Q&A: Q At the end of March, I was disappointed to receive a letter from AIB regarding our mortgage tracker account. In brief, it stated that it had come to their attention that AIB had neglected to alter the repayments in the first year (commencing September 2006) when ECB rates were changing upwards. At the time, I was on a discounted rate.
As a result, the balance on the account is now higher than it would have been had the correct repayments been collected during the discount period.
The sum not collected amounts to €1,714.36. While apologetic, the letter demanded that I select one of three options presented before April 30th or else option three would apply by default:
1) Clear amount in single payment.
2) Take out an interest-free loan for a 12-month period to spread the cost.
3) Let mortgage continue as is and accrue additional interest on the under collected sum for the remaining term of the mortgage.
Having written back to express my disappointment, seek further details on the make-up of the amount, point out the unsuitability of all options presented and to complain regarding the time limit being enforced, I recently received a second letter with a breakdown of the payments. The only movement made by AIB is to extend the interest-free option to three years and to allow me until the end of May to make my decision.
What are my legal entitlements? It is very disappointing having enjoyed the recent falls in my mortgage rate to be hit with an unnecessary hike with repayments tailored to suit AIB.
Mr D.H., e-mail
ATracker rates, which are no longer generally available, were designed to stay within a set margin of ECB rates over the course of the loan – guaranteeing the lender a certain margin over ECB rates and the borrower the peace of mind that rates would not be suddenly inflated to boost bank profits.
My understanding from your letter is that AIB failed to amend upwards the discounted tracker rate on your mortgage in its first year to take account of rising European Central Bank (ECB) interest rates. While I would imagine this should have occurred on an automated basis, it appears this did not happen. However, it does also seem that this was simply a lapse rather than any conscious effort to disrupt your mortgage payments.
In general, if a bank takes money from you to which it is not entitled, the cash must be returned when the mistake is discovered. Similarly, if a bank customer benefits from an honest error on the part of the bank – say by money that does not belong to them being deposited in their account – it is generally accepted that the bank is entitled to recover this money when it discovers the mistake.
Of course, that doesn’t make it any easier when you receive such notification. However, it does appear that the bank is within its rights to seek recovery of money that, effectively, you owe it under the original terms of your mortgage agreement. My understanding of the law is that this is the case, although you might want to take specific professional advice in this area.
The issue then would appear to be how to do this most fairly. I am glad to see the bank has granted you more time to asses your options. Given it has taken the bank two and a half years to discover its mistake, you should have reasonable time to consider your best approach. However, there is one significant point here – exactly how much is the bank seeking. Is it:
a) the amount that should have been paid had the rates been adjusted accurately in line with ECB movements over the past two and a half years, or;
b) that amount plus accrued interest on the missing sum.
I would argue that you should get the bank to produce a month by month reckoning of what you did pay and what you should have paid had the correct rates been applied.
At that point, I would suggest you should seek a repayment term of at least as long as the time it took the bank to discover the error. I understand the bank is now offering a three-year repayment period and that would seem to be fair in the circumstances, at least as far as I am aware of them.
However, if you are not happy with the resolution offered by the bank, you have the right to present your case to the financial services ombudsman. Details of this avenue are available on www.financialombudsman.ie.
Deposit options at Irish Nationwide
QI have a five-figure sum on deposit (at Irish Nationwide) since October 2008 at 6 per cent for a 12-month fixed term.
In light of the debatable status of Irish Nationwide and future uncertainty of the company, would you advise withdrawal and forgo the earnings – or, let it remain on deposit and rely upon the Government guarantee to carry it through to maturity.
Mr P.J., e-mail
AYour deposit is for a 12-month period, meaning that it will mature in October 2009. That is well within the timeframe of the two-year guarantee on deposits in seven Irish banks and building societies, including Irish Nationwide. On that basis, I see no reason to change your view of the merit of the investment at this point.
Income levies and redundancy
QI’m due to be made redundant, and, having read your recent article about backdating income levies, am not sure if I should just go now, or wait until my due date in mid-June.
I have tried everywhere to get the information, rang Revenue etc, and they don’t know anything about it yet.
Ms C.H., e-mail
ARevenue should be aware of the information as it has a document explaining the concept of "annualisation" which effectively backdates the levies.
However, it is fair to say that Government sources have since indicated that the Minister will introduce amendments in the Finance Bill (due to be published next week) to ensure that people who have been made redundant before yesterday and who understood they would be paying the old, original levy would not be adversely affected by the change announced in the emergency budget to the new higher levies.
Having said that, it is still the case that redundancy lump sums can be liable to the income levy and the only issue in the article was whether it would be at the old or the new rate. For people becoming redundant after today, the new “annualised composite” rates should apply.
For general rules on taxing (or paying income levy) on redundancy payments the following extract is taken from a Revenue briefing for tax practitioners, entitled Income Levy: Frequently Asked Questions, and last updated on March 30th, 2009.
“Section 1.11 Will redundancy payments be subject to the levy? Statutory redundancy payments are exempt from the levy.
“Statutory redundancy payments amount to two weeks pay per year of service plus a bonus week subject to a maximum payment of €600 per week.
“In addition, ex-gratia redundancy payments in excess of the statutory redundancy amount are exempt from income tax, and therefore also the income levy, up to certain limits. These limits are up to €10,160 plus €765 per complete year of service in excess of the statutory redundancy.
“The basic exemption as outlined above can be further increased by up to €10,000 if the person is not a member of an occupational pension scheme.”
Any money in excess of these limits is subject to the levy.
Please send your queries to Dominic Coyle, QA, The Irish Times, 24-28 Tara Street, Dublin 2 or by e-mail to dcoyle@irishtimes.com
