Probe as borrowers in arrears hit with legal fees

The Central Bank is investigating the legality of commercial banks slapping legal fees onto the mortgages of their customers who have fallen into arrears even before cases are concluded, the Irish Examiner can reveal.

More than 60,000 mortgage holders in arrears on their home loans are being hit with legal fees, which often run to tens of thousands of euro, but the basis of the banks’ actions is now under examination, it has been confirmed.

Finance Minister Paschal Donohoe has said “he is aware” of what the opposition has called “shameful sharp practice” and the Central Bank is examining its legality.

“I am advised by the Central Bank of Ireland that it is aware of the reported practice that some lenders apply legal costs to the mortgage accounts of borrowers in arrears before the conclusion of legal proceedings,” said Mr Donohoe.

The Central Bank is examining this practice to determine if it is permissible under the Code of Conduct on Mortgage Arrears, CCMA, the Consumer Protection Code 2012, and other regulations.

David Hall, the director of the Irish Mortgage Holders Organisation, said the practice shows just how homeowners pay to have their homes repossessed.

“This is going on, and all the time the lawyers are laughing at the customers. This is another hammer blow to those homeowners who fall into arrears but who are trying to work their way out of it,” he said.

“We hear all the time that if you work with the bank, you will be ok. With this going on, clearly, that is not the case.”

Mr Donohoe was responding to Fianna Fáil’s finance spokesman Michael McGrath who described the behaviour of the banks as “terribly unfair”.

“Where borrowers are cooperating and making every effort to fulfil their obligations, I think it is terribly unfair for a lender to be heaping its own legal fees on to the mortgage balance,” said Mr McGrath.

“It is very concerning that neither the minister for finance nor the Central Bank can give a clear answer to this question. We need to know whether lenders are allowed to essentially pass on their legal costs in this way to the borrower and, if they are not, then what is the Central Bank as the regulator going to do about it,” he said.

Chair of the Oireachtas finance committee John McGuinness described the banks’ actions as being “arrogant and aggressive” to a group of people who are incredibly vulnerable.

“People who are seeking to work their way out of trouble are being ridden roughshod over by banks who are hell-bent on screwing them. It is disgraceful. Families are beaten up in the name of greed,” he said.

Mr McGuinness, who has along with his committee had an intensive engagement with the banks in recent months over the tracker mortgage scandal, said the banks since their meetings with Mr Donohoe are “back to their bad old ways”.

In response, the Banking & Payments Federation Ireland said banks must stick by the rules and be able to show why such fees are being levied.

In a statement issued to this paper, it said: “We would expect mortgage lenders to comply with the relevant Central Bank codes; and, where there is a question regarding compliance or interpretation, for a lender to be able to demonstrate how it believes it is compliant. We await the outcome of the Central Bank’s examination of the matter.”

At end-December 2018, there were 728,168 private residential mortgage accounts for principal dwellings held in the Republic of Ireland, to a value of €98.1bn. Of this total stock, 63,246 accounts were in arrears, with some 44,009 accounts (6%) were in arrears of more than 90 days.

The outstanding balance on all lenders’ PDH mortgage accounts in arrears of more than 90 days was €8.7bn at end-December, equivalent to 8.8% of the total outstanding balance on all PDH mortgage accounts.

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