Bank of Ireland accused of bid to 'trick' customers off their trackers
Bank of Ireland has been accused of acting in an underhand way after it sent letters to customers with tracker mortgages telling them about fixed rates.
The letter sent to customers, and seen by the Irish Independent, makes no mention of the cost and implications of giving up a tracker.
This is in direct contravention of Central Bank directions to banks.
Ditching a tracker for a fixed rate could see repayments rise by €300 a month for a typical mortgage holder.
It is the second time in three years Bank of Ireland has tried to trick its customers out of good-value trackers.
The bank insisted yesterday it was in compliance with regulatory rules, but this was questioned by mortgage experts.
The bank said the letters were sent to all its existing mortgage customers - those on tracker rates, fixed rates and variable rates. The letter says the bank has just cut its fixed rates.
Frank Conway, a mortgage expert and founder of the Irish Financial Review, questioned the bank's actions.
"Bank of Ireland has acted in an underhand way in its current direct-mail campaign to lure its existing tracker mortgage customers onto more expensive fixed-rate loans," he said.
Mr Conway said the bank's letter does not explain that monthly repayments would significantly increase were those tracker mortgage holders to switch to a fixed-rate deal.
"The sums simply would not add up. This campaign of tracker tricks would be to the benefit of the bank and the financial detriment of its customers," he said.
Mr Conway said a number of clients at a seminar series that he gave recently raised the matter and queried if they should fix.
Central Bank regulators have warned banks on a number of occasions that they need to spell out exactly what mortgage holders would be losing if they opt to move off a tracker.
Trackers are the cheapest mortgages in the market. The average tracker holder is paying interest of just 1.05pc, a quarter of the variable rate charged by Bank of Ireland of 4.5pc.
Half of the existing mortgages in the market are trackers, and they are loss-making for banks.
Bank of Ireland's fixed rates vary between 3.6pc to 4.4pc.
The Central Bank's statutory Consumer Protection Code, a rulebook for banks and consumers, says lenders must tell customers thinking of giving up a tracker of the cost of the repayments under a tracker compared with the rates they were being offered, and also to list the pros and cons of trackers compared with other rates.
Banks are also supposed to act in the best interests of their customers under the code.
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It is understood the Central Bank is investigating Bank of Ireland's current letter-writing campaign to mortgage holders.
Asked yesterday if the bank was sanctioned in 2012 when it engaged in a similar attempt to get tracker holders to switch to dearer mortgages, the Central Bank said no action was taken against Bank of Ireland.
Mr Conway said a customer with a €250,000 mortgage, over 30 years, is currently paying €820 a month on a tracker.
If this customer opted for a fixed rate, the repayments would be €315 a month higher.
Over a 20-year period, the customer would end up overpaying by €75,000, assuming they revert to a variable rate at the end of the fixed period.
"What is not clear in the offer is whether or not Bank of Ireland is deliberately targeting its tracker mortgage customers, or the bank simply has really bad data management. I think it is both," Mr Conway said.
A spokeswoman for Bank of Ireland said the letter has been sent to customers across all rate types - fixed, variable and tracker customers. It also went to those in arrears and on negative equity to advise them of the current suite of mortgage rates available to them, she said.
"These rates may be of benefit and interest to some tracker customers, who want certainty of repayments and/or want to trade up by way of the tracker-for-mover product, wherein the trade-up element will be at new business mortgage rates."
She said all of the bank's communications to its mortgage holders "are compliant".
A spokesman for the Central Bank said its rules on trackers were clear. "The Consumer Protection Code 2012 contains important protections for tracker mortgage holders," he said.
"In particular, 6.9, 6.10 and 6.11 of the Code are clear regarding the information that must be provided to a personal consumer when switching from a tracker mortgage or when an offer of an option to move/switch is made by a lender," the spokesman added.