greenoverred
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So here is the response from NIB to questions put to them ny the FO. I know some of you will enjoy this
1. Is the Respondent satisfied that the letter of 28 June 2011 represents the response which it wants to make to this complaint? If any additional information or documentation is available, please furnish to this office.
While we are satisfied that our letter represents our Final Response Letter, we wish to lay out our case from the outset. The following points will answer many of the questions below:
• National Irish Bank has a number of customers who have home-loans for their principal primary residence (""PPR” loans) and a number of customers who have investment home-loans for a property other than their principal primary residence (“IHL” loans).
• A certain number of these customers, such as the Complainant, would have been eligible for a loan, the interest on which would be calculated by reference to the Bank’s variable reference rate used for both PPR loans and IHL loans at the time, known as our “Variable Annuity Mortgage Rate”
• In the case of any loans with fixed rate periods, the variable reference rate is relevant as it is stipulated to be the rate applicable to the loan following the end of the initial fixed rate period.
• In February 2009 National Irish Bank decided to give a standard discount from the variable interest reference rate to PPR customers but not IHL customers. i.e. the same variable interest reference rate continued to apply to all customers, however PPR customers were given a discount in addition to any negotiated discount they would have agreed with the Bank. We anticipated that such a discount to PPR homeloan borrowers would be highly welcomed at this time.
• To enable the Bank to distinguish who should be getting what rate, to ensure that customers correctly interpreted the Bank’s interest rate notices and for clarity as regards our regulatory reports to the Central Bank of Ireland, the Bank re-branded therates applicable to IHL Loans and PPR Loans although both rates always have been and continue to be calculated by reference to the Bank’ s variable interest reference rate.
• We acknowledge that this nomenclature regrettably may have caused some confusion to. Our customers. However, notwithstanding this confusion all customers continued to have their interest calculated by reference to the contractually agreed interest reference rate in compliance with the applicable contracts. PPR customers were offered and given a special discount rate, which we are advised by Senior Counsel, IS an entirely lawful course of action (unless, clearly, if one acted in breach of contract).
• Notably, the rate applicable to IHL will never exceed the commercially agreed rate (to do otherwise would be in breach of contract).
• Regarding the specific complaint raised against the Bank, it is clear that the Complainant got what was agreed, i.e. an interest rate based on the contractually agreed reference rate. He is seeking in effect to avail of the special further discount that was available to PPR borrowers and not to IHL borrowers. As an investment loan borrower he simply was not entitled to this discount.
It is important to apply the correct meaning to Clause 11.4 which governs the switch from the fixed rate period to the subsequent variable rate period. The facility letter dated 24 July 2006 clearly indicates that the rate to be applied will be determined at the point in time when the event occurs and does not in any way commit the Bank to an explicitly named rate. The facility letter states, the “the then applicable home loan rate”. In the event that the Bank had agreed to an explicitly named rate, this would have been specifically described using capital letters.
2. Please provide all details in relation to this disputed mortgage account including but not limited to the date of application, date of draw—down, repayment terms etc.
This loan, which was for the purchase of an investment property, was approved in July 2006 and drawn down on 5”‘ September 2006 for €226,400. The loan was to be fixed for 35 months at a rate of 4.55%, and on expiry of the fixed rate, our standard variable interest rate at that time, would be applied. The full facility letter has been enclosed.
3. What interest rates products were applied to the Complainants’ investment mortgagefollowing the date of draw—down of same?
Initially the loan was on a fixed rate of 4.55%. This fixed rate expired in August 2009, at whichpoint our standard variable rate applied, which at the time was 4.15%.
4. Was type of product does the rate of 4.15% relate to i.e. is it a fixed rate product or a variable rate product etc? Similarly, please confirm if the Bank’s 3.4% relates to a variable rate interest rate product? What was the Bank’s variable rate home loan rate applicable to both residential and investment mortgage accounts in August 2009? Why did the Bank fail to offer the Complainants, in August 2009, its then variable home loan rate?
Please see our opening summary. To clarify, the standard variable rate in August 2009 was 4.15%. However the Bank had previously decided to offer a discount to borrowers whose loans related to their PPR, but not to borrowers whose loans related to investment properties. Senior Council advisesthat this is an ‘entirely legal course of action. The Complainant therefore received exactly what is specified in his facility letter. His payments are calculated by reference to the contractually agreed reference rate in compliance with the applicable contracts. -
S. The Bank is asked to elaborate on the following statements:- ‘... the Bank introduced a new Reference Rate for home loan borrowers, i.e. those borrowing to purchase their family home known as the ‘Home Loan Rate’ in 2009 and extended a discount to those borrowers who met - the criteria. As your loan did not qualify for that discount the rate applied to your account at the end of the fixed rate period was determined by clause 11.4 of your facility letter until it s closure, and therefore the rate of interest which was charged to your loan was correct. Please detail the criteria which were apparently not met by the Complainants. Similarly, please explain how clause 11.4 operated in respect of the Complainants and the Bank’s interpretation of Clause 11.4? '
Please see response to question 1. Clause 11.4 of the agreed facility letter states: “Unless a further Fixed Period is agreed in accordance with clause l 1.3, at the end of the Fixed Period the rate of _ interest applicable to the Loan will revert to our then applicable variable home loan rate.” This clearly indicates that the rate to be applied will be determined at the point in time when the event occurs.
6. Please confirm if the Respondent had only one type of mortgage rate applicable to both home and investment loans when the Complainants’ investment mortgage was agreed with the Bank in 2006? '
Please see response to question 1. Customers with borrowings relating to Investment properties, and customers with borrowings related to their PPR, both had their interest rates calculated with' reference to the Bank’s variable reference rate namely our “Variable Annuity Mortgage Rate”. This continues to be the case.
7. What evidence does the Bank have to demonstrate that the rate of 4.15% was the correct interest rate in respect of the Complainants’ investment mortgage account? Why were the Complainants not offered the lower variable rate set at 3.4%? Had the lower rate applied from August 2009 to January 2010, what saving would have accrued to the Complainants’ investment mortgage account?
Please see our response to question 1. The contracted rate is the Banks Variable Annuity Mortgage rate at 4.15%. Please find detailed below an ‘extract from the rate advertisement in respect of this rate informing customers of the current rate in accordance with our obligations under the terms and conditions.
For the sake of ‘argument, had the Complainant’s loan been for his PPR, the discounted rate would have been applied and a saving of €819.35 would have been realised.
8. When did the Bank reclassify investment mortgages and residential mortgages and when were the Complainants advised of this change in name etc?
This was done in February 2009 and the Complainant was informed of this in writing at that time. '
9. Under what authority, rule, regulation etc is the Respondent entitled to re-name mortgage accounts? Please state the grounds on which the Bank is entitled to alter the name of the loan. _ Did the Respondent need to seek approval from the Financial Regulator (now Central Bank) before re-naming the mortgage account? Please state the grounds on which the Bank is entitled to alter the rate of interest that applies to the loan.
The Bank was not required to seek authority from the Financial Regulator in relation to the name change. In essence the loans were re—branded principally for ease of reference for customers and for regulatory reporting purposes. The actions of the Bank have not in any way altered the underlying terms and conditions of the loan agreements between us and the Complainant. All that has happened is that the Bank has, given current economic circumstances, chosen to offer a special discount to its home-loan borrowers. The change in name was necessary following the expiry of the fixed rate period. The name prior to the change reflected the fixed nature of the rate agreement, and the name change at the end of the period clearly reflects the loan type and rate going forward for the remainder of the loan. We are satisfied that in re-branding the loan account we have not altered the underlying terms and conditions of the loan agreement. The loans were given different names principally for ease of reference for customers and for regulatory reporting purposes. We acknowledge that this nomenclature may regrettably have caused some confiision to our customers. All our customers, including the Complainant, continued to have their interest payments calculated by reference to the contractually agreed reference rate in compliance with the applicable contract. As an investment loan borrower, the Complainant was not eligible for the further special discount that National Irish Bank had extended solely to home-loan borrowers since early 2009.
10. Did the Respondent treat both residential and investment mortgages in the same manner before 2009 and were these two mortgage types subject to the same reference rate? In this regard, were these two aforementioned mortgage types automatically impacted by ECB interest rate changes up to 2009 which is when the Bank states it introduced a new ‘Home Loan Rate’? What interest rates were charged to residential home loan rate mortgages from 2009 up to January 2010 and what rates were charged to investment mortgages over the same period?
As advised in our response to question 1, both residential and investment mortgages have always been and continue to be, subject to the same reference rate. This reference rate was and remains completely separate from the ECB rate and is not set by reference to the ECB rate (National Irish- Bank is funded by the wholesale markets and not the ECB). All customers continued to have their interest calculated by reference to the contractually agreed interest reference rate in compliance with the applicable contracts. PPR customers were offered and given a special discount rate, which we are advised by Senior Counsel, is an entirely lawful course of action (unless, clearly, if one acted in breach of contract). Please see a comprehensive table below demonstrating the rates from inception of the loan, which clearly shows when the discount was applied to PPR borrowings.
-11. Had the change in name not have occurred, would the Complainants’ investment mortgage monthly repayments have remained the same when compared to holders of residential mortgage account? Were the Complainants ever advised that it was the intention of the Respondent to change the name of their mortgage account? Please clarify if the Complainants were informed prior to the commencement of the loan that the mortgage could be renamed and a different rate of interest applied.
The name change is a function of the behaviour of the product. It would be misleading and illogical to continue to identify a loan as a Fixed Rate Loan when the variable period commences, and the name change does not alter the legal agreement in any way. - The question suggests that a different rate is being applied. However this is not the case. The Complainant has had at all times, his interest calculated by reference to the contractually agreed reference rate in compliance with the applicable contract. . The contract between the Complainant and the Bank is as set out in the relevant loan agreement and it is in accordance with these terms that the loan operated since inception although the name by which the loan had been referred to had changed. However the form of the loan as opposed to the name by which it is branded had not been changed. The Complainants’ loan was at all times an Investment Housing Loan. The Complainant is in effect seeking to avail of the discount that National Irish Bank has extended to home-loan borrowers since early 2009 and for which, as an investment borrower, he is simply not eligible.
12. Please comment on the Complainants assertion that he was advised by the Bank’s Swords Branch that the rate of 4.15% was the only rate available to him and that if he did not accept same, then he could transfer his mortgage to another mortgage provider.
The Complainant has not stated who in particular he spoke to and we have no record of the conversation. However, the Complainant would have been informed of the Bank’s position, which was that the rate he was entitled to was the standard variable rate as outlined in his facility letter, which is what was being charged. We do not believe he would have been told to transfer his mortgage to another provider. However, under free market conditions he was of course entitled to seek out a different provider if he was unhappy with his mortgage rate, and this was the course of action he chose to take.
13. Have the Complainants also moved their residential mortgage from the Respondent as a result of this dispute?
The Complainant did not have his residential mortgage with National Irish Bank.
Yours sincerely,
Jennie Power
Head of Compliance
1. Is the Respondent satisfied that the letter of 28 June 2011 represents the response which it wants to make to this complaint? If any additional information or documentation is available, please furnish to this office.
While we are satisfied that our letter represents our Final Response Letter, we wish to lay out our case from the outset. The following points will answer many of the questions below:
• National Irish Bank has a number of customers who have home-loans for their principal primary residence (""PPR” loans) and a number of customers who have investment home-loans for a property other than their principal primary residence (“IHL” loans).
• A certain number of these customers, such as the Complainant, would have been eligible for a loan, the interest on which would be calculated by reference to the Bank’s variable reference rate used for both PPR loans and IHL loans at the time, known as our “Variable Annuity Mortgage Rate”
• In the case of any loans with fixed rate periods, the variable reference rate is relevant as it is stipulated to be the rate applicable to the loan following the end of the initial fixed rate period.
• In February 2009 National Irish Bank decided to give a standard discount from the variable interest reference rate to PPR customers but not IHL customers. i.e. the same variable interest reference rate continued to apply to all customers, however PPR customers were given a discount in addition to any negotiated discount they would have agreed with the Bank. We anticipated that such a discount to PPR homeloan borrowers would be highly welcomed at this time.
• To enable the Bank to distinguish who should be getting what rate, to ensure that customers correctly interpreted the Bank’s interest rate notices and for clarity as regards our regulatory reports to the Central Bank of Ireland, the Bank re-branded therates applicable to IHL Loans and PPR Loans although both rates always have been and continue to be calculated by reference to the Bank’ s variable interest reference rate.
• We acknowledge that this nomenclature regrettably may have caused some confusion to. Our customers. However, notwithstanding this confusion all customers continued to have their interest calculated by reference to the contractually agreed interest reference rate in compliance with the applicable contracts. PPR customers were offered and given a special discount rate, which we are advised by Senior Counsel, IS an entirely lawful course of action (unless, clearly, if one acted in breach of contract).
• Notably, the rate applicable to IHL will never exceed the commercially agreed rate (to do otherwise would be in breach of contract).
• Regarding the specific complaint raised against the Bank, it is clear that the Complainant got what was agreed, i.e. an interest rate based on the contractually agreed reference rate. He is seeking in effect to avail of the special further discount that was available to PPR borrowers and not to IHL borrowers. As an investment loan borrower he simply was not entitled to this discount.
It is important to apply the correct meaning to Clause 11.4 which governs the switch from the fixed rate period to the subsequent variable rate period. The facility letter dated 24 July 2006 clearly indicates that the rate to be applied will be determined at the point in time when the event occurs and does not in any way commit the Bank to an explicitly named rate. The facility letter states, the “the then applicable home loan rate”. In the event that the Bank had agreed to an explicitly named rate, this would have been specifically described using capital letters.
2. Please provide all details in relation to this disputed mortgage account including but not limited to the date of application, date of draw—down, repayment terms etc.
This loan, which was for the purchase of an investment property, was approved in July 2006 and drawn down on 5”‘ September 2006 for €226,400. The loan was to be fixed for 35 months at a rate of 4.55%, and on expiry of the fixed rate, our standard variable interest rate at that time, would be applied. The full facility letter has been enclosed.
3. What interest rates products were applied to the Complainants’ investment mortgagefollowing the date of draw—down of same?
Initially the loan was on a fixed rate of 4.55%. This fixed rate expired in August 2009, at whichpoint our standard variable rate applied, which at the time was 4.15%.
4. Was type of product does the rate of 4.15% relate to i.e. is it a fixed rate product or a variable rate product etc? Similarly, please confirm if the Bank’s 3.4% relates to a variable rate interest rate product? What was the Bank’s variable rate home loan rate applicable to both residential and investment mortgage accounts in August 2009? Why did the Bank fail to offer the Complainants, in August 2009, its then variable home loan rate?
Please see our opening summary. To clarify, the standard variable rate in August 2009 was 4.15%. However the Bank had previously decided to offer a discount to borrowers whose loans related to their PPR, but not to borrowers whose loans related to investment properties. Senior Council advisesthat this is an ‘entirely legal course of action. The Complainant therefore received exactly what is specified in his facility letter. His payments are calculated by reference to the contractually agreed reference rate in compliance with the applicable contracts. -
S. The Bank is asked to elaborate on the following statements:- ‘... the Bank introduced a new Reference Rate for home loan borrowers, i.e. those borrowing to purchase their family home known as the ‘Home Loan Rate’ in 2009 and extended a discount to those borrowers who met - the criteria. As your loan did not qualify for that discount the rate applied to your account at the end of the fixed rate period was determined by clause 11.4 of your facility letter until it s closure, and therefore the rate of interest which was charged to your loan was correct. Please detail the criteria which were apparently not met by the Complainants. Similarly, please explain how clause 11.4 operated in respect of the Complainants and the Bank’s interpretation of Clause 11.4? '
Please see response to question 1. Clause 11.4 of the agreed facility letter states: “Unless a further Fixed Period is agreed in accordance with clause l 1.3, at the end of the Fixed Period the rate of _ interest applicable to the Loan will revert to our then applicable variable home loan rate.” This clearly indicates that the rate to be applied will be determined at the point in time when the event occurs.
6. Please confirm if the Respondent had only one type of mortgage rate applicable to both home and investment loans when the Complainants’ investment mortgage was agreed with the Bank in 2006? '
Please see response to question 1. Customers with borrowings relating to Investment properties, and customers with borrowings related to their PPR, both had their interest rates calculated with' reference to the Bank’s variable reference rate namely our “Variable Annuity Mortgage Rate”. This continues to be the case.
7. What evidence does the Bank have to demonstrate that the rate of 4.15% was the correct interest rate in respect of the Complainants’ investment mortgage account? Why were the Complainants not offered the lower variable rate set at 3.4%? Had the lower rate applied from August 2009 to January 2010, what saving would have accrued to the Complainants’ investment mortgage account?
Please see our response to question 1. The contracted rate is the Banks Variable Annuity Mortgage rate at 4.15%. Please find detailed below an ‘extract from the rate advertisement in respect of this rate informing customers of the current rate in accordance with our obligations under the terms and conditions.
For the sake of ‘argument, had the Complainant’s loan been for his PPR, the discounted rate would have been applied and a saving of €819.35 would have been realised.
8. When did the Bank reclassify investment mortgages and residential mortgages and when were the Complainants advised of this change in name etc?
This was done in February 2009 and the Complainant was informed of this in writing at that time. '
9. Under what authority, rule, regulation etc is the Respondent entitled to re-name mortgage accounts? Please state the grounds on which the Bank is entitled to alter the name of the loan. _ Did the Respondent need to seek approval from the Financial Regulator (now Central Bank) before re-naming the mortgage account? Please state the grounds on which the Bank is entitled to alter the rate of interest that applies to the loan.
The Bank was not required to seek authority from the Financial Regulator in relation to the name change. In essence the loans were re—branded principally for ease of reference for customers and for regulatory reporting purposes. The actions of the Bank have not in any way altered the underlying terms and conditions of the loan agreements between us and the Complainant. All that has happened is that the Bank has, given current economic circumstances, chosen to offer a special discount to its home-loan borrowers. The change in name was necessary following the expiry of the fixed rate period. The name prior to the change reflected the fixed nature of the rate agreement, and the name change at the end of the period clearly reflects the loan type and rate going forward for the remainder of the loan. We are satisfied that in re-branding the loan account we have not altered the underlying terms and conditions of the loan agreement. The loans were given different names principally for ease of reference for customers and for regulatory reporting purposes. We acknowledge that this nomenclature may regrettably have caused some confiision to our customers. All our customers, including the Complainant, continued to have their interest payments calculated by reference to the contractually agreed reference rate in compliance with the applicable contract. As an investment loan borrower, the Complainant was not eligible for the further special discount that National Irish Bank had extended solely to home-loan borrowers since early 2009.
10. Did the Respondent treat both residential and investment mortgages in the same manner before 2009 and were these two mortgage types subject to the same reference rate? In this regard, were these two aforementioned mortgage types automatically impacted by ECB interest rate changes up to 2009 which is when the Bank states it introduced a new ‘Home Loan Rate’? What interest rates were charged to residential home loan rate mortgages from 2009 up to January 2010 and what rates were charged to investment mortgages over the same period?
As advised in our response to question 1, both residential and investment mortgages have always been and continue to be, subject to the same reference rate. This reference rate was and remains completely separate from the ECB rate and is not set by reference to the ECB rate (National Irish- Bank is funded by the wholesale markets and not the ECB). All customers continued to have their interest calculated by reference to the contractually agreed interest reference rate in compliance with the applicable contracts. PPR customers were offered and given a special discount rate, which we are advised by Senior Counsel, is an entirely lawful course of action (unless, clearly, if one acted in breach of contract). Please see a comprehensive table below demonstrating the rates from inception of the loan, which clearly shows when the discount was applied to PPR borrowings.
-11. Had the change in name not have occurred, would the Complainants’ investment mortgage monthly repayments have remained the same when compared to holders of residential mortgage account? Were the Complainants ever advised that it was the intention of the Respondent to change the name of their mortgage account? Please clarify if the Complainants were informed prior to the commencement of the loan that the mortgage could be renamed and a different rate of interest applied.
The name change is a function of the behaviour of the product. It would be misleading and illogical to continue to identify a loan as a Fixed Rate Loan when the variable period commences, and the name change does not alter the legal agreement in any way. - The question suggests that a different rate is being applied. However this is not the case. The Complainant has had at all times, his interest calculated by reference to the contractually agreed reference rate in compliance with the applicable contract. . The contract between the Complainant and the Bank is as set out in the relevant loan agreement and it is in accordance with these terms that the loan operated since inception although the name by which the loan had been referred to had changed. However the form of the loan as opposed to the name by which it is branded had not been changed. The Complainants’ loan was at all times an Investment Housing Loan. The Complainant is in effect seeking to avail of the discount that National Irish Bank has extended to home-loan borrowers since early 2009 and for which, as an investment borrower, he is simply not eligible.
12. Please comment on the Complainants assertion that he was advised by the Bank’s Swords Branch that the rate of 4.15% was the only rate available to him and that if he did not accept same, then he could transfer his mortgage to another mortgage provider.
The Complainant has not stated who in particular he spoke to and we have no record of the conversation. However, the Complainant would have been informed of the Bank’s position, which was that the rate he was entitled to was the standard variable rate as outlined in his facility letter, which is what was being charged. We do not believe he would have been told to transfer his mortgage to another provider. However, under free market conditions he was of course entitled to seek out a different provider if he was unhappy with his mortgage rate, and this was the course of action he chose to take.
13. Have the Complainants also moved their residential mortgage from the Respondent as a result of this dispute?
The Complainant did not have his residential mortgage with National Irish Bank.
Yours sincerely,
Jennie Power
Head of Compliance
