Regulator warns banks not to force struggling borrowers off trackers

THE FINANCIAL Regulator has warned banks and building societies not to put pressure on borrowers who are having difficulties meeting home loan repayments in an attempt to move them off favourable tracker mortgages.

Speaking at the Oireachtas Committee on Economic Regulatory Affairs, Jim Farrell, chairman of the regulatory authority, said that the pressure being brought on borrowers to move off tracker mortgages was “a very serious matter”.

“Banks should not take advantage of moving people off trackers when they get into difficulties,” said Mr Farrell.

The financial crisis has driven up the cost of tracker rate mortgages to the banks because the loans are priced at a set margin over the European Central Bank base rate, which no longer dictates the banks’ own borrowing costs.

Independent TD Joe Behan, a member of the committee, said banks were pressuring borrowers to give up tracker loans. He called for new measures for borrowers locked into long-term fixed rate mortgages so they could benefit from interest rate cuts and not have to pay penalties to break their fixed-rate deals.

Mary O’Dea, acting chief executive at the regulator, warned banks to treat customers fairly and urged consumers not to rush to remortgage without first assessing the consequences of the move.

Ms O’Dea said that, as a temporary measure, she was asking banks not to move too quickly to repossess homes owned by individuals who had lost their jobs.

Responding to claims that the regulatory authorities had failed to deal with customer overcharging at Allied Irish Banks (AIB), Mr Farrell said it was “outrageous” to allege that the regulator office had colluded in a cover-up of overcharging at the bank.

“I and my colleagues have nothing to hide,” said Mr Farrell, who described the allegations as “ill-informed and damaging.”

Former AIB internal auditor, Eugene McErlean, claimed at the committee last month that in 2001 the regulator (at the time the Central Bank) was told about overcharging at the bank, but gave the impression that it only became aware of the issue in 2004.

Mr McErlean claimed he told the regulator in May 2002 that AIB customers could have been overcharged by €50 million to €75 million across a range of areas.

The regulator said yesterday that Mr McErlean had claimed that his estimate of overcharging related only to management time charges, and that when investigated, the overcharging on these fees amounted to just €255,000.

In 2006 AIB agreed to repay €65 million to customers who had been overcharged, including on foreign exchange transactions.

The regulator said it had been tipped off about overcharging on foreign exchange fees by an anonymous whistleblower in 2004.

The regulator also outlined further detail about a scheme devised by Goodbody Stockbrokers in 2000 to trade in the broker’s parent company AIB (an illegal activity at the time) through companies based in islands in the Caribbean and the South Pacific.

Mr Farrell said that transactions by Goodbody between two clients “designed to maximise” the reclaiming of stamp duty were not on an “arm’s length basis” and involved conflicts of interest.

He said the broker had failed to comply with monitoring and controls, and that there were “high levels of operational failure in settlements and dealing.”