Brian Lenihan Jnr (Dublin West, Fianna Fail)

I will raise the issue, but the consumer director is independent in these matters and has sufficient powers to investigate the matter on her own initiative. I understand that as she is already aware of the level of charges — and should the Financial Regulator feel that such charges do not represent recovery of funding costs — the cost structure can be fully investigated under section 149 of the Consumer Credit Act 1995. In those cases the charges would need to be approved by the Financial Regulator in advance.

The statutory presumption is that these breakage charges relate to the cost of funding the advance that is made to the borrower. Financial institutions use formulae for calculating these charges and the formulae contain parameters relating to the cost of the original fixed-rate loan and to the new or refunded loan.

The terms applying to the redemption of a fixed-rate mortgage held with a particular financial institution operating in the Irish market are as follows. The charge is applied to a fixed-rate loan where during the term of the fixed-rate period the full loan is repaid early, or a lump-sum repayment over the multiple of €1,200 per annum is made, or the loan is converted to a variable rate loan or another fixed-rate loan. In these circumstances the customer must pay a sum equal to the lesser of six months' interest charge or the economic breakage charge. There is a formula for the calculation of the economic breakage charge which is a multiplier of the redeemed amount multiplied by the original cost of funds less the current cost of funds multiplied by the time remaining until the end of the fixed-rate period and divided by 365.

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