"Central Bank chief bottles it on home loan overcharging "

This is the front page story in today's Indo

Central Bank chief bottles it on home loan overcharging


"The new head of the Central Bank says he is powerless to force banks to cut variable rate mortgages.

But Central Bank Governor Prof Philip Lane was told at a Dáil committee he needed to tackle the banks' "unjustifiable" rates, as ECB interest rate reductions are not being passed on to homeowners.

Prof Lane said he understood it appeared unfair, but interfering between the banks and customers was "not really within our power".

The debate about the Central Bank's role comes ahead of the publication of the Banking Inquiry final report today. The report concludes banks were able to breach spending limits on property deals without fear of consequences from the Financial Regulator or Central Bank during the boom years."



I watched part of it and here is my transcript

Opening Comments
It is not our role to run the firms we regulate, including setting rates.

We work on transparency...

Questioning from Michael McGrath
McGrath:
Most of the deals are for new customers. Existing customer are being treated fundamentally unfairly.
I hope you tackle this.

This is a clear case of discrimination against existing customers.
What can you do to address this?

Governor: Many markets have different pricing for new customers - I fully appreciate the perception that this is unfair. Our p;osition is that the banks must be run on a commercial basis. We can discuss the level of competion and whter the high rates will persist.
But the bank cannot interfere in the contracts between banks and borrowers.

One of our goals is to make switching easier. As with mobile phones. The bank can work on that.

But we don't have the power to tell banks to treat existing customers the same as new customers

McGrath: You could bring in a code of conduct on mortgage switching.

When the cost of funds is 1% to 1.5% , it is wrong to be charging 4% to 4.5%

if you are an existing customer, you might be trapped. You have a key statutory role in consumer protection.

More in today's Indo here

New Central Bank chief vows to make mortgage 'switching' easier

and here
Central Bank has no powers to end two-tier mortgage market, says Lane


and in the Irish Times
Central Bank urges easier mortgage switching

Making switching easier won't help those with shot credit records which is the case for every mortgage holder in arrears.

Disappointing reading really.

The switching process will take years to implement and it sounds like he doesn't really want the power to sort out the unfair rates for existing customers.

Another case of the Central Bank arguing that they don't have the power to do something. There's no point in Michael McGrath giving out to the Central Bank when it is the Oireachtas who should be giving them the powers to do things. Instead, they're off filling in potholes and fixing fences for local votes.

demoivre said:

Making switching easier won't help those with shot credit records which is the case for every mortgage holder in arrears.

Click to expand...

That's another matter altogether. People with shot credit records are higher risk customers. To take on a mortgage of someone with a poor credit rating is an increased risk of not getting your money back. Those customers would be charged an even higher rate by the bank for taking on the additional risk. Customers in that situation are better with staying where they are at the same rate as everyone else.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

Hello,

Does the Central Bank actually have the power to force the Banks to reduce their standard variable rates ? To be honest, I don't think it has.

If you look at this from a detached unemotional position, you also have to ask yourself should the Central Bank have such powers, in an open market ? Personally, I say no. A Central Bank dictating lending rates would be anti competitive and long term, bad for competition and by extension, our economy.

Moving on from the above, we can all see that the SVRs being charged by Banks here in Ireland are giving a more generous margin to the Banks than we would like. Putting aside the arguements as to what margin a Bank should actually be getting on a SVR, the simple fact of the matter is that the Government owns both AIB & PTSB.

So, if the Government wanted to, as principal shareholder, it could simply tell the two respective Boards of Directors to lower the rates immediately and let that be the end of it. Nice and simple ... a case of the owners telling their company directors what to do and making it very clear if they don't do it, they will be replaced.

Obviously, if both PTSB and AIB dropped thier rates significantly, then their competitors would have to follow suit, or risk losing notable market share (through both refinancing and new business lost to AIB & PTSB).

However, lets not forget that the Government has another important agenda here - it needs to sell both AIB & PTSB. In order to sell both of them, they really need to be making significant profits and so, by extension, the Government finds itself in a position where it has a conflict of interest. Hence, it's convenient for the Government to smudge the issue of who should tell the Banks to lower interest rates, play a game of cat & mouse and at least, get past the next general election.

demoivre said:

Making switching easier won't help those with shot credit records which is the case for every mortgage holder in arrears.

Click to expand...

Won't lenders like Pepper help to overcome that, assuming the person's credit record is not completely destroyed (in which case you do have consider other factors, such as whether or not the loan should have been called in etc.) ?

Hello? Aib did drop their variable rates several times.
Bank of Ireland didn't.

The issue of treating new customers differently to existing (captive) customers could be interpreted as anti consumer/ sharp practice.

And the central bank has a role in policing these things.

If borrower cannot access alternative lender then they should be protected.

Quote from Mr Lane {not really within our power} = cop out and means he actually holds the levers to sort this.
eg tell Banks he is pushing to sort things like 6 year rule on miss-selling claims.That would makre Banks think.
The will is not with him to challenge the Banks, full stop.!

MrEarl said:

However, lets not forget that the Government has another important agenda here - it needs to sell both AIB & PTSB. In order to sell both of them, they really need to be making significant profits and so, by extension, the Government finds itself in a position where it has a conflict of interest. Hence, it's convenient for the Government to smudge the issue of who should tell the Banks to lower interest rates, play a game of cat & mouse and at least, get past the next general election.

Click to expand...

You're exactly right. It's too late in my view to make this an election issue. When the next Government sell the banks the only way the SVR is going to go is up. Even the latest entrant (Pepper) to the market kept in line with the current rates because there is no competition. Noonan et al have spin doctored the issue in order to get past the next election.

Páid said:

You're exactly right. It's too late in my view to make this an election issue. When the next Government sell the banks the only way the SVR is going to go is up. Even the latest entrant (Pepper) to the market kept in line with the current rates because there is no competition. Noonan et al have spin doctored the issue in order to get past the next election.

Click to expand...

I think you've got it exactly right, the reason why pepper entered the market is because it is lucrative.

They can charge what they like, have unfair terms in the agreement, no enforcement of consumer protection codes and there is no one in authority willing to even hint at stopping them.

I'm surprised more banks don't come here and milk the cash cow, they can earn 2% more then the rest of Europe here.

Gerry Canning said:

Quote from Mr Lane {not really within our power} = cop out and means he actually holds the levers to sort this.
eg tell Banks he is pushing to sort things like 6 year rule on miss-selling claims.That would makre Banks think.
The will is not with him to challenge the Banks, full stop.!

Click to expand...

Mr. Canning,

What you are suggesting there is not directly relevant, albeit it is a potential method of getting movement.

But why do you think the Central Bank should be trying to influence the SVR - because the borrowers want cheaper rates, or because it's their duty to control lending rates (or something else) ? If it's because the borrower wants cheaper rates, then thats not the Central Bank's responsibility imho.

Páid said:

You're exactly right. It's too late in my view to make this an election issue.....

Click to expand...

I am sorry to appear rude, but no it certainly is not too late.

Every person that has a vote, also has a voice. They just need to use their voices, be it at their front door when a politican calls around, or through the telephone etc. Action can be taken, starting now with an email to each of your local politicans and tomorrow by telephone etc.

Publicity is easily obtained, if a campaign were to be launched on an issue like this... the journalists would only love to cover it. All that is needed is a sensible spokesman to make the points and indicate that there is a growing movement of disgrunted borrowers willing to vote for the Government if they fix the problem before the election, or vote against the Government if the problem remains on the day of the election.

I notice Michael McGrath is the only politician making noise on this particular issue. Fair play to him.

MrEarl said:

Mr. Canning,


Publicity is easily obtained, if a campaign were to be launched on an issue like this... the journalists would only love to cover it. All that is needed is a sensible spokesman to make the points and indicate that there is a growing movement of disgrunted borrowers willing to vote for the Government if they fix the problem before the election, or vote against the Government if the problem remains on the day of the election.

Click to expand...

Excellent point.So can we have a sensible spokesman.

SBarrett said:

That's another matter altogether. People with shot credit records are higher risk customers. To take on a mortgage of someone with a poor credit rating is an increased risk of not getting your money back. Those customers would be charged an even higher rate by the bank for taking on the additional risk. Customers in that situation are better with staying where they are at the same rate as everyone else.

Click to expand...

Why is someone who went in to mortgage arrears because of unemployment, but who is now back working full time paying their mortgage, at greater risk of future default than someone who never defaulted? Supporting data would be welcome. Lane and the government will continue to bottle it because it suits them to have the svr mortgage holder to pay the price for bad borrowing, bad lending, bad governance and bad regulation.

demoivre said:

Why is someone who went in to mortgage arrears because of unemployment, but who is now back working full time paying their mortgage, at greater risk of future default than someone who never defaulted? Supporting data would be welcome. Lane and the government will continue to bottle it because it suits them to have the svr mortgage holder to pay the price for bad borrowing, bad lending, bad governance and bad regulation.

Click to expand...

You have someone who has already defaulted on their loan versus someone who has never defaulted on their loan. If you were in the business of lending money, who would you say is higher risk?

You'll have to look for supporting data to your own question yourself. I wouldn't know if such research has been carried out or disclosed to the public.


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)

MrEarl said:

I am sorry to appear rude, but no it certainly is not too late.

Every person that has a vote, also has a voice. They just need to use their voices, be it at their front door when a politican calls around, or through the telephone etc. Action can be taken, starting now with an email to each of your local politicans and tomorrow by telephone etc.

Publicity is easily obtained, if a campaign were to be launched on an issue like this... the journalists would only love to cover it. All that is needed is a sensible spokesman to make the points and indicate that there is a growing movement of disgrunted borrowers willing to vote for the Government if they fix the problem before the election, or vote against the Government if the problem remains on the day of the election.

Click to expand...

No Central Bank worthy of the name should be influenced by political opinion, or a government's hopes of re-election.

T McGibney said:

No Central Bank worthy of the name should be influenced by political opinion, or a government's hopes of re-election.

Click to expand...

Hmmm... I, as, I suspect, most, probably would have agreed pre-crash that CBs should be free of democratic governance. But we saw how that worked out, didn't we?

Has to be said, McGrath seems to be the only one looking our for existing customers -- those who can't be bought off in the banks' new business wheezes. (I'm putting the link in here, as the one above seems to be wrong.)

Still no-show from everyone else on those prepared to champion the SVR slaves.

MrEarl said:

Mr. Canning,

What you are suggesting there is not directly relevant, albeit it is a potential method of getting movement.

But why do you think the Central Bank should be trying to influence the SVR - because the borrowers want cheaper rates, or because it's their duty to control lending rates (or something else) ? If it's because the borrower wants cheaper rates, then thats not the Central Bank's responsibility imho.





I am sorry to appear rude, but no it certainly is not too late.

Every person that has a vote, also has a voice. They just need to use their voices, be it at their front door when a politican calls around, or through the telephone etc. Action can be taken, starting now with an email to each of your local politicans and tomorrow by telephone etc.

Publicity is easily obtained, if a campaign were to be launched on an issue like this... the journalists would only love to cover it. All that is needed is a sensible spokesman to make the points and indicate that there is a growing movement of disgrunted borrowers willing to vote for the Government if they fix the problem before the election, or vote against the Government if the problem remains on the day of the election.

Click to expand...

For me Mr canning is right , the will is not there because both the CB and the government want to fatten them up for sale to the private sector on the back of SVR holders being mainly responsible for the profitability they're now getting. What the borrowers want is fair play as our SVR rates are 2% higher than the rest of the eurozone. Bad enough that Mr Trichet cost us 9 billion by insisting that the bondholders get paid, especially the unsecured ones which meant were now bailing them out twice but that theyre doing it because the institutions that are supposed to be championing the consumers here and yes hard to believe as it is the CB does have a consumer protection code which Mr lane is now bottling out of just like his predessor did, theyre not doing so and just like spoiled children who will do what they like if allowed thats what the banks are doing and will continue to do until checked. The lack of competition has been flagged as a reason but as paid said above pepper are coming into the market and their rates are not going to be much lower that the current banks. Couldnt agree more with what was said earlier, its very surprising more havent come in here to take advantage of a system that allows banks to gouge their customers. If pepper really wanted to start real competition theyd charge an SVR a lot nearer to the average euro rates instead of the one they are. Yes, we all signed contracts which are unfair but the banks have been abusing them because they can, therefore until they learn manners the rates should have regulation and be controlled . One regulation I'd have is the banks should be made justify any increases at say above 3% above current ECB rates. Regarding it not being too late it is and it isn't yes we can give our politicians a hard time during the campaign and I will if I get the chance, I won't be emailing again as ive already done so and got the same response everyone else got. I'll also be voting appropriately , eg FG and LAB spots on the ballot paper will stay blank. It is too late as this hasnt become a majoe issue so the government have been left off the hook here due to our inability to protest publicly and protest.I've said before I'd gladly help a protest campaign but I feel it needs somebody with a financial background to front it. Michael McGrath has been the only one actively trying to back up the campaign so that's the party ill be voting for

keepon said:

Hmmm... I, as, I suspect, most, probably would have agreed pre-crash that CBs should be free of democratic governance. But we saw how that worked out, didn't we?

Click to expand...

I think you've the wrong end of the stick there.

If you're an existing home loan borrower with a higher SVR than the rates offered on new home loan products then you should switch your mortgage.

There are only 2 barriers to this:
1) You're too lazy to do this,
2) You wouldn't qualify under the new CBI lending rules for the size of mortgage you need.

If the reason is 1) then tough.
If the reason is 2) then you've no argument for incurring the same SVR as someone who qualifies for the new mortgage. Someone who qualifies for the new loans must comply (15% exemption level excluded) with the CBI rules and thus have superior credit metrics (lower LTV &/or better LTI coverage).

Switching, either actually doing it or realistically threatening to do it, is the only to force banks to lower their rates.