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Sam Boal/Photocall Ireland
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The courts have backed the banks on high mortgage rates

Lenders have been accused of “changing the goal posts against the consumer” on variable mortgages.

BANKS’ DECISIONS ABOUT how much they charge borrowers on variable interest rates apparently have to be “taken as gospel” after a key court ruling, one expert has said.

The Court of Appeal yesterday sided with Danske Bank and the Financial Services Ombudsman after two County Dublin borrowers tried to force the lender to cut their variable mortgage rate in line with record-low European levels.

The ruling is a blow to the estimated 300,000 borrowers on variable mortgage rates who are paying significantly more on average for their loans than others in the eurozone.

Portmarnock couple Kenneth and Donna Millar brought the case after complaining Danske Bank had illegally hiked the interest rate on their mortgages, which totalled about €1.5 million, while market rates were falling.

They said the bank increased the charge almost a whole percentage point – from 3.4% to 4.35% – in late 2011 because of its own funding needs, rather than the general cost of borrowing.

Danske Eamonn Farrell / Photocall Ireland Eamonn Farrell / Photocall Ireland / Photocall Ireland

Rewriting the rules

The Millars previously won their case in the High Court after appealing a decision against them from the Financial Services Ombudsman.

However the case was shot down yesterday in the Court of Appeal, where three judges ruled courts couldn’t overturn the ombudsman’s decisions unless he made a legal error.

They court also ruled their bank was legally entitled to lift rates when costs elsewhere were going down.

In the decision, Justice Peter Kelly said the couple wanted to rewrite their contract “in accordance with a script prepared by them”.

Kelly Justice Peter Kelly Mark Stedman / Photocall Ireland Mark Stedman / Photocall Ireland / Photocall Ireland

The contract said interest rates would be “altered in response to market conditions”, which both the judge and the ombudsman said meant the bank could make changes based on “market conditions generally”.

Finance Minister Michael Noonan has warned the banks could face new regulations if they don’t drop their rates, although most lenders have been reluctant to give back any of their new-found profits.

Noonan Sasko Lazarov / Photocall Ireland Sasko Lazarov / Photocall Ireland / Photocall Ireland

‘Changing the goal posts’

The couple’s barrister, David Langwallner, told RTÉ’s Today with Sean O’Rourke it was worrying that the country appeared to owe its responsibility to “a banking set of practices which are changing the goal posts against the consumer”.

“The only thing I’m concerned about arising out of yesterday’s ruling is any sense that a bank’s subjective assessment of its own funding is taken as gospel,” he said.

(It) is a political problem, it will I think be a legal problem as well, it will be a structural problem and it’s an argument about basic justice really at a fundamental level.”

Langwallner said the decision could also turn consumers off going to the ombudsman in the future, even if that was the cheaper and easier option, because of the weight his decision carried.

READ: Here are the ways that banks are making life hard for vulnerable customers >

READ: Could credit unions be on the way out? They’re said to be under ‘sustained attack’ >

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