A court has struck down decisions that bound Ulster Bank to pay two borrowers tracker mortgage refunds and compensation.
In a far-reaching decision on Friday, the Court of Appeal ruled that the Financial Services and Pensions Ombudsman was wrong to conclude the complainants had a contractual entitlement to return to the tracker rate or that the bank acted contrary to law in its treatment of them.
Central to the cases was whether or not the borrowers, having switched their interest rate, had a legal entitlement to return to a tracker rate, from which they had earlier moved when European Central Bank (ECB) rates were rising. Ulster Bank refused their requests to revert to the tracker rate.
In a judgment for the three-judge Court of Appeal, Mr Justice Charles Meenan said the complainants “gave up their contractual right to a tracker rate when, having agreed to a variation in their mortgage contract, they moved to a fixed rate”.
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Tracker rates, which rise and fall in line with interest rates set by the ECB, were introduced in Ireland in 2001 but banks stopped offering the product after it became loss-making during the financial crisis. Ulster Bank ceased offering the rate to new customers in 2008.
The two borrowers who took their cases to the ombudsman were excluded from redress in an industry-wide mortgage tracker scandal examination overseen by the Central Bank between late 2015 and mid-2019.
The ombudsman’s binding decisions in these two complaints had been upheld by the High Court and could have led to the lender paying compensation to thousands of similar customers in Ireland.
The Court of Appeal has now ordered the ombudsman to hear the complaints afresh, after finding his interpretation of the mortgage contracts was incorrect.
In one of the complaints, the ombudsman held that the lender had failed to explain to the borrowers that they would lose their entitlement to a tracker rate when they switched to a fixed rate. Similarly, he ruled that the bank owed the other complainants a duty to clearly explain that by signing a fixed rate transfer form they were giving up their right to a tracker rate.
The ombudsman directed repayment of any overpaid interest and compensation of €3,500 in each case.
Mr Justice Meenan said the first set of complainants took out a tracker rate mortgage that was “fixed for the life of home loan term”, but on transferring to a staff fixed interest rate this new rate was “fixed for the term of the loan”.
It is “clear” that by moving a portion of the loan to a staff rate, these complainants were agreeing to a variation in their contract concerning the applicable interest rate, he said. They identified “no contractual entitlement to return to a rate of interest which they had agreed to move from”, he added.
The contractual analysis was similar for the second set of borrowers. The fixed rate transfer form they signed in May 2007 “stated clearly” that at the end of the fixed period the bank may offer “alternative available products”, said Mr Justice Meenan. It did not say the complainants would have the option of returning to a tracker rate, he added.
The judge said the ombudsman was incorrect to find the bank’s conduct was contrary to law in relation to these customers.
Further, he said, the ombudsman’s conclusion that the bank’s behaviour was “otherwise improper” was based on his finding that the complainants were unaware, did not understand or did not have explained to them that by moving to another rate they would lose the tracker rate.
The judge said it is difficult to see how this conclusion was reached when the ombudsman’s decision was based only on documentation, as he had refused to hold oral hearings. Attempting to establish the level of understanding the borrowers had is a subjective exercise, the judge said, adding that the documentation does not give the answer.
Mr Justice Meenan was supported in his conclusions by his colleagues Mr Justice Senan Allen and Mr Justice Brian O’Moore.
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