Holding banks to account on charges

David Hall put it succinctly: "When someone is drowning, you don't pour more water in on top of them."

The mortgage arrears activist was referring to the practice of banks adding legal costs to the outstanding bill of customers who are already in arrears – and in some cases subsequently applying interest to those costs. In a world where banks profess their interest in helping borrowers come to an arrangement that allows them to manage their debt in an affordable manner, it seems more than somewhat counterintuitive.

The Central Bank told lenders on Wednesday to stop the practice. It is unclear why the instruction was sent over a decade after a generation of homeowners was plunged into arrears by the financial crash and the reckless lending practices of institutions which had allowed borrowers to become overextended .

It will surely be a help to some of the 61,901 borrowers still in arrears – over one in 12 of all mortgage holders – but it comes too late for many who have either been forced to meet arrears bills exaggerated by the practice or, worse still, have been unable to do so and have had to sell or surrender their property.

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The Central Bank has made it clear that it expects all lenders to review policies and practice on such charges before Christmas.

And, where these are “not in line with expectations”, it wants “appropriate action” taken as a matter of priority, including on “any necessary follow up actions”, ie restitution for wronged customers.

This will be another unwelcome administrative burden on banks that are only emerging from the complex and expensive review of their behaviour during the tracker mortgage scandal.

Where lenders might have some argument is with the Central Bank view that all mortgage lenders in arrears are entitled to protection under EU regulations covering consumer mortgage credit agreements, notably forbidding the charging of interest on costs such as legal costs at any point – regardless of when they took out their loan.

The EU regulations only came into force in 2016.

The problem for the banks is, given their lack of credibility on the issue of fairness and customer service, they will struggle for sympathy on what they argue is an unfair and retrospective application of new mortgage rules.