Brendan Burgess
Founder
- Messages
- 52,116
I have just delivered it by phone now.
Thank you Chair
I have four questions for you
One - When will you be announcing the redress scheme for the 5,900 prevailing rate customers whose contracts you broke?
Two - Will you be applying the full Central Bank Redress Scheme to these customers and putting them on a tracker mortgage for the remainder of their mortgage term?
Three - How many customers have lodged High Court proceedings on the Prevailing Rate issue?
Four - Did any of the non-executive directors of AIB challenge the group-think on the Prevailing Rate issue?
By way of background
These customers had a mortgage contract which stated that at the end of their fixed rate period, they could choose between a fixed rate, a standard variable rate and a tracker rate at the then prevailing rates.
When their fixed rates ended AIB did not offer these customers the prevailing rates as they were contractually obliged to do.
AIB’s steadfast refusal to honour the terms of their contract was based on the most flawed arguments. Here are just some of these flawed arguments.
The first argument - The contract said that the borrower would have a choice of a tracker mortgage. It didn’t say that AIB had to offer them a tracker mortgage.
The second argument - We no longer had a prevailing rate because we no longer offered tracker rates to new customers. Even though the mortgage contract did not define prevailing rate at all, never mind defining it as the rate on offer to new customers, AIB claimed that this is what they had intended the contract to mean when they drafted it in 2006.
The third argument - This was not a breach of contract, this was a service failure. i.e. we did nothing much wrong. A service failure is where the bank makes a mistake and takes three months to resolve it. The failure to offer a prevailing rate according to the contract was not just a “service failure.” It was, as the Ombudsman ruled, a breach of the fundamental terms of the contract.
The fourth argument – This failure to offer the customers tracker mortgages did not cause the customer to lose anything because the prevailing tracker rate would have been up to 7% higher than the SVR or the fixed rates. This was the most flawed of all. Up until 2008, when AIB did offer tracker mortgages to customers rolling off fixed rates, they set the tracker rate at or below the SVR. But 10 years later, AIB tried claiming that if they had offered a tracker rate, it would have been 7% higher.
It is extraordinary that the non-executive directors who are paid fees of between €100k a year and €365k a year, did not point out how flawed these arguments were. A mock board of transition year students would have seen the flaws in these arguments instantly.
When this problem was uncovered back in 2015, you should have admitted the mistake and redressed those customers.
Instead of doing the right thing, you fought it all the way.
If you had faced up to the problem in 2015, you would have reduced the cost to the AIB shareholders and you would have reduced the damage to AIB’s reputation.
Admitting a mistake early and fixing it costs a lot less. It is a sign of strength.
Being forced to do the right thing by the Ombudsman or by the High Court is a sign of weakness. And it costs you a lot more in the long run.
But this is not just about AIB and its profits. It’s about its 5,900 customers and their families. Every month you delay fixing this problem, you pile on the misery which your high mortgage rates impose on the impacted families. How many of these borrowers have been pushed into arrears because of your failure to give them tracker mortgages? How many have lost their homes? How much is it going to cost AIB to compensate these people for the damage done? This cost could have been greatly reduced had you acted responsibly and faced up to the problem earlier.
But even if you could not bring yourselves to do the right thing in 2015, when the problem was uncovered, why did you not do it in October 2017 when the Minister for Finance called in the Chief Executive of AIB and the other banks and told you and I quote
“The legalistic approach taken by some banks to avoid doing the right thing is simply unacceptable. Ultimately such behaviour is not in the interests of customers or shareholders.
And the Minister went on to say:
[The banks have committed] that All redress and compensation will be in line with the ‘Principles for Redress’ set by the Central Bank”
I hope that the Minister’s actions today will match his stern words and that he votes against the reappointment of the three directors who were on the board in 2017 and who are still on the board today. They are Brendan McDonagh, Carolann Lennon and Helen Normoyle.
It’s too late for AIB to undo the damage you have done so far to these families and to the finances and reputation of AIB.
But I would ask you now at this late stage to face up the problem. While the Ombudsman upheld our complaint and directed that you give these customers a 12% write down on their mortgage, he did not direct you to apply the full Central Bank Redress Scheme.
So I would ask you now as a small gesture of remorse and apology to apply the full Central Bank redress scheme to these customers.
One - Refund the interest overcharged since they came off their fixed rate
Two - Pay them 15% of the interest overcharged as compensation for your failure.
And 3 Put them on a tracker rate of 1.5% for the remaining term of their mortgage.
Let me stress here that we are not being greedy. A mortgage rate of 1.5% is not a cheap tracker. It is still well above the average mortgage rate in the eurozone which is 1.35%.
Your breach of contract and continuing mean-spiritedness has cost the AIB shareholders €300m so far and has damaged the reputation of the bank. Instead of putting the tracker scandal behind you as a legacy issue, you seem to be determined to keep the tracker scandal alive. You continue to waste management time on this issue when there are other existential issues for the bank to be dealing with.
But it makes financial sense to deal with this properly now. If you don’t, some of the very angry customers will take this to the High Court and if they win, it will double the cost to AIB from 300m to €600m.
As I say this over the phone I sense your arrogance and dismissiveness. It’s the same arrogance and dismissiveness I encountered when I raised the prevailing rate issue at the 2016 AGM, at the 2017 AGM, at the 2018 AGM and at last year’s AGM. But instead of arrogance and dismissiveness, you should be showing humility and engagement.
Your arrogance and dismissiveness did not work with the Ombudsman and it won’t work with the High Court either.
To conclude, let me remind you of my four questions
Thank you Chair
I have four questions for you
One - When will you be announcing the redress scheme for the 5,900 prevailing rate customers whose contracts you broke?
Two - Will you be applying the full Central Bank Redress Scheme to these customers and putting them on a tracker mortgage for the remainder of their mortgage term?
Three - How many customers have lodged High Court proceedings on the Prevailing Rate issue?
Four - Did any of the non-executive directors of AIB challenge the group-think on the Prevailing Rate issue?
By way of background
These customers had a mortgage contract which stated that at the end of their fixed rate period, they could choose between a fixed rate, a standard variable rate and a tracker rate at the then prevailing rates.
When their fixed rates ended AIB did not offer these customers the prevailing rates as they were contractually obliged to do.
AIB’s steadfast refusal to honour the terms of their contract was based on the most flawed arguments. Here are just some of these flawed arguments.
The first argument - The contract said that the borrower would have a choice of a tracker mortgage. It didn’t say that AIB had to offer them a tracker mortgage.
The second argument - We no longer had a prevailing rate because we no longer offered tracker rates to new customers. Even though the mortgage contract did not define prevailing rate at all, never mind defining it as the rate on offer to new customers, AIB claimed that this is what they had intended the contract to mean when they drafted it in 2006.
The third argument - This was not a breach of contract, this was a service failure. i.e. we did nothing much wrong. A service failure is where the bank makes a mistake and takes three months to resolve it. The failure to offer a prevailing rate according to the contract was not just a “service failure.” It was, as the Ombudsman ruled, a breach of the fundamental terms of the contract.
The fourth argument – This failure to offer the customers tracker mortgages did not cause the customer to lose anything because the prevailing tracker rate would have been up to 7% higher than the SVR or the fixed rates. This was the most flawed of all. Up until 2008, when AIB did offer tracker mortgages to customers rolling off fixed rates, they set the tracker rate at or below the SVR. But 10 years later, AIB tried claiming that if they had offered a tracker rate, it would have been 7% higher.
It is extraordinary that the non-executive directors who are paid fees of between €100k a year and €365k a year, did not point out how flawed these arguments were. A mock board of transition year students would have seen the flaws in these arguments instantly.
When this problem was uncovered back in 2015, you should have admitted the mistake and redressed those customers.
Instead of doing the right thing, you fought it all the way.
- You dismissed all complaints from customers on the issue
- You dismissed me when I raised it at every AGM for the last four years
- You dismissed the Central Bank when they tried to get you do the right thing
- You dismissed the Oireachtas Finance Committee, making a show of yourselves arguing about the difference between a breach of contract and a service failure. It would have been funny if it was not so serious.
If you had faced up to the problem in 2015, you would have reduced the cost to the AIB shareholders and you would have reduced the damage to AIB’s reputation.
Admitting a mistake early and fixing it costs a lot less. It is a sign of strength.
Being forced to do the right thing by the Ombudsman or by the High Court is a sign of weakness. And it costs you a lot more in the long run.
But this is not just about AIB and its profits. It’s about its 5,900 customers and their families. Every month you delay fixing this problem, you pile on the misery which your high mortgage rates impose on the impacted families. How many of these borrowers have been pushed into arrears because of your failure to give them tracker mortgages? How many have lost their homes? How much is it going to cost AIB to compensate these people for the damage done? This cost could have been greatly reduced had you acted responsibly and faced up to the problem earlier.
But even if you could not bring yourselves to do the right thing in 2015, when the problem was uncovered, why did you not do it in October 2017 when the Minister for Finance called in the Chief Executive of AIB and the other banks and told you and I quote
“The legalistic approach taken by some banks to avoid doing the right thing is simply unacceptable. Ultimately such behaviour is not in the interests of customers or shareholders.
And the Minister went on to say:
[The banks have committed] that All redress and compensation will be in line with the ‘Principles for Redress’ set by the Central Bank”
I hope that the Minister’s actions today will match his stern words and that he votes against the reappointment of the three directors who were on the board in 2017 and who are still on the board today. They are Brendan McDonagh, Carolann Lennon and Helen Normoyle.
It’s too late for AIB to undo the damage you have done so far to these families and to the finances and reputation of AIB.
But I would ask you now at this late stage to face up the problem. While the Ombudsman upheld our complaint and directed that you give these customers a 12% write down on their mortgage, he did not direct you to apply the full Central Bank Redress Scheme.
So I would ask you now as a small gesture of remorse and apology to apply the full Central Bank redress scheme to these customers.
One - Refund the interest overcharged since they came off their fixed rate
Two - Pay them 15% of the interest overcharged as compensation for your failure.
And 3 Put them on a tracker rate of 1.5% for the remaining term of their mortgage.
Let me stress here that we are not being greedy. A mortgage rate of 1.5% is not a cheap tracker. It is still well above the average mortgage rate in the eurozone which is 1.35%.
Your breach of contract and continuing mean-spiritedness has cost the AIB shareholders €300m so far and has damaged the reputation of the bank. Instead of putting the tracker scandal behind you as a legacy issue, you seem to be determined to keep the tracker scandal alive. You continue to waste management time on this issue when there are other existential issues for the bank to be dealing with.
But it makes financial sense to deal with this properly now. If you don’t, some of the very angry customers will take this to the High Court and if they win, it will double the cost to AIB from 300m to €600m.
As I say this over the phone I sense your arrogance and dismissiveness. It’s the same arrogance and dismissiveness I encountered when I raised the prevailing rate issue at the 2016 AGM, at the 2017 AGM, at the 2018 AGM and at last year’s AGM. But instead of arrogance and dismissiveness, you should be showing humility and engagement.
Your arrogance and dismissiveness did not work with the Ombudsman and it won’t work with the High Court either.
To conclude, let me remind you of my four questions
- When will you be announcing the redress scheme for the 5,900 impacted families?
- Will you be applying the full Central Bank Redress Scheme to these customers?
- How many customers have lodged High Court proceedings?
- Did any of the non-executive directors of AIB challenge the group think on the Prevailing Rate issue?
