New rules to protect banking customers proposed
TRACKER mortgage holders will have to be given a clear written warning that they will lose this rate if they switch to fixed or other mortgage types under tough new rules aimed at protecting consumers.
Lenders would also have to outline the cost of monthly repayments at the tracker rate and the new rate and highlight the advantages and disadvantages of both under the Central Bank's proposed new Consumer Protection Code, which was published yesterday.
Around 375,000 Irish households -- or half of all mortgage holders -- are on tracker rates linked directly to ECB rates.
The new code would require lenders who want to move customers from a tracker rate to give them two months written warning of the implications if they agree.
The same warnings would apply where a customer requests the move to a different type of mortgage.
Particular attention would be paid to vulnerable consumers such as the elderly, disabled people, those with low incomes and high debts, low education or for whom English is not a first language.
Lenders would also have to provide new mortgage customers with details of how much their home repayments would cost them if interest rates rose by 2pc over the current rate.
Central Bank Assistant Director Bernard Sheridan said there might be concerns that the higher level of scrutiny could make it more difficult for some people to obtain mortgages and other financial products.
But the feedback from consumer groups and the Financial Ombudsman was that vulnerable customers should be given additional protection during the sales process to prevent problems arising later.
"This review of the code is the most significant strengthening of consumer protection requirements for financial firms since the code was introduced three years ago," Mr Sheridan said.
Although the code does not deal with customers in arrears on their mortgages, it does give consumers additional protections where they fall into arrears on other loans.
In particular it limits the number of unsolicited contacts a lender can make to three a month, and requires them to give customers contact details for the Money Advice and Budgeting Service and also to remind customers if they have payment protection insurance.
People have until January 10, 2011 to put their views on the proposed code, which is published on www.centralbank.ie.