No justice for tracker victims while banks left to investigate 'dirty secret' themselves
Irish banks have been quietly trying to deal with their dirty secret since 2015. It relates to the way they ripped off up to 15,000 of their customers by wrongly denying them access to tracker mortgages.
I say "dirty secret" because there was something truly appalling at how an estimated 100 people lost their homes because of it, and thousands of people went through unnecessary financial, emotional and psychological pain as a result.
It was a secret because despite some people reporting it to the Financial Ombudsman back in 2008, it was a further seven years before the Central Bank conducted a serious in depth-investigation and forced the banks into a redress programme.
That process is coming close to the end of its second phase. By the end of this month, all of the banks, and there are around 15 lenders under scrutiny, have to complete the process of deciding which of their accounts should be covered by the redress scheme.
Some banks have provided public details of how many accounts were affected. For example, Bank of Ireland has confirmed that it overcharged 4,000 accounts by depriving them of tracker mortgage status when they should have been entitled to it. AIB has revealed that up to 3,000 customers were affected by overcharging.
There is a somewhat bizarre process in train in relation to putting all of this right. It is bizarre because it is led by the banks themselves with the oversight of the Central Bank. For example, when a bank decides by the end of this month that certain people are not going to be included, the Central Bank will hire accountants, probably from the big auditing firms, to go in and conduct spot checks of why some accounts were included and others were not.
If you are in that position and one of these hired bean counters misses your case, then it isn't at all clear what you can do about it. In many cases the statute of limitations will have run out and court will not be an option, unless you have been selected as a qualifying case.
Who exactly is the consumer advocate in the process? The Central Bank will argue that it represents the customer but it oversees this whole process on a macro level, not on a case-by-case level.
The Central Bank documentation on the investigations says Phase II requires "lenders to conduct the review of their mortgage loan books in line with our framework ... Lenders must review the underlying loan documentation and customer files for the in-scope accounts to determine their specific contractual obligations ..." So the banks decide who is in and who is out, with a follow-up audit afterwards. What are the penalties for a particular bank if it is found afterwards that a very large number of cases should have been included? Is it a fine or a rap on the knuckles?
The process is also a little bizarre because the perpetrators of this travesty are the ones checking through their own accounts to see who should be included. Thousands of people who have been put through the ringer by the greed of their financial institution have no idea whether they are being included or not and will have to wait until the end of this month to find out for definite.
Banks have set aside sums of money as to how much they think the whole thing will cost. AIB has set aside €190m. Permanent TSB has set aside €145m. But KBC, for example, says it has made a provision but has yet to say how much or how many cases are involved.
Several banks have not disclosed the number of cases they have uncovered. Why not? And when asked about it, the governor of the Central Bank, Philip Lane told an Oireachtas committee that for legal reasons he couldn't go into further detail. What legal reasons? Who is calling the shots in this investigation?
The situation would not be so unsavoury if it was all based on some mistake. But around 15 mortgage lenders chose to interpret contracts and obligations around tracker mortgages in different ways but across the board in their own favour, yet the courts have found otherwise and so now has the Central Bank.
Bad enough to have done it, but the foot-dragging, and obfuscation by the banks afterwards has been particularly shocking.
Financial adviser Padraic Kissane has been at the forefront of helping victims of this scandal. He said the process is heavily weighted against the consumer and the attitude of the banks has been truly shocking. "There has been a huge level of resistance from the banks through every step," he said.
Some people are obvious victims and so far at least €78m in compensation and redress has been paid out. But there is a lot more to come. It is estimated that the total costs of this debacle to the banks will be around €500m. That sounds like a lot of money but Bank of Ireland and AIB made profits of €2.9bn between them last year.
There are many human stories behind the abuse of power banks exercised in their treatment of people who were denied tracker mortgages or not presented with enough information about their entitlements.
The obvious one is the person whose mortgage repayments shot up, they fell behind and ultimately lost their home. Another is the person who worked their backsides off to meet exorbitant mortgage repayments that were much higher than they should have been. Giving them back their tracker is one thing. Giving them some redress is another. But nobody can give them back those years.
People who were placed on higher mortgage rates than they should, could have claimed higher interest relief from the revenue. So, the taxpayer footed a chunk of the bill here. And when customers receive redress, what happens their tax position, given they have perhaps claimed higher interest payments but are then compensated.
The speculation is that the banks will have to make some kind of large one-off payment to Revenue to cover this, as the Revenue couldn't go over every individual case.
Perhaps the least amount of public sympathy has fallen to buy-to-let investors who lost their investment properties.
But that perspective fails to take account of the pain many of them have suffered.
Just because you didn't lose your home doesn't mean you were not seriously financially disadvantaged and wrongly put through hell by your bank's behaviour. Financial websites like Askaboutmoney.com have plenty of examples of people in different situations and indeed there are cases where buy-to-let investors are being compensated.
But how many of them were forced into selling their investment properties by the banks at the bottom of the market, only to then be pursued by the bank for the shortfall? Lots is the answer.
I know of one case in particular where someone with four properties on tracker mortgages was taken off trackers, and the rent did not cover the higher mortgage repayments.
This person was pushed into selling the properties on the market at the very bottom, and has spent several years grappling with the financial consequences of the outstanding debt to the bank.
Yet, because he no longer has the homes, will he be included by the bank in their own list of deserving victims? If he is, how much compensation should he receive? One option is to give him the value of those houses today, because he would still have owned them.
The Central Bank literature on the investigation says: "All redress and compensation programmes must at least return impacted customers to the position they would have been in, had the relevant issue not occurred."
Then start to put a figure on the stress, health implications and pain of the last number of years.
Another option is to give him his loans back. Why not give him those loans at those tracker rates so he could at least start again.
But there are no guarantees he will even be included in a list for redress and his options for appeal are very unclear.
Banks and bankers must be held accountable for what they have done. People have to have confidence it will not happen again and that justice is being done.
So far, it doesn't look like it.