# Update on the Simple vs. Compound Interest challenge



## Brendan Burgess

AIB responded to the Ombudsman explaining their methodology.  

Although the explanation makes no sense,  the Ombudsman has accepted their explanation that the calculations are in line with his decision.  He has closed the file. 

We are reviewing our next steps.

Brendan


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## Brendan Burgess

Shay75 said:


> with the interest rate issue concluded,



Hi Shay 

We were just notified of this yesterday.   I am not giving up on it yet. I think that the Ombudsman is wrong and will be making a further submission on it.  I need to reflect on it and probably get an actuarial opinion.  


However, that should not stop anyone looking for compensation to apply for compensation. 

Brendan


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## Shay75

I'm curious if other banks have been told to pay compensation for their own tracker debacle, whether they paid simple or compound interest...


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## Sadim

Shay75 said:


> I'm curious if other banks have been told to pay compensation for their own tracker debacle, whether they paid simple or compound interest...



TVM ( Time value of Money) calculations were on a compounded basis with the other lenders


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## Brendan Burgess

I have sent the Ombudsman this letter today, which explains our position.

Brendan



Dear Mr. Deering



Let me assure you that I fully believe in the integrity, independence and the f itness for purpose of your office. While I have not agreed with all of your decisions, I have always acknowledged that they were reached following a procedure which was fair to both sides.

While I have no choice but to accept your decision to keep the file closed in this case, it would be wrong of me not to express my disappointment at what I consider to be an unfair procedure.  I also want to explain why I disagree with your decision and, most importantly, I want to make some suggestions which you might consider for future cases.

*Lack of fair procedure *

We asked AIB for a written explanation of how they calculated the refund of interest and for a schedule of the calculations. They refused both.

We complained to you.

AIB sent you the explanation but appears not to have sent you the schedule of calculations.

You sent their explanation on to us and closed the file.

You gave us no opportunity to challenge their explanation or to check the calculations.

Up until now, in this case and in every other case I have been involved with, you forwarded any submissions from one side to the other side for comment.

I cannot understand why you did not do so in this case.

*The substance of the decision *

AIB has explained it thus:  _Mr Burgess is in effect suggesting we should compound interest on the 12% capital write off balance year on year which refunds on a compounding basis interest that was not charged which is not in keeping with the original decision._



It never occurred to us to seek clarification of your preliminary or legally binding decision. To have asked you to confirm if the interest should be paid on a compound basis, would have been akin to asking you to confirm that the normal rules of addition, subtraction, multiplication and division should apply. Banks charge interest on a compound basis – they refund it on a compound basis.

There have been about 40,000 tracker cases in the Central Bank Tracker Review Programme – to the best of my knowledge, the banks used compound interest in all refund calculations. Karen’s case and the follow-on cohort are the only exceptions.

If it had been your intention to refund the interest on a simple basis,  it would have been helpful if you had expressly stated this.

If it had not been your intention to use simple interest, but you feel that the words you used unintentionally implied that and your hands were tied, you should have stated that and called on AIB to do the right thing, even if you were not in a position to legally alter your decision.

It might well be your view that we are being petty asking for interest to be compounded on the 12% refund which was, essentially, an arbitrary figure. Again, while we might not like or agree with that assessment, it would be helpful to know that.

*Suggestions for the future *


Where you are making an award which does not refer to an absolute amount, but requires the financial services provider to calculate it, you should add to your decision the wording “and provide the complainant with a schedule to show how the figure was calculated in such a manner as to enable the complainant or their advisor verify the calculation.”
You should include a wording to the effect “While this decision is final, either side can seek clarification of the calculations used.”
The award should be made much simpler so that the complainant can calculate it. For example, in this case, you awarded Karen a write down of 12% and a refund with an unnecessarily complicated form of wording which gave AIB the scope to interpret it as simple interest. This also put a burden on AIB to calculate it, and had they shown their calculations to Karen, a burden on her to check it.
It would have been much simpler and clearer to make an order to write down the mortgage by 12% of the balance when the fixed rate ended and to make a cash payment equal to 4% of the balance when the fixed rate ended.

That would have been unambiguous.

That would have been very easy for AIB to calculate and very easy for the complainant to check.

As this was a cohort issue, AIB could have implemented the decision for the other 5,600 borrowers in a much shorter timeframe.

Finally, I want to restate that we accept your decision to close the file. The purpose of this letter is not to ask you to reopen the file, but to express our disappointment at the procedure so that other complainants may benefit from it in the future.


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## bungaro

Brendan Burgess said:


> It never occurred to us to seek clarification of your preliminary or legally binding decision. To have asked you to confirm if the interest should be paid on a compound basis, would have been akin to asking you to confirm that the normal rules of addition, subtraction, multiplication and division should apply. Banks charge interest on a compound basis – they refund it on a compound basis.



I had to laugh at this Brendan!


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## Shay75

Brendan, thank you for writing that letter. It was remarkable in its restraint and very well put.

Can I take it that we are to "close our file" on the interest issue with the Ombudsman and proceed with the letter of general complaint to AIB should we wish to do so?

Thank you again.


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## Brendan Burgess

Shay75 said:


> Can I take it that we are to "close our file" on the interest issue with the Ombudsman and proceed with the letter of general complaint to AIB should we wish to do so?



1) If you want compensation...
you should make a complaint to AIB first and set out your case and how much you want.  They might well give you what you want. If they don't, then go to the Ombudsman.

2) If you are unhappy with any aspect of the write down and refund paid out to you following the Ombudsman's decision...
you can make a complaint to AIB.

For example, if you think that you should have a tracker at 1.5% over ECB you can make that complaint to AIB and then go to the Ombudsman. You are unlikely to be successful. 

The compound interest issue is interesting. You could make a complaint to AIB that you accept their 12% but as it was in effect an overcharge, they should refund you interest on a compound basis.  They will refuse and you can complain to the Ombudsman. 

The Ombudsman must hear every case separately.  So you could make your case. AIB will make theirs. And then the Ombudsman will have to provide his rationale in writing.  

I genuinely don't know if the Ombudsman intended it to be simple interest or not. I suspect that he might have just assumed, like the rules of addition and subtraction, that is what AIB would do. But then his wording is a bit complicated. Why did he not say "Give her a 12% write down and refund the interest you charged on the 12%" ? 

AIB was able to put their simple interest interpretation on the wording and there isn't anything that the Ombudsman can do about it.  It's a legally binding decision. 

I don't know the answers and maybe you could get them by making a complaint. 

Brendan


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## Sadim

It really is hard to see a defensible position for either AIB or the Ombudsman on the compounding issue. In effect, the 12% writedown represents a quasi-loan to the AIB and that loan, as in any other loan, would accrue interest on a compound basis on a reducing balance until it is fully repaid. This really is a bad call by the Ombudsman if he lets AIB off the hook here with simple fundamental mathematical errors. I am astounded the Ombudsman regards this as closed.


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## Jellytot2019

Hi Brendan

Thank you for writing such a comprehensive letter to the ombudsman regarding the simple interest issue and fighting for us on this.

I currently have a case open with the ombudsman (as previously posted). I received a letter in early Sept from the FSPO regarding my case and if I was satisfied with the outcome of the tracker review (12%write down on capital and refund of interest). I explained to the FSPO that I wasn't satisfied as I believed that there is an issue with my interest refund- again to do with aib refunding the interest using simple interest calculations. I had informed the FSPO that I was awaiting a breakdown of calculations from aib and would be in touch once I receive them.

Now that I have the calculations, do you recommend me contacting the FSPO to raise my dissatisfaction with the refund as a result of simple interest calculations? 
Kind regards Jellytot


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## Brendan Burgess

Jellytot2019 said:


> Now that I have the calculations, do you recommend me contacting the FSPO to raise my dissatisfaction with the refund as a result of simple interest calculations?



Yes, I think you should. 

Are you looking for compensation or just the correct interest calculation? 

Brendan


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## Jellytot2019

Hi Brendan

Thank you for your reply. My case is with the FSPO a long time now and I haven't raised the compensation issue so I would be happy with just the correct interest calculation. 

Kind regards Jellytot


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## Brendan Burgess

Jayom75 said:


> My personal view is that this decision highlights a downside to the Ombudsman process generally (a downside that has been aired many times on this forum), namely that there is at times an absence of forensic analysis (as well as an absence of logic) which feeds through to the ultimate decision. The devil is in the detail.



And my personal view is the very opposite.

If we had shunned the Ombudsman and gone to the High Court we would now be stuck in an exchange of discoveries, submissions, affidavits and rejoinders and adjournments  with no end in sight. I would have ceded control of the case to a solicitor and barrister who, might or not be competent, and who might or might not have much higher priorities. 

And we would be facing the risk of losing and facing a huge legal bill from our own side and from AIB. 

And who is to know that the High Court might have bought into AIB's argument? 

No one should be going to the High Court on a consumer finance issue unless they are seeking to embarrass the other side into settling.  And be very careful that such a settlement does not meet the objectives of the legal team but not the borrower.

Brendan


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## Brendan Burgess

Jayom75 said:


> The initial decision of the Ombudsman, whilst admirable inasmuch as it afforded many people substantial relief, was not, it seems, sufficiently watertight in terms of detail.



If AIB had offered the cohort half of what we got as a compromise early on the process, we would have grabbed it with both hands.

Anyone who wants compensation can apply to the Ombudsman and get it without proving that the substance of the case. Anyone who goes to court for compensation, might find that the judge rejects the argument that AIB broke their contract. 

It would have been great to get a tracker at ECB +1.5% but that would be of little benefit to people who had traded up and as interest rates fixed at 1.95% fixed for 7 years are available, the 1.5% margin is not as beneficial as it once was.

I am disappointed with the failure to direct AIB to use compound interest in calculating the refund.  But 12% write down and simple interest is a lot better than 5% write down with compound interest.

Brendan


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## Brendan Burgess

Brendan Burgess said:


> To have asked you to confirm if the interest should be paid on a compound basis, would have been akin to asking you to confirm that the normal rules of addition, subtraction, multiplication and division should apply. Banks charge interest on a compound basis – they refund it on a compound basis.





bungaro said:


> I had to laugh at this Brendan!



Even though I laughed at it myself, the line wrote itself as it's absolutely true. 

Brendan


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## Soapopera

I lodged a complaint through the helpline re compound v simple interest on 11th August. I wrote on 13th oct quoting the consumer protection 40 working days right to full and final response, which has since lapsed.
 Rang the centre again today after receiving yet another generic letter stating the complaint is still open, and not even referring my correspondence on Oct 13th. They guy on the helpline told me this particular complaint didn't fall under the "40 day " consumer complaint bracket. He did tell me the expectation to close complaints was 6-8 weeks, but couldn't specify when this 6-8 weeks was to begin !!!!! They are actually hilarious, if it weren't all so serious.


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## Brendan Burgess

That is very interesting.

Was your complaint on 11th August just about simple vs. compound or was that just one aspect of the complaint? 
Brendan


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## Soapopera

Brendan Burgess said:


> That is very interesting.
> 
> Was your complaint on 11th August just about simple vs. compound or was that just one aspect of the complaint?
> Brendan


That was one complaint. 
I logged a second o  August 25th, requesting a review as to why I wasn't included in the "300" cohort. I get two lots of generic letters every 28 days. The agent said there was no update on either, he had nothing to add other than the expectation to complete complaint reviews was 6-8 weeks...... but didn't know beginning from when ! 
I requested an escalation,  as a result of our discussion.....and specifically instructed to not open  new complaint.....


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## Brendan Burgess

Soapopera said:


> That was one complaint.



I find it extraordinary that if someone complained about simple vs. compound 10 weeks ago, that they could not provide an answer within a day or two. 

It's simple, isn't it? 

Brendan


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## October2019

Brendan Burgess said:


> I find it extraordinary that if someone complained about simple vs. compound 10 weeks ago, that they could not provide an answer within a day or two.
> 
> It's simple, isn't it?
> 
> Brendan


It’s simple alright- but it should be compound!!


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