Some eight years since the tracker scandal first broke, many homeowners are only now receiving offers of redress and compensation: others have yet to receive anything.
The scandal, which saw thousands of mortgage customers either denied access to a tracker, or charged an incorrect rate on their tracker mortgage across 11 banks operating in Ireland, is expected to impact more than 33,000 customers by the time it finally wraps up, hopefully later this year.
So far, lenders have paid out some €316 million to impacted customers, and the total sum is expected to rise to about €1 billion – although this figure also includes costs incurred by the banks. Customers are being compensated on two fronts. First, a redress payment is being offered to return the affected customer to the position that he/she would have been in had the relevant issue not arisen. According to the Central Bank, this involves moving the customer to the correct interest rate and refunding any overpayments made due to the lender's error.
Impacted customers are also due compensation, to “reflect the detriment suffered by affected customers”.
However, while customers may be grateful that they have finally started to receive their offer letters and cheques, the question for many may be “is this enough, or should I appeal?”
Last week, AIB chief executive Bernard Byrne told an Oireachtas committee that the bank had paid out €133 million so far of an expected €190 million to impacted customers. Of the 14 customers who lost their home as a result of the issue and have been compensated, two have already launched appeals against the bank.
So what are the considerations to making such a decision?
The appeals process
As part of the terms of the compensation process agreed with the Central Bank, banks have established independent panels, staffed by professional services firms such as Grant Thornton (Bank of Ireland), KPMG (PTSB) and Mazars (AIB), as well as consumer experts, to hear appeals on behalf of impacted customers.
Banks are operating two panels – one for more routine claims, and another for more significant ones, such as those which deal with the loss of a home.
Customers must make an appeal within 12 months of getting their offer letter, and do so in writing. Once the appeal is submitted, the appeals panel will agree to consider it within 40 business days, and the customer should be then notified of its decision within a further 10 business days. Appeals will not involve an oral hearing.
Customers still not satisfied at the end of the hearing can bring a complaint to the Financial Services Ombudsman or issue legal proceedings against the bank.
Of note is the fact that compensated customers can cash any cheques they receive without undermining their right to appeal.
“People can accept a redress scheme on a without prejudice basis, and then pursue the bank for additional compensation,” says Niall Kiernan, a partner with Lawlor Partners.
How the offers are being calculated
According to Jim Stafford, managing director at Friel Stafford, the level of compensation being offered can vary from 10 per cent to 30 per cent, based on the interest overcharges, but may also be less than this, depending on the scale of the mistakes made by the banks.
For example, AIB is offering 4,000 or so customers who were never given the right to a tracker, the choice of moving back on to a tracker rate, as well as €1,000 in compensation plus €615 towards financial advice.
Typically, offers are calculated on a simple mathematical basis, and don’t take into account the personal impact of overpaying a mortgage for a long period of time. Given the time pressure of getting the redress process up and running, Stafford says that this one-size fits all approach makes sense.
“It’s a fast way of doing it, as it gives people money and immediate compensation,” he says. However, it does mean that some people may be short-changed.
“I cannot say enough how complex this whole issue is,” says Stafford, noting that some clients will have been offered compensation that the bank wants to set off against their mortgage arrears.
“So do they accept this?”
Kiernan is of the view that the banks are starting the compensation process with modest offers. “They’re starting off very, very low,” he says.
Grounds for appeal
Given that banks will typically calculate their offers without any input from the impacted customers – and thus will do so unaware of potential additional expenses or stress incurred by the impacted homeowners – Stafford says “most customers” should appeal in order to give the bank this additional information. Kiernan agrees.
“We’re advising all our clients to appeal to exhaust that,” he says, adding that he has noted a steady stream of worried clients querying the approach to adopt. “Essentially people are looking for advice on whether the figures are correct and whether the offer of compensation is sufficient,” he says, adding that “everyone’s loss is different”.
“Some have lost their home, some have medical conditions, some decided not to have a larger family because they couldn’t afford to,” he says.
According to Stafford, banks may be unaware, for example, of customers having to resort to expensive finance to meet interest payments or may be unaware of medical bills incurred etc. He has one client who resorted to borrowing money at extortionate rates through money lenders to meet their mortgage repayments – and yet the bank is only compensating the customer with very minor interest.
So Stafford is appealing on the grounds that the interest repaid should be at the same level as the money lender’s.
A host of factors can mean a higher compensation offer may be expected, such as being forced to use expensive forms of finance like credit card debt to cover household expenses and the impact of stress on health and relationships.
According to Stafford, having a negative credit rating because of issues arising due to the tracker could lead to a claim against a bank for defamation.
And then there are those people who have lost their home due to the tracker scandal, who should therefore be entitled to significantly more compensation. The threat of losing a home can also be a factor; according to Stafford. Impacted customers faced with repossession could make it more difficult for the bank to obtain a re-possession order by rejecting the settlement offer.
“Any delays in a repossession order would give the family time to improve their financial circumstances and possibly opt for a personal insolvency arrangement [PIA],” he says.
There is also the issue of the “domino” effect, whereby banks may have called in a loan and appointed a receiver on the back of higher interest rates.
“The losses caused by the “domino” effect of a bank improperly appointing receivers to properties can be very substantial, and may, in some cases, amount to millions,” advises Stafford, noting that these properties may have been sold at values considerably less than what they could have achieved today.
Should you get advice?
Many of the offers from the banks also come with contributions towards financial advice, so it makes sense to seek some further advice if you believe you have a case.
As mentioned above, AIB is giving some customers €615, while PTSB offers €400 and Bank of Ireland is offering between €750 and €1,000. For legal advice, you can expect to pay upwards of about €250 + VAT for an initial meeting, although many solicitors won't charge for this.
What about bankruptcy/personal insolvency?
For those customers who may have gone bankrupt in part because of the bank overcharging them, they may have a “substantial claim for compensation”, notes Stafford. However, someone currently going through a PIA may enjoy little benefit from an appeal, because, as Stafford notes, “any compensation payments may be captured by the ‘windfall’ provisions of the PIA”.
On the other hand, those who have been unable to to do a PIA/DSA (debt settlement arrangement) to date because they had no surplus to offer their creditors, may now be able to do so with the compensation lump sum on offer.
Taking it further
Those impacted may also be tempted to see how upcoming court cases play out. After all, banks are paying the professional services firms on their appeal panels, so some may question their independence.
Last year, a customer in the west successfully settled with Permanent TSB out of court and was awarded a multiple of what was first offered by the bank, as well as costs. Kiernan hopes to bring a tracker case to the High Court by year end, suing PTSB for breach of contract and personal injury.
“Hopefully it could set a precedent,” he says.
In some cases, it can make sense to go straight down the legal route.
“Those customers with substantial claims might be advised to immediately instruct solicitors to issue a seven-day ‘demand’ letter and then follow up with legal proceedings. Such an approach can put more pressure on a bank to make a more ‘reasonable’ settlement offer; otherwise they could end up paying both sets of legal costs,” says Stafford.
If you’re unhappy with the outcome of the appeal, you can bring it to the Financial Services Ombudsman or issue legal proceedings. While the statute of limitations might have been be an issue, the fact that the banks have admitted mistakes precludes the statute being applied.
“As the banks are acknowledging, in writing, the claims, then a new period of statutory limitations kicks in from the date of the written acknowledgement,” says Stafford.
An appeal brings additional costs
Of course, opting to appeal the offer isn’t without its own costs. And there is the additional stress this can wreak on an individual and their family, along with the possibility of legal and advisory costs.
As Stafford notes, you could be liable for your own legal costs, as well as those of the bank’s, if you lose.
“The banks are very well resourced and will, in my opinion, heavily defend any initial legal actions to avoid any legal precedent being set,” he says.
Additional costs, such as employing a forensic accountant to determine the impact of the higher tracker rate, can also go against you if your appeal isn’t a success.
“People do have to be careful they don’t gamble it all in the hope of getting more money back,” advises Stafford.
