‘Millions of euro’ overpaid in BoI interest

The holders of thousands of commercial mortgages and loans may have overpaid millions of euro in interest because Bank of Ireland does not automatically cut standing order payments when interest rates fall.

Waterford businessman David Walsh, who runs Office School and Computer Supplies at Lower Main St in Dungarvan, was refunded €33,000 in interest overpayments by the bank on his commercial loans, and had his annual repayments reduced by €30,000 per year after he challenged the bank for failing to automatically reduce his monthly loan repayments when interest rates changed from 2001 to 2008.

Mr Walsh said that he only began to look at his massive interest loan repayments when the bank threatened to refuse to honour his cheques because he had exceeded his overdraft limit — which arose directly from the bank taking too much cash from his current account to pay his commercial loan charges.

Mr Walsh also forced the bank to refund €11,000 on the interest overcharged on his current account as a direct result of the bank failing to cut his monthly commercial loan repayments when interest rates fell.

“I know there are thousands of business people struggling to keep their business afloat and workers employed,” he said. “They should check immediately that they have not been overcharged in the same way that I was. I just hope it is not too late for many good business people put under unnecessary pressure because of the banks poor systems and administration.”

FDC accountants’ Dungarvan-based regional manager, Vincent Hayes, who acted for Mr Walsh, said it is very important for all self-employed people to be aware that this is not an isolated problem, “None of the major banks are operating a computer system whereby repayments change when interest rates change on commercial loans, so the problem is widespread, in our opinion,” he said.

Bank of Ireland admitted they do not automatically reduce commercial loan repayments when interest rates are cut. In a statement, it said: “Unlike home loans, commercial mortgage loans are priced against market-related rates which change on an ongoing basis. Customers taking out these loans fix their rate of repayment, typically for periods of three months upwards. Customers are advised in writing every time the rate associated with their loan changes.

“However, it is the industry norm for loans of this nature that the regular payment is not automatically amended every time the interest rate attached to the loan changes. This is clearly outlined in the terms and conditions attaching to the loan. Customers may request that repayments be reduced reflecting rate reductions to facilitate their cashflow or for other reasons.”

Mr Walsh brought a case for repayment of the overpaid interest to the Financial Services Ombudsman and was awarded an extra €2,500 in compensation.

However, he failed in a High Court bid to have the award increased and to get an order compelling the bank to automatically reduce interest payments when interest rates are cut.