# AIB rejects my complaint about simple interest, should I complain to the Financial Ombudsman?



## Greenbean (8 Apr 2021)

Hi , I've attached AIBs reply to my request for their final response in regard to this matter when i complained about how the interest was calculated after the ombudsman's ruling .   
 My case was put on hold with the ombudsman pending Aibs response on the matter . My case is v similar to Karens so I'm not sure if i will have any success but i am going to reactivate the case with the ombudsman . 

My question is - can any of ye make sense of AiBs explanation in the first paragraph of the second page ? I have read it a number of times and i still cant understand it . Maybe someone who is more financially literate could offer their opinion on whether their explanation stands up / makes sense ?? Thanks


----------



## tnegun (8 Apr 2021)

It reads to me like they still don't accept the FSPOs ruling. _We would pay you interest that we never charged_ _you_ makes no sense. They refunded simple interest, I was never charged simple interest on my mortgage it was compound interest simple as.


----------



## Brendan Burgess (12 Apr 2021)

The reason you don't understand it, is because it doesn't make any sense at all.

It doesn't even start to make sense.  So it's very hard to counterargue something like this.

Unfortunately, the Central Bank bought this argument. I presume that the Central Bank guys simply don't understand it, and rather than admit that, they just said "OK, AIB. We will take your word for it." They really should have referred AIB's explanation to an actuary who would have roared laughing at AIB's explanation.

Their argument seems to be

" If you pay the interest as it is due, then you were not charged interest on interest".  This is very flawed.

It's easiest to explain with case studies.

*Case study 1. *
You took out a mortgage for €100k , 2 years ago at an interest rate of 4%.
You made no repayment at all.
If they charged you simple interest, today, you would owe €100k +€8k interest

But they charged you compound interest, so at the end of year 1, you owed €104k
They charged you interest of 4% of €104k or €4,160
So today you owe €8,160 interest.

Then you get a call from AIB to tell you that you made a capital repayment of €12,000 back 2 years ago and they forgot to credit it to your account.

According to AIB's Simple Interest approach, they will reduce your balance by  €12,000 + interest @ 4% for 2 years or € 960

But in fact, in the first year, they charged you €480 interest.
In the second year, they charged you 4% of €12,480 or €499.20

So they owe you €979.20

*Case study 2. *
You took out a mortgage for €88k , 2 years ago at an interest rate of 4%.
But AIB input it into the system as two loans  - one of €88k and one of €12k.
You made repayments of €8,000 a year which they allocated against both loans proportionately.

Two years later, they discover their error and reduce your original balance to €88k.
AIB now argues that because the repayments exceeded the interest charged, you were not charged any interest on the interest.

This is disingenuous in the extreme. No other bank would try this argument.

This is what they should do:




They are refunding you €960 when they should be refunding you €999.20

*Look at it another way...*

AIB argues that as you paid the interest of €480 in year one, you were not charged any interest on that interest.

But you should not have been charged that interest.  So you paid €480 in Year 1 which you should not have paid.

Therefore, in Year 2, they should pay you the interest on €12,000
And they should pay you interest on the €480 interest they charged you which they should not have charged you.

Brendan


----------



## Squirrelstown (12 Apr 2021)

Hi greenbean - could you share (part of ) your letter to ombudsman as it would be great to use as a template for myself and anyone else that wants to appeal the simple interest explanation by AIB


----------



## RedOnion (12 Apr 2021)

Brendan Burgess said:


> " If you pay the interest as it is due, then you were not charged interest on interest". This is very flawed.


I'd love to see the calculations they used for someone who was in arrears...
Basically using that logic, someone who DIDN'T repay will get a higher refund.

While the argument is flawed, I don't think the wording of the original ruling is clear enough to insist that AIB are doing this wrong without someone bringing it to the FSPO again.


----------



## October2019 (12 Apr 2021)

I have just read this now and it has given me a good laugh, most welcome on a Monday morning if the issue wasn’t so serious. This is up there with “ the contract says you had to be offered a tracker but doesn’t say by whom “ . Who reads these letters and approves them before they go out? This is pure nonsense. The ombudsman should really take 5 minutes of his time to look at this and see how ridiculous it is. Quite simply they are saying we didn’t charge you compound interest as you paid the interest- absolutely incorrect. Interest is only charged to your account quarterly and compounds at this point (i.e. the interest is then calculated on the new balance from this point on) as they well know. This really is a laughable argument. I worry about who is in charge of this bank, I really do.


----------



## Brendan Burgess (12 Apr 2021)

RedOnion said:


> I don't think the wording of the original ruling is clear enough to insist that AIB are doing this wrong without someone bringing it to the FSPO again.



To be fair to the Ombudsman, it would never have occurred to him to specify that interest should be refunded on a compound interest basis.   He would just have assumed it.  

In fact, when I got Karen's refund from AIB, it looked about right and I did not do the checking that I should have done. I assumed it was done the same way as every other refund I have ever seen. 

The approach taken by every other lender on overcharging issues has been: 
"If we had not overcharged you by €12,000 what would your financial position be today?" 

I have never seen any other lender saying: "Well you paid the interest we shouldn't have charged you, so we didn't charge you interest on it." 

Brendan


----------



## RedOnion (12 Apr 2021)

Brendan Burgess said:


> To be fair to the Ombudsman, it would never have occurred to him to specify that interest should be refunded on a compound interest basis. He would just have assumed it.


I fully agree. When I looked at this first, I thought it was blindingly obvious what AIB should have done. But, I've re-read the wording a few times, and there might be some wriggle room for them if it was being strictly interpreted by legal people, as these things tend to be. But they've made a hash of explaining it, using the arrears case above as an example. From there you tackle an interest only case, and then the whole explanation falls apart very quickly. They'll trip themselves up with their own explanations.

But we've seen AIB dig their heels in on similar matters before. 

It's one to brief a TD on, and get it asked at one of those Oireachtas hearings where the CEO will say "of course we're compounding / giving time value of money. We're not stupid...."


----------



## tnegun (12 Apr 2021)

RedOnion said:


> Basically using that logic, someone who DIDN'T repay will get a higher refund.


Fantastic observation and just shows how flawed the concept is. AIB tried to be smart here, it stinks and doesn't stand up to scruitiny.


Brendan Burgess said:


> I have never seen any other lender saying: "Well you paid the interest we shouldn't have charged you, so we didn't charge you interest on it."


That's the best explanation yet its exactly what AIB are trying to say. Fine they can say it that way but I'll be arguing that the interest they acknowledge that they shouldn't have charged me should have come off the capital which they charged me compound interest on so I'm at a loss.


----------



## Greenbean (30 Apr 2021)

Squirrelstown said:


> Hi greenbean - could you share (part of ) your letter to ombudsman as it would be great to use as a template for myself and anyone else that wants to appeal the simple interest explanation by AIB


Hi Squirreltown , sorry for delayed response . I simply followed the template provided by Brendan all along with Karens case . I had my case put on hold by the ombudsman following the successful outcome of Karens case and pending the payment of redress by AIB . Once i received the redress and was unhappy , i just sent the ombudman an email saying that i was unhappy how the interest was calculated . I asked AIB for a final response which AIB sent and i posted here . We ( myself and AIB ) have now agreed to enter a Dispute Mediation Process . 

An ombudsman official is due to ring me on Tuesday regarding this Mediation Process . Has anyone been through this process before ? Any advice on how i should present the simple vs compound issue on the call ? Any help would be appreciated , thanks


----------



## S0@p0per@ (18 May 2021)

Greenbean said:


> Hi Squirreltown , sorry for delayed response . I simply followed the template provided by Brendan all along with Karens case . I had my case put on hold by the ombudsman following the successful outcome of Karens case and pending the payment of redress by AIB . Once i received the redress and was unhappy , i just sent the ombudman an email saying that i was unhappy how the interest was calculated . I asked AIB for a final response which AIB sent and i posted here . We ( myself and AIB ) have now agreed to enter a Dispute Mediation Process .
> 
> An ombudsman official is due to ring me on Tuesday regarding this Mediation Process . Has anyone been through this process before ? Any advice on how i should present the simple vs compound issue on the call ? Any help would be appreciated , thanks


I am beginning this process also. curious as to where you are at with this... have agreed to the informal mediation process. Simple v compound interest issue is part of my grievance.


----------



## Greenbean (22 May 2021)

S0@p0per@ said:


> I am beginning this process also. curious as to where you are at with this... have agreed to the informal mediation process. Simple v compound interest issue is part of my grievance.


The only advice i would give anyone dealing with AIB on this issue is to keep your argument as straightforward as possible 

Ask AIB if they charge compound interest on mortgages?

Did they charge compound interest on your mortgage?

If the answers are  yes and the ombudmans ruling directs that " AIB repay Susan the difference between the interest she actually paid from 30 April 2010 ( when fixed term ended )  to date and the interest she would have paid at the same rate from 30 April 2010 to date on the reduced /written down  capital  balance " --  then why did they did they calculate the refund on a simple interest basis and not a compound basis ?


----------

