I have sent these questions to some members of the Committee
Some questions for AIB representatives at the Oireachtas Finance Committee
From Brendan Burgess
www.askaboutmoney.com
Prevailing Rate Tracker Redress Scheme
Last year the Ombudsman upheld a complaint against you for your failure to offer a tracker mortgage to a customer in line with their mortgage contract. They ordered you to write down the value of the mortgage by 12% of the balance due when the fix rate ended and to pay interest charged on the write down since then.
In line with Central Bank policy, you have now rolled this out to 6,000 customers with the same contract. This was the single biggest refund programme in the tracker scandal and it has cost you €300m.
But is it correct that you have paid simple interest instead of compound interest when calculating the interest refund? When you are charging interest to customers do you charge simple interest to any of them?
Did you specifically ask the Ombudsman or the Central Bank if his reference to interest meant simple interest or compound interest, or, as you did with the original contract, just choose an interpretation that suited you best?
You have shown no remorse for the original failure to offer these 6,000 families trackers in line with their contract. You have disgraced yourself by showing no remorse over your failure over the last 5 years to face up to the issue and redress these customers. You had to be dragged kicking and screaming before the Ombudsman and the Central Bank to be forced into doing the right thing.
You can’t every undo the damage you have done to all these customers over the past ten years. But isn’t it time now for you to stop this carry on and refund interest in the same way that you charge it i.e. on a compound interest basis and stop forcing these put upon customers to individually go to the Ombudsman?
For reference. Actual wording of the Ombudsman’s decision:
(b) repay the Complainant, to an account of her choosing, the difference between (1) the amount of interest she actually paid from 30 April 2010 to date, and (2) the amount of interest that she would have paid on the reduced (written down) capital balance from 30 April 2010 to date.
Cash back mortgages
Cash back mortgages are used by some lenders to keep the rates for existing customers high. For example, if we compare your two brands – AIB and EBS
| AIB – no cashback | EBS – cash back | Additional interest on a €300k mortgage |
Lowest variable rate <50% LTV | 2.75% | 3.3% | €1,650 |
Lowest fixed rate 3 year fixed | 2.35% | 2.9% | €1,650 |
| | | |
90% LTV variable | 3.15% | 3.7% | €1,350 |
With a lowest rate of 2.9% , the only way EBS can get new business is to offer cash back.
But an existing customer of EBS is stuck on this very high rate. So AIB, permanent tsb and BoI uses cash back to keep existing rates very high.
Would it not be better for all customers and all lenders if cash back were banned and lenders were forced to compete on mortgage rates and mortgage rates alone?