AIB accused of concocting 7.9% tracker rate to suit redress aims

AIB has been accused of concocting a notional tracker mortgage rate of 7.9 per cent for some 4,000 customers caught up in the tracker controversy.

The bank recently included these customers in its redress scheme under pressure from the Central Bank of Ireland.

While the bank admits the customers were wrongly denied the option of switching to a tracker contract when their fixed-rate contracts expired in 2009, it claims the “prevailing” tracker rate that they would have been entitled to was 7.9 per cent due to high funding costs. This is significantly higher than the prevailing variable rate at the time.

AIB had withdrawn its tracker mortgage products, which tracked the European Central Bank’s base rate, in October 2008 just prior to when these customers emerged from their fixed-rate contracts.

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Despite agreeing to pay them €1,000 in compensation and €615 towards professional advice for breach of contract, the bank claims they suffered no financial detriment as a result of the relatively high rate they would have been entitled to.

Fianna Fáil finance spokesman Michael McGrath has called on the Central Bank to "robustly challenge" this interpretation.

“A 7.9 per cent tracker mortgage rate never existed,” Mr McGrath said. “It has been manufactured to enable AIB to reach the conclusion that these customers suffered no loss.

“If the spirit of the Tracker Mortgage Examination is to be upheld, where the bank breaches the terms of the contract, the interpretation of contractual clauses should favour the customers.”

“The 7.9 per cent rate is a concoction and it needs to be vigorously challenged by the Central Bank,” Mr McGrath said.

Tracker examination

In response, the Central Bank said it had intervened in relation to prevailing rate issues as part of its ongoing tracker examination, “rigorously testing and challenging the position adopted by lenders to try and achieve the best result for all customers within a group”.

“The AIB prevailing rate customers have, directly as a result of the Central Bank’s intervention, been admitted to the examination and will receive a compensation payment as well as an offer of the current prevailing rate, as opposed to the prevailing rate at the time their fixed rate expired,” it said.

“Importantly, this ensures that those customers have the opportunity to utilise, to the full extent, the examination’s appeals processes should they be dissatisfied with any aspect of their redress and compensation offer.”

The Central Bank also noted that the customers could pursue their cases, based on their own unique circumstances, with the Financial Services and Pensions Ombudsman and/or the courts.

In a recent document to customers, AIB said that during the period October 2009 to December 2013 it is estimated that the average tracker margin for principal dwelling houses (PDHs) would have been about 6.8 per cent with the average annual margins ranging from 4 per cent to more than 10 per cent.

“The resulting average tracker rate (the average ECB rate of 1.1 per cent plus the average margin as above) would have been 7.9 per cent for PDHs and 9 per cent for buy-to-lets,” it added.

So far, just under 34,000 customers have been identified by the Central Bank as having been wrongly denied a tracker mortgage or having the wrong interest rate applied to their accounts.