Eamon Quinn: In plain sight, Irish bank customers are being overcharged

Facing meltdown in the financial crisis, the Irish banks a dozen years ago started to devise a number of tricks to separate customers from their trackers.

KBC was the second bank to be fined for its part in the industry tracker mortgage scandal, with the regulator last week turning up the heat in condemning the lender in no uncertain terms.

The Central Bank is working through its list of enforcement actions that will end up in it slapping fines on all the Irish mortgage lenders, as it attempts to bring some sort of accountability to banks for ripping off their customers over many years.

In some cases, the banks had resisted to the last in acknowledging they had tried to bamboozle borrowers. 

Facing meltdown in the financial crisis, the Irish banks a dozen years ago started to devise a number of tricks to separate customers from their trackers.

During the boom years when Government tax incentives fuelled a house building boom, trackers had made a lot of sense, even for the banks, and half of the residential mortgages on their books were at one stage accounted for by trackers.

The lenders had stopped selling trackers some years before the banking and property crash. And by the time of the bust, they were facing arrears across all types of mortgages, on both tracker and variable rate mortgages. 

Tracker borrowers were costly for the lenders. In the language of the banks, trackers were low-yielding and just about profitable at best.

By 2015, the Central Bank had started its formal tracker investigation into the banks using consumer protection legislation.

Permanent TSB was the first to face the wrath of the regulator; it was fined €21m last year and condemned for its “serious failings” for denying some customers their lower tracker rates over a decade earlier. Another four banks, including group offshoots, will be up next to face their enforcement actions.

AIB, Bank of Ireland, and Ulster Bank have put aside tens of millions to account for the costs of the investigation and for the compensation they have been forced to pay out to their wronged customers. They have also made provisions to cover anticipated fines. 

In all, over 40,000 mortgage accounts across six banks were overcharged and the formal investigation is likely to cost the system at least €1.4bn in fines and compensation. 

The financial pain for the affected customers was considerable. Padraic Kissane, the financial services adviser who over a decade ago did much to expose the banks, has noted that the monetary costs were only one part.

The costs need also to be counted for wrecked households where homes were repossessed and in the broken relationships and stress that their actions entailed.

The €18.3m fine paid by KBC was hefty compared with its market share of mortgage loans in Ireland and the Central Bank ruling was scathing.

At the start, KBC insisted it could report only 93 overcharged accounts; the investigation by the end unearthed 3,741 accounts, revealing a “deeply unsatisfactory” approach that had brought “devastating and avoidable” pain on its customers, according to the Central Bank.

All the banks have apologised for their behaviour. But as the dust settles on another Irish banking scandal, there has been no individual or group responsibility. Since the crash, the regulator has secured new powers.

Under a system known as Sear, or the Senior Executive Accountability Regime, it is also insisting that bank boards and top bankers sign up to new undertakings that will hold them personally responsible for future wrongdoings. 

During the recovery years, the banks with a large degree of official encouragement got back to selling variable or short-term fixed-rate mortgages but which after one, two, or three years reverted to elevated levels. 

Irish mortgages and loans to small firms are among the most expensive in the eurozone. 

The regulators and the Government, which owns large chunks of the banks, obviously have the responsibility in preventing any new overcharging scandal. 

But they also need to get real in tackling what is hidden in plain sight: Irish people and businesses paying the highest loan costs in Europe.