Investment tracker lost

[Dan Murray]

A friend of mine has "tracker issues" - my understanding of his situation is, as follows:

- Loan on an investment property was taken out, on a tracker basis, in 2005
- Loan switched to a 5 year fixed rate in 2006
- In 2011, at the expiry of the 5 year term, the bank refused to return the mortgage to a tracker
- This refusal to provide a tracker in 2011 was a big shock as my pal had always assumed that he could revert to the tracker basis from 2011
- There were no warnings in 2006 to the effect that opting for the fixed rate would effectively remove his right to return to a tracker basis in 2011.

At a general level, I haven't been following this tracker debacle as closely as perhaps I should. I've done a quick search just now - and apologies if this is answered elsewhere - but I'd really appreciate answers to the following:

1. Is this the type of case where the tracker is restored, or not - and if not, why so?
2. Does it matter that the purpose of the loan was for an investment property?
3. Under consumer protection legislation, how would my pal be then classified (i.e. in 2005/6) in the context of terms like personal consumer, consumer, etc.?
4. What were the relevant disclosure requirements in 2006?
5. What are the consequences if a bank breached these disclosure requirements?

If I've left out something, I should be able to get whatever other info is required....

 

[mister32]

Sounds like a classic example of person losing tracker.

I would say person should be returned tracker.

Unfortunately there has been no declaration by the central bank on what the criteria are due restoring trackers.

So far we know that 11,500 people are confirmed to be restored.

But based on the number of people who are still waiting to hear seems like there could be a lot more.

Not exactly sure if consumer protection is sufficient to guarantee the return of the tracker.

 

[Sarenco]

Any idea what your friend's contract said Dan?

That's key.

 

[Dan Murray]

Thanks for your comments mister32.

Any idea what your friend's contract said Dan? That's key.

Thanks Sarenco. It would be great of you had time to comment on this. I suspect it would help, not just my pal, but many others also.

My understanding is that there was an initial tracker mortgage and that when my pal switched to the fixed term loan, he was given a new contract. The fixed term contract says that the interest rate will be reviewed at the expiry of the fixed term but does not elaborate on the nature of this review. The crux of the matter seems to be that my pal thought that this fixed term contract was effectively an addendum to the original contract and the bank is claiming that the fixed term contract is a completely new contract which effectively extinguishes any rights of the old contract.

In my mind, if my pal is right that the original contract still "exists", then he should have been allowed to return to the tracker and if the bank is right then the bank should have provided adequate warnings at the point of establishing the fixed rate contract on the implications of entering into this contract. For the avoidance of any doubt, in my opinion, he should have been told at the outset of the fixed term contract - and not at the end of the contract - that he would not have the right to return to a tracker.

So to restate my questions:

(a) Does the introduction of a fixed term contract in the manner described, where the fixed term contract is silent on what precisely happens at the expiry of the 5 year term, constitute a totally new contract or should the original T&Cs apply at the end of the fixed rate period?

(b) What were the relevant disclosure requirements in 2006?

(c) What are the consequences if a bank breached these disclosure requirements

As mister32 rightly pointed out, it would be helpful if the Central Bank provided meaningful guidance in this regard.

 

[Sarenco]

Hi Dan

It's very difficult to offer a meaningful comment without seeing the precise wording in context.

The T&Cs of fixed-rate mortgages offered by all the major financial institutions all contain a clause specifying what rate will apply at the end of the fixed-term – either by default or, in some cases, on the election of the borrower. The precise wording used is critical – there was no standard "industry" wording.

I would be very surprised if your friend's fixed-rate contract was entirely silent on the applicable roll-off rate. However, if that was the case then you might be able to argue that the intention of the parties at the time was that the borrower would revert to the (tracker) rate that applied immediately prior to the fix. Again, you would really have to review the contract in its entirety before you could form a view as to whether or not such an argument has legs. If the wording is genuinely ambiguous, then the contract should interpreted against the interests of the bank. However, it is certainly the case that the fixed-rate contract would have superseded the terms of the original mortgage contract so that should be the focus.

The Consumer Protection Code 2006 was introduced in August 2006 and it came fully into effect on 1 July 2007 - it's still available on the Central Bank's website. The disclosure requirements were pretty "light" in the original iteration of the Code - bear in mind that back in 2006 all the major lenders were continuing to offer trackers to new customers - it was much later before the significance of these rates became apparent.

I absolutely agree that the ongoing delay and lack of transparency regarding the whole tracker review process is really quite shocking.

 

[Dan Murray]

Thanks Sarenco,

Not exactly what I wanted to hear but hey, don't shoot the messenger, right!

Not incidentally, I think you make a fabulous contribution to this site and your time and expertise are greatly appreciated by me and presumably many others.

In relation to this particular case, I have just spoken with my friend. He again assures me that that there is absolutely nothing in the contract regarding the rate to apply at the expiry of the 5 year period. Anyway, he has made an appointment with his solicitor to get a view on the precise contractual terms and broader legal implications.

One final question, what are the consequences for breaching the Consumer Protection Code 2006? Maybe I'm going blind, but I cannot seem to find the consequences of breaches either within the Code itself or elsewhere on the CB website.

 

[Sarenco]

No problem Dan.

I think it makes a lot of sense for your friend to pass the relevant documentation to a solicitor for review in this particular case. I wouldn't give up all hope just yet!

The Central Bank can impose sanctions on a regulated entity for breaching the Code but it doesn't actually create any (direct) actionable rights that a consumer can enforce. Of course, a consumer can always communicate their concerns/complaints to the Central Bank for consideration.