Jim Stafford
Registered User
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We now know that more than 13,000 bank customers were incorrectly charged a wrong rate of interest on their loans by the various banks. The Central bank recently reported that it had found “material deficiencies in certain lenders’ responses” which had required “robust and sustained” Central Bank intervention.
The banks, including Allied Irish Banks, Bank of Ireland, Ulster Bank, PTSB and KBC, are still in the process of identifying affected customers and getting in touch with them. It is now fair to say that the banks have fully embraced the fact that customers need to be compensated. The banks are incurring substantial costs on retaining teams of lawyers and accountants to identify affected customers and calculate the Redress and Compensation amounts.
Some customers have already received offers of “redress and compensation”. The “Redress” payment is the amount calculated as being necessary to return the customer to the position they would have been in if the correct rate of interest had been applied. The “Compensation” payment is exactly that, it is compensation.
From the cases that we have seen it appears that the level of “compensation” being offered can vary from 5% to 30% based on the interest overcharges. The question is: Should customers accept such redress and compensation in full and final settlement? Obviously, every case depends on its particular facts and circumstances. I set out below some of the issues that should be considered when evaluating compensation offers.
What was the correct “prevailing” rate?
In many cases the biggest issue is to determine if the bank is correct in deciding what interest rate should apply to a customer who came off a fixed rate. Some banks may argue that it should be “standard” variable rate, whereas in some cases it should be a tracker rate linked to ECB. Frankly speaking, the underlying documentation can be very ambiguous, and it may take some court cases to decide.
Statute of limitations
Technically the banks could have argued that some of the claims are statute barred. However, as the banks are acknowledging, in writing, the claims then a new period of Statutory Limitations kicks in from the date of the written acknowledgement.
Domino Effect
In some cases the inflated interest charges triggered a loan default which enabled the bank to “call in” the loan and allowed the bank to appoint a Receiver. The losses caused by the “Domino” effect of a bank improperly appointing receivers to properties can be very substantial. In some cases, properties were sold by receivers into a market place where there was no liquidity and thus the properties achieved a low price, in comparison with the value that could be achieved today.
Health Effects
Some people will be able to make claims for stress induced illnesses such as depression, heart problems etc. In some cases, marriages fell apart due to the stress caused. Such customers may be able to make successful claims for additional compensation in respect of medical bills and damage to health. The Central Bank guidelines states that "fair and reasonable" compensation should be paid in respect of stress suffered by impacted customers.
Damage to credit rating
Some people may have found that their access to credit was cut off because of negative reports to the Irish Credit Bureau. This could lead to a claim for defamation.
Professional Fees
A close review of some of our clients' bank statements show that the bank added in legal fees in respect of legal proceedings that were unjustified, and should therefor be claimed back.
In general terms, I believe that the level of fees being initially paid to customers as part of the Redress/Compensation payment is inadequate, and that proper fees should be claimed as part of the Appeal process (if the client decides to appeal.) Any proper assessment of a bank's offer of Redress requires a comprehensive review of the customer's financial circumstances at the time and a thorough review of Letters of Offer,banks statements, credit card statements, medical bills, tax returns and the preparation of complex spread sheet modelling etc
if a customer's appeal is successful then at least some (if not all!) of the professional fees incurred for submitting the appeal should be recoverd.
Costs of finance
Many of our clients were forced to use expensive forms of finance such as credit card debt/overdrafts or money lenders to pay unjustified interest charges, and such "extra" costs may be claimed back.
Is customer already adjudicated a bankrupt?
Some of the 13,000 customers who are being offered compensation may already have been adjudicated bankrupt. If the customer had gone bankrupt because he felt that his situation was hopeless as a result of that particular bank overcharging him, then he may have a substantial claim for compensation.
Is customer going through a PIA/Informal Arrangement?
If the customer had undergone a PIA because he felt that his situation was hopeless as a result of that particular bank overcharging him, then he may have a substantial claim for compensation.
If he is currently going through a PIA/Informal Arrangement with multiple creditors, then any compensation payments may be captured by the “windfall” provisions of the PIA/Informal Arrangement, and thus there may be little motivation for the customer to appeal any settlement offer.
Can the settlement offer be used to do a PIA/DSA or Informal Arrangement?
Some people have been unable to do a PIA/DSA to date because they had no surplus to offer their creditors after allowing for Reasonable living Expenses. A lump sum settlement may enable some people to do a PIA/DSA settling all creditors.
Loss of family home
In a limited number of cases people will have lost their family homes as a direct result of being charged incorrect interest rates. Such customers should be entitled to high compensation.
In threat of losing family home?
Some customers may have had such large mortgage difficulties that even if they had retained their tracker rates they may still face the risk of their house being re-possessed. Giving the receipt of settlement monies, such customers should consider doing a "No Veto" Section 115A PIA.
Should customers avail of the Appeal procedures?
Banks are presently computing redress and compensation payments on a mathematical basis without consulting customers. Accordingly, banks may be unaware of customers having to resort to expensive finance to meet interest payments or may be unware of medical bills incurred etc. Accordingly, we believe that most customers should avail of the Appeal procedures to enable the Appeal Panels to assess any such new information. Like any adjudication process, the best results are obtained with professional advice.
The Central Bank has issued "stern" guidelines to the banks governing the establishment of Appeal Panels "A" and "B" and the composition of such panels.
Our advice is that any appeal needs to be properly formulated, in the same way that Points of Claim are formulated in a court case, so that the Appeal may be progressed rapidly.
The Appeals Process is not a "negotiation" process. Customers need to provide "new" information to the Panel who will then assess it.
Those customers with substantial claims might be advised to immediately instruct solicitors to issue a 7 day “Demand” letter and then follow up with legal proceedings.
Becoming personally liable for legal costs
The benefit of utilising the banks' Appeal procedures is that there is no risk of the bank obtaining an order for legal costs against the customer.
Those customers who take the decision to issue legal proceedings could become liable for both their own legal costs and the bank’s legal costs if they lose.
The banks are very well resourced and will, in my opinion, heavily defend certain legal actions to avoid any legal precedent being set in respect of specific Points of Claim.
In order to be successful in any such legal action it is likely that the customer will need to retain a forensic accountant. In some cases, for example, the accountant might have to calculate the costs of medical bills incurred as a result of the stress caused, and in preparing such calculations he would have to consider whether the customer obtained tax relief etc
Jim Stafford
The banks, including Allied Irish Banks, Bank of Ireland, Ulster Bank, PTSB and KBC, are still in the process of identifying affected customers and getting in touch with them. It is now fair to say that the banks have fully embraced the fact that customers need to be compensated. The banks are incurring substantial costs on retaining teams of lawyers and accountants to identify affected customers and calculate the Redress and Compensation amounts.
Some customers have already received offers of “redress and compensation”. The “Redress” payment is the amount calculated as being necessary to return the customer to the position they would have been in if the correct rate of interest had been applied. The “Compensation” payment is exactly that, it is compensation.
From the cases that we have seen it appears that the level of “compensation” being offered can vary from 5% to 30% based on the interest overcharges. The question is: Should customers accept such redress and compensation in full and final settlement? Obviously, every case depends on its particular facts and circumstances. I set out below some of the issues that should be considered when evaluating compensation offers.
What was the correct “prevailing” rate?
In many cases the biggest issue is to determine if the bank is correct in deciding what interest rate should apply to a customer who came off a fixed rate. Some banks may argue that it should be “standard” variable rate, whereas in some cases it should be a tracker rate linked to ECB. Frankly speaking, the underlying documentation can be very ambiguous, and it may take some court cases to decide.
Statute of limitations
Technically the banks could have argued that some of the claims are statute barred. However, as the banks are acknowledging, in writing, the claims then a new period of Statutory Limitations kicks in from the date of the written acknowledgement.
Domino Effect
In some cases the inflated interest charges triggered a loan default which enabled the bank to “call in” the loan and allowed the bank to appoint a Receiver. The losses caused by the “Domino” effect of a bank improperly appointing receivers to properties can be very substantial. In some cases, properties were sold by receivers into a market place where there was no liquidity and thus the properties achieved a low price, in comparison with the value that could be achieved today.
Health Effects
Some people will be able to make claims for stress induced illnesses such as depression, heart problems etc. In some cases, marriages fell apart due to the stress caused. Such customers may be able to make successful claims for additional compensation in respect of medical bills and damage to health. The Central Bank guidelines states that "fair and reasonable" compensation should be paid in respect of stress suffered by impacted customers.
Damage to credit rating
Some people may have found that their access to credit was cut off because of negative reports to the Irish Credit Bureau. This could lead to a claim for defamation.
Professional Fees
A close review of some of our clients' bank statements show that the bank added in legal fees in respect of legal proceedings that were unjustified, and should therefor be claimed back.
In general terms, I believe that the level of fees being initially paid to customers as part of the Redress/Compensation payment is inadequate, and that proper fees should be claimed as part of the Appeal process (if the client decides to appeal.) Any proper assessment of a bank's offer of Redress requires a comprehensive review of the customer's financial circumstances at the time and a thorough review of Letters of Offer,banks statements, credit card statements, medical bills, tax returns and the preparation of complex spread sheet modelling etc
if a customer's appeal is successful then at least some (if not all!) of the professional fees incurred for submitting the appeal should be recoverd.
Costs of finance
Many of our clients were forced to use expensive forms of finance such as credit card debt/overdrafts or money lenders to pay unjustified interest charges, and such "extra" costs may be claimed back.
Is customer already adjudicated a bankrupt?
Some of the 13,000 customers who are being offered compensation may already have been adjudicated bankrupt. If the customer had gone bankrupt because he felt that his situation was hopeless as a result of that particular bank overcharging him, then he may have a substantial claim for compensation.
Is customer going through a PIA/Informal Arrangement?
If the customer had undergone a PIA because he felt that his situation was hopeless as a result of that particular bank overcharging him, then he may have a substantial claim for compensation.
If he is currently going through a PIA/Informal Arrangement with multiple creditors, then any compensation payments may be captured by the “windfall” provisions of the PIA/Informal Arrangement, and thus there may be little motivation for the customer to appeal any settlement offer.
Can the settlement offer be used to do a PIA/DSA or Informal Arrangement?
Some people have been unable to do a PIA/DSA to date because they had no surplus to offer their creditors after allowing for Reasonable living Expenses. A lump sum settlement may enable some people to do a PIA/DSA settling all creditors.
Loss of family home
In a limited number of cases people will have lost their family homes as a direct result of being charged incorrect interest rates. Such customers should be entitled to high compensation.
In threat of losing family home?
Some customers may have had such large mortgage difficulties that even if they had retained their tracker rates they may still face the risk of their house being re-possessed. Giving the receipt of settlement monies, such customers should consider doing a "No Veto" Section 115A PIA.
Should customers avail of the Appeal procedures?
Banks are presently computing redress and compensation payments on a mathematical basis without consulting customers. Accordingly, banks may be unaware of customers having to resort to expensive finance to meet interest payments or may be unware of medical bills incurred etc. Accordingly, we believe that most customers should avail of the Appeal procedures to enable the Appeal Panels to assess any such new information. Like any adjudication process, the best results are obtained with professional advice.
The Central Bank has issued "stern" guidelines to the banks governing the establishment of Appeal Panels "A" and "B" and the composition of such panels.
Our advice is that any appeal needs to be properly formulated, in the same way that Points of Claim are formulated in a court case, so that the Appeal may be progressed rapidly.
The Appeals Process is not a "negotiation" process. Customers need to provide "new" information to the Panel who will then assess it.
Those customers with substantial claims might be advised to immediately instruct solicitors to issue a 7 day “Demand” letter and then follow up with legal proceedings.
Becoming personally liable for legal costs
The benefit of utilising the banks' Appeal procedures is that there is no risk of the bank obtaining an order for legal costs against the customer.
Those customers who take the decision to issue legal proceedings could become liable for both their own legal costs and the bank’s legal costs if they lose.
The banks are very well resourced and will, in my opinion, heavily defend certain legal actions to avoid any legal precedent being set in respect of specific Points of Claim.
In order to be successful in any such legal action it is likely that the customer will need to retain a forensic accountant. In some cases, for example, the accountant might have to calculate the costs of medical bills incurred as a result of the stress caused, and in preparing such calculations he would have to consider whether the customer obtained tax relief etc
Jim Stafford