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Tuesday 20 February 2018

Thousands to get refunds after mortgage rate error

Charlie Weston Personal Finance Editor

THOUSANDS of homeowners are to get compensation from banks after the wrong mortgage interest rates were applied to their loans. Banks have also been caught short-changing savers on interest rates after a probe by regulators.

The Central Bank refused to name and shame the lenders found to have overcharged mortgage customers and to have underpaid depositors.

But last night the Irish Independent learnt that AIB is one of the banks in the firing line for imposing the wrong mortgage rates. The bank said it would refund the customers affected and pay them compensatory interest.

It is the second time this week the bailed-out bank has been forced to refund customers.

On Monday, AIB said it would refund more than €8m to 70,000 users of its cash machines after anti-fraud measures led to customer accounts being debited, even when the withdrawal was unsuccessful.

Regulators inspected the books of six banks and found that a number had imposed higher interest than agreed when the mortgages were taken out.

Lenders had lured house buyers to take out mortgages by offering low, promotional mortgage rates but actually charged higher rates, the probe found.

Much of this happened at the height of the housing bubble in 2006 and 2007.

Central Bank head of consumer protection Bernard Sheridan said the home buyers were supposed to get the promotional rates for a year, but this did not happen in the case of "several home-loan products".

It is understood this refers to variable rate and tracker mortgages that were offered at rates between 0.5pc and 1pc lower than existing mortgage customers were paying at the time.

The Central Bank said that fixed-rate home-loan customers were also affected, although they were not included in the latest inspection.


Regulators would not specify the number of customers involved or the level of refunds, but it is understood thousands of customers are due refunds.

However, some of the refunds could be large. One mortgage broker explained yesterday that he helped a customer get compensation of €17,000 from Permanent TSB after the wrong introductory interest rate had been applied on a mortgage.

A spokesman for Permanent TSB denied last night that these latest overcharging findings referred to it.

Investigators also found that a number of banks could not now find signed application forms for mortgages that had been filled out by customers. And IT systems had not been updated to cope with the terms offered on some mortgages, meaning the systems defaulted to charging mortgage holders the wrong interest rate.

The problems with banking IT systems were found despite the fact that the Central Bank has previously raised this issue with banks.

One bank is refunding affected customers, while an investigation is still ongoing at one other lender.

Banks have also been accused of misleading people with money in deposit accounts, by promoting terms and interest rates that were later changed once people signed up for the accounts.

Two brochures for one deposit product were found to be "unfair and misleading" to customers. The unnamed bank is now in the process of refunding those customers.

Mr Sheridan said: "Our inspection found that in a number of cases consumers did not receive the full benefit promised. We are working to ensure that affected customers are identified and refunded by the institutions."

Asked last night if it was not reasonable for the Central Bank to name lenders and deposit takers that had ripped off customers, especially as these banks had been bailed out, a spokesman would only say it was not the practice of the Central Bank to name and shame.

Irish Independent

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