Key Post The different lenders have different ways of calculating the refund

Brendan Burgess

Brendan Burgess

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This post deals just with the refund of the overcharged and overpaid interest. This is a complicated issue, so please do not take the thread off topic with noisy posts about the inadequacy of the compensation. Discuss these in other threads.

I have set out in detail in this thread, how it should be done ( PTSB is doing it correctly as far as I can work out.)

Calculating the refund when a tracker is restored


Say that the balance on the mortgage before the recalculation is €200k
1) The lender should redo all the statements with the correct interest rate keeping the repayments actually made. Say that this shows a balance of €185k
2) The difference between the balances before and after the recalculation is the amount of the overcharged interest - so €15,000 in this case.


However, because the interest rate was too high, the repayments were more than they should have been.
3) Recalculate what the balance would have been had the right interest rate been applied and had the right repayments been charged: €195k
4) Reduce the balance on the mortgage to €195k and refund the overpayments of €10k to the borrower

Reconciliation
Balance on mortgage before correction :€200k
Balance on mortgage after correction:€195k
Customer benefits by: €5k
+ Refund cheque: €10k
Total overcharge: €15k
 
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Bank of Ireland's approach is the simplest

upload_2018-1-3_12-23-11.png


They work out what the overcharged interest was each month and they simply write out a cheque for this. Using the above figures it will arrive at €15,000.

Your balance will stay at €200k, but you will have €15k in your bank account.

In practice you are getting an extra €5k at tracker interest rates.

While this is not "correct", it favours the borrower. It is also very simple to do and simple to understand.

BoI might be happy enough to lend their customer an extra €5k at ECB +1%.

Brendan
 
AIB's approach is ridiculously complicated and hard to follow

upload_2018-1-3_12-27-18.png


There are two separate boxes above, although it's not obvious. Columns AtoD are one box, Columns E to G are a separate box.

In this case, they overcharged by €16,681.

But the customer overpaid by only €10,967

So the overpayment is given back by way of a cheque and the mortgage balance is reduced by €5,714 ( €16,681 -10,967)

This is the same result as ptsb, but it's just much more difficult to follow.

Brendan
 
PTSB's approach automatically accounts for the time value of money (but at the tracker rate.)

Let's say John lent Mary €100,000 on 1 January 2017
He charged her 5% interest instead of the agreed rate of 1%.
The balance today is €90,000 after charging 5% interest.

By redoing the statement at 1%, they are automatically accounting for the time value of money.

Mary could argue that in calculating the TVM, a different rate should be used rather than the 1%.

AIB and BoI have to do a separate calculation for the Time Value of Money

In John and Mary's case, BoI said "On the 31 of January, we charged you €300 instead of €200". So here is the €100 overcharge back.

But this was charged on 31st Jan, so we owe you 11 months' interest on that.

I don't know what rate Bank of Ireland uses, but I think that they base it on the interest overcharged rather than on the lower figure of overpayments. So again,the customer benefits from BoI's simplicity.

Here is how AIB explained their rate to me:

"Having looked at various options, we decided to that a fair basis for calculating TVM is the best available 1 year fixed savings rate that AIB had over the period. We used the 1 year fixed rate as this was generally the benchmark rate in the market. We used the EBS greater €100,000 rate as this was the highest available in the Group.

By way of context the average 1 year fixed rates for each year were as follows:

upload_2018-1-3_12-45-55.png
"
 
Brendan
I'm Boi customer. On the above breakdown you give the way they refunding are u saying we have nothing to appeal re the loan balance adjustment
I was owed x amount and they refunded said amount to me directly
 
Correct

If you were overcharged €15,000, they should have refunded you €10,000 and adjusted the balance down by €5,000.

In fact, they have simply refunded you the full €15,000. If you want to adjust the balance down, then you pay €5,000 off the balance.

AIB and ptsb did not give their customers that option.

Brendan
 
Thanks a million for this Brendan. I am BOI and was wrecking my head trying to figure out if balance should be adjusted also.
 
Hi Brendan.

I am a BOI customer and having read the guidelines issued by CBI for redress and BOI have not followed the guidelines. It clearly states that Loan Balances are to be adjusted however BOI have not done this. Yes they may have lumped the whole lot into one payment back to the customer but that is incorrect. They should've reduced the loan balance and for that reason I will be appealing on this exact issue.

What do you think?

Appendix B - Supplementary Guidance for Redress and Compensation for Tracker Mortgage-related issues
  1. 1. Redress and Compensation
    1.1 Redress
    1.1.1 “Adjusted Amount” refers to the difference between the monthly amounts that customers were charged in respect of their impacted accounts and the monthly amounts that they should have been charged had the relevant issue identified not occurred.
    1.1.2 Loan balances are to be adjusted (the principal balances on impacted customer accounts to be adjusted to the correct level as if the issue giving rise to redress had not occurred and appropriate Tracker Interest Rates had been applied to the accounts from the appropriate time).
 
Hi Stillwaiting

Bank of Ireland should have given you a refund of €10k and reduced your mortgage balance by €5k.
Instead, they refunded you €15k.

There is no need to appeal. Just pay the €5k off your mortgage and you achieve the same effect.

Brendan
 
Brendan Burgess said:
Hi Stillwaiting

Bank of Ireland should have given you a refund of €10k and reduced your mortgage balance by €5k.
Instead, they refunded you €15k.

There is no need to appeal. Just pay the €5k off your mortgage and you achieve the same effect.

Brendan
Click to expand...

That ^^ was what I figured and was puzzled by some posts I saw here yesterday about reducing the mortgage balance. I accepted the refund back onto my current account and can now pay down the mortgage a bit, if I wish to do so.
 
dvshah1974 said:
Hi anyone has seen example of KBC Redress and Compensation? I am really not clear
Click to expand...
Here's kbc's example. I found it to be very clear and easy to understand.
 

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Hi, does anyone know how AIB would treat arrears that was capitalised few years back as part of the mortgage restructuring while calculating the redress/refund? would they reduce the loan balance or refund the customer?
 
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