Tracker mortgage scandal: Irish banks’ bill for fines and compensation tops €1bn

The Irish tracker mortgage scandal has now cost banks more than €1 billion in refunds, compensation and fines, after AIB and its EBS unit were landed with a record regulatory penalty on Thursday for their role in the overcharging affair.

It comes as Minister for Finance Paschal Donohoe prepares to bring proposals to Cabinet next week for a long-planned law aimed at making it easier in future to hold senior bankers to account for failings under their watch.

The Central Bank fined the AIB Group a combined €96.7 million after it committed scores of regulatory breaches in wrongly denying almost 13,000 borrowers their right to cheap mortgages linked to the main European Central Bank rate.

Irish lenders stopped offering the product in 2008 as their funding costs soared during the financial crash. AIB took over EBS in 2011 under Government orders.

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The most extreme cases of overcharging resulted in 137 properties being lost by AIB Group borrowers who ran into financial trouble, 21 of which were family homes.

“When AIB withdrew its tracker mortgage offering [in 2008] there was no proper regard or concern for the impact on its customers,” said Seána Cunningham, the Central Bank’s director of enforcement. “What followed was a litany of failings where customers were wrongly denied their tracker entitlements and others lost their tracker rates.”

The group settlement brings the total level of tracker-related fines to date to more than €178 million. Permanent TSB (PTSB) and its former sub-prime unit Springboard Mortgages, KBC Bank Ireland and Ulster Bank have been hit with penalties in recent years. Bank of Ireland, which remains under investigation, has set aside €94 million to deal with remaining tracker-related issues, including an expected fine.

Lenders have paid out more than €735 million in refunds and compensation to more than 41,000 borrowers under the Central Bank investigation into the State’s biggest bank overcharging fiasco.

AIB is also understood to have handed over an additional €167 million to about 5,900 of the borrowers on foot of a Financial Service and Pensions Ombudsman (FSPO) test case decision in early 2020. FSPO cases remain outstanding against other lenders, which could result in higher compensation bills.

Central Bank officials declined to say on Thursday whether they will now pursue individuals who were involved in the AIB and EBS breaches.

Meanwhile, Mr Donohoe said he intends for his Central Bank (Individual Accountability) Framework Bill to be published before the Dáil’s summer recess. The Central Bank called four years ago for the powers that are contained in the draft legislation.

“Such legislation was introduced in Britain six years ago, in Australia five years ago,” said Sinn Féin finance spokesman Pearse Doherty. “Four years later we still haven’t got the final Bill published by this Government ... That is unacceptable.”