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€70,000 refund for homeowners charged illegal arrears penalties

MORE than 3,000 mortgage holders are to be refunded after regulators caught four lenders imposing illegal penalties on homeowners who are behind on their repayments.

Mortgage lenders have been banned from imposing surcharge interest on those in mortgage arrears since the start of the year, but some had continued with the practice.

Lenders had been imposing penalty interest of up to 1pc a month, or 12pc a year, on the monthly repayments that were missed. This means a monthly payment of €1,500 that is missed would have a €15 penalty added to the outstanding amount.

With every subsequent missed repayment, a 1pc penalty would be put on to the overall arrears balance.

Central Bank director of consumer protection Bernard Sheridan said the imposition of penalty interest on arrears "was hitting the most vulnerable and it is not good enough".

Central Bank investigators uncovered the overcharging after carrying out a probe of six different lenders.

The lenders were warned to stop imposing the penalty interest and were ordered to refund a total of €70,000 to the consumers.

Regulators did not name the lenders that continued to charge penalty interest after the practice was outlawed, but it is understood to include one subprime lender.

A revised code of conduct setting out how lenders have to treat homeowners in arrears came into effect this year.


The revised code enhances protection afforded to people experiencing difficulties making mortgage payments.

Under that, banks and subprime lenders can no longer impose penalties on customers in mortgage arrears.

Mortgage holders struggling to meet repayments must also be offered significant levels of protection once they co-operate with the new arrears resolution process.

The Central Bank found that two mortgage lenders were in full compliance with the revised code, while four were not, due to issues such as system errors and inadequate monitoring processes.

Mr Sheridan said regulators were not going to impose sanctions on lenders who were flouting the rules on penalty-arrears charges, but he put them on notice that the Central Bank would take action if there was a re-emergence of the problem.

He said it was satisfied that lenders were addressing the compliance issues identified during the inspection, which took place in March and April.

Mr Sheridan added: "This inspection demonstrates that while the mortgage lenders inspected had taken steps to be in compliance with the charging requirement of the code of conduct on mortgage arrears, further effort was required by some of these lenders to achieve full compliance.

"While the refunded amounts may be small, they are significant to those mortgage customers who are in an arrears situation and for whom every cent counts."

Almost 50,000 residential mortgages were in arrears at the end of March, equivalent to 6.3pc of all private residential mortgages. Credit ratings agency Moody's subsequently worked out that the number in arrears had risen to 60,000.

Irish Independent