PTSB fined €4.5m over mortgage bungle

The Central Bank has imposed a record fine of €4.5 million on Permanent TSB for breaches of obligations to its tracker mortgage customers.

This is the first finding the Central Bank has made in its sector-wide investigation of how tracker mortgage customers were treated from 2008 onwards.

The bank found that Springboard, a wholly-owned subsidiary of PTSB, failed to apply the correct interest rates to 222 customer mortgage accounts over a seven-year period between August 2008 and July last year.

PTSB has accepted the Central Bank’s ruling and has agreed to pay the fine. The bank has also ordered Springboard to implement a major redress and compensation programme under which it has paid out €5.8 million to affected customers.

Springboard failed to act in the best interests of its customers and did not have adequate controls and systems in place, the bank found.

Tracker mortgages were offered to Springboard customers in 2007, but in 2008 it took this product off the market. Some customers who had been on tracker mortgages switched to fixed rates and were not allowed return to tracker rates when the fixed rate term was up; they had to switch to the bank’s variable rate.

Tracker mortgage rates are closely aligned to the main European Central Bank interest rate, which was reduced to record lows after the economic downturn in 2008. It remains at zero.

As a result of the breaches, higher interest rates were applied to 222 customer mortgage accounts and they made higher mortgage repayments than were required during the relevant period. The length of time customers were required to make higher mortgage repayments ranged from between 12 months to almost seven years. The average amount overcharged to a customer’s account was €19,351. Overcharged amounts ranged from about €100 to about €68,000, the Central Bank said.

Derville Rowland, the Central Bank’s director of enforcement, said: “Taking on a mortgage is one of the biggest financial commitments that a customer will make. Every mortgage customer must have trust and confidence that their account is being managed properly by the firm providing their loan.

“Over a seven-year period the firm failed to apply the correct interest rates to 222 mortgage accounts. The consequences for [affected] customers were serious and totally unacceptable. All 222 customers paid more than required, some fell into mortgage arrears and some were subjected to legal proceedings.”

Bernard Byrne, chief executive of AIB, told the Oireachtas finance committee last week that the bank had contacted 2,600 customers to inform them that they were overcharged because they were not allowed to return to tracker rates when their fixed-rate terms ended.

The bank has identified 14 customers who may have lost their home as a result of the bank’s policy. AIB is conducting a review of its tracker mortgage accounts as part the Central Bank inquiry that was launched last year. Mr Byrne said that the exact number of customers that may have lost their homes was not clear.

“We haven’t completed all the work at this stage and it will run into the early part of next year in respect of that [review] programme. Based on the work we’ve done at this point in time . . . our best assessment, on what we know in respect of people where the rate was an issue, [is that] we may have 14 customers where the home was lost as a result of the rate,” he said.