There already is in place an appeals mechanism for people who believe that they are not being treated fairly by financial institutions. Where a customer of a financial service provider, regulated by the Financial Regulator, complains in writing to a financial institution regarding a particular matter and this fails to resolve it to her / his satisfaction, s/he may take the complaint up directly with the Financial Services Ombudsman (FSO).
The FSO is an independent statutory body whose remit is to investigate, mediate and adjudicate unresolved complaints of customers about financial service providers. There is no charge for using the services of the FSO who can be contacted at the following address: Financial Services Ombudsman's Bureau, 3rd Floor, Lincoln House, Lincoln Place, Dublin 2, by phone to LoCall number 1890 88 20 90. Alternatively, one may make an online complaint using the FSO online complaints form at the FSO website www.financialombudsman.ie
The Deputy may wish to note that under the General Principles of the Financial Regulator's Consumer Protection Code, a regulated entity must ensure that in all its dealings with customers and within the context of its authorisation, it acts honestly, fairly and professionally in the best interests of its customers and the integrity of the market. In addition, in its Common Rules for all Regulated Entities, the Consumer Protection Code stipulates that a regulated entity must have in place a written procedure for the proper handling of complaints.
As to whether banks should reduce measures to allow fixed-rate mortgage holders to switch to a variable-rate and save money, the Deputy will be aware that fixed rate mortgages can be regarded as a form of insurance against interest rate changes as fixed rate mortgages provide certainty and security to borrowers regarding the level of their repayments.
As referred to in the Deputy's question in circumstances that many households are faced with significantly increased financial pressures, the current environment of very low interest rates clearly highlights to fixed rate mortgage holders the saving that would be available if they benefited from a variable interest rate. It is clear, therefore, why many fixed rate mortgage holders seek to switch to secure lower repayments.
However, when a borrower signs a fixed-rate mortgage contract with a mortgage provider, the lender in turn enters into an agreement where they borrow the money at an agreed rate. The mortgage lender must repay the money at this agreed rate, so there is a cost to the institution if the fixed rate agreement is terminated before the agreed term which gives rise to the redemption fee charged in these cases.
On 26 March 2009, I undertook, in this House, to raise concerns regarding the level of redemption fees with the Consumer Director of the Financial Regulator who has a statutory mandate to safeguard the interests of consumers. At the beginning of April my Department wrote to the Consumer Director to request confirmation that redemption fees charged for switching from a fixed rate mortgage cover funding costs only and that there are no other costs included.
To date, the Financial Regulator has been able to confirm to my Department, that all mortgage lenders have responded and that all have provided the formula used by that lender when calculating the early redemption fee applying to fixed rate mortgages.
The Financial Regulator is awaiting independent verification, by an actuary, from a number of lenders that the fee being charged recoups only those costs incurred by the lender when financing the fixed rate mortgage. However, the verifications received indicate that the formulae applied by lenders seek to recoup the loss to the lender arising from the early redemption of the fixed rate mortgage and do not seek to apply a penalty charge on the borrower.
The Financial Regulator is also examining whether any other costs are being charged such as administrative fees, etc. Any such charges may be subject to approval by the Regulator under Section 149 of the Consumer Credit Act 1995 and will be examined further in that light. To date the responses indicate that most lenders do not levy additional charges in the case of early redemption of fixed rate mortgages.
The Financial Regulator has advised that further analysis may be necessary once all of the information is received and reviewed. Should the remaining analysis by the Financial Regulator indicate that further consideration of this issue is required, it will be carried out.
It is important to note that a number of important initiatives have been put in place by Government to assist borrowers in difficulties. These include the mandatory Code of Conduct for Mortgage Arrears requires that when a borrower is in difficulty the lender shall make every reasonable effort to agree an alternative repayment schedule. Under the Code consideration should be given on a case-by-case basis to alternatives such as deferral of payments, extending the term of the mortgage, changing the type of mortgage, or capitalising arrears and interest. In any case, lenders will not commence legal action for repossession until after six months from the time arrears first arise.
Finally, as part of the subscription agreement for their recapitalisation Bank of Ireland and AIB will not commence court proceedings for repossession of a principal private residence until after 12 months of arrears appearing where the customer continues to co-operate with the banks.