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The issue of mortgage overcharging has been bubbling since 2010 when Bank of Ireland and KBC were forced by regulators to restore thousands of borrowers to cheap rates linked to the European Central Bank benchmark.
But it took the appearance of four victims before the Oireachtas Finance Committee in October with their emotional testimonies – alongside financial adviser Padraic Kissane, who has been running a long campaign on the issue – for regulators, politicians and the banks to finally move decisively to deal with the problem.
The Central Bank’s order in late 2015 that the State’s 15 current and former mortgage lenders trawl through their books for cases of overcharging had led to a drip-feeding of bad news in the interim, with banks increasing their numbers of affected customers incrementally.
By the end of September, only two lenders – Permanent TSB and AIB – had made any real headway in refunding and compensation impacted customers. Ulster Bank had only started, while Bank of Ireland was known to be among lenders at loggerheads with the Central Bank over acknowledged overcharging cases at all – and had not even started redress.
KBC Bank Ireland, the last of the five big mortgage lenders, couldn’t even give a rough estimate then of how many of its borrowers were caught up in the controversy.
The Central Bank, which had limited powers until 2013 to force banks to pay redress to customers, has been relying on what its governor, Philip Lane, has termed “moral suasion” to get banks to do the right thing given that most of the tracker misdemeanours occurred prior to then.
Although many instances of overcharging were clear cut – where borrowers were wrongly denied their right to tracker loans, typically after coming off a fixed-rate period – others’ contracts had ambiguous terms, according to the Central Bank, meaning the banks would probably win if the case went to court.
As political and media pressure grew, Minister for Finance Paschal Donohoe moved in late October to call the heads of the State’s largest lenders into his office. He wanted them to draw a line under the scandal. Most of the banks vowed to pay redress and compensation by the end of the year.
However, Ulster Bank said it would not be able to complete the process for all of its 3,500 cases until the end of next June, while KBC, which finally revealed that up to 1,1661 of its customers had been overcharged, said it expected to complete most “straightforward cases” by the end of the year.
Haggling has continued since then. Bank of Ireland conceded in early November that it would address 6,000 additional cases at a cost to the lender of up to further €175 million – on top of €25 million set aside last year.
The Central Bank and the main lenders published updates just before Christmas revealing that the number of impacted customers across the industry had grown by 13,600 to 33,700 since September. AIB acknowledged a further 5,250 cases, bringing its total to 9,402, while KBC’s number jumped to 3,545.
Compensation of the newly-identified impacted customers will not be completed until the middle of next year.
While Ulster Bank stuck to a figure of 3,500 outlined during the summer, it warned that its number may increase as it continues talks with regulators. It is understood that Ulster’s figure may rise by as much as 3,000.
The five main banks have signalled that they have either taken, or expect to take, up to €890 million of provisions to resolve the controversy.
Analysts see the figure topping €1 billion in the coming months.