Interest rates - Overcharging endangers businesses

IN one way or another, the Irish banks have a long and regrettable history of overcharging their customers.

From mortgage repayments to credit card charges or overcharging on management fees, the repercussions can be both costly and deeply worrying for borrowers.

Technical failures are usually blamed when things go wrong, a scenario illustrated by the Ulster Bank catastrophe, which demonstrated in unprecedented fashion what havoc a computer anomaly can wreak.

When that happens, domestic borrowers are normally the principal victims of the unacceptable practice of overcharging.

However, far-reaching allegations made by Waterford businessman David Walsh on today’s revealing front page report have put a new twist on the overcharging controversy, and suggest that holders of thousands of commercial mortgages and loans may have overpaid to the tune of millions of euro in interest payments.

The reason is that Bank of Ireland does not automatically cut commercial standing order payments when rates fall.

If his assertion applied across the board, the practice of overcharging would take on a new and serious dimension because it could be adding to the troubles of small businesses, many of which are going to wall in droves.

At a time when the survival of troubled companies could turn on the basis of relatively small fluctuations in, say, the health of an overdraft, any contingency that might put pressure on how a business operates could make the difference between success and failure.

On foot of his successful challenge, Mr Walsh has secured a refund of €33,000 in interest overpayments to the bank on his commercial loans. Significantly, his annual repayments have also been reduced by €30,000 per year after alleging the bank had failed to automatically reduce his monthly loan repayments when interest rates changed between 2001 and 2008.

To be fair to Bank of Ireland, it openly admits that commercial loan repayments are not automatically reduced when interest rates are cut. It argues that, unlike home loans, commercial mortgage loans are priced against market-related rates which change on an ongoing basis and are taken out on a fixed repayment rate for three months upwards.

It says customers are advised in writing every time the rate associated with their loan changes, depending on the roll-over period selected by the customer.

What will worry other company managers is that Mr Walsh only discovered the real scale of his interest loan repayments when the bank threatened not to honour cheques because he had exceeded his overdraft limit. It appears that happened because the bank was taking too much cash from his current account to meet commercial loan charges.

This overcharging controversy could boil down to yet another computer problem. According to Mr Walsh’s accountants, no major bank in the Republic operates a computer system whereby repayments change when interest rates on commercial loans change.

This suggests the problem could be widespread. There is an onus on the financial regulator to investigate as a matter of urgency.

If the Bank of Ireland operation is reflected in other lending institutions, as seems likely to be the case, every possible step must be taken to ensure other companies are not put at a disadvantage that could threaten their future.