Can BOI enforce 2% clawback on pre-existing mortgages?

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NewIreland

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Long time lurker, first time poster. Many thanks for Brendan and others for providing a very useful source of financial information.

So my query is about BOI's clawback on their 2% cashback offer and how things now stand for people like me who took out mortgages before the rules changed earlier this year to forbid such clawbacks. Do people believe such clauses are still enforceable? Why, or why not? And has anyone heard of a case of the clawback actually being imposed?

I took out a variable rate mortgage last year with BOI and availed of their 2% cashback scheme at the time. I am now interested in switching mortgage providers given the widening rate differences between BOI and pretty much everyone else.

My mortgage documents included the statement that:

"In the case of a variable rate loan the loan can be redeemed in full at any time without penalty."​

However my offer letter also included the clause:

"Where the Lender agrees to pay the Borrower an amount equal to 2% of the Loan (the 'Sum'), if the Borrower repays the Loan within 5 years of the date the Loan is drawn down, the Borrower agrees (a) to pay the Sum back to the Lender and (b) that the Lender can add the Sum to the amount it requires to redeem the Loan."​

Judging by discussions here and in the media such clawbacks have become illegal due to the European Union (Consumer Mortgage Credit Agreements) Regulations 2016 which came into force under Irish law in March this year. As a result BOI's Terms & Conditions on their cashback offer no longer include any mention of a clawback, and recent news coverage reported an explicit BOI statement to that effect:

'Asked about dropping the claw-back condition in the original cash offer, Bank of Ireland said: "In March 2016, in line with the new Mortgage Credit Directive, the terms and conditions were updated and there has been no claw-back clause in place since then."'​

So my question is whether the clawback clause in my mortgage is now also unenforceable?

And if I was to attempt to switch how should I broach the issue with BOI and try face them down on it if they do threaten a clawback? Are there certain questions I should look for written answers on before proceeding? Or should I just try to switch and see if the bank pursues a clawback then? I'd prefer to have clarity before proceeding.

I've cautiously raised this query over the phone with BOI but haven't got a clear answer. It's not even clear if the clawback has ever been enforced by the bank or whether it was always just been a threat to try and discourage consumers from switching to more competitive providers. I asked the Competition and Consumer Protection Commission (CCPC) to look into the issue but they said the area was a Central Bank responsibility.

So I thought I'd see if AAM can help bring any clarity to what the situation is now for customers like myself who have this clawback clause in their mortgage (which would no longer be allowed), and who now wish to switch.

If we could establish that these existing clawback clauses are unenforceable it could facilitate a flood of switchers from banks like BOI with persistently high SVR rates, which would help add further downward pressure on rates across the board.

Many thanks for any help or insights.
 
Hi New Ireland

Sarenco has always expressed the view that the clause is not enforceable. I would agree that it has always been illegal under the Consumer Credit Act. I don't know how the Mortgage Credit Directive has changed it. Maybe it was more explicit.

I suggest you assume it is unenforceable and proceed as follows:

1) Apply directly to EBS for a mortgage - I assume that they will reject your application as if they give you 2%, you will probably move again.
2) Apply at the same time directly to AIB or Ulster Bank depending on the size of your mortgage, or maybe to both.
3) When you have approval get your solicitor to request a redemption figure. This is standard practice.
4) I would guess that it will be your current mortgage balance and they won't try to charge the claw back.
5) If they do try to charge the clawback, get your solicitor to challenge it.
6) If they insist, put them on notice that you will be making a formal complaint to the FSO and that you will be seeking compensation for the interest you would have saved.

Please, please, please make sure not to forget about Askaboutmoney when you have the issue resolved. Come back and let us know how you got on as it will be very useful to others.

Brendan
 
Thanks for the quick reply Brendan.

That sounds like a logical approach. I already have points (1) and (2) in hand and have applied to all three of EBS, AIB & UB - I should have AIPs from them in the next week or two - EBS didn't raise any flags about the risk of me moving again with their 2% - they all seem to be eager for switcher business.

Points (3)-(6) were the stages I hadn't yet mapped out so many thanks for your thoughts on that. I think you are right that getting my solicitor to request the redemption figure is the best next step - it sidesteps any inconclusive conversations with BOI about clawbacks and cuts right to the chase - they either try to apply it or they don't, and I think there is a reasonable chance they won't. On the basis of the redemption figure I can then challenge any clawback attempt or go ahead and switch if there isn't one.

I'll update this thread once I get a resolution one way or the other.
 
Brendan Burgess said:
Sarenco has always expressed the view that the clause is not enforceable. I would agree that it has always been illegal under the Consumer Credit Act. I don't know how the Mortgage Credit Directive has changed it. Maybe it was more explicit.
Click to expand...

Just to expand on this somewhat –

The Consumer Credit Act 1995 provides that (with certain exceptions that are not relevant here) a borrower may, at any time before the time agreed, repay to the mortgage lender the whole or any part of a housing loan and shall not be liable to pay any redemption fee in relation to the loan or any part of the loan.

For this purpose, a “redemption fee” means, in relation to a housing loan, any sum in addition to principal and any interest due on such principal (without regard to the fact of the redemption of the loan) at the time of redemption of the whole or part of the loan. I would be of the view that any clawback of a cash incentive offered in connection with a home loan would fall within the above definition of a "redemption fee".

In any event, the new European Union (Consumer Mortgage Credit Agreements) Regulations 2016 now provide that a consumer has a right to discharge fully or partially his or her obligations under a credit agreement prior to the expiry of that agreement.

In such cases, a lender is entitled to "fair and objective compensation, where justified, for possible costs directly linked to the early repayment, but shall not impose a sanction on the consumer, and any such compensation shall not exceed the financial loss of the creditor."

A lender's entitlement to compensation under the new Regulations shall arise only in the circumstances where the borrowing rate provided for in the credit agreement:-

(a) may not be changed, or

(b) may not be changed over a period of at least one year, or

(c) may not, for a period of at least five years, exceed the rate applicable on the date of the making of the credit agreement by more than two per cent.

A lender that contravenes this Regulation is guilty of an offence

The law in this area is now crystal clear – clawbacks of home loan cash incentives are illegal.

A lender may charge a break fee for early repayment of fixed rate home loans, but any such break fee must be fair and objectively justifiable.
 
Thanks Sarenco, that lays it out very clearly and gives me useful ammo and clarity if I need to get into a fight with BOI over this.

Since March the situation seems 100% clear and BOI have conceded the point themselves with their new T&Cs lacking any clawback. People who've taken out a BOI mortgage since then are undoubtably free to switch and the bank won't/can't pursue a clawback of the 2%. My residual concern was that they might still attempt a clawback with mortgages taken out before that. You've given some further reassurance that this was never really possible, and is even less so now. I'll test this in the next few weeks and see how they react.
 
To be fair, the new Regulations don't apply to any credit agreement that came into effect before 21 March 2016 so you would have to rely on the prohibition on redemption fees under the Consumer Credit Act.

Please do let us know how you get on.
 
Still waiting on a redemption figure to come back from BOI. As others have mentioned on previous threads switching seems to take a lot longer than it reasonably should or you would expect at the outset. Took a few weeks after opening this thread to get switcher AIPs nailed down, so it's not all BOI's delay, and solicitor said redemption letters can be slow to be issued so I'm not really surprised to be waiting a bit. Will hopefully get a number from them in next week or two. Meanwhile I have my switcher offer from new bank ready to drawdown, so set on that front at least. I'll update again once things have progressed.
 
NewIreland said:
solicitor said redemption letters can be slow to be issued so I'm not really surprised to be waiting a bit.
Click to expand...

Surely the redemption figure could be made available almost instantly?

I don't understand why there would be any justifiable delay in a bank telling a borrower how much is still owed on a loan.
 
I'm sure it could be! But that doesn't mean it is...

To be fair if I called my BOI mortgage advisor I'm sure they could look at my account on screen and give me an outstanding balance immediately. I'm pretty sure I've done that previously.

However that's not what I'm looking for here or what I need - a redemption letter is a formal statement of the outstanding amount at a given date (and, if my understanding is correct, for a period thereafter if the specified daily interest is applied) that is binding on the bank i.e. if I pay back the specified amount for a specified date the mortgage is discharged. So just knowing the balance isn't enough to proceed to clear the mortgage, I need a formal redemption letter stating that balance.

In my case where the real question is whether or not the 2% cashback will be added to the redemption figure this is of particularly acute importance. A mortgage advisor could give me guidance one way or the other about whether the clawback might be applied or not but until I see it present or absent from the redemption figure I can't be certain on that.

The formal redemption figure will decide my next course of action and be the basis on which I either switch or go argue with the bank regarding any attempt at a clawback, so I'm happy to wait a week or two to get a letter binding on the bank that will be unambiguous on the issue.
 
NewIreland said:
I'm sure it could be! But that doesn't mean it is...
Click to expand...

Thanks.

While I appreciate that a formal redemption figure is not the same thing as a point in time loan balance, I'm still very surprised that there would be any delay in generating the figure. Surely the number is generated by the bank's software.
 
Sarenco said:
Thanks.

While I appreciate that a formal redemption figure is not the same thing as a point in time loan balance, I'm still very surprised that there would be any delay in generating the figure. Surely the number is generated by the bank's software.
Click to expand...

There is probably an ongoing discussion as to wether they should add the 2% onto the redemption or not. They are probably still weighing up the pros/cons of adding it or not. They may not even have a process in place yet and wouldn't be surprised if you are the first person to attempt this to date. I'm highly interested in this as I will be in the same position next year as I signed up for a 1year fixed rate with them after I got my 2%.
 
What is the best route to requesting a redemption letter?

Local BoI mortgage advisor is threatening the clawback applies. I may make a formal complaint (statutory obligations require a response) seeking confirmation if this can still be enforced in light of the consumer credit act. You would think several people must be looking at this issue now and a clear position should be available.

Thank you
 
fairpoint said:
What is the best route to requesting a redemption letter?
Click to expand...

Just ask your solicitor to request a redemption letter from your mortgage provider on your behalf. Seemingly this is the normal first step in discharging a mortgage so your solicitor will be familiar with the process.
 
There is no way a redemption letter should take more than a week.

This us not rocket science and is merely a back employee looking up the balance with the daily interest to be applied.

Burgess might want to use this - on the reasons switching is difficult cause. Also Charlie Weston of the Independent might be interested.
 
any updates on this? I've asked charlie Weston to look at it.

I think it hangs on whether the eu mortgage credit directive put into law in March 2016 also applies to loan contracts pre this date...? Or whether BoI will actually use the clause if it does. Thank you.
 
No update on my case yet but someone asked Dominic Coyle in the Irish Times to look into the 2% clawback issue today. He doesn't bring full clarity to the issue but basically concludes that for pre March 2016 mortgages the bank can and will enforce the clawback.

Q. Can the clawback be enforced? I and others are trying to get legal clarity.

Bank of Ireland certainly believes it can.

Its position is very clear. Contracts that were signed before the clawback provision was removed are subject to the provisions in place when that mortgage contract was signed.
​
[I can't post a link but it's in the personal finance section]
 
I asked BOI about this a few weeks ago. The agent on the phone said they reserve the right to clawback the 2%. I mentioned the EU ruling and she put me on hold while she spoke with her boss. She then came back to me saying they won't be clawing back the 2%. I asked could I get that in writing and she said she'd request it from some department, never got it though.
In the meantime I've got approval from EBS and have everything ready to go, but am having second thoughts now having read NewIrelands post above.

Is the verbal confirmation I got any good if they do try to clawback the 2%? I know they record phone calls..

On a side note when I told BOI I was moving they dropped the variable rate to 3.4% to get me to stay.
 
Fita, I wouldn't give up on the idea of switching but I wouldn't bank on an agent's phone answer being the definitive line from the bank either. The information she relayed about them not clawing back the 2% might have only be in relation to newer (post March 2016) mortgages, or maybe they have indeed decided not to clawback the 2% from any mortgages, but you just can't be 100% certain on the basis of a phone call. The only way to avoid confusion is to request a redemption figure via your solicitor, which you would have to do to switch anyway so given you've approval from EBS you may as well go ahead and ask and see what number comes back. I'm still waiting for my redemption letter to arrive but will update this thread again once I've received it. Hopefully it won't include the 2% clawback.

And good to hear they dropped your SVR in response to the threat to switch. Even if you do nothing else that alone will have made the exercise worthwhile.
 
NewIreland said:
I'm still waiting for my redemption letter to arrive but will update this thread again once I've received it. Hopefully it won't include the 2% clawback.
Click to expand...

Hi NewIreland

Just on the timing issue, I gather BoI is supposed to issue redemption figures as soon as practicable and in any event within 10 working days of a request in this regard being made by your solicitor pursuant to an agreement between the IBF and the Law Society.

At this stage, it might be in your interests to ask your solicitor to issue a formal reminder/warning to BoI (assuming 10 working days have now passed), with one eye on a possible future complaint to the FSO and/or the Central Bank.
 
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