OMBUDSMAN’S SURPRISE AT
HOWLOWTHE LOOK BACK
FIGURE OF €1.56M PAID BY IRISH
NATIONWIDE BUILDING SOCIETY
WAS
I referred in previous Reports to the first ever High Court
Judicial review proceedings against me, as Financial
Services Ombudsman, taken by the Irish Nationwide
Building Society in January 2006. In the course of
deciding a complaint I had directed the Society in
January 2006 to change its rules and its practice of
charging automatic six months interest when
commercial mortgages were redeemed early. I
considered that this was not a genuine pre-estimate of
loss and was in effect a penalty, and therefore unlawful.
I had also brought the matter to the Financial Regulator’s
attention for any look back action it deemed necessary.
The High Court proceedings were settled in my favour in
May 2006 with full costs awarded.
In September 2006 agreement was eventually reached
between the Society and my Office as to how the early
redemption charge should be calculated for future and
past cases, based on a formula which calculates the
actual loss to the Society, if any, caused by the early
redemption. Following discussions with me the Financial
Regulator and the Society agreed in October 2006 to do
a ‘look back’ exercise under the general superintendence
of the Financial Regulator, going back six years from my
decision, and undertook to reimburse previous
borrowers in accordance with the newly agreed formula.
Originally it was reckoned by the Society itself that the
amount involved in the look back could be €3m and it
later rose to circa €6m, particularly following the action
that was necessary to be taken when I discovered, after I
received a complaint in March 2007, that the process
was not being carried out in line with what had been
agreed between the Regulator, the Society and me. In
May 2008 the Society informed me that €1.56m had
been refunded when the ‘look back’ exercise was
completed.
While I am very happy with the overall outcome in that
consumers benefited from the actions that I took I notedthat the final figure was substantially less than what had
been originally estimated by the Society. I can readily
appreciate that first estimates can be an unreliable guide
but my own informed calculation was that somewhere
between €3m and €3.5m would be a more realistic
figure. I was very surprised at how low the final figure
turned out to be and I communicated my concerns to
the Financial Regulator.
However the Regulator, acting on legal advice, was
prohibited from discussing the detail of its interaction
with the Society on this issue but stated that the Society
liaised very closely with it throughout the reimbursement
programme and that the Regulator was satisfied with
the overall manner in which the Society dealt with the
issue. Also neither the Regulator nor the Society would
supply me with the number of consumers who benefited
from this look back.