Tracker mortgage scandal: Bank of Ireland fined €100.5m

    Photograph: Sasko Lazarov / RollingNews.ie

Bank of Ireland has been fined a record €100.5 million for its role in the State’s tracker mortgage scandal that resulted in massive overcharging of borrowers and an industry-wide loss of 333 homes.

The Bank of Ireland penalty eclipsed the previous record of €96.7 million levelled against AIB and its EBS subsidiary in June — and brings total tracker fines against seven lenders subjected to enforcement investigations to almost €279 million.

The Central Bank said Bank of Ireland’s failures resulted in the loss of 50 properties, including 25 family homes, which would have been avoided if it “had complied with the most basic and fundamentals of its consumer protection obligations.”

The industry as a whole suffered 327 property losses, 98 of which were family residences, according to data in individual penalties cases.

The Bank of Ireland has already paid €186.4 million to 15,910 impacted clients who were found both before and during the Central Bank's tracker mortgage review, on top of the punishment.

As a result of the regulatory investigation, Bank of Ireland admitted to 81 different regulatory violations that occurred between 2004 and June of this year. These violations occurred when customers were either denied access to affordable mortgages that follow the European Central Bank (ECB) or were given the incorrect rate.

The regulator discovered that Bank of Ireland had given clients ambiguous papers prior to the company ceasing to offer tracker loans in October 2008, at the height of the financial crisis, outlining their rights to a tracker rate following a fixed-rate term.

It claimed that Bank of Ireland regularly construed these ambiguous documents in its favour over the course of more than nine years and denied clients a tracker rate. Even after admitting to the severity of the misconduct, the company's initial refund and compensation offers "were symptomatic of a lack of understanding or regard on its part of the impact that its mistakes had on its consumers," according to supervisors.

Six new cases for refunds and compensation were found as recently as June, Central Bank officials informed reporters on Thursday.

Customers have a right to anticipate that financial institutions will treat them fairly and work in their best interests. Nearly 16,000 of Bank of Ireland's clients experienced this failure over a protracted period of time, according to Seána Cunningham, the director of enforcement at the Central Bank.

"When given an option, Bank of Ireland's culture prioritised its own interests with little to no concern for the effects on its customers, according to our analysis. There were numerous occasions when Bank of Ireland had the chance to treat the clients of its tracker mortgages fairly but didn't. Despite these chances, Bank of Ireland consistently construed ambiguous contractual provisions in its favour and against the consumer, which prolonged the suffering and loss that customers had endured for many years.

Although the regulator found that a fine for the bank of €143.6 million was reasonable, it decreased that amount by 30% in accordance with the customary discount given for cases that are settled.

Ulster Bank, KBC Bank Ireland, and Permanent TSB (PTSB), as well as its erstwhile sub-prime unit Springboard Mortgages, have all received fines recently.

The crisis that shook the entire sector starting in 2008 had an impact on more than 41,000 borrowers. In recent years, Irish banks have made provisions totaling €1.5 billion in connection with the tracker scam.

Since 2016, Bank of Ireland has spent about €330 million on refunds, compensation, legal fees, administrative costs, and provisions set up for a Central Bank sanction as a result of the tracker issue.

The Government announced last Friday that it had sold its remaining shares in the lender, making it the first to fully revert to private ownership following the State's €64 billion rescue of the financial system during the crisis. Days later, the Government announced that the Bank of Ireland case would soon be concluded.

As their own funding costs rose in the midst of the global financial crisis, Irish lenders stopped selling tracker mortgages in 2008, where interest rates are normally set 1 percentage point higher than the European Central Bank's main lending rate.

Tracker loans have been automatically impacted by the central bank's recent rate hikes, although borrowers on other programmes paid higher fees as the reference ECB rate declined from 3.75 percent in late 2008 to zero in 2016. Since late July, the ECB has increased its key interest rate to 1.25 percent, and it is on track to hike borrowing rates further in the months to come.