohorts in the main are with First Active, EBS Homeowners and KBC. There are some staff matters within Bank of Ireland and AIB.

Mr. Padraic Kissane:

A staff member of AIB in the majority of cases could borrow a maximum of €190,000 at the staff rate. The balance of the loan would generally have been on a tracker rate during the relevant period. However, it was not made clear to any of the staff that if the €190,000 ever became more expensive, they had the option to go back to the basis on which the rest of the loan was advanced. The balance of the loan might have been €20,000, €50,000, €100,000 or even €500,000. That depended on how much the individual was borrowing. There was a maximum amount that they could borrow on the staff rate but there was always a link between the underlying basis of the other loan that could have been adopted in. However, when the trackers were removed, the bank used it as a reason not to give it back but there was an unwritten understanding among bank staff that the tracker option was always going to be available to them as a default position.

Mr. Padraic Kissane:

It is a similar situation to that pertaining to staff in Bank of Ireland. It is difficult. The staff are in a peculiar position because they are not only challenging their bank but also their employer. It is a unique position in that regard. It is difficult too for the staff of Bank of Ireland who have been granted redress because in terms of submitting appeals, they are essentially writing to work colleagues with their issues. The staff issue is one that I will be bringing up with the institutions, although I have not spent as much time on it as I have on the broader issues. More investigative work will probably be required before I can be certain about where I can challenge them on this issue. That said, there is certainly an issue to be addressed.

Mr. Padraic Kissane:

Yes, there are people challenging through the Ombudsman's office.

Mr. Padraic Kissane:

I am on record already with regard to my views on Permanent TSB. There were two panels there - the independent review panel and the customer appeals panel. Of the submissions that I made on behalf of customers to the latter panel, the only description I can use is that those customers were "treated disgracefully". I make no bones about saying that. Thankfully, however, the bank itself has now realised that. Members must understand that submitting an appeal in the first place is very difficult for people. They are talking about matters that are very personal to them. There did not seem to be any credence given by the bank to the fact that I had met these people, listened to them and assessed their case. Essentially, I listened to them and determined whether an appeal was merited. Members of the aforementioned panel - and the chairperson, in particular - then called into question their position. Members must remember that customers were automatically awarded 10% of the interest that was overcharged. If someone was overcharged €50,000 then he or she was awarded €5,000, for example. People who were rich and who did not care whether the interest rate was 10% or 0% got the 10% payment. That is fine because there should have been an acknowledgement for the wrongdoing. However, what seems to have morphed into the appeals process was that if customers got 10%, they had to prove their claim to be above that in order to get any money. If that was to follow, then there was no acknowledgement of any wrongdoing. The people who suffered the most were those who were financially restricted. They were also the people who submitted appeals because the cause and effect was more dramatic for them.

While I am not here to defend Permanent TSB, it was the first out of the block on this. It was adapting to a process that was new to all the banks and was the first to do so. It did not look right that a member of Permanent TSB staff would be on the panel. Thankfully, that has now been addressed by all the banks. As Deputy Michael McGrath said here, it was like having a member of the defence team on the jury. The statistics are clear on this. I saw their last presentation here. They are still reluctant to deal with the independent review panel statistics and the customer appeals panel statistics separately. That is because the customer appeals panel statistics are astonishingly in favour of the bank. That is ironic, given who is causing the effects.

If somebody was awarded €2,000 in compensation and decided to appeal, he or she would have to prove that the damage done to them was in excess of €2,000. Mr. Kissane can correct me at any time. Such a person would actually have to show that he or she lost the value of €2,000. Is that correct? For example, perhaps he or she incurred expense in travelling to Dublin to meet with legal advisers or taking other steps. If he or she could not show that the damage exceeded €2,000, the appeal was not successful. That meant that the wrongdoing, which should be an automatic sum because the banks took money from their customers wrongly, never occurred. A customer was left out-of-pocket.

Mr. Padraic Kissane:

That is what I said. No compensation was given. It was an astonishing position, and I could not understand how it was sustained. Essentially I did not consider what customers were awarded in redress at all. I listened to people. What I told all the banks is that everyone assumes that everyone who came to me brought an appeal. That is not the case at all. In a lot of cases where people came to me, there was no reason for an appeal. I would assess their situation as an adviser.

However, I heard people's accounts of the carnage that had happened. I will give an example. Yesterday I spoke to a lady who was so upset that I had to make time to speak to her even though I was busy at the time. She sold her house in 2016 because the family was fearful of going into debt. However, KBC does not classify that as a lost home. Just a month ago, KBC approved her for another loan of €200,000. The mortgage was originally for a sum of €220,000, but it was not on a tracker. It is astonishing. I give this case as an example. This woman was completely broken. I had to say that although it would be difficult to re-crash this car, she had to do it.

I had a lady in my office recently who was dealing with another bank, but this example is illustrative of all the lenders. I asked her what she would want from the appeals process if I had a magic wand and I could do anything. She picked up her redress letter and said she would like me to travel back in time with it by four months, because she did not want it. She could not relive that period. That is the feeling I am trying to express.

What really annoyed me about the customer appeals process in Permanent TSB was that it just dismissed all these concerns and threw them in the bin. I met a girl who had receipts for the babysitters that she needed to hire on the days she had to go standard financial statements meetings in the bank. Those expenses were all thrown in the bin. She had proved every cent of extra money she had spent.

People go on a journey before they go into arrears. This is an important issue with regard to the warehousing cases and so forth. They empty every single bucket that they have. They then run up every credit facility they have to the maximum. They then go to their friends, parents and other family members. Only then do they go into arrears. They travel that journey before they get to the arrears position. I am not talking about the strategic defaulters, a group about whom I do not even care. Families, in particular, will tighten every single belt they can before they get to arrears.

Mr. Padraic Kissane:

It also raises the question of what adequate compensation is. That is the question nobody wants to address. Putting a tort and a quantum of damage on this is simply impossible. It can be multiplied to any figure. For people who have lost investment properties, the rent runs forever. It can run for generations. Some level of realism is required, however. Astonishingly, one of the things all the people I have met want from me is a way to draw a line under the matter. They just want to move on with their lives. The parts that cannot be captured in an appeal are the financial plans that were destroyed. These people have to rebuild their pension planning, the education funding for their kids, their savings in the post office and all such savings. The committee will remember the journey that I described. All those savings have been reduced to zero. Life assurance is cancelled, critical illness, income protection-----

Mr. Padraic Kissane:

The explanation for that is that the redress process is about the account. It is important to say that. Let us say that a customer is dealing with Permanent TSB or Bank of Ireland. The bank can only populate the redress letter from information in the Bank of Ireland system. In simplistic terms, the redress letter is about the account.

Mr. Padraic Kissane:

That is what I am coming to. The redress letter is about the account, the appeals process is about the people. The bank can only compensate based on the account. In an appeals process, claimants do not bring an appeal about an account. The appeal is about the people involved. If a case involved a husband and wife with three children, there are five appeals relating to one account. That is the easiest way of explaining it.

Mr. Padraic Kissane:

If any matter of the appeal is upheld in the appeals process, any costs for other parties involved in supporting the customer bringing the appeal are chargeable to the bank. Those fees should not have been taken from the compensation.

Mr. Padraic Kissane:

Is the Deputy referring to the payments in working?

Mr. Padraic Kissane:

That is, before the Central Bank investigation.

Mr. Padraic Kissane:

From my experience to date, I can certainly state that prior to the Central Bank investigation, cases against the AIB and Bank of Ireland were won. I have managed to get them included in the redress process. Any of the engagements are being honoured. I was paid a completion fee or a success fee if I won the case, because the ombudsman did not award costs. As such, the costs had to be taken from the interest that was refunded. I believe that all those costs should now be repaid by the bank.

If somebody came to me in that position and they had incurred legal costs of €5,000 in challenging the issue, it would be a matter for the appeal. I would bring it in as part of the appeal, and I do not see how a panel could refuse it. As I have said to many of the banks, all the people who have been engaging with me, some of them since as long ago as 2010, have helped to inform the investigation. I do not see why those people should be charged any more or less than those who did nothing about it and did not even know it was an issue.

Mr. Padraic Kissane:

The ideal solution is to deal directly with the bank and get it resolved there. In respect of the quantitative damage done to somebody who has lost their home, one can visualise the evening the person had to leave it but then to be told a certain number of years later "oops, systems error, we made a mistake and we overcharged you" can destroy some people. It pushes them right back over the edge. Many of these cases are subsequent to PTSB if the banks are not prepared to step up but they would be individual by nature. They are not really something I would classify as a class action or grouping position because they are individual by nature. One must understand the journey of coming to arrears and then serious arrears. The banks will defend some of those positions. I have concerns, if they do go to court, about the six-year timeframe for the statute. The statute is supposed to be set aside but my legal advice is that they could challenge that setting aside in some aspects. In other words, the cause and effects that are being challenged within the banks on the appeal stage at a court case could be challenged if they are outside statute. It is something about which I would have grave concerns if they push that line because we should remember that these lenders have far greater access to legal teams than I have.

Mr. Padraic Kissane:

I do not want to appear flippant but there is a huge issue with the left hand not telling the right hand within the bank because they are departmental and it is a nice blame game they can play. It is a case of the bank saying a department was not involved in the tracker investigation and did not know and it had to continue with the legal route because of the issues involved. I have cases in my office, one of which involved a lady who got a phone call from the arrears unit while she was in the cardiac unit of a hospital. I have come across cases of attempted suicides. They are not explained but they are not with us any longer. I have come across health issues. I said a long time ago that what is within it still has to come out. If financial stress is brought to bear on a family or a person, isolation, health and relationship issues arise. The tentacles of this octopus spread everywhere. If somebody takes €400, which was the average overcharge, out of a person's wallet, purse or bag every month for seven years, at what point does it get in on that person? That is what happened. Taking money by stealth is the way I would describe it. One of the first things people have difficulty understanding is when they have to revisit it. I would get people to print off details of every single bank account they had at the period, because it jogs the memory. I recently asked a man from Kerry who came to me whether he had ever had a rejected direct debit. He told me he had lots of them and I said that they were €10 a go. I told him that €10 is a lot of money and he made a very important point to me when he said, "Padraic, where I was, €1 was a lot of money". He told me that €10 was a fortune and was the difference between him eating and not eating. I would love a project to be undertaken to see how much was made from rejected direct debits through this period because I would say it is a small fortune. They were always charged even though the debit would have been balanced.

Kieran O'Donnell (Fine Gael)
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Mr. Kissane has done the State some service on this issue, in particular, the day he brought the four witnesses before this committee. I think they represented a watershed moment in the tracker issue. Their stories were compelling and brought across the impact of this issue. I thank Mr. Kissane for the work he has done. His summary conclusion is that there are about 5,000 outstanding cases. He said there are 3,000 EBS customers who have not been returned to trackers. I am assuming that of the 5,000 cases, 3,000 of those are EBS customers. A total of 800 involve Bank of Ireland customers. I assume that these 800 cases do not include the employees of Bank of Ireland.

Mr. Padraic Kissane:

No, it does. There are some employees involved. One of the key issues with the employees that they have not addressed is the fact that if Padraic Kissane took the two-year fixed rate, he was assured he was going back to 0.75%. If the original loan was not a tracker, I have not been corrected.

Kieran O'Donnell (Fine Gael)
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So that leaves a balance of 1,200. Where does Mr. Kissane anticipate those 1,200 case are at?

Mr. Padraic Kissane:

The further I have moved on in the investigation, the more difficult it has become to guess figures. What is astonishing is that every figure I have put forward on this has proved to be correct. I am now probably doing more less informed guesses than I would have done heretofore. First Active is a large cohort. It could be more than that. I put in 5,000 to put a quantum on it to some degree. I do not know how many EBS customers have not got their trackers back but it must be a substantial number because, to date, other than the people the bank described as getting the wrong form when they were fixing their mortgage, it could have been the right form if one looks at another way-----

Kieran O'Donnell (Fine Gael)
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In respect of those 3,000 EBS customers, did that come up in the discussions when AIB appeared before the committee?

Mr. Padraic Kissane:

This is one thing that has surprised me and I brought it directly to the Chairman. First Active and EBS have not been here individually. I know they are owned by parent banks - Ulster Bank and AIB - but EBS and First Active should be called to task here or representatives that are only knowledgeable about their front because there are issues in those two banks.

Kieran O'Donnell (Fine Gael)
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When Mr. Kissane is dealing with customers in respect of EBS and First Active, is he dealing with EBS and First Active as stand alone entities or he is dealing with Ulster Bank and AIB?

Mr. Padraic Kissane:

One is dealing with AIB and Ulster Bank but the issues relate to EBS and First Active because all the paperwork relates to EBS or First Active.

Kieran O'Donnell (Fine Gael)
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If we look to bring EBS and First Active in, and we should take up the request from Mr. Kissane, who should we be looking to bring in? Is there a head of EBS? How do they work?

Mr. Padraic Kissane:

EBS is an entity within AIB and runs-----

Kieran O'Donnell (Fine Gael)
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And First Active?

Mr. Padraic Kissane:

I am not as sure about First Active. If the session only involved First Active, the people who would come in would have to be informed about the First Active issue so they will self-select, for want of a better word.

Kieran O'Donnell (Fine Gael)
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Does Mr. Kissane believe that a large cohort of, dare I say it, the hidden trackers that have not come to the fore are probably within EBS and First Active?

Mr. Padraic Kissane:

I am certain of it.

Kieran O'Donnell (Fine Gael)
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Chairman, I suggest that we write immediately to both EBS and First Active to invite its representatives to appear before the committee as a matter of urgency.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is that agreed? Agreed.

Kieran O'Donnell (Fine Gael)
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I thank Mr. Kissane for that. Why are the banks fighting this so hard? The amount of money involved in the overall scheme of things is not enormous from a bank's perspective, but it is of gigantic proportions for the individuals. People cannot sleep at night and they are getting old before their time. I have referred to this previously, but a lady rang me on 21 or 22 December last, just before Christmas. She was a Permanent TSB customer and there was a knock on her door at six o'clock at night - the lady lives alone - which resulted in a legal document from Permanent TSB being served on her. She was petrified. As she lived some distance away, I immediately rang a personal insolvency practitioner, PIP, who was dealing with Permanent TSB. Obviously, we are dealing with Permanent TSB on a daily basis now. He made a quick telephone call and the dogs were pulled off. Why do the banks not say that they need to put this matter to rest, sort out these customers and move on? It is doing incredible damage to the banks in terms of image, reputation and probably even finance.

Mr. Kissane is dealing with them daily. I do not wish to be cynical but he says that Permanent TSB is re-engaging. By the time it re-engaged, had Mr. Kissane already agreed to appear before the committee at that point?

Mr. Padraic Kissane:

In fairness, Ger Mitchell contacted me-----

Kieran O'Donnell (Fine Gael)
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It was prior.

Mr. Padraic Kissane:

Absolutely. It was regarding an appeal matter that involved a specific issue. However, he used the opportunity to-----

Kieran O'Donnell (Fine Gael)
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I am reflecting the disbelief among the public.

Mr. Padraic Kissane:

Absolutely. To return to the question of why the banks are fighting, it is down to money. One can dress it up any way one wishes, but I can give an example. Where there is a €300,000 loan over 25 years at 3.25%, the total interest charged for the 25 years is €138,584. The total interest charged for the same mortgage at 1.1% is €43,274. That is the reason.

Kieran O'Donnell (Fine Gael)
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What is the differential there?

Mr. Padraic Kissane:

It is just over €90,000.

Kieran O'Donnell (Fine Gael)
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The differential on a €300,000 mortgage over 25 years is not far off €100,000.

Mr. Padraic Kissane:

That is correct.

Kieran O'Donnell (Fine Gael)
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It is nearly a third of the original principal.

Mr. Padraic Kissane:

That is correct. That is why they are fighting it. What has come from the investigation is the reasons they have lost or won - the documentation, the wording and why the client should have been the most informed financially astute person who ever walked in a door. None of the banks has ever advised a customer on a mortgage. It is quite an astonishing statement. As I have said previously, I have a letter in my office that a bank seems to have forgotten it wrote to me in which it states that it has no fiduciary duty of care to its client and as such is entitled to look after its own economic welfare. That was written by a bank to me about a complaint.

Kieran O'Donnell (Fine Gael)
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There are a few final points. With regard to the various institutions, we are going to invite the EBS to appear before the committee. Bank of Ireland has 800 customers and Mr. Kissane referred to Danske Bank. That has not come under our radar.

Mr. Padraic Kissane:

That is a key one.

Kieran O'Donnell (Fine Gael)
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AIB, KBC and Ulster Bank have, Permanent TSB very much so, and we are going to invite First Active to appear before the committee. Will Mr. Kissane talk about Danske Bank? It has not come on our radar and I wish to know why he has included it.

Mr. Padraic Kissane:

I had a discussion with a reporter from a newspaper in Denmark who rang me-----

Kieran O'Donnell (Fine Gael)
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When?

Mr. Padraic Kissane:

It was six or eight months ago. She said that Danske Bank did not really have a big tracker issue in Ireland. She was reporting for Denmark.

Kieran O'Donnell (Fine Gael)
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At that time it was National Irish Bank.

Mr. Padraic Kissane:

Yes, at the time. My initial reply to her was: "What if I told you that it caused it all?" There was silence on the telephone and then she asked what I meant. I told her that it introduced a product in October 2006 called a loan-to-value tracker product and that is when the margin started to tighten. The ECB rate plus 1.25% was no longer competitive. Within about six weeks, retention departments came into play across every lender. At the time in 2006 and 2007 the average life of a loan was four years, that is, the mortgage lasted in the institution for four years. It was done by churning, moving, getting more competitive rates and so forth. The average lifespan of a mortgage now is probably around 12 years. I credit Geg Allen, who works with me in my office, for this information. It is important to understand that the banks were starting to realise that the procurement of business was costing them so much it was as easy to spend some time on keeping the business because that was-----

Kieran O'Donnell (Fine Gael)
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That was where the margins were.

Mr. Padraic Kissane:

It was the margins but also the retention of the business. If it was moving within four years, the bank was not getting a return on its costs. Many people started in this investigation by talking about Bank of Scotland, which introduced the product, but its first margin was 1.75% or 1.5% above the ECB. We ended up with margins of 0.5% and 0.4%. I even saw a margin of 0.2% above the ECB. It was Danske Bank, I might add. When Danske Bank introduced the loan-to-value tracker product some of the other things that have emerged from the investigation, such as the margin issue in PTSB, resulted from that move. PTSB felt that if it left out a definitive tracker rate, even though there was a tracker rate used, it could lower the margin on the expiry of the fixed rate and counter the option that the broker might move people to Danske Bank and so forth. Interestingly, Danske Bank was not predominantly a broker. It only did a pilot with a number of brokers. It was predominantly a direct bank through National Irish Bank. That is what lay at the door of concern with AIB, Bank of Ireland, PTSB and Ulster Bank, the key banks.

Kieran O'Donnell (Fine Gael)
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To get back to practicalities, Danske Bank is gone. Where is the loan book it would have had where individuals would have been on trackers?

Mr. Padraic Kissane:

If memory serves, I believe Pepper Group is the agency looking after it. I do not think it is owned by Pepper Group. It is still owned by Danske Bank.

Kieran O'Donnell (Fine Gael)
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In terms of getting compensation for customers-----

Mr. Padraic Kissane:

It originates with the original bank.

Kieran O'Donnell (Fine Gael)
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However, Danske Bank as an institution is no longer in Ireland.

Mr. Padraic Kissane:

I understand, but it is a very successful bank. The issues of concern-----

Kieran O'Donnell (Fine Gael)
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Has anybody who was a Danske Bank customer come forward to Mr. Kissane in his professional capacity? Has anybody come forward on the tracker issue where the person's loan would have started with Danske Bank or National Irish Bank?

Mr. Padraic Kissane:

Absolutely. There is a huge amount of cases in the office.

Kieran O'Donnell (Fine Gael)
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How is Mr. Kissane dealing with them on a practical level?

Mr. Padraic Kissane:

We are writing to the Danske Bank address in the International Financial Services Centre, IFSC. It still has an entity here. It is a commercial bank but it is for the corporate sector.

Kieran O'Donnell (Fine Gael)
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Is Mr. Kissane interacting with it on the cases?

Mr. Padraic Kissane:

I wrote a letter to the bank and its reply was that reputational concern is not a worry for it because it is out of here. That is the reply I received.

Kieran O'Donnell (Fine Gael)
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Was that recently?

Mr. Padraic Kissane:

No, that goes back a while.

Kieran O'Donnell (Fine Gael)
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Chairman, Mr. Kissane is an expert on this area so for the sake of complete coverage we might issue a letter to Danske Bank as well with regard to the issues he has highlighted.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I presume Pepper Group is the regulated agent.

Mr. Padraic Kissane:

Danske Bank has an entity in the IFSC where there are members of senior management.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Are you suggesting that we write to both, Senator?

Kieran O'Donnell (Fine Gael)
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Yes. We are duty bound to do so, given what Mr. Kissane is telling us. He deals with people on a daily basis. There is a danger that we are going to reach major fatigue on the tracker issue. The banks are trying to turn this into a marathon.

Mr. Padraic Kissane:

There are two issues I would raise about Danske Bank. The reason I give importance to it is that many of the banks improved the margin position to retain the customers who were threatening to go to Danske Bank. The loan-to-value product is clear from the outset. However, with regard to fatigue, I can say for certain that I will not stop. There are still issues and I intend to see them through to the end. There are some cases that are more debatable. They are not in the collective and are more singular in nature. That is fine. They were always going to be there anyway. However, the larger cohorts are still in existence.

Kieran O'Donnell (Fine Gael)
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Chairman, I will summarise what I get from today's discussion.

Mr. Kissane has now highlighted to us that there is a large cohort of up to 5,000 customers, 4,000 of whom are with either EBS or First Active. I believe we have to pursue this matter as a committee. It is a significant proportion. We are talking about 36,000 customers at the moment and maybe another 10% on top of that. That is significant. As a matter of urgency, I ask that we invite EBS and First Active to come before the committee along with Danske Bank and Pepper. I ask that we ensure that banks cannot continue to stretch this out. They are hoping fatigue will set in and, dare I say, that we pull back a 5,000 m race rather than a marathon. We must get closure on this.

Mr. Padraic Kissane:

They may say I am wrong.

Kieran O'Donnell (Fine Gael)
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Expand.

Mr. Padraic Kissane:

The forms are clear; all of the other excuses that I have been given-----

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I think, rather than get into that, we will agree to invite EBS and First Active to attend and we will add Pepper and Danske Bank and see what the response will be. Then we can take it from there.

Kieran O'Donnell (Fine Gael)
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Thank you, Chairman. I thank Mr. Kissane.

Paul Murphy (Dublin South West, Solidarity)
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I thank Mr. Kissane for all his work on exposing this scandal and fighting for those who have been affected by it. Does Mr. Kissane have an estimate of the overall amount gained by the banks as a result of these practices?

Mr. Padraic Kissane:

"Gained" is a word that I would say was temporary. The money that was overcharged, in the collective, is probably about €700 million. There are a couple of aspects that probably do not get as much prominence as they should. In taking €700 million from customers, they also took it from the economy, at a time when the economy could have done with €700 million extra to be spent. It is a key issue that a lot of people miss.

Another thing about the €700 million is one has to double it to earn it. That means there is €1.4 billion that has to be earned to create €700 million of overcharge. Even if it was only €100 million it would still be wrong but the fact is that the numbers are so astounding.

One of the connective issues was that the standard variable rates that were being charged at the time were the highest in Europe, as the committee has heard. That is what made it more pertinent in respect of the importance of the tracker. If the ECB rate is at 0% and the tracker margin is 1% but customers were being charged 4.5%, the differential was off the charts. Add to that the tsunami of the economic crisis and it was a perfect storm that hit families. Importantly, when it hit those families, they did not know there was a wrongdoing going on in the background and that is the issue that hurts the most. Whatever about the money aspect, the fact that the banks did it is what hits them hardest. That has become clear to me from the meetings I am holding with people. Banks were held in a regard of trust and they have broken that. It is going to be very difficult to restore and regrow that trust. The banks' behaviour and the ongoing nature of the issues are certainly not helping.

Paul Murphy (Dublin South West, Solidarity)
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There was a huge amount of money taken from people and from the economy. When he was reaching the conclusion of his remarks, Mr. Kissane said the question should be whether the banks would do it all again and he feared that the answer might be "Yes". Could he explain why he thinks that is the case? This also relates to what factors were driving this effective robbery of people in the first place.

Mr. Padraic Kissane:

It probably comes to what lessons will be learned. The part that will be intriguing for me is the final report that will come from the Central Bank. Will it be a synopsis, as happened in the UK recently with the global restructuring group, GRG, division of Royal Bank of Scotland, or will the Central Bank issue the full report? It will probably be the full report and there will probably be some very damning statements in there. If the banks could be trusted, in an idyllic world, we would not need the Central Bank because we would not need an overseer. Putting the desire to return to shareholders ahead of customers is what is wrong.

There are other connected issues with regard to the non-payment of loans and the difficulty in taking repossession and getting the debt repaid. It cannot be viewed as an easy ride, either, for non-payers, because then the whole thing will crumble. One of the questions I have is why it is necessary for the bank to make €143,000 on a €300,000 loan, rather than €53,000. How much is enough?

If I was to give any indication of what should happen going forward, I would suggest that the family home should be treated as a cheaper loan anyway. The desire to own a home - however, we have to be careful that this does not drive the prices crazy as well. It could have a double edge to it. There is a certain level of affordability for people. It is estimated that about 35% of income is what people should be spending on a mortgage, yet we are up at 60% and 70% at the moment in some cases because the supply of housing is not there.

As for the fallout, to learn from this and reposition it again is going to be difficult. We are back with the same leopards, same spots, same treatment. If it happened again, would they do it again? I hope they would not because of their reputations and the carnage they are starting to see in the appeals. One could not do it to anybody willingly. There are good people in these banks and they know, but some people made the decisions. There were deliberate actions taken by some of these banks to ensure the restoration of the tracker did not occur.

Paul Murphy (Dublin South West, Solidarity)
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To follow up on that, when Mr. Bernard Byrne, CEO of AIB, was before the committee two or three months ago, he described taking people off tracker mortgages, etc., as an unforeseen and unintended consequence of the decision to stop offering tracker mortgages to new people. The other banks that came before the committee effectively offered similar versions of that explanation. Does Mr. Kissane accept that what happened was unforeseen and unintended?

Mr. Padraic Kissane:

Different banks have different levels of behaviour and important distinctions have to be made. Some banks did it deliberately. Deliberate changes were made to their mortgage systems. That I know. In regard to why, the reasons were extant for every bank, namely, trackers were costing money. It was a short-term cost, by the way; trackers are freely available in the UK as I sit here today. They are not a product that has suddenly vanished. If I was advising the banks, I would suggest applying a floor in respect of trackers below which the rate could not go. That would probably have solved a huge issue.

We are moving into the area of the criminality of this and to be honest, I have concerns about some lenders and how they did it and the deliberate nature of it. However, more of the concerns are about how they have resisted it. For example, AIB is stating one position about AIB customers and that it was a natural fallout, yet EBS homeowners are all sitting in listening today - I know lots of them are - and not one of them is back on a tracker. They got the wrong form. The wrong form for whom? I find it astonishing that the wrong forms are always in favour of the bank.

There is a rule of law here. If the documentation is not clear, the rule is that it should favour the lesser party, and the lesser party should be and is the customer. There is a lot more I could say on the issue but I do not think it would be fair in the middle of the investigation with lines of communication open. As a warning to the banks, I would say that I have a lot more information than I am stating. The Central Bank has been informed and is aware. It has told me it is absolutely accepting and working with the information I am submitting. Obviously, it has to go and prove it. For example, here is the KBC report I sent to the Central Bank in June 2016. The jigsaw pieces have to be put together here. It tells us everything we need to know.

Mortgages should never have been complicated. They should have been simple documentation and if there is any vagueness, it should favour the customer without question.

This is what is annoying me now, that they are still questioning the vagueness and stating it should slant in their favour rather than that of the customer. It really annoys me because it has been ongoing for nine or ten years.

Paul Murphy (Dublin South West, Solidarity)
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To return to the more general picture, one of the interesting things Mr. Kissane spoke about was the role of Danske Bank's loan to value tracker project in effectively kicking off a race to the bottom. Will Mr. Kissane explain a bit more about how the dynamic between the various banks proceeded? Will he also explain the dynamic within banks, the role of a bonus culture and, within this, the pressures that existed on staff to get people to sign up to these and, at another stage, to get people off them?

Mr. Padraic Kissane:

There was previous form with this. If we remember when Bank of Scotland came into the marketplace, it brought in a tracker product, and within three years every bank had a tracker product. It was naturally going to follow that if Danske Bank was the only bank that stated that as someone's margin loan to value improved it was going to lower that margin, every bank had to react to it because it could have cornered the entire market as the product was going to be a loss leader and it was going to garner everybody. What ended up happening was that many people negotiated to get the deal approved with Danske Bank, and then went back to their own banks and got it matched or even bettered. As a broker at that time, we sent email after email to the banks to state if they did not improve on 1% we would move the customer because we were obligated to do so. If there is a better available rate we are obligated to tell our customers about it. At that point, all of the banks were coming back with improving rates all of the time.

The reason I say it became a race to the bottom is because the desire then was not how much profit the banks were making from a mortgage, it was market share and how much they were lending. If we listen back to all of the announcements, they were all about how much they lent in each year. It had nothing to do with the margins at which they were lending. It resonated because the volumes were so great they were making profits, but the profits in a normal banking environment should have been a lot more. They were charging minimal amounts and it was about getting volume. The bank manager who spoke was factually stating what the position was. He had to get €7 million out the door of one branch in a week, and he did not have lot of footfall crossing. That is an astonishing amount. The worrying point was his end comment, that the bank did not care how he did it.

Paul Murphy (Dublin South West, Solidarity)
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Does Mr. Kissane agree with the description of the culture given by the Governor of the Central Bank, Mr. Lane, of seeking profitability to the detriment of the banks' customers? He used a similar formulation earlier I believe.

Mr. Padraic Kissane:

Without a shadow of a doubt the customers did not come first. I do not fully believe they come first even now, but it is a case that they have to. I have said before on record that if I were to say what was the banks' regret it is probably that they got caught. I know it sounds like I am glorifying it, but they probably never expected me to come along to spend the time I did. At present, most weeks we work on this six or seven days and sometimes 18 hours a day, because of the might of what we are up against and the certainty of what I have to do. I cannot be wrong. The one thing I say to every customer is that I absolutely acknowledge and understand the importance of this because it is life changing money for people. It is only €400 or €300, but it is a crucial €400 or €300 to that family. My opening remark to somebody new among the 33,600 who comes to me is to let us assume for today there is one tracker case and not 33,600, because for that person it is crucial.

Paul Murphy (Dublin South West, Solidarity)
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I have one question on the detail. Mr. Kissane mentioned difficulties with documentation with regard to EBS, and this tallies with a case I am dealing with whereby someone was taken off a tracker and was not given the appropriate information. He has made the appropriate complaint and EBS states it should have sent him a letter and that it believes it did send him a letter but that it cannot locate the letter it thinks it sent him that would have informed him on everything. Is a problem with tracking down documentation something that is commonplace?

Mr. Padraic Kissane:

I was expecting a question on EBS. One of the issues with EBS, and what was unusual, was if someone wanted a tracker mortgage he or she had to sign a tracker application form which stated the person could move to a fixed rate or a variable rate once without penalty throughout the life of the loan. I have consistently challenged this bank as to where is the without penalty aspect of this. I have received a reply from EBS that there would be a penalty if there was a breakage fee in going from a tracker to a fixed or variable rate, which could never apply because there are no fees for breaking with a variable rate because it is a variable rate. Its loan offer, which in many cases was issued after that application form - and we are getting technical here - mentions the variable ECB rate plus 1.25%. With the tracker mortgage, the margin is linked to the specified index or indices and remains constant for the life of the loan.

One part not accepted by the banks - I am not going to say it is not understood by the banks - is that the first thing everybody forgot about with regard to a tracker mortgage was it was a product first and not an interest rate. The legalistic view is the underlying contractual basis of the loan was established when it became a tracker. It did not get altered when someone went into a fixed rate for a short period of the loan, it remained running. The only part that would change was the ECB rate, and nobody could predict what that would be at the end or at the outset, but the margin was constant. Everyone signed up to the very same tracker product. All that has happened since July 2008 is the banks have attempted to state retrospectively that this what they meant, or that they had a non-price promise tracker product, as Permanent TSB has said. All of this is made up. With certainty, in every system a loan must be underwritten before it is ever issued, and the margin is there because the underwriter must know if it stresses it to plus 2% what that will cost the customer. This is in everyone's system. What the banks did, and one can imagine the work that went into it because of the cost issue of more than €600 million, was looked to see whether there was any way to get people off tracker rates. I am absolutely certain this happened in all 15 banks.

As a complete aside, people who had credit issues and had to go to Springboard Mortgages, which is owned by Permanent TSB, to get a mortgage are on better margins today than someone with a 50% loan to value offer with Permanent TSB, and Permanent TSB thinks this is right. The important thing is no margin was stated in the Springboard Mortgage loan offer or in the Permanent TSB offer, but the Springboard Mortgage person is back on the margin used in the system and the Permanent TSB person is not. I had an exercise which I showed the Central Bank. I could put out four identical loan offers, one at 0.8% above the ECB rate, one at 1% above the ECB rate, one at 3.25% above the ECB rate and one at 2.25% above the ECB rate, and the job is to match the margins to the loan offers. Nobody could do it, because all of the loan offers are the same, but people think they are right. This is why I state today I am 100% certain I am right on the margin issue. I am challenging and continuing to challenge the Central Bank on this and I do not know why it is taking it so long, because these are the questions it should be asking Permanent TSB. My question on the non-price promise tracker is whether any of the customers were told this is what it was, because otherwise, why are they all challenging this issue.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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To clarify a matter Senator O'Donnell raised about Danske Bank, we got a reply from Danske Bank on 12 January and I will ask the clerk to circulate it to members again. The bank's reply to the questions we asked states the total number of accounts and customers identified by the bank as impacted at the end of the fourth quarter of 2017 was 79 accounts and 78 customers. It also states the number of cases arising as a result of customers with tracker products was 18, and the number of customers denied the correct margin was 60. It also states redress and compensation payments have been made to ten customers as of 10 January 2018. It would appear it has identified its numbers and has dealt with them.

We can circulate it to members and then consider whether or not to pursue their appearance.

Rose Conway Walsh (Sinn Fein)
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I thank Mr. Kissane for all the work he has done and continues to do on behalf of people who have been and continue to be affected by this scandal.

We spoke earlier of lives lost. I know that is difficult to quantify but Mr. Kissane is probably the person best able to assess how many people are not alive today because of this debacle.

Mr. Padraic Kissane:

It is a hugely emotive issue. One thing which is common is that I have had no one come to me to say that the bank did it. In any appeal I have dealt with, I have not met anyone who would get out of a car and say they had whiplash unless they had it, in other words we are not naturally a claiming nation. This involves middle Ireland which pays for everything. It is people who ordinarily would never argue, complain, claim or appeal about anything. Over the many hundreds of meetings I have had, I have come to understand it and can see the upset in their eyes and in what they tell me. When people visit my office, they may share a bed but they are on separate pillows. Both are pretending to be asleep but both are awake.

Niamh Byrne was of of four customers before this committee. Thankfully Niamh has been redressed by Ulster Bank but the other three are in the same position that they were in in October. I recall Hazel Melbourne told this committee that she was literally begging it to help them. She does not say that lightly, and she is a special lady anyway. I recall Jenny who said "I might be 74 years but I am not dead". She lost three of her investment properties. I have hundreds or thousands of these cases. One must be careful, however. It is fine to continue and wallow in the difficulty but something that I say to many clients is that the problem may not be solved tonight but it is shared. They need to be given assistance to show them how to get out of this. Remember, until they received the redress letter, many of these people did not have a tunnel never mind a light at the end of it. There are cases. In common with the staff issue, it is not something that I would like to politicise or get public kudos for it but members can be certain that it has happened. It is not something that I wish to speak about publicly. It is too personal to people and it is something that I would handle with greater care than any other matter at issue here out of respect for the people who are picking up the pieces and who are still here. The media ask me to get people who lost their homes to talk to them but nobody will. Shame alone stops people from doing that; there is embarrassment having learned the excuses they gave for having to move from their home are now lies. One cannot expect them to do that. I was intrigued to see KBC tell this committee that of the six owner-occupied properties lost as a result of the bank's error and failure, it still had five in its possession. Good luck with moving back into that house. It is an impossibility. KBC thought this would be easy, that it still owned the properties so that it might give the customers back the house. Imagine the evening those people had to move out and think of the state of play, particularly for the children. I could have any bank before me, but when children are affected I get angry because that is unfair and it is abuse. It might be financial abuse and dressed up in white collars, but I do not care, it is still abuse. Parents have to take difficult choices, and I do not mean not taking holidays, Irish courses or so on, I mean real issues such as the standard of food they are giving. I raise this because it is the culture that must change. Banks telling people that they must stop shopping at a particular shop and they must shop elsewhere to save more money has to stop.

Rose Conway Walsh (Sinn Fein)
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Professor Philip Lane has told us that all customers will be compensated by the end of June.

Mr. Padraic Kissane:

The desire is that would be the case for all customers who have been identified. Ulster Bank is picking up speed. It had an enormous issue with its systems, where there were five systems trying to feed in to a redress process. AIB is a little behind with the older conditions as they were only restored before Christmas, but it is also picking up the pace. AIB tells me that it hopes to have everyone redressed by the end of May. That does not allow for the cohorts that remain in there which have not been deemed impacted. One thing I can say with certainty, is that the banks are doing everything in their power to resolve cases of the people who have been deemed to be impacted. It is a given that there is no deliberate delay. If there was, the banks would be essentially borrowing from themselves at ridiculous interest rates. Members can be certain that the quicker this is sorted out the better.

Rose Conway Walsh (Sinn Fein)
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The appeals process deals with the level of compensation and redress. If someone received a letter to say that they have not been impacted, is it the case that there will be no mention of an appeal mechanism?

Mr. Padraic Kissane:

No, if a customer is not deemed impacted they will not be included. There is no right to an appeal. I have raised this issue with the Central Bank but it still has not replied to me. Someone who has been deemed not to be impacted but feels that they are may be statute barred and now they have no place to go. The arguments are so old now that they are outside the six-year rule and because they have not been deemed impacted, they are not covered by the statute waiving.

Rose Conway Walsh (Sinn Fein)
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We need to raise the communication to people who are told they are not impacted with the Central Bank. That would be useful.

On KBC, is there a broader issue with people who bought either mortgage through a broker? Mr. Kissane touched on it in his presentation.

Mr. Padraic Kissane:

No, the only reason that brokers were mentioned in relation to KBC was that its business was done predominantly through brokers. There is an issue of keeping the broker informed. Ironically in its case, the agreements between the brokers and KBC included the following clause, which I myself signed up to:

The intermediary shall not, without the consent of the lender, print or publish any advertisement or circular referring to the lender or any of its services and not make any promises or representations in relation to the services, otherwise than by reference to published material obtained by the lender.

Then KBC sent me what it called a "flyer", although it was not a flyer, it was a communication. It was sent in direct opposition to a move which Dankse bank had just made. I find it astonishing that most of the people who are before the committee here were not in the banks when this happened but they seem to have forgotten everything that went before them. The broker game was the big game in town but for KBC especially, it would have provided about 90% of its business.

Rose Conway Walsh (Sinn Fein)
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Does Mr. Kissane think that anyone will be penalised or jailed for this?

Mr. Padraic Kissane:

Honestly, as I have said before, I do not care. My intention was only ever that everyone would be given back their tracker mortgage. It is absolutely the case that there are concerns but I would hate for the real life issue of the tracker rate being restored to be lost in the debate over who was or was not guilty. There are people who engaged in deliberate actions but they probably did so with the intention of trying to save their bank and secure its profits. The reasons they did it could have been laudable but it was still wrong. I have been asked how much of it was criminality and whether it was fraud many times. That was never my concern. If I press that button I would lose control of what people want, which is having their tracker rate restored. They are not interested in the wider aspect. Obviously they are very important questions in this forum and for the Central Bank. If it needs to move to that level, I would give what I know but for now, my concern is for my customers. I have moved from getting them back to the tracker to the clean-up phase which was always going to be the tougher part of the job. The banks nearly sighed with relief when they put the customers back on tracker but they did not know the carnage that would arrive at their door. I did not expect Permanent TSB's appeal panel to treat it as it did, with the one panel cap.

What was astonishing about the appeals was that the more serious ones were with the independent review panel. All of those bar two were resolved with me. It is quite astonishing. An oral hearing was given to everybody. If I were to raise any issue here, it would be that, while appeals take time, the people need to be heard. One cannot put into that what it has done to people. It must be acknowledged that it is not easy for the people brought in. Astonishingly, bringing an appeal that has merits is therapeutic. It is actually the best way to draw a line on the matter. It has nothing to do with the level of compensation. I know many believe compensation is what is desired. I have asked the question on compensation in my office umpteen times but I have never got an answer from a borrower to the effect that he or she wanted €1 million back. None of them is looking for it. They just want the wrong to be acknowledged and proper compensation to reflect it. Most of them ask for a genuine "Sorry" because they do not believe what was printed.

Rose Conway Walsh (Sinn Fein)
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I understand that. On the issues of individual culpability and sanctions, it is very important to prevent a recurrence. If this is not achieved, the institutions will basically have got away with their activity, and individuals will have got away with certain behaviour. Mr. Kissane will agree the excuse of trying to save the bank is not a laudable one for what I consider criminal activity - the taking of money from people.

Mr. Padraic Kissane:

I would classify it as a phase of the investigation that is probably occurring but I would nearly have it as a separate leg. In other words, it is a discussion that should take place around the table with appointed parties to some degree. It should happen for certain but the customers should be out of that.

Rose Conway Walsh (Sinn Fein)
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I understand how Mr. Kissane is trying to hone in and how he must do so to get the results he absolutely needs and that families and individuals deserve.

I found it quite difficult to understand why there are not unannounced inspections by the Central Bank given the scale of the scandal. Does Mr. Kissane believe there should have been?

Mr. Padraic Kissane:

Yes. Mr. Joe Meade, the original ombudsman, wrote to the Central Bank in late 2008 and warned it of the tracker issue. That is how long ago it was. In some sectors, there is over-regulation by the Central Bank, and in others there is none. When a former Minister referred to the importance of having pillar banks in this economy, I asked him to define one. The definition to date is not of what I would regard as a pillar bank.

Interestingly, Italy, which is also in the mire economically, has very competitive mortgage rates. It took a different view from the ECB on some matters. It can still be done. I have said before that what is despicable about what has happened here is that it concerns homeowners. This is the one sector one should never have been gone near. Whatever about the global restructuring group, GRG, issues – they are here in Ireland too – and the commercial aspects, there is not the same carnage and tentacle stretch as with a home. The Central Bank came in here initially and said it did not have enough powers. The family home is protected in the Constitution. There were enough powers. The attack to which I am referring was on the family home. It is absolutely connected to renters. For the investors, most of whom were amateur, losing the properties was the same as losing a home. Many people kept their first home and went on to buy another with the increased value. They lost the rental property. They were classified as amateur investors. They paid the stamp duty, VAT and non-principal private residence tax, property taxes and water rates. The amateur investor is almost a collection device for tax for the Revenue because the level of tax being paid. We wonder why there is a housing crisis in terms of the private rental market. Eighty percent is the only amount of interest a private investor can offset on a rental property. If it is a commercial loan, it is 100%. I acknowledge there are other aspects but the banks come in here, deliberately in my view, and talk about the lost homes and this other number that does not seem to matter. It does matter, however, because most of those affected viewed the properties as their pension plans or homes, or believed they had the option to trade back to them if they sold their original home. That is all set aside.

I said a long time ago that I do not know how this State allowed the Revenue Commissioners bail out our banks, as well as the taxpayer. Most people would ask what I am talking about. Banks are currently being allowed to increase rates on tracker mortgages if capital and interest payments cannot be picked up, Bank of Ireland being the main culprit in this area. The loans were underwritten as interest-only. If there is a 20-year loan of €1 million, it is €50,000 and 0%. If there is only ten years to go, it is €100,000. There was never the affordability to pick it back up but the banks have used it as another opportunity to take the borrowers off trackers. They were given permission to do this. The interest on €1 million at a rate of 1% is €10,000. Eighty percent of that is deductible against rent. If the interest rate is moved to 2%, €16,000 is deductible against rent, so the Revenue Commissioners lose out. How did that happen?

I wrote a letter to the Central Bank on this in 2011. I said the institutions would start with investors, move to arrears and then to homeowners because the intention was to get everybody off a tracker. I wrote that to the Central Bank in 2011. It still went with what was happening. I asked how, after we had given what we gave, we were allowing the Revenue Commissioners to lose out with interest.

Kieran O'Donnell (Fine Gael)
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Is Mr. Kissane saying that if somebody is on a tracker and is unable to make capital payments, the bank can force him off the tracker under Central Bank rules and put him on a variable rate?

Mr. Padraic Kissane:

Yes. They are being allowed to.

Kieran O'Donnell (Fine Gael)
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How long is that in place?

Mr. Padraic Kissane:

Because the interest-only periods were either five years, seven years or ten years, it was from about 2012 onwards. It has happened. There is no basis on which affordability could have been established at the outset on a capital-interest basis over that shorter term.

Kieran O'Donnell (Fine Gael)
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Is that informing the review of the tracker cohort at the moment?

Mr. Padraic Kissane:

No.

Kieran O'Donnell (Fine Gael)
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Why is it not?

Mr. Padraic Kissane:

Because it is not being viewed as a tracker being lost as per the investigation criteria. It is being viewed as the borrower not being able to adhere to the strict terms and conditions of the loan offer, which state one has to move to capital and interest over the remaining period. The intention, however, was always for the interest-only arrangement to roll over, with a view to selling the property down the line or, if there were multiple properties, three to pay off the other two, for example.

Kieran O'Donnell (Fine Gael)
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In light of the funding and financial model of the banks, when the banks were considering providing trackers, were they justifying their activity on the basis that they would be getting capital back in addition to interest after the interest-only period?

Mr. Padraic Kissane:

One hundred percent of those were underwritten on an interest-only basis. They were never underwritten on a capital-and-interest basis because most people could not have afforded those two loans, four loans or five loans.

I acknowledge this is moving into a separate area but it is a crucial issue. My report, put up on the website at the time in question, amounted to seven or eight pages. What I was trying to highlight at the time was that the institutions saw a chink, went for it and got what they wanted. I said it was only going to be a steppingstone to other matters.

Paddy Burke (Fine Gael)
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I welcome Mr. Kissane.

How far back do the loans under investigation date? Most loans might have had a term of 15 or 20 years. Could some be expired at this stage?

Mr. Padraic Kissane:

Is the Senator referring to the impact date or the commencement date?

Paddy Burke (Fine Gael)
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The commencement date.

Mr. Padraic Kissane:

From about 2003 onwards. There were some before that. Most people would not have selected a fixed period until either late 2006 or during 2007 because the ECB rate did not move at all from 2003 to 2005, meaning the variable, fixed and tracker options were all running at the same rate.

It was not until between 2006 and 2007 that the ECB rate moved about seven times and it increased every time. Nobody could determine at the time how high it was going to go so people ran for cover into fixed-rate loans.

Paddy Burke (Fine Gael)
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Could some of the loans have been taken out in the 1990s?

Mr. Padraic Kissane:

Yes, some loans became tracker mortgages. They did not commence as trackers but became trackers because the banks made such mortgages available. Some of them have expired.

Paddy Burke (Fine Gael)
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Could they have been taken out as trackers in the 1990s?

Mr. Padraic Kissane:

No. Tracker mortgages did not come in until 2001 with the Bank of Scotland and by 2003, all banks were doing them.

Paddy Burke (Fine Gael)
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Could interest-only loans have started in the 1990s?

Mr. Padraic Kissane:

That is a separate issue. When people borrowed a deposit for a second house, while keeping their first, they took out an interest-only loan to supplement their pension or help repay their other mortgage. They were for periods of five, seven or ten years but when the interest-only period expired, people were told they had to give up their tracker rate if they could not adhere. Even though the margin was only increased by 1%, the loan is no longer a tracker but a variable rate which the lender can increase at will.

Paddy Burke (Fine Gael)
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Mr. Kissane raised the issue of the statute bar. The Central Bank told us the statute bar does not come into play once a person finds he or she is impacted.

Mr. Padraic Kissane:

That is my belief. I wrote to the Central Bank and it suggested I should check with legal counsel. The view I have been given is that the tracker issue is not statute-barred but the causes and effects, and any damages, could become statute-barred in a challenge. If that were to be a defence of the banks, it would certainly not indicate that they had changed their culture and attitude.

Paddy Burke (Fine Gael)
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This would mean people would only be entitled to the difference in the interest rate.

Mr. Padraic Kissane:

Correct. If a case went to court, I am told the banks could put up a defence that would statute-bar the other items being appealed. The appeal would not be statute-barred but I am being told I need to be careful about this on the court side, because they could put it up.

Paddy Burke (Fine Gael)
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What is the advantage of the bank taking a customer from a tracker to a variable rate?

Mr. Padraic Kissane:

The first advantage is to gain control. With a tracker mortgage, the control over what the bank could charge lay with the customer and this was maximised at the margin that was set. This is why the margin issue in regard to Permanent TSB is so pertinent. The one key issue with each tracker mortgage was the margin a customer was to be charged and there was no such thing as a non-price promise tracker; it never existed. When the customer had an ECB+1% rate, for example, he or she had control but when the crash happened, the banks needed to get control back. The people affected, 33,600 of them and growing, are now no longer in charge of what the bank can charge them. We could not control what the ECB did but we could control what the bank charged. When the ECB rate started to drop the banks were not obliged to pass this on to the people who had lost trackers and, while they reduced rates for a while, they then put them up.

Paddy Burke (Fine Gael)
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The Bank of Ireland is now pushing fixed-interest rate loans for five or ten years, saying this is the way forward because one cannot pay lump sums off a tracker mortgage.

Mr. Padraic Kissane:

One can. However, one cannot pay a lump sum off a fixed-rate mortgage without a penalty.

Paddy Burke (Fine Gael)
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Is that the case with a tracker?

Mr. Padraic Kissane:

No, because trackers are variable loans. A tracker and a standard variable rate mortgage are the same thing. The underlying variable basis of the loan was established at the outset and was never altered. The only thing that altered was the ECB rate. If a person has a fixed-rate mortgage and comes into money and pays, for example, €100,000 off the loan, there is a cost. Ironically, very few banks ever hedged fixed-rate mortgages and they took the chance that they would continue to make money from them. The bond issued yesterday was oversubscribed at 0.68% for seven years. That is the rate at which Irish banks are borrowing money and not one bank in Ireland is losing money on a tracker mortgage, apart from Danske because its rate is 0.2%. According to the banks themselves, it is that they are not making enough money from them, though they made a loss for a period when EURIBOR and the ECB rate went in different directions. Recently, EURIBOR has often gone lower than the ECB rate and is at a minus figure at the moment.

Paddy Burke (Fine Gael)
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Are the banks hedging now?

Mr. Padraic Kissane:

I would not think so because, with the level of deposits they hold, it would not make sense. Customers now see rates of 2.3% 2.4% or 3% for the next five years as very competitive but that is because they have come down from 4.5%. A person in Europe can get a 20-year fixed-rate for 2% and will have certainty for the full term of the loan. I do not know why such a product does not exist in this country. The term and rate are set and a person knows what he or she is paying. It would give certainty to the economy and to the planners in the Department of Finance etc. Moreover, in the case of any improvement in wages and situations, the economy will get better because the cost is known at the outset. In America they also have full-term, fixed-rate mortgages and I do not know why they are not here. The banks still make their money and set the margins but they want to eke as much out of it as possible.

Paddy Burke (Fine Gael)
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Mr. Kissane said the Bank of Scotland was the first to introduce them. How long after that did it take the other banks to get in on the act?

Mr. Padraic Kissane:

In order to prevent the market being cornered, they got in within six or eight months. The margins for the Bank of Scotland were 1.75% and 1.5% but the margin race to the bottom began with Danske Bank. Danske Bank was a niche player and did not have the volume of other banks. Professionals with large loans had access to rates of 0.5%, 0.6%, 0.4%, or 0.77% and at worst, they had a negotiating position whereby they could tell their original lender to match it or they would be gone. When I said this to a reporter from Denmark the reporter was astonished but I did not say it lightly. October 2006 is a key date for what went on and it has caused all the issues since, such as the margins being taken out of loan offers by Permanent TSB. The first time I brought up the issue with two senior managers at Permanent TSB they told me they did not take the margins out until 2008 because of the market crisis. I told them they took them out in 2006, put them back in, took them out again in 2007, put them in back in again and took them out again later in 2007. This was all because of the move by Danske Bank.

Paddy Burke (Fine Gael)
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Does Mr. Kissane think a cartel operated at that time?

Mr. Padraic Kissane:

All the banks had the same problems with the same product but I do not know if they were talking to one another.

They came up with similar solutions. They were not all identical but they all had the same desired outcome, namely, to take everybody off a tracker rate. If they had their way, not one person would have a tracker mortgage today. They would have taken them off every single customer.

Gerry Horkan (Fianna Fail)
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I thank Mr. Kissane. I propose we suspend until 3.30 p.m. for our session with the Secretary General of the OECD. Is that agreed? Agreed.