How the competition regulator, Central Bank, and finance ministers let down mortgage holders
When the CCPC and the Central Bank were falling down on the job, the ministers for finance should have stepped in with legislation.
For most of the last 10 years, Ireland had the highest mortgage rates in the eurozone. And those rates were not just a little bit higher — at times, they were twice the rate, meaning an Irish borrower with a typical mortgage was paying up to €3,000 a year more in interest than they would have been paying elsewhere in the eurozone.
The banks kept these rates at high levels through anti-consumer practices by attracting new customers with low initial rates and cash-back offers. But when this initial rate period was up, the customer went onto the much higher existing customer rate for the rest of the mortgage term.
The customers paid for the cash-back loan many times over, and existing customers were not allowed to switch to the rates offered to new customers, all part of the the gimmicks and trickery which allowed Irish banks to fool Irish borrowers into paying the highest rates in the eurozone. Regulators have not been much help.
The Competition and Consumer Protection Commission, or CCPC, has a mandate to promote competition and highlight the interests of consumers, but the regulator has said very little about high mortgage rates.
The Central Bank has instructed banks to issue a statement to borrowers every year telling them the interest rates they were being charged and that borrowers might get a cheaper rate from another bank. Regulators have argued their role is not to set mortgage rates, a point on which I agree with them.
But the first principle of the Central Bank’s Consumer Protection Code requires banks to treat customers fairly. Tricking customers into paying higher rates is manifestly unfair.
When vulture funds bought mortgages from the mainstream banks, we were assured by the Central Bank and by senior Government ministers of the time that borrowers had nothing to worry about.
When it was pointed out that the mortgage contract allowed the lender to vary the rate at their own discretion, the Government and the Central Bank had argued there was no evidence that vulture funds were availing of this freedom.
Customers of vulture funds, in some cases, are paying up to twice the rate charged to customers of the lenders that originally held the mortgage loans, before they were sold on.
Borrowers suffer for years and regulators act very late in the day. In the past, regulators eventually started doing what they should have done five years previously.
But in the meantime, thousands of mortgage holders have been put through the ringer. Their families have been hit, and in many cases, have lived in fear of losing their homes through mounting arrears.
Successive ministers for finance have also done little of significance. They resisted some attempts to ban anti-consumer and anti-competitive practices. When the CCPC and the Central Bank were falling down on the job, the ministers for finance should have stepped in with legislation.
A few years ago, the only consistent advocate for mortgage holders was the then opposition spokesman on finance, Michael McGrath. He highlighted the very high rates being charged by Irish banks.
He spoke to the media. He lobbied the Central Bank to take action and attended public meetings.
He met distressed mortgage holders and brought the banks before the Oireachtas Finance Committee. He went as far as to publish a bill in the Oireachtas that may have banned cash-back mortgages.
I was delighted when Mr McGrath was appointed finance minister, but I have been bitterly disappointed even since over activity on bank consumer protections.
Irish banks have not changed their spots.
The CCPC, the Central Bank, and the Government ought to be doing much more.
- Brendan Burgess is a consumer advocate and founder of Askaboutmoney.com
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