Wednesday, 23 September 2015
Topical Issue Debate
This issue relates to mortgage holders who have been wrongly denied the right to return to their tracker interest rate at the end of a period on a fixed rate. I will set out the background to this issue. In 2008 there was widespread expectation among mortgage customers that interest rates were going to rise further. The European Central Bank had increased its base rate in July 2008 to 4.25%, a different world from the current rate of 0.05%. At the time it represented the eighth rate hike in three years and many people, justifiably, took the decision to fix their rate rather than having to endure even higher rates.
It has emerged that in the case of Permanent TSB for sure, and possibly AIB, customers were incorrectly denied the right to return to their tracker rate at the end of the fixed rate arrangement. This occurred despite the right to return to a tracker rate being enshrined in mortgage contracts.
We know that in the case of Permanent TSB almost 1,400 mortgage customers were scandalously treated by that bank and its subsidiary company, Springboard Mortgages, when the bank failed to inform them of the consequences of their decisions to break early from a fixed rate or discounted tracker period as well as the failure to inform other customers of their right to be offered a tracker rate at the end of any fixed rate period. Some customers lost their homes as a result of this cock-up. A compensation process is under way now but many people lost their homes.
In the case of AIB it has emerged that the Irish Mortgage Holders Organisation has been in communication with 4,200 customers of AIB to encourage them to come forward if they believe they were denied the contractual right to a tracker mortgage rate after the fixed-interest period had expired.
It has yet to be established if this was an industry-wide practice but, to be frank, it is unlikely to have been an isolated practice. In 2011 Bank of Ireland was forced to put more than 2,000 of its residential borrowers back on tracker mortgages and compensate them after the Central Bank intervened in the matter. The Sunday Independenthas reported that an AIB mortgage holder has been put back on a tracker rate after a write-down of in excess of €25,000 on the mortgage. The person was wrongly denied the right to return to a tracker interest rate following the expiry of the period on the fixed rate.
This is a key issue for consumers. I raised the matter directly with the Central Bank but, to be frank, the reply was not satisfactory. The Central Bank noted my view that there should be a system-wide review. The reply stated that the Central Bank was currently examining a number of lender-specific practices, particularly in respect of the transparency of disclosure for borrowers. However, that does not give me confidence that there will be a proper system-wide review of whether bank mortgage customers were wrongly denied the right to return to a tracker rate.
Given the record low ECB interest rate, we all know how valuable a tracker mortgage is. People should really guard it with their lives. To think that banks have, for certain, in some cases, wrongly denied people the right to return to a tracker rate is appalling. In other cases the banks have used dubious tactics to get people off a tracker rate. That is something the Central Bank should deal with strongly and decisively and this is the purpose of my putting down this Topical Issue. It is about protecting consumers and vindicating the rights of consumers who were wrongly denied a tracker rate. I hope these views will be conveyed to the Minister for Finance by the Minister of State present and that the Minister will take up these matters with the Central Bank and ensure a comprehensive industry-wide review of how mortgage customers have been dealt with in respect of tracker rates. Frankly, what we have learned so far is an utter disgrace.
I thank the Deputy for bringing this matter to the attention of the House again. I trust he is referring to the recent investigation undertaken by the Central Bank into Permanent TSB and its subsidiary company Springboard Mortgages limited. The role of the Minister for Finance is to provide the right framework to protect consumers of financial services. The Financial Services Ombudsman can provide information to the Central Bank if it becomes aware of a possible systemic issue on foot of individual complaints to it about the behaviour of a particular institution. Under section 57CQ of the Central Bank Act 1942, as amended, the ombudsman may make recommendations to the Central Bank with respect to measures that it may take to effectively deal with persistent patterns of complaints.
In this case, as the Deputy will be aware, as a result of an enforcement investigation by the Central Bank of Ireland, significant failures were identified in Permanent TSB and Springboard associated with tracker mortgage options and rates. Arising from the Central Bank’s enforcement investigation, Permanent TSB has agreed to implement a redress and compensation programme to address the detriment suffered by 1,372 customer accounts. The consequences of these failures are serious and include mortgage overpayments, mortgage arrears, legal proceedings, and, in certain cases, loss of ownership of properties, including some homes, as the Deputy mentioned.
The chairman and chief executive of Permanent TSB Group Holdings plc have fully acknowledged that this is a matter of the utmost seriousness. The mortgage redress programme has a number of objectives: to restore the affected mortgage accounts to the position they would now be in had the failure not occurred; to make a compensation payment to affected account holders; to make a payment to affected account holders for use, if required, in securing independent advice on this matter; and to provide a comprehensive appeals system for affected account holders.
I understand from the Central Bank that enforcement investigations into these issues at Permanent TSB and Springboard are currently ongoing. For that reason, it is not in a position to provide any additional information in respect of these enforcement investigations at this time.
As the Deputy will be aware, the Financial Services Ombudsman dealt with complaints from Permanent TSB customers on this issue. I understand it was in dialogue with the Central Bank on the topic. A number of cases were put on hold when findings in other cases were appealed to the High and Supreme Courts. I understand that the Financial Services Ombudsman’s bureau kept in constant communication with these complainants while the cases were stayed pending the outcome of the Supreme Court challenge. These cases will now be processed through the PTSB redress scheme, but the complaint cases remains open with the Ombudsman. I understand that Ombudsman continues to actively engage with the Central Bank of Ireland on this subject.
I also understand that, as part of the Central Bank’s ongoing supervisory work over the past few years, it has identified and pursued a number of lender-specific issues in regard to transparency for consumers moving off tracker rates or who are not moved to a tracker rate at the end of a fixed-rate period. The Central Bank has made appropriate use of its supervisory and regulatory powers, including the administrative sanctions procedure, in order to ensure that the interests of those consumers affected are protected in each of those cases. The Central Bank is also currently examining a number of lender-specific practices, particularly with regard to transparency of disclosure for borrowers. The determination of the most effective and appropriate further supervisory engagement will be informed by the outcome of this current supervisory work, as well as any other market intelligence, including its engagement with the Financial Services Ombudsman.
The Central Bank is an independent institution and the Minister for Finance does not have a role in directing its enforcement or investigative activities. That said, the Government expects the Central Bank to use the powers available to it and to take whatever steps are necessary to ensure that all customers are protected, whether this involves formal investigations or other means.
I thank the Minister of State for the reply. He should be made aware that as far back as 2009 the Financial Services Ombudsman wrote to the Central Bank and asked that there be an industry-wide review of how customers were being encouraged to move off tracker mortgage rates and how people were being denied the possibility of returning to tracker mortgage rates. In the case of Permanent TSB, it is very clear that, having had findings made against it by the Financial Services Ombudsman and having lost in the High Court, it went as far as the steps of the Supreme Court, while at the same time a Central Bank investigation was under way, before finally arriving at the conclusion that it was wrong. It then took action on the issue.
We should be under no illusions about what we are dealing with. The banks will do whatever they have to do to encourage people to come off tracker mortgages. We now have direct experience of cases in which banks have denied customers the right to return to a tracker interest rate after a fixed period. A number of things need to happen. Any repossession cases being taken against mortgage holders who were wrongly denied the right to return to a tracker rate should be dropped. The Oireachtas Committee on Finance, Public Expenditure and Reform needs to investigate the broader issues involved, and I will attend a meeting of the committee after this debate, where I will make the same suggestion.
The six-year rule pertaining to the Financial Services Ombudsman means that somebody can only take a complaint to it about a matter which arose within the past six years. It will become a serious issue because many people who signed up to fixed rates in 2007 and 2008 came off them in 2010 and 2011. The clock is now ticking for such people under the six-year rule and the window will effectively be shut on them. I want the Government to take up this issue directly with the Central Bank and to use the powers it has to properly supervise this area and carry out a comprehensive investigation into how customers have been treated by the bank in respect of tracker mortgage rates. We know from its track record that it will get away with what it can.
The Deputy has raised a number of very pertinent issues that I will bring to the attention of the Minister for Finance, as well the Deputy. If he is aware of other banks that have behaved in similar ways, leading to failures similar to that of Permanent TSB, he should bring them to the attention of the Central Bank. Although it does not investigate individual consumer complaints, it does welcome information from consumers of financial products. The information thus obtained may be used in carrying out its prudential and supervisory activity. I would also expect that the other banks in Ireland that offered tracker products and could have been exposed to similar failures examine their processes to ensure that everything was done properly. This would be prudent behaviour on their part.
As I said, I expect the Central Bank to use the powers available to it and to take whatever steps are necessary to ensure that all customers are protected. I also expect it to be proactive when a potential systemic issue comes to light. I again thank the Deputy for raising this matter.