Saturday 15 December 2018

Ulster Bank to pay €30m compensation to thousands of customers over fee blunder

This latest error is likely to further muddy the sector’s reputation Photo: PA
This latest error is likely to further muddy the sector’s reputation Photo: PA

Gretchen Friemann

Ulster Bank will fork out close to €30m in compensation to thousands of its business customers over the next nine months as the lender grapples with another fee blunder in what marks the latest in a long line of scandals for the sector.

The bank only discovered it was over-charging customers linked to up to 18,000 accounts in April 2017. The problem came to light after the Central Bank of Ireland ordered Ulster to conduct a wider trawl of its business in the wake of the tracker mortgage debacle.

Ulster recently admitted it is responsible for an additional 1,500 to 2000 loans impacted by that overcharging saga, which has brought the industry into sharp disrepute and provoked censure from the Minister for Finance, Paschal Donohoe.

This latest error, which amounted to a fractionally higher interest rate charge, is likely to further muddy the sector’s reputation given the scale of customers affected and the fact that it emerged only at the prodding of the regulator.

The bank expects the financial impact to its customers to be relatively small with the average redress, which will include compensatory interest, totalling less than €2,000.

While the vast majority of affected borrowers have already been returned to the correct rate, the bank plans to write to customers on June 28 to explain the mix-up and notify of the redress due.

Ulster’s head of commercial banking, Eddie Cullen, issued an reserved apology for the latest slip-up this morning and said “although this will take time to fully resolve, we recognise that full resolution is essential for customers and in building their trust in Ulster Bank.”

The regulator has closely monitored Ulster’s handling of this fresh overcharging problem  but it is unclear whether the bank will face sanctions for the error.

A spokesperson for the CBI said it “expects all firms to have adequate systems and controls in place. Where issues arise that impact customers they should be addressed and rectified, with the aim of protecting consumers’ interests and ensuring that they are not left out of pocket.  Firms must also communicate clearly and promptly with affected customers and ensure that any identifiable loss is remediated.”

In 2015 AIB levied the wrong fees and charges on 40,000 customer accounts after personal accounts and business accounts were incorrectly classified.

Ulster’s latest overcharging issue reaches back to March 2012 when the bank changed the make-up of its cost of funds, or the variable component of the interest rate charged to customers accounts, which impacted its full suite of business credit products, including loans and overdrafts.

The margin increase was underpinned by an overhaul to the bank’s standard loan contract in 2006, which gave the lender wide rights to alter its cost of funds – effectively allowing it to extract higher fees from the borrower.

But in 2012, when the bank opted to exercise that right, it failed to identify legal constraints limiting the scope of the interest fee changes.

The faulty documentation led the bank to wrongly impose higher rates on thousands of its business customers - mostly made up of small to medium enterprises.

Ulster has investigated 90pc of the customers it believes to be impacted by the issue and is due to complete the probe within the next two months.

The bank will begin the redress scheme in September, with the majority of borrowers receiving compensation by the end of the year.

The remainder, which comprises the most complex cases and typically involves overdraft facilities, will receive a refund by the end of March next year.

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