Central Bank's comments on the Prevailing Rate cases specifically

[Brendan Burgess]

Prevailing Rate Customers
Prevailing Rate Customers were entitled to be offered a prevailing tracker rate at the expiry of
their fixed rate period. There are 6,523 mortgage accounts held by Prevailing Rate Customers,
broken down as follows:

1. 648 customer accounts who were previously on a tracker rate before they entered their
fixed rate periods. These accounts were admitted to the TME in February 2016 and fully
redressed and compensated in line with TME principles; and

2. 5,875 customer accounts who had a contractual entitlement to be offered a tracker rate
but never availed of it before fixing their interest rates. These accounts were admitted
to the TME following Central Bank intervention in December 2017 and initially received
flat rate compensation and an offer of a prevailing tracker rate.

The TME permitted customers to appeal their redress and compensation package to the FSPO
and/or the Courts in the event that they were not satisfied. The Central Bank required all
lenders to assess if any individual outcomes from the FSPO had the potential to impact
customers more widely, and if so to apply the outcomes of those decisions to all relevant account
holders.

In March 2020, the FSPO upheld one such individual complaint from a Prevailing Rate
Customer, who never previously availed of a tracker rate. The FSPO decision, in line with the
Central Bank’s findings, was that AIB had breached its customer’s contract, and the FSPO
directed that AIB provide certain additional compensation. Following AIB’s consideration of this
decision and further engagement with the Central Bank, the decision was applied to all 5,875
Prevailing Rate Customers’ accounts in line with the Central Bank’s expectations.

Furthermore, by February 2020, the Central Bank’s investigation had identified that a sub group
of 314 prevailing rate customer accounts, (“Early Roll off Customers”), were entitled to a
specific low rate tracker and had suffered quantifiable financial loss. Central Bank engagement
with AIB led to these customers being provided with rate rectification and full redress and
compensation in line with TME principles. See full details of Prevailing Rate Customers in table
1 below:

 

[Brendan Burgess]

 Failed to consider the entitlements of customers when it withdrew the tracker mortgage
product

When AIB withdrew its tracker product on 10 October 2008, thousands of customers were
availing of fixed mortgage rates for a finite period, but with a contractual right to be offered a
prevailing tracker rate when that fixed rate period expired. When AIB withdrew its tracker
product, AIB failed to adequately consider the impact the withdrawal would have for these
customers or how it would comply with its contractual obligations to these customers on expiry
of their fixed rate periods.
In withdrawing the tracker mortgage product, AIB did not follow its own internal processes as it
failed to seek any input from its compliance or legal departments prior to taking this decision. In
addition, AIB did not seek formal approval from its Mortgage Bank Board as was required when
seeking to retire the tracker product. The investigation found no evidence that any due diligence
was carried out by AIB to assess the impact of the withdrawal of trackers on its customers.
AIB’s lack of regard for its customers at this key stage, when making such a significant decision,
set in motion a litany of failings that resulted in serious harm to many of its customers and fell
far short of AIB’s obligations to act with due care and in the best interests of its customers.
AIB has admitted to one regulatory breach in relation to the manner of its withdrawal of the
tracker product. Specifically, AIB has admitted that it:
- Failed to act with due skill, care and diligence in the best interests of its customers;
- Failed to act honestly, fairly and professionally in the best interests of its customers; and
- Failed to have or effectively employ adequate resources, policies, procedures, systems,
and controls.

Breached customers’ mortgage contracts, delayed in rectifying the breach, and failed to take
immediate and conclusive action to determine for these customers the financial implications
of its wrongdoing
Following AIB’s withdrawal of the tracker product, for a period of more than 5 years, from 10
October 2008 to 5 December 2013, AIB failed to offer Prevailing Rate Customers, holding 6,523
mortgage accounts, the option of a tracker rate in accordance with their mortgage contracts.
AIB was aware of complaints from customers alleging a contractual breach as far back as
January 2009 yet failed to reintroduce a prevailing tracker rate until 5 December 2013. Even
then, the prevailing tracker rate was available on a go forward basis only, available to those
customers whose fixed rates expired after December 2013. AIB’s delay meant that the total
amount of impacted customers who had their entitlements denied kept increasing, from just
over 500 customers’ contracts by the end of February 2009 to 6,523 by December 2013.
From the moment it became aware of the breach of contract to customers, AIB should have
taken immediate and conclusive action to determine the financial implications its wrongdoing
was having on its customers. However, it failed to do so.
The consequences of AIB’s failings included the loss of four family homes in addition to the loss
of nine customers’ buy to let properties.


AIB has admitted to three regulatory breaches in relation to the breaches of contracts, delay in
rectifying those breaches and its failure to take immediate and conclusive action to determine
the financial implications of the breaches for customers. Specifically, AIB has admitted that it:
- Failed to act honestly, fairly and professionally in the best interests of its customers;
- Failed to act with due skill, care and diligence in the best interest of its customers; and
- Failed to have or effectively employ adequate resources, policies, procedures, systems,
and controls.

 Wrongfully excluded customers’ mortgage accounts from the TME
The TME framework required that AIB identify and include all customers with contractual rights
to a tracker rate within its scope. Prevailing Rate Customers fell within these parameters and
should have been immediately afforded the protections of the TME, including Stop the Harm
provisions. While those Prevailing Rate Customers who previously availed of a tracker rate
were brought within the TME at the outset , AIB denied that there was a breach of contract and
refused to include the 5,875 Prevailing Rate Customers accounts which had never previously
availed of a tracker rate for almost two more years. In this period, AIB described this breach of
contract, both internally and externally, as a “service failure”. The prolonged exclusion of this
group of customers from the TME over this extended period of time deprived these customers
of the protections of the TME framework.

It was only after significant intervention by the Central Bank, that AIB finally agreed to include
all remaining Prevailing Rate Customers within the TME in December 2017. Had AIB admitted
these customers to the TME at an earlier stage and applied the protections it afforded, in
particular Stop the Harm protections, certain loss of ownership caused to Prevailing Rate
Customers could have been avoided.

AIB has admitted to one regulatory breach in respect of its in appropriate exclusion of
customers from the TME. Specifically, it had admitted that it:
- Failed to act honestly, fairly and professionally in the best interests of its customers;
- Failed to act with due skill, care and diligence in the best interest of its customers;
- Failed to have or effectively employ adequate resources, policies, procedures, systems,
and controls; and
- Failed to ensure that conflicts of interest were managed appropriately.

 

[Brendan Burgess]

Wow!

The Prevailing Rate issue alone resulted in the loss of 4 family homes and 9 buy to lets.


It was only after significant intervention by the Central Bank, that AIB finally agreed to include
all remaining Prevailing Rate Customers within the TME in December 2017. Had AIB admitted
these customers to the TME at an earlier stage and applied the protections it afforded, in
particular Stop the Harm protections, certain loss of ownership caused to Prevailing Rate
Customers could have been avoided.

 

[Brendan Burgess]

I am really restraining myself from breaching the no bad language guidelines!

addition to the contractual failings towards Prevailing Rate Customers, the investigation
found that AIB implemented an unfair strategy in dealing with complaints from Prevailing Rate
Customers who had previously availed of a tracker rate on their mortgages prior to fixing their
interest rates.
When these customers pursued their complaints to the FSPO, AIB settled their complaints and
restored them to their original tracker margin, whereas those who did not complain, but who
had identical terms and conditions, received no such rate rectification and redress and
compensation.
This strategy commenced in early 2014 and continued until the commencement of the TME in
December 2015. AIB’s differential treatment of customers with identical entitlements was
unfair and in breach of the CPC. AIB should have taken proactive steps to rectify how it had
treated not just the customers who complained but all of its customers who had been impacted
by AIB’s failings.
In total, out of 648 customer accounts, 35 customer complaints were settled in this manner.

 

[Brendan Burgess]

In addition, certain Prevailing Rate Customers who entered into their mortgage contracts,
which still provided for the entitlement to a prevailing tracker rate after the withdrawal of the
tracker, were not warned that a tracker rate would not be made available to them as AIB had
withdrawn the tracker.

 

[Sarenco]

I didn’t appreciate that AIB were systematically settling the “prevailing rate” cases before the FSPO without addressing the full cohort. Naughty, naughty!

Hats off to Brendan for sticking to his guns on this one - I always felt this was one of the more deserving cohorts in this saga.

 

[Brendan Burgess]

didn’t appreciate that AIB were systematically settling the “prevailing rate” cases before the FSPO without addressing the full cohort. Naughty, naughty!

Hi Sarenco

I didn't appreciate it either!

Just to be clear, it was a specific subset of 648 customer accounts who were previously on a tracker rate before they entered their fixed rate periods.

Most of the Prevailing Rate cases started on fixed rates.
This subset started on trackers with a specific margin e.g. ECB +.75%
They then fixed.
When they came off the fixed rate they were not put back on the tracker.

When they complained to AIB, they were told they had no case.
But when they complained to the Ombudsman, AIB put them back on ECB +0.75% before the Ombudsman made a decision which would have been sent to the Central Bank.

EBS did the same. Settled some cases without applying them to the rest of the people with the same issue.

Brendan

 

[MrCat]

This has always been my problem with the ruling a couple of years ago. Doesn't make sense to me that you get compensated as you were entitled to a tracker for the last 6 or 8 years, but... you are not entitled to a tracker for the remaining 20 years of your mortgage.
Does this open it up now to appealing for trackers for the remainder of your mortgage?

 

[Brendan Burgess]

Hi MrCat

We argued that the prevailing margin was ECB +1.5%.

Fortunately for us, the Ombudsman rejected that and awarded a 12% write-down instead.

In most cases we have looked at on Askaboutmoney, we have advised people with trackers to exchange them for a fixed rate!

Key Post - Should borrowers with trackers consider fixing? (General guidelines)

It seems increasingly likely that we are going to see a series of rate hikes by the ECB in the near future. According to Philip Lane, ECB chief economist - "I think it’s clear that at some point we’re going to be moving rates, not just once, but over time, in a sequence." If the ECB raise the...

www.askaboutmoney.com

 

[moneymakeover]

I didn’t appreciate that AIB were systematically settling the “prevailing rate” cases before the FSPO without addressing the full cohort. Naughty, naughty!

Hats off to Brendan for sticking to his guns on this one - I always felt this was one of the more deserving cohorts in this saga.

I remember when people like me put my case forward on AAM 10 years ago

But you @Sarenco consistently disagreed with our claims

Now you say oh "I didn't appreciate blah blah blah"
Run with the hare, hunt with the hounds

 

[Megafan]

Further vindication for you today Brendan. All those AGM's standing up and making valid points to be dismissed by the great and the good in AIB. It came full circle today.

 

[Sarenco]

But you @Sarenco consistently disagreed with our claims

If you examine my previous posts on this topic, you will find that I consistently argued that I thought the “prevailing rate” cohort had a strong argument that they had a contractual entitlement to revert to a tracker rate.

In fact, I spent some time trying to frame the argument in this regard for posters.

But you’re right - I thought a lot of other claims of a right to revert to a tracker were based on emotion and not on any reasonable interpretation of their contractual entitlements.

It’s not a popular opinion around here but I remain strongly of the view that the Central Bank’s decision to lean on banks to allow certain borrowers to revert to trackers on the basis of (what the Central Bank subjectively decided was) their “expectations”, as opposed to their contractual entitlements, was a dangerous precedent.

I have been told by a very senior bank official that this populist Central Bank decision was one of the main motivations for the impending exit of his bank from the Irish market.

After all, why carry on business in a market where the regulator simply ignores contractual entitlements and makes up rules retrospectively?

A reduction in banking competition of this nature is not good news for consumers in the long run.

 

[Brendan Burgess]

In fact, I spent some time trying to frame the argument in this regard for posters.

I actually used some of your wording in drafting Karen's complaint to the Ombudsman on the Prevailing Rate issue.

Brendan

 

[bungaro]

As Brendan said many a time to the top table of AIB, this could've been sorted out for a lot less if the bank acted responsibly at the beginning...

 

[Dazzler123]

It’s not a popular opinion around here but I remain strongly of the view that the Central Bank’s decision to lean on banks to allow certain borrowers to revert to trackers on the basis of (what the Central Bank subjectively decided was) their “expectations”, as opposed to their contractual entitlements, was a dangerous precedent.

I have been told by a very senior bank official that this populist Central Bank decision was one of the main motivations for the impending exit of his bank from the Irish market.

After all, why carry on business in a market where the regulator simply ignores contractual entitlements and makes up rules retrospectively?

A reduction in banking competition of this nature is not good news for consumers in the long run.

May not be popular, but its true. The central bank ripped up the law books for the tracker scandal and no bank challenged them on this. Of course, had they challenged them, the central bank would have made operating in an extremely difficult market even moreso, for any bank challenging their "expectations".

 

[tnegun]

I didn’t appreciate that AIB were systematically settling the “prevailing rate” cases before the FSPO without addressing the full cohort. Naughty, naughty!

Hats off to Brendan for sticking to his guns on this one - I always felt this was one of the more deserving cohorts in this saga.

I remember how dismissive and unapologetic AIB was at the Finance committee, particularly Tom Kinsella and Helen Dooley. They insinuated that the Prevailing Rate cohort were chancers and had no argument. They repeatedly trotted out the line that we never had a tracker ignoring the actual argument and kept describing it as nothing more than a simple service failure. The fact that they did this in the full knowledge that they had already settled with some customers to prevent the FSPO from making a decision already is galling!!

 

[sean.c]

I have been told by a very senior bank official that this populist Central Bank decision was one of the main motivations for the impending exit of his bank from the Irish market.

After all, why carry on business in a market where the regulator simply ignores contractual entitlements and makes up rules retrospectively?

That's just self-serving nonsense. The CBI isn't capable of ignoring contractual entitlements nor making up rules retrospectively. Every single case is based on the contracts at the time, and upon the relevant Bank giving the customer appropriate pros & cons for changing the contract. If a Bank got cunning and convinced a customer to give up a tracker without spelling out the long term consequences in writing, that's not acceptable.

The foreign banks are leaving this market to free up capital to shore up their parent's accounts, that's the be-all and end-all. But God forbid some senior executive should admit their business acumen is so rubbish that the only way to raise the required capital is to retrench.

 

[Brendan Burgess]

Every single case is based on the contracts at the time, and upon the relevant Bank giving the customer appropriate pros & cons for changing the contract.

Hi Seán

Not really.

If the Central Bank had stayed on the sidelines and if the Ombudsman did not exist, very few people would have successfully got tracker redress.

Most of these cases would have failed had they been taken to the High Court. The High Court must make a judgement in line with the contractual terms. That is why consumers are often disappointed by their decisions.

The Ombudsman has a much wider remit.

Section 12 (11) of the 2017 Act

(11) Subject to this Act, the Ombudsman, when dealing with a particular complaint, shall act in an informal manner and according to equity, good conscience and the substantial merits of the complaint without undue regard to technicality or legal form.

So many of the cases which would have failed in the High Court, would have succeeded with the Ombudsman.

The Central Bank could not force the banks to give trackers to customers. It is not their role to interpret contracts. And it should not be their role. But after a very sleepy start, they played a blinder. They pressurised the banks to do the right thing, even if there was not a contractual obligation.

In some cases, such as the AIB Prevailing Rate case, the bank put its foot down and refuses to do as requested by the Central Bank. I suspect that is why the fine was so high.

So did KBC leave the country because of the Central Bank's intrusion? I don't know, but I would say it was a factor in KBC's decision. I have seen their executives being torn apart at the Oireachtas Finance Committee by TDs who hadn't a notion what they were talking about and they had to sit and take it. Then they got a High Court injunction to repossess a farm and thugs just kicked out their security men. I think that there was a protest outside the MD's home?

So when BoI came along and offered to buy their mortgage book and give them an easy route out, they probably thought that the potential profits were just not worth the hassle.

Brendan