AIB AIB's response to Oireachtas Finance Committee on simple interest

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Squirrelstown

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response from AIB to Oireachtas finance committee re simple interest ...

AIB has in good faith implemented the legally binding directive of the FSPO in compensation for what was deemed the contractual breach of the customer not having a tracker option available at the end of their fixed rate. The FSPO has confirmed that the approach the bank took in that complaint case is fully in accordance with his decision.



The FSPO direction required AIB to:



• Calculate the interest the customer actually paid on the account from the point of impact



• Calculate the interest the customer would have been charged on the reduced capital balance from 30 April 2010, after a write down of 12% of the capital balance has been effected



• Subtract the amount of interest that would have been paid by the Complainant on the written down balance from the amount of interest that was actually paid by the Complainant and refund the difference.



Step 1. AIB calculated the total amount of interest charged by the bank (and paid by the customer) during the period on this account.



Step 2. AIB then calculated how much the customer would have been charged in interest on the reduced portion of the loan.



This was calculated based on the payments actually made by the customer over the relevant period. The interest that would have been charged on the 12% (at date of write down) portion of the loan balance is deducted from customer payments; this determines the amount of interest that would have been charged on the reduced (written down) capital balance.



• The calculated refund is the difference between the figures in the two steps above. This refunds the interest charged on the 12% portion of the mortgage which was the intent of the FSPO decision.
 
This may be technically correct. When we got the decision in Karen's case, we thought the wording a bit clumsy, but did not remotely think that any bank would pay simple interest in settlement of an overcharging issue.

The complaints made subsequently on the issue have asked the Ombudsman to revise the wording of the decision to clarify that the interest should be paid on a compound basis or, alternatively, that he should explain why he considers simple interest an appropriate calculation.

Brendan
 
What am I missing here. The interest paid on the write down would have been compound. So how exactly have AIB repaid it using a simple interest calculation? I really don't understand how this will not be reversed. It seems so obvious.
 
so should we be complaining to the ombudsman about the ombudsman's wording/decision or AIB about their interpretation of that decision?
 
Hi Squirrelstown

The template complaint to the Ombudsman is here:

Key Post - Template for complaint to Ombudsman about AIB's failure to apply compound interest

AIB is now writing to people who complained about the failure to pay compound interest on the 12% mortgage write down. It is not enough to just say "They should have paid compound interest". You have to make the case. So I have drafted the attached template. It is based on the template AIB...
www.askaboutmoney.com

The most relevant section is

Please issue a clear direction to AIB to resolve our complaint.

We would ask that the Ombudsman to issue the following direction in our case to AIB:

We note that a once off reduction (write down) of 12% off the capital balance on the mortgage loan account as it stood at the end of the fixed interest rate period which expired in [insert date here] has already been applied to the account and that interest has been calculated on this on a simple basis and refunded to the complainants.

We now direct AIB to repay the Complainant, to an account of their choosing, the difference between (1) the amount of interest they actually paid from [insert date here] to July 2020, and (2) the amount of interest that they would have paid on the reduced (written down) capital balance, allowing for the actual repayments made, from [insert date here] to July 2020.
 
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