Key Post How should the "prevailing rate" be determined, when trackers were no longer offered?

Sarenco

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I have copied this from another thread where AIB offered to restore a tracker at 3.67%. ptsb is restoring trackers at various rates up to 3.25%. I think that Sarenco argues the case very well here. I don't know the basis of the Padraic Kissane's High Court challenge on the issue.

Brendan

Some AIB customers had the following clause in their mortgage offer and they have recently been offered a rate of 3.67%.

"3.2 At the end of any (my emphasis) fixed interest rate period, the customer may choose between:

a) a further fixed rate
b) conversion to a variable rate
c) conversion to a tracker a the bank's then prevailing rate

In the context of Clause 3.2 , the term "prevailing rate" means the interest rates then current and available at the date that the fixed rate period expires"



So, the condition provides that in the absence of any election on your part you default to a variable rate at the end of the fixed rate period. The condition doesn't actually say that AIB must notify you of your options at or prior to the expiry of your fixed rate period but AIB seem to be accepting that as implicit in the way the condition is drafted – which is certainly good news from your perspective.

Where it gets interesting is the definition as to what constitute AIB's "prevailing rates" for the purposes of this condition – "…prevailing rates means the interest rates then current and available at the date that a customer's fixed rate period expires".

If you fixed in 2008, I assume that trackers were no longer generally offered to new customers by AIB by the time your fixed rate period expired. So what was the tracker interest rate "then current and available" at the time your fixed rate period expired?

I would argue that in this context it must mean either: (i) the average margin over the ECB refi rate charged on the existing AIB tracker book at the time that your fixed rate period expired; or (ii) the average margin over the ECB refi rate that was widely marketed or offered to new customers immediately prior to the withdrawal of this product by AIB.

I can't see any contractual basis for AIB simply pulling a tracker margin from thin air on the basis of their own assessment of the market today or determining a tracker margin by reference to their current SVR.

If I was in your position I would reject this offer and, if necessary, appeal to the FSO (copying your complaint to the Central Bank).

Hope that helps.
 
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Hi Sarenco

This is how AIB explains it in their letters to borrowers:

upload_2016-9-15_10-14-36.png

upload_2016-9-15_10-14-50.png



The Central Bank was all over ptsb's redress programme. So they implicitly approved of ptsb's decision to offer people trackers at a prevailing rate of 3.25%.

I presume that they also approve of AIB's 3.67% rate as meeting their commitments.

Having said that, it's probably still worth making any complaint to the Central Bank.

So the big question is whether the affected people should appeal to the FSO or go to the High Court?

If one goes to the FSO and loses, then it's finished. One can appeal to the High Court, but only if the FSO has made a series of major errors.

While I respect the arguments you make, I am sure that AIB and ptsb will have counter-arguments. It is at best 50/50. So the borrower is facing huge legal costs and years of litigation.

Brendan
 
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Hi Brendan

Yes, I fully accept that the correct interpretation of the wording in this context is unclear and there is absolutely no certainty that my arguments would be successful.

I think it's worth having a shot at presenting the arguments to the FSO/Central Bank but I personally wouldn't be brave enough to bear the risks associated with commencing proceedings in the High Court.
 
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