AIB faces a legal challenge over refusal to grant tracker mortgages to its customers
Leading lender AIB is facing a legal challenge over its decision to refuse customers a tracker rate.
The bank has given some 6,000 homeowners compensation of just €1,600 each as they were denied a tracker mortgage. It admits the customers were wrongly denied the option of moving to a tracker contract when their fixed-rate contracts expired from 2008, but the bank won't put them back on a low-cost rate.
It argues it abolished trackers by the time the customers came off a fixed rate, so they would not have benefited from a low tracker rate. It claims the "prevailing tracker rate" they would have been entitled to at the time was 7.9pc due to high funding costs.
This is much higher than the prevailing variable rate at the time. This means, the bank argues, the customers are only entitled to a small level of compensation and are not due to get a tracker rate. It said it was paying them €1,615 each due to a "service failure".
Now consumer advocate Brendan Burgess has begun fundraising to mount a High Court challenge to force the bank to pay more and restore customers to trackers.
"We intend to take a High Court challenge. Customers could take a case to the Financial Services and Pensions Ombudsman, but any decision there will not set a precedent. But if we win a High Court challenge it will apply to all the cases."
Mr Burgess said a committee had been formed and has taken legal advice. He has advised the customers affected to appeal the compensation payment to AIB's Tracker Appeals Panel, in a bid to keep their options open.
He has written a guide to how to appeal on the Askaboutmoney.com website he founded. Someone with a €300,000 mortgage could be due a refund of €40,000 in interest and €6,000 in compensation, assuming their fixed rate ended in 2010. They would get a tracker rate of the European Central Bank base rate (which is 0pc) plus 1.25pc. This would mean a mortgage rate of 1.25pc instead of the bank's variable rate of 3.15pc, which would amount to a saving of €4,000 a year.
AIB had withdrawn its tracker mortgage products, which tracked the ECB's base rate, in October 2008 just before the customers emerged from their fixed-rate contracts.
AIB Group said it is in the final stages of the tracker mortgage examination with payments issued to the vast majority of customers. More than 99pc of affected customers have received payment.
It said its review is ongoing and is subject to continuous engagement with the Central Bank.