Michael McGrath (Cork South Central, Fianna Fail)
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156. To ask the Minister for Finance if enforcement proceedings or a review by the Central Bank have taken place regarding the miscalculation of mortgage arrears by a licensed credit institution, retail credit firm or credit servicing firm; and if he will make a statement on the matter. [51069/18]

Paschal Donohoe (Dublin Central, Fine Gael)
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I have consulted with the Central Bank of Ireland and in their reply to me, the Central Bank have assumed that the matter that Deputy McGrath is referring to is the practice of Automatic Arrears Capitalisation. The Central Bank has advised me that a briefing note on the same topic was requested by Deputy John McGuinness on 18 May and a response issued by the Central Bank on 22 June. A copy of the response can be found at:

Automatic Arrears Capitalisation refers to a methodology used by some lenders to recalculate borrowers' contracted monthly installment (“CMI”) on their mortgage, following a trigger event (such as an interest rate change).

Based on the Central Banks' supervisory work to date, they have advised me of the following:

- Having considered the findings of the Central Bank's review to date, in the context of the regulatory framework in Ireland, the Central Bank are of the view that the practice of Automatic Arrears Capitalisation is not in the best interests of consumers.

- The practice is not widespread in Ireland. Where the practice was identified, the Central Bank intervened to ensure that the practice ceased.

- The Central Bank do not have concerns that borrowers were overcharged, rather they were not satisfied that borrowers' arrears were presented in a fully transparent manner.

- Borrowers in arrears, who have an agreed Alternative Repayment Arrangement with their lenders are not affected.

- Borrowers' overall indebtedness is not impacted nor are the interest calculations on the mortgage accounts

The Central Bank has provided me with further background information on the issue as set out as follows.

Under Automatic Arrears Capitalisation, lenders' mortgage systems recalculated borrowers' CMI on the basis of each borrower's overall outstanding mortgage balance (i.e. mortgage principal + arrears). This differs from the 'traditional method' of calculation in Ireland, whereby lenders calculate CMI on the mortgage principal only, with the arrears remaining outstanding pending agreement of an Alternative Repayment Arrangement with the borrower.

Automatic Arrears Capitalisation originally existed in the UK. The practice is driven by lenders' historical calculation systems, which aim to ensure the CMI is sufficient to ensure the overall outstanding mortgage balance (including any arrears) is repaid fully by the end of the mortgage term.

Michael McGrath (Cork South Central, Fianna Fail)
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157. To ask the Minister for Finance if the Central Bank has the authority to inspect the methodologies used by licensed credit institutions, retail credit firms or credit servicing firms to calculate mortgage arrears and to commence enforcement proceedings if those methodologies are found to be incorrect; and if he will make a statement on the matter. [51070/18]

Paschal Donohoe (Dublin Central, Fine Gael)
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I have been advised by the Central Bank of Ireland that the Consumer Protection Code 2012 (the Code) and the Code of Conduct on Mortgage Arrears 2013 (the CCMA) do not prescribe a methodology for the calculation of mortgage arrears. However, both the Code and the CCMA set out the information that must be provided to consumers in arrears.

The CCMA sets out how mortgage lenders must treat borrowers in or facing mortgage arrears, and applies to the mortgage loan of a borrower secured by his/her primary residence. Chapter 8 of the Code provides for arrears handling requirements which apply to mortgage loans to which the CCMA does not apply.

In terms of how mortgage arrears are defined in these Codes, the CCMA defines “arrears” as “where a borrower has not made a full mortgage repayment, or only makes a partial mortgage repayment, in accordance with the original mortgage contract, by the schedule due date”. The Code defines "mortgage arrears" as arising where a personal consumer “has not made a full repayment, or only makes a partial repayment, as set out in the original loan account contract, by the scheduled due date”.

The Central Bank has the power to investigate issues to assess compliance with their regulatory requirements and to sanction breaches of financial services law by regulated firms and individuals. As the regulator of financial service providers and markets in Ireland, the Central Bank works to ensure that the best interests of consumers are protected. The Administrative Sanctions Procedure, which is applicable to all regulated financial service providers, is the means by which the Central Bank investigates and sanctions breaches of financial services law by regulated firms. Information detailing this and the full range of enforcement powers available to the Central Bank is available on the Central Bank’s website at .

Both I and the Central Bank would encourage all borrowers to engage with their lenders on their mortgage arrears, and if not satisfied with how they are being treated, to make a complaint to their lender, after which they can refer their complaint to the Financial Services and Pensions Ombudsman, who has the statutory remit to consider their individual complaints.