Central Bank to examine legal fees added to mortgage arrears accounts

The Central Bank is to examine the practice of financial lenders applying legal fees to the mortgage arrears accounts of homeowners involved in repossession cases.

The issue has been criticised by advocates for homeowners involved in litigation, who say the application of such fees is strictly a matter for the courts.

Legal charges, as well as a separate concern about the processing of mortgage tax relief at source (TRS), have been raised by the State-run Money Advice and Budgetary Service (Mabs) which guides homeowners in distress.

Adjournment

As reported in The Irish Times, the issues led to the adjournment of three cases at

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Waterford

Circuit Court earlier this week and have prompted the review of considerably more case files.

Mabs has said it intends to employ accountants to further scrutinise cases where it feels arrears statements show cause for concern.

It believes the legal fees issue could be widespread and has already said it may be “usurping the statutory powers of the court” whose role it is to direct who ultimately shoulders legal costs in disputes.

One person in arrears who had legal fees applied told The Irish Times, on condition of anonymity, that opening a statement from their lender held “an element of shock and you’re then wondering why are these being applied”.

“It almost seems like you’re found guilty before the case is even heard,” the person said.

Compliance In a statement

yesterday, the Central Bank said it was now “examining the reported practice” to assess its compliance with the code of conduct on mortgage arrears (CCMA), the consumer protection code (CPC) and other regulations.

“The Central Bank continues to encourage any borrowers who are in, or at risk of, financial difficulty to engage with their lender to ensure they receive the full protections of the statutory code of conduct on mortgage arrears,” it said.

“This includes a restriction on lenders from imposing charges and/or surcharge interest on arrears arising on a mortgage account in arrears, unless the borrower is not co-operating.

“Where a borrower doesn’t engage and is deemed as not co-operating, they will no longer be protected by the CCMA.”

Mabs has said it believes most of those affected by the issue are engaging with their lenders.

Three institutions – AIB, EBS and Haven – were identified at Waterford Circuit Court in relation to the adjourned cases on Monday.

A spokesman for AIB, representing all three, said: “Regarding enforcement proceedings, we abide by rulings of the courts regarding the awarding of costs and each case is considered individually.”

‘Very serious’

However, Fianna Fáil finance spokesman Michael McGrath said yesterday’s intervention by the Central Bank was “very serious”.

“It has been standard practice for quite some time for lenders to add the legal fees to the mortgage in arrears where the lender is suing the borrower,” he said.

Mr McGrath said he had raised this issue with Minister for Finance Paschal Donohoe last May and that there was now a need to assess the extent of the practice.

“This issue is simply adding to the stress of people in very difficult circumstances and the Central Bank needs to get to the bottom of it,” he said.