AIB Loan facility states it would track ECB main refinancing operations Minimum Bid Rate, it did not!

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DARKMATTERS

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My AIB loan facility at clause 3.6.1 states;

“ The Tracker rate is made up of two parts
(A) the European Central Bank’s main refinancing operations minimum bid rate; (”ECB”) which is variable and
(B) the Tracker Margin as stated in Part 1 of the Particulars of Offer of Mortgage Loan, subject to 3.6.3 below.”

At clause 5.3 entitled “Notice of. Variation” it states;

“Save for any period of a fixed interest rate loan, the Bank shall give notice to the Customer of any variation in the interest rate applicable to the Mortgage Loan, either by specific notice in writing served on the Customer in accordance with the Lender’s Mortgage, or generally by newspaper advertisement published in a least one National Daily Newspaper. Such notice or advertisement shall state the varied interest rate and the date from which the varied interest rate shall apply.”

I have recently discovered that the ECB discontinued the ECB mro minimum bid rate in October 2008 and AIB did not inform me of same. Is this a breach of contract or is it unreasonable behavior by AIB?
 
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DARKMATTERS said:
My AIB loan facility at clause 3.6.1 states;

“ The Tracker rate is made up of two parts
(A) the European Central Bank’s main refinancing operations minimum bid rate; (”ECB”) which is variable and
(B) the Tracker Margin as stated in Part 1 of the Particulars of Offer of Mortgage Loan, subject to 3.6.3 below.”

At clause 5.3 entitled “Notice of. Variation” it states;

“Save for any period of a fixed interest rate loan, the Bank shall give notice to the Customer of any variation in the interest rate applicable to the Mortgage Loan, either by specific notice in writing served on the Customer in accordance with the Lender’s Mortgage, or generally by newspaper advertisement published in a least one National Daily Newspaper. Such notice or advertisement shall state the varied interest rate and the date from which the varied interest rate shall apply.”

I have recently discovered that the ECB discontinued the ECB mro minimum bid rate in October 2008 and AIB did not inform me of same. Is this a breach of contract or is it unreasonable behavior by AIB?
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Hello DARKMATTERS,

you have a very interesting post here that I just had to respond to.

If you are suing AIB you would have to show loss. For example, if you owned 5 buy to lets with AIB and the Bank appointed a receiver over these in say 2014, then your legal team could certainly argue that you lost these properties due to AIB not informing you of this change in the interest rate applicable to your mortgage.

Before any other posters says "How could you show loss?", I will say the following; if AIB had informed you (as contractually obliged to), you might have realised that this change in the ECB's monetary policy regarding main refinancing operations signaled that the interbank market had grinded to a halt. When this happens over a protracted period, a recession follows, as banks will not lend to business etc. This is precisely what occurred. You would have sold your portfolio and got out of the rental market in late 2008, early 2009 when property prices were still high. This is your loss. I will also add that AIB itself knew the implications of this policy change as they withdrew their tracker mortgage products days later.

If this only relates to your home, the same argument could possibly be made, but I suggest that you go to the FSPO as they can decide on issues that are not strictly legal, like fairness or reasonableness as you said in your post.

By the way, this issue also affects BOI, ICS, EBS, KBC and others. I am aware of several High Court cases were this matter will be touched upon. However AIB's wording in its mortgage loan is certainly the hardest for the bank to defend.
 
Thanks you so much for your post, it was most helpful. I can’t believe that this tracker issue effects all those other banks you mentioned. How come it is only coming before the courts now. Where was the Central Bank of Ireland in all of this? Did it not discover this issue during its tracker mortgage review or is it just too thorny of a matter for them to handle? To tell you the truth, I’m thinking of trying to get on the Joe Duffy show to talk about this, it’s a national scandal.
 
I have heard there are several Circuit Court Appeals to possession in the High Court looming, where this argument will form part of the borrower’s defense. The Banks include EBS, AIB and BOI. If the borrowers are not successful, as in, their respective defences are not enough to stop possession being granted as the Court takes the view that the bank’s conduct regarding same does not extract the borrower from their overall arrears position, the same argument may well win with the FSPO with regard to the bank’s conduct being unfair and unreasonable.
 
Hi Brendan,

My loss is this, AIB should have notified me, as per the terms of its drafted contract with me, that the ECB had changed the ECB main refinancing rate procedure from the ECB main refinancing operation minimum bid rate to the ECB main refinancing rate fixed rate full allotment in October 2008. If they had done this, as contractually obligated to do, I would have taken professional financial advice and would have been informed that at this time, the inter bank money markets had ceased to function within the Eurozone and the ECB, instead of being a lender of last resort, had in fact become the only lender in the Eurozone. When Eurozone Banks stop lending to one another they invariably stop lending to businesses and the wider economy and a recession quickly follows. In a recession capital values drop. This is what occurred.

If AIB had informed me (as contractually obligated to do), I would have sold my btl properties in late 2008, early 2009 and taken substantial profit. AIB copped on what was happening and immediately withdrew its tracker mortgages products from the market (as did most lenders in Ireland) as it knew interest rates would head for zero as the ECB attempted to provide cheap liquidity to the Eurozone Banks (which it did).

It was incumbent on AIB to inform me of this change in the ECB main refinancing rate procedure as per its own drafted clause in my various loan offers. The failure by AIB to so inform me of the ECB change in the main refinancing rate procedure within my various loan contracts had the consequence of denying me the opportunity to liquidate my property portfolio and take profit. This is my loss.
 
So you had a tracker with AIB.
The reference rate changed.
You were not aware of it.
They didn't notify you of it.

And you say, that you would have had the foresight to...
1) Gone to a professional advisor
2) She would have told you that this meant that property prices were going to crash
3) You would have believed her
4) You would have sold all your property at the inflated prices

And, of course, you can offer in evidence the advice given by lots of financial advisors at the time to their clients that, despite having a cheap tracker, they should sell their property?

And people wonder why the Financial Services Ombudsman rejects 90% of complaints!

Brendan
 
Loss of opportunity is a more difficult claim to sustain in the courts than actual loss. Whether or not AIB failed to notify you of the change would not absolve you entirely of your own responsibility to inform yourself of what was happening in the financial world.

The key thing is this: did AIB’s breach of contract cause, or substantially give rise to, the loss? While AIB’s actions may or may not have constituted a breach, your issue is demonstrating that the breach caused the loss.
 
What did the bank say when you raised this with them?

So they didn't write to you but did they meet their obligation with a newspaper advert? Going to court seems to be a long way to go without checking that little nugget

Yes the ECB changed its allocation policy, and the name, but the material impact on you was zero as the rate was the same?

Is it credible to think you would have reacted differently if you had been made aware of this change? We introduced a bank guarantee scheme the month before. If a €440 billion bank emergency measure wasn't enough it's hard to see this change being the straw to break the camels back?
 
skrooge said:
We introduced a bank guarantee scheme the month before. If a €440 billion bank emergency measure wasn't enough it's hard to see this change being the straw to break the camels back?
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Excellent point which really highlights the insignificance of AIB's breach of contract.

Brendan
 
Hi Skrooge,

I never had the opportunity of raising this issue with the Bank as when I found out about this particular issue they had already sold my mortgages onto Everyday Finance DAC (Promontoria). You see the Bank never informed me or any other of its customers of this change as contractually obligated to do. Nor did it place an advert in any of the national newspaper at the time. In other words, they concealed it and indeed continue to do so, as can be borne out within the wording of AIB’s tracker mover mortgage product where it reiterates that the rate your mortgage will track will follow the ECB main refinancing operations minimum bid rate. I now know that this rate/ rate procedure ceased to be available to the market from the 15 October 2008. However, the Bank’s own reaction was to immediately withdraw its Tracker Mortgage products as they knew the impact that the change in ECB monetary policy would have. The onus was solely on the Bank (contractually) to inform its customers. Most customers would not have a clue about what the Banks Guarantee was all about. Indeed most customers (like most Banks) did not know what a Tracker Mortgage was as was borne out by the recent Tracker Mortgage scandal.

It must be a serious enough issue as three separate High Court Judges have remitted the matter to plenary hearing and another summary judgment matter was also remitted to plenary based solely on this point. It is the Bank that has an obligation to act honestly, fairly and reasonably in conducting its business activities. It is obliged to act with due skill, care, dillegence and must act recklessly or negligently or mislead its customers.
 
DARKMATTERS said:
It must be a serious enough issue as three separate High Court Judges have remitted the matter to plenary hearing and another summary judgment matter was also remitted to plenary based solely on this point.
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Can you provide the names of these cases, please?
 
DARKMATTERS said:
the Bank that has an obligation to act honestly, fairly and reasonably in conducting its business activities. It is obliged to act with due skill, care, dillegence and must act recklessly or negligently or mislead its customers.
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Correct, but you have absolutely zero loss as a result.

Brendan
 
DARKMATTERS said:
I now know that this rate/ rate procedure ceased to be available to the market from the 15 October 2008. However, the Bank’s own reaction was to immediately withdraw its Tracker Mortgage products as they knew the impact that the change in ECB monetary policy would have.
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The change in how the ECB conducted monetary policy and the decision to withdraw tracker products are separate.

For the purpose of tracker mortgages it was only a name change. ECB policy would have been the same I.e., a rate cut regardless of what they called it. The allocation process didn't matter. They offered you the same product. Ok they didn't tell you the name had changed but that's all.

The reason banks withdrew trackers was simple their costs and ECB rates diverged significantly.

DARKMATTERS said:
Most customers would not have a clue about what the Banks Guarantee was all about.
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Surely the same logic holds for the ECBs decision to change its allocation process. Why would a procedural change by a central bank conducting monetary policy raise more of an alarm bell than a state guaranteeing every last cent of Irish banks?
 
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Jaycom,

Can you provide the names of these cases, please?
This particular case has been posted on the internet for all to see, so I will give you this case number [2020] IEHC 484.
 
skrooge said:
The change in how the ECB conducted monetary policy and the decision to withdraw tracker products are separate.

For the purpose of tracker mortgages it was only a name change. ECB policy would have been the same I.e., a rate cut regardless of what they called it. The allocation process didn't matter. They offered you the same product. Ok they didn't tell you the name had changed but that's all.

The reason banks withdrew trackers was simple their costs and ECB rates diverged significantly.



Surely the same logic holds for the ECBs decision to change its allocation process. Why would a procedural change by a central bank conducting monetary policy raise more of an alarm bell than a state guaranteeing every last cent of Irish banks?
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The significant change in ECB monetary policy that was announced on the 8th October 2008 when the ECB announced a change from the ECB minimum bid rate to the fixed tenders full allotment rate signaled to the Eurozone Banks and others that the ECB was going to prop up the inter bank money market and become the lender of first choice as oppose to being the lender of last resort. From October 2008 to May 2009 the ECB rate dropped significantly to keep the Banks afloat. The ECB also allowed the Eurozone banks to use significantly poorer collateral in which to exchange for funds. All tender were accepted no matter what the level was. The Eurozone Banks knew they had extensive toxic loans on their individual loan books so they would not lend to one another. This is why the ECB had to intervene. The Banks also knew that because lending into the wider economy was going to be substantially reduced that a recession was imminent. In a recession property prices fall.

The fact that AIB failed to inform me of this significant change in the interest rate applicable to my loans as contractually obligated to, was unreasonable and unfair as well as being opaque, and contributed significantly to my loss of opportunity (ie to liquidate some or all of my portfolio). This is my loss.
 
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Hi, NoRegretsCoyote,
NoRegretsCoyote said:
Maybe.

But the bank guarantee and EU-IMF bailout two years later was impossible to avoid if you consumed literally any Irish media at the time.
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By the time the EU-IMF bailout happened two years later the horse had already bolted so as to speak, the value of Irish Property had halved and was in the doldrums.
 
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