Timing is everything: Tracking a scandal

The victims of the tracker scandal found themselves at the mercy of the banks when it was raining cats and dogs, writes Michael Clifford.

LUCK separates a lot of us in how we managed to negotiate the really bad times. One strand of luck that came my way was timing in when a fixed-rate term on the mortgage for the family home came to an end. That was in early 2006 when the banks were falling over themselves to throw as much money as possible at all and sundry.

I can still remember the phonecall. A nice woman from the financial institution told me about the end of the fixed term, and advised that we take up this thing called a tracker. I hadn’t a clue, but an innate suspicion prompted caution.

In the end, I gave in and said “go ahead, put us on the tracker”. That lucky break saved us thousands over the following 10 years and made life a lot easier than it might have been.

If the fixed term had finished two years later, would the nice woman have told me, as she was obliged to do, about the option of a tracker? From 2008, a lot of nice men and women didn’t tell at least 20,000 customers, condemning them to hardships that ranged from severe stress to relationship breakdown to loss of their home.

The focus of the banks changed with the crash. No more would they be doling out money. Instead, they would hoover it up wherever it was to be found.

Hence customers who qualified for a tracker mortgage were targeted for easy money.

My lucky break in 2006 was in sharp contrast to the experience of another family with whose case I have become familiar.

This column has seen extensive documentation in relation to a case involving a businessman living in a Munster town who wanted to purchase a buy-to-let property in 2006. We will call him Peter. His father-in-law, who also features in the story, will be referred to as Mr G.

Peter’s business didn’t generate the profits that would justify the local AIB branch taking a punt with the loan. So they had to find some way to justify doling out the money. And whatever happened, the money had to be doled out.

In an internal bank document under the heading ‘Notes On Source Of Funds’, the following was written: “Mr G has funds with us to offset 80k gift.” This suggested that Peter’s father-in-law, Mr G, who ran a separate business in the town, had agreed to forward a gift of €80,000 to his son-in-law. Except there was no such offer. Neither Peter nor Mr G knew anything about a gift.

Mr G did not offer a gift to his son-in-law. Peter did not approach him for a gift.

There was no gift. It was, in fact, a fiction created by somebody in the bank to ensure the mortgage would be approved. Mr G’s financial circumstances would have been available to personnel in the bank. The obvious conclusion is that somebody in the bank came up with the bright idea of inventing a gift in order to give a rosier picture of Peter’s finances so that the loan could be fired out.

Within the bank, a memorandum of sanction was created for the proposed loan. This is an internal document setting out the terms and conditions which the bank requires from the borrower.

And by that stage, Mr G’s fictional gift had been inflated. Now it was to be not a phantom €80,000 but €130,800.

Under additional conditions, this was recorded as: “Written confirmation from Mr G that his gift of 130.8k is a gift and non-repayable.” There was no written confirmation because Mr G knew nothing of any of this, including that confidential information about the health of his financial circumstances was being used in this manner.

There was no mention of the gift in the final letter of offer, as that would have alerted the customer and his father-in-law as to how the sums had been done.

Roll on five years and Peter had got into financial trouble at the height of the recession.

And here is the crucial bit for anybody who has the slightest suspicion that they are being unfairly dealt with by a bank: He applied for his file to the AIB data office in Dublin. This costs €6.50 and obliges the bank to hand over all documentation in relation to your interactions and business with the bank.

That was when he discovered what had been perpetrated. He contacted AIB and asked what exactly had gone on during his loan application. His father-in-law also contacted the bank to inquire as to why he had featured in the application.

Correspondence between the branch and head office responding to the matter is illuminating. An email from head office on February 5, 2013, states: “Letter of gift was included in the funds up-front conditions which was satisfied to allow drawdown of funds. We would not require to view gift letter for drawdown.”

This, however, was in conflict with the memorandum of sanction at the time of the loan, as quoted above, which demanded written confirmation of the gift.

Since then, the bank has prevaricated; refused to admit that Peter’s finances were inflated internally in order to justify handing out the loan; and insists that he continue to repay the mortgage.

In recent years Peter was repeatedly hounded by the banks, with regular phonecalls and letters threatening action if he failed to meet his repayment obligations. Last July, the mortgage was sold on o a vulture fund which has little interest or responsibility for what went on back in the days of reckless lending.

Peter is a big boy. He took a punt like thousands of others, hoping to make a few bob while the sun shone. But does all the responsibility for reckless lending lie with the borrower? Does the lender, particularly one which has acted with duplicity, have any responsibility?

Peter was unfortunate in his timing in that it was all blue skies in those days. As is well known the banks hand out umbrellas when the sun is shining and whip them away when it begins to rain.

The victims of the tracker swindle found themselves at the mercy of the banks when it was raining cats and dogs. No ethics or morality was shown in how these people were treated. It was simply the banks chancing their arm, trying to get away with another ruse to rustle up some more money.

Now they may have to repay some of the money. But looking at the bigger picture the inescapable conclusion is that they have once more got away with it. And that will continue to be the case as long as regulators and politicians continue to display a baffling deference to a culture of banking that is morally bankrupt.