IT’S BEEN DESCRIBED as the biggest financial scandal of our time – the tracker mortgage scandal, which saw thousands of homeowners overcharged by their banks on their mortgage.
Latest figures show that over 33,700 people have been overcharged since the introduction of the product back in the 1990s.
While the tracker mortgage offers a fixed rate added onto the European Central Bank’s moving interest rate, the bank crash in 2008 led many customers to move off the tracker and then onto a fixed or variable rate for a period of time.
But when a large number of them tried to switch back to their tracker (which they were fully entitled to do), their banks told them they couldn’t. And so people were charged a higher rate of interest on their mortgage than they should have been. The issue first came to public attention back in 2012. Compensation of €76m had been paid out by March of this year.
Today, the Minister for Finance, Paschal Donohoe TD – who described the scandal as the biggest one of our time – said he welcomes a proposed initiative from the banking industry in Ireland that “aims to start the process of rebuilding trust and confidence in the industry” following the tracker mortgage scandal.
He said that the five chief executives of the main retail banks: Allied Irish Banks, Bank of Ireland, KBC, Permanent TSB and Ulster Bank, have told the Department of Finance they intend to establish an Irish Banking Standards Board.
They say this board will be broadly modelled on the Banking Standards Board which operates in the UK.
A strong customer focused culture is a key ingredient in a reputable, sustainable banking sector which supports Ireland’s economic development. It is also a critical driver of franchise value over time.
He said that it is proposed that the Board will be made up of expert people from across civil society, “all of whom are committed to and focused on enhancing competence, culture, reputation and trust across the Irish banking industry”.
It will be chaired by an independent non-banking individual “who has the personal respect, credibility and trust of citizens”.
The initial step will be the establishment of a selection panel to hire the chair, CEO and Board.
“The cost and time involved in establishing this new entity should not be underestimated and it is envisaged that it will be operational in late 2018,” said Donohoe.
He said that the board will promote the highest ethical business standards by leading and overseeing the collective effort by the industry to raise banking standards.
It will also seek to drive an improvement in culture across the industry and develop a banking industry code of practice. The initiative does not seek to replace or diminish existing regulation and will be run out of a separate entity to Banking and Payments Federation of Ireland (BPFI) and the banks. The establishment costs and annual running costs will be funded by the retail banks themselves.
Minister Donohoe said: “In October I made it clear that the banks’ behaviour in relation to tracker mortgages was disgraceful. Following on from the recent publication of the Central Bank’s update on the Tracker Mortgage Examination I welcome this initiative by the current leaders of the banking industry and look forward to receiving more detail when the chairperson and board selection process is formally launched by the 5 CEOs of our main retail banks in early February.”
The board won’t be a lobbying or representative organisation, and won’t act as a regulatory body.