AIB forced to ditch 'high breakage fees' after accusations
AIB has been forced into an embarrassing climbdown amid accusations it was overcharging mortgage holders who want to break out of a fixed rate to get a better deal.
The bank has said it will now change how it calculates so-called breakage fees for those who want to end a fixed rate early.
But despite this, the bank has insisted it was not in breach of EU regulations on the matter.
Some people were being quoted breakage fees of thousands of euro to get out of a fixed rate. Many of these had fixed when rates were as high as 4.99pc. Fixed rates now are as low as 2.25pc.
Brendan Burgess of Askaboutmoney.com has been calling for the bank to change how it calculates the fees, to bring it into line with EU rules and to align with how other banks are calculating breakage fees.
He explained that in one case outlined on the website, a woman wanted to break out of an AIB three-year fixed rate of 3.8pc. She wanted to move to Ulster Bank to get a two-year rate of 2.3pc. This would save her €2,600 a year.
But the bank quoted her a break fee as high as €4,700 at one point. An expert on Askaboutmoney.com calculated that the break fee should be a fraction of this. Following a complaint to the Financial Services Ombudsman, the bank came back with a much lower break fee of €952.
It has now emerged that AIB changed its calculation method in July.
Mr Burgess said the EU's 2016 mortgage credit directive means banks have had to change how they calculate a breakage fee when a mortgage holder wants to exit a fixed rate early.
The directive means they can only charge a penalty based on what they would earn from keeping the mortgage funds on deposit, the so-called interbank rate. As deposits are negative, this means the breakage fee should be very low.
"I am happy they have seen sense. Anyone who got charged a break fee in the past should complain to the Financial Services Ombudsman.
"There are substantial refunds due to people," said Mr Burgess.
AIB said it "introduced a revised approach" in July to the calculation of the fees.
It is now using two formulae - a retail-based formula and a market interest-rate based formula. "Either formula may result in a lower calculation, and AIB applies the lowest of the two calculations to the customer," the bank said, adding this was available from July 15.