Category: Mortgage Complaints

Auction Alliance paid off bank officials, says report – paying referral commissions to bank officials at Absa, Nedbank, RNB/FNB and Investec.

Auction Alliance
Auction Alliance

WHILE mandated to market and sell bulk properties on behalf of Absa, Auction Alliance allegedly acquired some of the residential units for itself without disclosing this to the bank.

Auction Alliance is also accused, in the Greyling forensic report that Business Day has seen, of paying referral commissions to bank officials at Absa, Nedbank, RNB/FNB and Investec.

The report is the product of a forensic probe carried out by Allan Greyling and his team at Accountants at Law (A@L) in 2012. It has been buried away from the public eye ever since.

Overcharging by banks

Two weeks ago in the UK, the Lloyds banking group was forced to make a GBP £500m provision in respect of overcharging by one of its group companies, the Halifax Building Society. It was established that the Halifax had been overcharging mortgage customers when it failed to reduce its mortgage interest rates in line with reductions in the base rate by the Bank of England. Some 300,000 customers will receive refunds of an average of GBP £1,667. There was no mention of any refunds to customers in Ireland despite the fact that the Halifax did brisk business here from 1999 to when it was closed in 2010. And separately, a couple of days after the Lloyds announcement, the UK’s Financial Services Authority – very roughly the equivalent of our own Financial Regulator – fined that model of Teutonic efficiency, Deutsche Bank for mis-selling mortgages and harassing customers in arrears. I make the point that other countries experience problems with their own banks – it’s not a distinctly Irish problem. This entry examines recent overcharging in the Irish market.

Firstly here’s a summary of the recent history of overcharging in the Irish banking sector

(1) In September 2010, the Irish Independent reported that Anglo Irish Bank (“Anglo”) was to repay up to €100m in respect of overcharging on loans taken out in 1999 -2004. At the time the Anglo CEO Mike Aynsley is reported as saying “There is a statute of limitations and, theoretically, we’re probably not compelled to go back beyond a six-year period, but because we believe there are important ethical issues …. we’re doing it and we will compensate people accordingly” The Australian banker who was appointed to the poisonous CEO role in September 2009 went on to say “we suspect it was driven by some kind of process errors” but he did not rule out more deliberate machinations at the bank – “we don’t know yet” he is reported as saying. And whilst the Anglo CEO was putting an upper limit of €100m on the size of the problem whilst suggesting the final cost might be closer to €30-50m, an independent consultancy was apparently suggesting that the overcharging might be closer to €200m and might have started before 1999 and continued after 2004. A legal opinion published in the same article claimed that if the overcharging was the result of fraud then the statute of limitations would not apply. It would seem that the bulk of the overcharging took place before David Drumm became Anglo’s CEO in January 2005 having joined the Group in 1993 and having established Anglo’s US operations in Boston in the late 1990s before he returned to Dublin in 2003 as Head of Lending.

(2) In December 2010, the Irish Times reported that AIB had been fined €2m by the Central Bank, “ the largest fine in Irish retail banking history – after it was found to have overcharged customers” According to the Central Bank of Ireland statement “the majority of these overcharging instances are historic in nature. Most affected customers have been refunded with appropriate interest. The firm has undertaken to repay, with appropriate interest, all those outstanding amounts that have not already been repaid.” It was not clear from the Central Bank what precise instances of overcharging AIB was being fined for, but AIB has a rich history of overcharging which includes €4m in 2010 resulting from charging business banking fees to personal customers. AIB had previously admitted in 2009 to overcharging 400 tracker-mortgage holders by an average of €1,000 each. But all of this paled into insignificance alongside the foreign exchange overcharging scandal in 2006 which cost the bank some €66m including a €20m donation to charity in lieu of payment to overcharged customers who could not be traced. Most of the overcharging related to foreign exchange transactions but €9m related to miscellaneous overcharging.

(3) In 2005, Bank of Ireland had to refund €1.8m to 50,000 customers who had been charged tax on transactions between 1992 and 2005. Also in April 2005, the bank admitted it had overcharged 65,000 customers who had taken out personal loan protection insurance and refunded €18m. The bank had some problems in 2009 when its systems double-charged customers who had made ATM withdrawals in September and October but the problem was quickly spotted and rectified.

(4) In 2005, Irish Nationwide Building Society (INBS) was reported to have significantly overcharged one business customer by €170,000 on a €2m loan because an interest rate some 1.25% higher than that agreed had been applied.

(5) Permanent TSB, part of the Irish Life and Permanent group has gone relatively unscathed in this area but in 2005 was found to have overcharged €600,000 to mortgage customers over a three-year period and €100,000 to business customers overcharged by the bank since 1997

(6) In 2005, EBS reported overcharging “400 of its commercial customers over a six-year period” in a case very similar to Anglo’s where the wrong interest rate was applied to loans. The amount overcharged was not revealed.

(7) Ulster Bank, National Irish Bank, MBNA and others have also been found to have overcharged customers in the last decade.

Back in 2005, a year in which €170m of overcharging was identified, Mark Fielding of the small business representation group, ISME said “it seems there has been a systematic movement towards ripping off the customers. It is incredible that all of those mistakes were just mistakes. It just beggars belief” 2005 was the year of overcharging scandals and the assumption seems to have been that all historical overcharging was uncovered and going forward, there were better systems in place to avoid recurrences. But as we now know, that was not the case – Anglo’s announcement last September 2010 would eclipse all the historical incidences if the claim that the overcharging was €200m was true but even if the Anglo’s CEO estimates were accurate, it would be the second highest revelation of a single bank overcharging its customers.

Are there more overcharging cases to be revealed? Difficult to say but in the residential mortgage sector I am amazed that there have not been actions against the banks under the Financial Regulator’s consumer code which required banks to ensure financial products, including mortgages, were suitable for the customers to whom they were sold. It also seems incredible that banks are allowed increase their standard variable rates to more than 4% above the Euro base rate. In the commercial sector, there have been allegations of machinations at Anglo which resulted in interest overcharges on commercial loans. Mike Aynsley says the problems related to 1999-2004 and he doesn’t discount deliberate overcharging. Was Anglo unique? Of course it will be the case that some borrowers are now so under water with their debts that any correction of historically-overcharged interest will be inconsequential as the refund would simply be offset against loans still outstanding. But are there others for whom refunds would be significant?

This post will remain open and will be amended with any updates on overcharging in the Irish banking sector.

Overcharging by Irish banks – simple errors or something more sinister?

Halifax to pay £500m to overcharged customers

The credit-crazy Noughties came to an abrupt end in August 2007 when a growing ‘credit crunch’ caused lending levels to collapse.

This led to the infamous run on Northern Rock, the near-collapse and taxpayer-backed rescue of several UK banks, and the worst economic recession since the Great Depression of the 1930s.

Today, although the financial tsunami of 2007/09 has retreated, financial regulators are still clearing up some nasty-looking scandals left behind after this crashing tide went out.

Yet another banking scandal

In the past 20 years, tens of millions of us have lost money in mis-selling scandals involving mortgage endowments, personal pensions, with-profits policies, unapproved-overdraft fees, payment protection insurance, and so on.

This list of regulatory failures goes on and on, so it’s no wonder that public trust in banks is at an all-time low. What’s more, we have good reason to be worried by the behaviour of banks, because today saw yet another scandal added to this long list.

In a shock regulatory announcement released late this morning, Lloyds Banking Group admitted that it had set aside £500 million to compensate yet another batch of ripped-off customers.

When Lloyds slipped up

During the banking meltdown of September 2008, the former Lloyds TSB was forced into a shotgun marriage with ailing lender HBOS. HBOS was itself a product of the merger of Halifax — the UK’s biggest mortgage lender — with Bank of Scotland.

Alas, HBOS’s rash lending during the boom times came back with a vengeance, blowing a big hole in its finances and causing shares in the newly formed Lloyds Banking Group to plummet.

Now it turns out that — just as there is never just one cockroach under the fridge — there are more problems at HBOS than first thought.

Awards averaging £1,667 each

Today, Lloyds confirmed that it had reached a voluntary agreement with financial watchdog the Financial Services Authority (FSA) to set aside £500 million to compensate over-charged Halifax mortgage borrowers.

It turns out that confusing wording in some Halifax mortgage contracts led to some borrowers being treated unfairly. These customers were offered Halifax-branded home loans linked to its standard-variable rate (SVR), between 20 September 2004 and 16 September 2007 via its Bank of Scotland arm.

In January 2009, the Halifax increased the ‘SVR cap’ on home loans from 2% above the Bank of England’s base rate to base rate + 3%. Lloyds now admits that Halifax did not have the right to force this increase on all these customers, hence its decision to back down on this 1% rate rise.

Having pushed these contracts too far, Lloyds has agreed with the FSA to make goodwill payments to all borrowers concerned. Hence, a “pro-active customer review and contact programme” is to begin immediately. Around 600,000 borrowers with Halifax home loans will be contacted by Lloyds, of which half may be due compensation.

With 300,000 customers in line for awards, the half a billion pounds set aside works out at £1,667 per borrower. These refunds will be paid in April via a credit to customers’ mortgage accounts.

Then again, as I often remark, “averages invite comparisons”, so some Halifax borrowers may receive only a few hundred pounds, while others could be in line for payouts of several thousand pounds.

Bad news (and good news) for taxpayers

As you’d expect, this news hit the Lloyds share price, which is down 2% at 68p as I write. At a stroke, today’s news has wiped £900 million from the market value of Lloyds.

Now for the extra-bad news: all British adults will lose out because of this mess-up at HBOS. That’s because, following a £17.4 billion government bailout of Lloyds, taxpayers own 27.6 billion shares in Lloyds. In effect, we own over two-fifths (41%) of Lloyds’ share base.

Thus, thanks to the drop in Lloyds’ share price, the UK’s 48 million adults have lost almost £370 million today, or roughly £8 each. What on Earth did we do wrong?

Finally, it’s worth pointing out that we taxpayers bought our stake in Lloyds at an average price of 63.2p a share. Therefore, we are sitting on a current profit of 4.8p a share, or £1,325 million. That should cheer you up a bit!

Mortgage Complaints Worldwide

Many of the complaints we see involving mortgages have arisen because of a difference between how customers expect their mortgage to work, and how it works in practice. Most people who take out a mortgage have some idea how it operates. However, relatively few mortgage customers have much understanding of the technicalities. Without first asking their lender, for example, many mortgage customers would be unable to say in detail exactly what practical effects a change in their mortgage arrangements would bring about.

Because a mortgage loan is usually for a large amount of money, quite small changes can – over time – make a significant difference in money terms. So mortgage customers can sometimes end up with a very unwelcome surprise if they have not fully understood what the consequences of a change would be. This is even more likely to be the case for customers who are experiencing financial difficulty and have limited options.

We are sometimes disappointed that the mortgage lender did not make greater efforts to explain matters to their customer when a problem or query first arose.

Even where lenders do attempt to explain matters, we see cases where they have failed to address an important point – or have given the customer an explanation that was wrong. In a fair number of disputes it seems to us that more effective communication on the part of the lender might well have prevented the complaint from arising in the first place.

© 2020: Problem Bond | South Africa, All Rights Reserved | D5 Business Line Theme by: D5 Creation | Powered by: WordPress