Ulster Bank to refund €38m to overcharged business customers

Ulster Bank is preparing to pay €38 million in refunds and compensation to business customers who have been overcharged in cases going back six years.

While the bank expects to make payments by the end of the year to most customers affected by the overcharging episode, some complex cases may not be resolved until the first quarter of 2019.

The issue involves 18,000 customer accounts who are due an average of up to €2,000 in redress and compensation, the bank said on Thursday. While the bank wrote to customers in 2012 informing them that it planned to change the definition of the base – or so-called cost of funds – off which business loans are set, customer contracts entered into before 2006 did not allow for this amendment.

Contracts

Affected businesses – up to a quarter of which had their loans sold on by Ulster Bank to overseas funds in the wake of the financial crash – had contracts pre-dating 2006.

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"We sincerely apologise to our customers for this and, although this will take time to fully resolve, we recognise that full resolution is essential for customers in building their trust in Ulster Bank," said Eddie Cullen, Ulster Bank's managing director of commercial banking.

The cost of refunds and compensation absorbs a significant amount of the €101 million of additional money that Ulster Bank disclosed in February that it had set aside last year to deal with customers affected by “inconsistencies in documentation relating to non-tracker mortgage holders and commercial loan customers”.

However, the bank has not yet given any details of the third strand of overcharging being examined, relating to non-tracker borrowers.

Provisions

Ulster Bank, a unit of UK government-controlled Royal Bank of Scotland, has also taken €298 million in provisions over the past two years to deal with the tracker scandal, where borrowers were either wrongly denied their right to a cheap mortgage linked to the European Central Bank, or put on the wrong rate entirely. The charge is the highest among the country's five main lenders.

Ulster Bank plans to start writing to business customers affected by the newly disclosed overcharging debacle by the end of this month and aims to begin payments in July and August, according to sources. However, it will not be informing some of the more complex cases – involving overdraft customers whose borrowing history will have to be remodelled – until later this year.

The bank has restored all continuing customers to the correct rate. It will pay refunds and compensation to former clients whose loans were sold to so-called vulture funds up to the point of disposal. The group has been in contact with such funds to inform them of the overcharging and need for borrowers to be restored to the correct rate.