The Central Bank has issued a record €37.8m fine against Ulster Bank for its role in the tracker mortgage scandal that purposely overcharged customers over long periods of time.
But how important is the sanction against Ulster Bank and what does it mean in the context of the Central Bank’s investigations into regulation breaches in the sector?
The record fine is the largest ever issued by the Central Bank and reflects the scale of the pushback Ulster Bank launched against the regulator’s investigations.
It is in addition to the €128m that Ulster Bank has paid in compensation to tracker mortgage customers caught up in the scandal.
The Central Bank said Ulster Bank “devised and implemented a deliberate strategy not to provide certain customers with their correct tracker mortgage entitlement unless they complained”.
As a result of this policy, Ulster Bank “caused unacceptable and avoidable harm” over long periods of time that involved “significant overcharging” and the mortgage customers at the bank losing 43 properties, 29 of which were family homes.
Q: What does a fine like this mean for Ulster Bank? Weren’t they in the news for something else recently?
Yes, they were. Last month Ulster Bank announced its withdrawal from the Irish market. The phased withdrawal is to take place over several years and will be managed in an “orderly and considered manner”.
A fine like this then is unlikely to mean much for the bank as it exits the Irish market or improve behavior across the industry as AIB and Penament TSB eye up the €20bn loan portfolio left behind.
The Central Bank has also refused to comment on whether its investigations into the tracker mortgage scandal will lead to criminal investigations into individuals.
The fine issued today was against Ulster Bank as a regulated corporate entity and not against individuals of the bank.
It might be better to start with what is a tracker mortgage. This depends on what the lender is also offering.
However, as the ECB slashed interest rates during the global financial crisis, from 4.25% in 2008 to 0% in 2016, tracker mortgages became much less profitable for banks compared to variable and fixed-rate loans.
Trouble began when tracker mortgage customers of the banks asked to switch to fixed rates for a limited period of time eg, three years on the understanding that they would be moved back to a tracker rate afterwards when this period ended.
A rise in interest rates way back in 2006 prompted this. By moving to a lower fixed term, it was supposed to be better value for the customer.
As well as this, some customers were encouraged to switch to fixed-rate mortgages from tracker rates. The idea was that this would offer customers some certainty for the rates of their repayments..
But instead what happened was the widespread practice of banks not returning their customers to their original tracker rates once the term was up and placed them on higher fixed-rate or variable-rate loans.
As well as this, many customers who returned to their tracker mortgage were put on a higher rate than their original agreement, despite being entitled to return to their better value loan.
Ulster Bank, part of the UK NatWest Group, was fined a record €37
In summary, a lot of people were paying a lot more money than they needed to, and not all of them were able to service their mortgages.
The investigations have found a similar mode of operations across the banks involved to deny customers their correct interest rates.
In the case of Ulster, the bank deliberately set out on a campaign in 2008 to get some customers off their competitive tracker rates.
In late 2016, the Central Bank issued the first fine for this scandal to Springboard Mortgages, a former subprime mortgage lender set up during the Celtic Tiger by Permanent TSB.
KBC Bank Ireland received an €18.3m fine in for its role in the scandal after an investigation showed 3,741 accounts were affected and not 93, as originally reported.
It is a type of mortgage where the interest rate on the loan is the main European Central Bank (ECB) borrowing rate with an additional 1% added on
Q: KBC… KBC… Isn’t that the bank with the chief executive who described the entire scandal as “annoying” in a conference call?
That’s the one. KBC group chief executive Johan Thijs was forced to apologize for his “insensitive” comments on Ireland’s tracker mortgage scandal.
In a conference call with financial analysts, he said the Central Bank of Ireland should “turn the page” and focus less on the “nitty-gritty” stuff that was holding the industry back.
Q: How much work does the Central Bank have ahead of it? What is it hoping to achieve with these enforcement actions?
Many of the other banks involved and their subsidiaries, including AIB and Bank of Ireland, have already concluded their settlements with the Central Bank and compensated impacted customers as well as set aside millions to meet anticipated fines.
As it stands, the Central Bank is progressing through its list of enforcement actions that will result in fines for all of the Irish mortgage lenders, in an attempt to bring some sort of accountability to banks for ripping off their customers over many years.
That’s it. Although for the highest stakes and the lowest standards, Davy Stockbrokers might even teach Ireland’s retail banks a thing or two.