Pepper loses battle of wills with judge

The relentless force ran into the immovable object when Pepper Finance found itself in front of Circuit Court judge Mary O’Malley Costello, and it came off decidedly worse for the experience.

It’s been a long time coming for Pepper which services mortgages – most of which are or have been in arrears – on behalf of funds that acquired portfolios of the distressed loans from Ireland’s mortgage lenders at knock-down rates. The banks were happy to get rid of these loans as they sought to put their reckless pre-crash lending practices behind them and get their balance sheets back into order under close regulatory supervision.

At the time, borrowers were assured there would be no difference in how their borrowings were treated under these new arrangements. But the small print soon came back to bite them.

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Most particularly, it meant that they could not lock their loans in for a fixed period as everyone prepared for the well-flagged cycle of higher interest rates. The European Central Bank has added 3.75 percentage points to rates since July of last year and, unlike the banks, Pepper has passed all of this on to its customers.

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And of course, the now virtuous banks had neither motive nor incentive to encourage or even facilitate switching that would enable mortgage holders who had got their finances back in order avail of better rates on their home loans. Effectively, homeowners were locked into a cycle of ever-increasing interest rates that were already at a premium to the rest of the market because of their past arrears.

The Tullamore court ruling puts Pepper and others on notice that this is no longer seen as acceptable. What undid Pepper ultimately was its refusal to offer any transparency in court on how much the unidentified fund paid for the loans and how much it cost them to service them.

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Campaigners say as many as 32,000 homeowners will now be reassessing their position to see if it is worth their while to enter a personal insolvency arrangement to force those servicing their loans to offer more reasonable rates. And insolvency practitioners will be citing the Tullamore case as precedent.

Pepper has also been instructed by the court to offer a fixed rate – something it has steadfastly refused to do to this point – at least in this case. More will inevitably follow.

Not everyone will get a rate of 2.5 per cent, or a fix for 25 years. It will all depend on their financial circumstances and what they can reasonably afford as these insolvency arrangements inevitably involve creditors taking a cut on the amount they are owed. But Pepper and others will know they can no longer simply stonewall borrowers and their advisers seeking better terms.