Minister D’Arcy’s statement on tracker mortgages made to Seanad Éireann on 22 November 2017

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Minister D’Arcy’s statement on tracker mortgages made to Seanad Éireann on 22 November 2017


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I thank Senators for raising the important issue of tracker mortgages.

The fair treatment of consumers is a key requirement of the financial services regulatory framework and of the Central Bank Consumer Protection Code.

The Code requires all residential mortgage lenders to act honestly and fairly in the best interests of their customers and not to mislead customers about the products they provide.

It also requires lenders to make a full disclosure of all relevant information to a consumer in a way which seeks to inform the consumer and to enable a consumer to make an informed decision before entering into, or changing, a loan or other financial services agreement.

However, it has now clearly been demonstrated that mortgage lenders have significantly failed in their regulatory or contractual responsibilities to many of their tracker mortgage borrowers.



The Central Bank has long warned lenders of their duty to act in the best interests of their consumers when recommending that a borrower switch a tracker mortgage to another type of mortgage product.

Indeed the Central Bank specifically provided in the Code of Conduct on Mortgage Arrears that mortgage lenders must not, except where it would be in the interest of the borrower, require a borrower to change from an existing tracker mortgage to another mortgage type as part of an alternative repayment arrangement to address a mortgage difficulty.

Over time, the Central Bank identified and pursued a number of tracker related issues with some lenders.  These included issues ranging from a lack of transparency for the borrower, a failure to fully inform customers of the consequences of switching from a tracker mortgage, the application of incorrect tracker rates and a failure to afford customers their contractual entitlements to specified tracker interest rates.

Separately individual tracker related complaints were also presenting to the Financial Services Ombudsman and that Office was making determination on these cases, some of which were also coming before the Courts.  Also, due in part to these developments, the matter was coming to greater public attention more generally.

In total, the Central Bank had identified around 7,100 mortgage accounts where tracker failure were identified and which adversely impacted upon mortgage borrowers, prior to the commencement of the Bank’s industry wide tracker mortgage examination.


Central Bank industry wide examination

Having regard to these developments, and to Central Bank concerns that there may be other tracker related issues which could be impacting other consumer borrowers across the system, the Central Bank announced in October 2015 that it had commenced a broader industry wide examination of tracker mortgage related issues.  This systems wide review was intended to cover, amongst other things, transparency of communications with, and contractual rights of tracker mortgage borrowers.

This examination has turned out to be the largest review ever carried out by the Central Bank on its consumer protection side.  It covered fifteen mortgage lenders who may at any time have sold a tracker mortgage product to a consumer borrower from the time the lender commenced selling tracker mortgages until December 2015.

As such, it covered both banks and other regulated mortgage lenders, and also included lenders who are no longer providing new mortgage credit.  It also covers mortgages which have been redeemed or borrowers whose tracker mortgage has been transferred to another creditor.

The industry wide examination requires all lenders to examine the extent to which they have been meeting their contractual obligations to their tracker mortgage customers or their compliance with their obligations under the Central Bank’s Consumer Protection Code and other consumer protection regulatory requirements.

Under the initial phase of the industry wide examination, the Central Bank required lenders to put in place governance structures and systems to conduct a comprehensive examination.

The second phase of the examination involved an extensive internal review of mortgage books to identify mortgage borrowers which were impacted by banks’ failings.  This phase was due to finalise at the end of September last.

In its latest update on progress on the tracker mortgage examination – as published last month – the Central Bank indicated that 13,000 impacted mortgage borrowers had so far been identified though it was also noted that this number would be expected to increase.  In particular, the Central Bank noted that it was continuing to challenge lenders on the number of impacted customers.

As Senators will now be aware, on 9 November last Bank of Ireland accepted that it had a further 6,000 impacted tracker mortgage accounts.  This is on top of the 4,300 it had earlier accepted arising from the Central Bank examination; and indeed the 2,100 accounts identified earlier before the industry wide examination even started.

These 6,000 additional accounts are groups of customers that the Central Bank had identified as having been impacted but which Bank of Ireland had previously disputed.

KBC is another bank which has recently said that it is continuing to engage with the Central Bank on the identification of impacted customers.

The Central Bank has stated that the number of impacted accounts will now increase on the end September position in light of the recent announcement by Bank of Ireland and that it may increase further as it continues to challenge mortgage lenders.


Redress and compensation

The two other phases of the Central Bank examination cover the calculation and the payment of redress and compensation for impacted customers.

When the Central Bank published its update report last month, payments amounting to €120 million had been paid to 3,300 impacted accounts as identified from the recent industry wide examination.  This is additional to €43 million in compensation and redress which was paid for impacted cases identified before the commencement of the Central Bank industry wide examination.

However, when the Minister for Finance met the Chief Executives of the five main banks at the end of October he made it very clear to them that all affected customers are to be identified and that the wrong is to be put right through the payment of appropriate redress and compensation without any further undue delay.

Following on from those meetings, the banks also committed to do the following:-

  • AIB is to pay redress and compensation to over 4,100 of their customers before the end of this year;
  • Bank of Ireland is to pay redress and compensation to the 4,300 of their customers that they accepted had been impacted at that point – as indicated above, since then that bank has accepted that a further 6,000 mortgage accounts have also been impacted and payments in respect of these accounts is now also to start before the end of 2017;
  • PTSB is to pay redress and compensation to almost 2,000 customers before the end of this year and
  • Ulster Bank is to pay redress and compensation to 1,000 customers before the end of this year and to the bulk of their remaining impacted borrowers in early 2018.


KBC also said that all its customers identified so far as having been impacted have been or are in the process of being contacted and that redress and compensation payments have commenced.

The payment of redress and compensation to impacted borrowers without any further delay is now a key requirement, as it will be a practical reflection of the regret that banks are now expressing for the harm they have inflicted to their impacted borrowers.

The payment of redress and compensation serve two different functions.  Redress is intended to return the borrower to the position she or he would have been in if the harm had not occurred; in effect, to give back the money that was wrongly taken from the borrower.

Compensation is additional payment on top and is intended to reflect the detriment to the borrower which arose from being put on the incorrect interest rate.

While the Central Bank cannot formally require lenders to implement uniform redress and compensation programmes, the Central Bank nevertheless has repeatedly challenged lenders on their proposals.

The Tracker Examination framework clearly set out the Central Bank’s expectations that appropriate redress and compensation is to be provided to impacted borrowers.

Lenders are also to categorise impacted customers by reference to the type and level of detriment suffered, and that compensation is expected to be proportionate to the level of harm which was incurred.

The types of detriment identified range from overcharging due to the application of incorrect interest rates – which at the lower end of the scale may have only been a small difference and for a short period of time – to the failure to return a borrower to a tracker rate after a period where the interest rate was fixed and up to cases of more significant harm such as a loss of ownership of mortgaged properties.

A higher level of compensation would be expected in cases were a severe level of harm has been inflicted on a customer.

Some people have said that a very uniform redress and compensation approach to the payment of compensation should be put in place by the Central Bank for all banks.  A uniform redress and compensation approach could fail to address an individual’s particular circumstances adequately as many personal circumstances and experiences will be different from each other.  A uniform redress approach could also mean that it would become the de facto maximum level of payment across the system and that it could prevent or inhibit lenders from putting in place a somewhat more generous package for its own impacted borrowers.

Overall the approach to compensation adopted by the Central Bank is the one which is available to it under the existing law, which places the onus on lenders to come up with their own schemes for their own affected customers.  However, the Central Bank also reserves the right to challenge lenders in particular cases if it considers it necessary or appropriate to do so.

The Principles for Redress set out by the Central Bank also provides for the general up-front payment of redress and compensation to all impacted borrowers.  This upfront payment, however, does not preclude or prevent the borrower from appealing the level or any aspect of compensation if he or she does not consider that it is appropriate to the harm that was inflicted in their particular case.  Regardless of the outcome of any appeal, the initial payment cannot be reduced.

Two types of appeals panels are to be set up by each lender as part of the Tracker Framework process.  The first is intended to deal with the more serious cases of harm and the panel membership is fully made up of members independent of the lender.  The second appeals panel is intended to hear cases where the level of harm is not as serious and the majority of the members on this panel are also independent of the lender.

Impacted borrowers also have the further right to appeal their case or circumstances to the statutory independent Financial Services Ombudsman or to the courts.

And it is worth repeating, that a fundamental element of the redress and compensation process is that the upfront payment which is made by a lender cannot be reduced by any subsequent appeal that may be made by the borrower, either to the appeals process under the tracker examination framework or ultimately the Ombudsman or the courts.

The approach to the payment of redress and compensation is designed to deliver the most efficient process in the interests of impacted borrowers.  Upfront compensation frameworks are determined by lenders, though subject to Central Bank challenge, and provide for the making of payments as quickly as possible.

The detailed appeals process then allows borrowers to take the matter further, without risk to them, if they consider that the level of the upfront payment is not appropriate in their particular case.  This appeals process then allows the individual borrower to set out their full individual circumstances and to set out in detail the full harm which was imposed on them by their lender and consequently why a higher level of payment is appropriate in their case.



It will also be important to hold the banks to account for their actions.  The existing supervision and enforcement powers of the Central Bank are strong and should be used to punish wrong doing where supported by the evidence.  So far, the Central Bank has imposed a monetary penalty of €4.5 million on Springboard Mortgages Limited for serious failings in its obligations to its tracker mortgage customers.  The Central Bank is also pursuing enforcement investigations in relation to Permanent tsb, Bank of Ireland and Ulster Bank Ireland.

The Central Bank is also liaising with An Garda Síochána and other relevant statutory bodies such as the Competition and Consumer Protection Commission and it has statutory reporting obligations to An Garda Síochána or another relevant statutory agency where information obtained by it at any stage prior to, during, or after an investigation, gives rise to a suspicion that a criminal offence may have been committed.  The Central Bank takes its reporting obligations – as provided for under Section 33AK of the Central Bank Act 1942 – very seriously and complies with them on an on-going basis as appropriate.  The Central Bank has met An Garda Síochána and discussed, at a high level, what it has seen and while it has not made a formal statutory section 33AK report of suspicions to other relevant agencies, it is keeping the matter under constant review.

The Central Bank has also engaged with the Financial Services Ombudsman with regard to the welcome amendments to the time periods for customers to make complaints to the Ombudsman pursuant to the Central Bank and Financial Services Authority of Ireland (Amendment) Act 2017.  This legislation now extends the time limits for long-term financial services beyond six years to permit complaints to the Ombudsman within three years of the customer becoming aware of the cause of complaint.



The Government will be monitoring the progress and outcome of this important Central Bank examination very carefully, and it has concluded that follow up actions will be pursued if the main banks do not meet the updated commitments made to the Minister.  I look forward to an update being provided by the Central Bank to the Minister for Finance in mid-December.

However, what is clear at this point is that some tracker mortgage customers have been treated disgracefully by mortgage lenders and that many borrowers have incurred considerable loss; in particular where they have either directly or indirectly lost their homes due to this harmful action by lenders.  I assure the House that the Government is fully aware of the seriousness of this matter and it wishes to have adequate redress and compensation provided to impacted consumers as quickly as possible.  At this point the Government wishes to support and encourage the Central Bank to complete its tracker mortgage examination investigation as quickly as possible.



22nd November 2017