Mr. Cormac Butler:

I thank the committee for inviting me to appear before it to speak on banking matters

I will start with tracker and variable interest rates. The mortgage tracker scandal has revealed attempts by most Irish banks to charge interest well above what the law allows. Sadly, banks have used loopholes to avoid the Central Bank’s tracker mortgage examination. The Central Bank has warned that high interest rates often push customers into unnecessary default. In the rush to window dress with short-term artificial profits, banks create considerable long-term problems for themselves and their customers and lessons from the banking crises are ignored. Many defaulting customer loans are sold to vulture funds at huge discounts. Tony Lawlor has first-hand experience of some of these obstacles and will address this committee shortly.

The Central Bank wants commercial banks to examine buy-to-let customers as part of the tracker process, yet banks say that only home loans qualify as tracker. In addition, some banks will only advance Covid-19 loans provided those customers reclassify themselves as non-consumers thus enabling banks to use unfair terms and avoid a tracker examination by failing to retain historic interest rates. Banks have used this opportunity to increase interest rates without justification or customer consent. One bank has forced a customer to sell his property at distressed prices and even threatened the auctioneer with legal action if they attempted otherwise. Worryingly, the Irish courts believe there is nothing wrong, otherwise, the Central Bank would have investigated this behaviour.

The second topic I intend to discuss is banking licences. To the distress of many borrowers, the Irish courts will not examine whether the former mortgage provider IIB Homeloans and Finance Limited had a proper licence before 2008 thereby causing illegal repossessions. Courts say the burden of proof rests with the borrower not with the bank. IIB Homeloans has refused to confirm that it did not have a licence. The Central Bank has repeatedly avoided questions on this matter but instead said that IIB Homeloans did not need a licence. In a recent parliamentary question, the Minister for Finance refused to answer a direct question on the licence issue and simply repeated the Central Bank’s answer that a licence was unnecessary.

Fortunately, on 26 May 2021 the Central Bank, after persistent questioning, eventually confirmed that IIB Homeloans Limited did not hold a licence prior to 2008, an important admission that will help overturn illegal repossessions. Section 7 of the Central Bank Act 1971 requires entities describing themselves as a bank to hold a valid licence. On 20 May 2021 the Central Bank was asked to clarify why IIB Homeloans had an exemption from section 7. Clearly, this matter requires an urgent answer. Looking at the Irish court system, in practice, if the borrower as defendant claims that IIB Homeloans acts illegally and the Central Bank has not raised the issue then the courts have nearly always found against the borrower.

On another matter, a group of EBS tied agents has also suffered from Central Bank inaction as Shane Kavanagh will reveal shortly. Some of this group are before the courts facing repossessions. Their defence is straightforward, that is, that EBS was in a perilous financial position which it failed to disclose and therefore signed contracts that it was not able to honour. The group has evidence from former EBS directors and sworn evidence from the Committee of Inquiry into the Banking Crisis that EBS knowingly misrepresented its financial position.

A legal opinion from George Bompas QC confirms that such practices are contrary to EU and, therefore, Irish company law, yet the courts have ignored the tied agents because the Central Bank, as regulator, has not raised the matter. The courts have ruled that sworn evidence at the Oireachtas banking inquiry is not acceptable and have simply ignored evidence from barristers on the application of EU company law, yet they are happy to rely on evidence from redacted documents provided by the vulture funds. Clearly, Central Bank investigations are necessary if the courts are to take repossession defences seriously.

With regard to money laundering, during the 2008 financial crisis, banks used window dressing to conceal substantial deposit withdrawals from worried customers. At least one bank funded substantial but artificial deposits by lending money to itself. In a particular case that I have come across, a bank advised a customer that he could receive a bank loan only if he entered into a partnership with associates of the bank. Although named as a borrower, the customer never actually saw the loan advances. The bank instead paid loan proceeds to its associates, who placed much of it back on deposit with the lending bank in an account held with the Irish Central Bank. The customer saw his business collapse with unnecessary cash flow problems, yet the courts were completely unsympathetic. In my view, the courts assume that all regulated banks are operating above board if the Central Bank does not raise an issue. Injustices, therefore, arise.

In conclusion, this committee has already raised these matters with the Irish Central Bank and it wrote to Chartered Accountants Ireland on a serious matter of potentially

wrong legal advice, yet no one has responded, despite a Financial Timesarticle raising very serious concerns. I hope the committee will continue to address these important matters.