Banking Sector: Quarterly Engagement with Central Bank of Ireland

Senator Fintan Warfield is attending in substitution for Senator Rose Conway-Walsh. I remind members and everybody else present to turn off their mobile phones as they interfere with the broadcasting of the proceedings.

We will proceed with our quarterly engagement with Professor Philip Lane, Governor of the Central Bank, on a number of issues we have discussed previously. By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of the evidence they are to give to the committee. If, however, they are directed by it to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or an entity by name or in such a way as to make him, her or it identifiable.

I invite Professor Lane to make his opening statement.

Professor Philip Lane

I welcome the opportunity to appear before the joint committee. I am accompanied by the acting deputy governor for financial regulation and the director of consumer protection, Mr. Bernard Sheridan, and the director of enforcement, Ms Derville Rowland. I will focus on three topics in my introductory statement - the examination of tracker mortgages, the role of the Central Bank in supporting initiatives to reform the motor insurance market and Brexit. I will address each of them in turn.

On the examination of issues related to tracker mortgages, I fully share the committee's concerns. Where these issues have arisen, it is clear that lenders have failed their customers. Moreover, I am acutely aware of the unacceptable impact these failures have had on tracker mortgage customers, ranging from the burden of having to pay more than they should to instances involving loss of ownership of mortgaged properties. I acknowledge that committee members frequently deal with such cases in their constituencies and that the committee has heard powerful testimony about the effects these failures have had on individuals and families. The Central Bank is also aware of many of these cases from callers to our public helpline and our ongoing engagement with various consumer representatives. These are important sources of information which continue to inform the examination. The Central Bank is pursuing a comprehensive, industry-wide examination precisely to ensure lenders will identify every affected customer, stop the harm and pay appropriate redress and compensation.

The fair treatment of tracker mortgage borrowers has been a key supervisory and policy focus for the Central Bank for the past few years. In line with our mandate to ensure the best interests of consumers are protected, the Central Bank intervened with a number of lenders in the period 2008 to 2015 on a range of issues related to tracker mortgages. The interventions ranged from lender-specific supervisory and enforcement actions to, more generally, strengthening the statutory protections for tracker mortgage customers, specifically through the consumer protection code and the code of conduct on mortgage arrears.

During the period before the examination we dealt with a range of lender-specific issues, resulting in approximately 7,100 customer accounts affected by various tracker issues being resolved prior to the beginning of the current examination. We also intervened in a number of additional cases on a preventative basis to prevent detriment to tracker customers before it occurred. Other issues were being actively investigated at the time of the commencement of the examination and these are now being dealt with as part of the examination or, where necessary, have been escalated for enforcement action.

Where appropriate, the Central Bank has required certain lenders to offer affected customers the right to return to a tracker rate and-or payment of redress and compensation. The Central Bank has also commenced enforcement investigations into tracker-related measures at Permanent TSB and its subsidiary, Springboard Mortgages. As a result, these lenders were required to implement a comprehensive mortgage redress programme to address the issues identified. Although the underlying characteristics of each issue have differed, the Central Bank, taking all of this evidence together, decided to launch a system wide examination in 2015 given the range and nature of the customer impact of the issues identified. The examination's scope requires a robust review to identify and deliver fair outcomes for all other affected customers in addition to those cases known to the Central Bank prior to the start of the examination.

The tracker examination is the largest, most complex and significant supervisory review the Central Bank has undertaken to date in respect of its consumer protection mandate. It has involved an initial review of the total mortgage book by lenders in the relevant period, which amounts to more than 2 million accounts. In line with our commitment given at the start of the examination, we have been publishing regular status updates in respect of this ongoing and current supervisory work. The most recent was published last month and has been provided to the committee. The aim of the examination is to ensure that all relevant lenders conduct a comprehensive and robust review which delivers fair outcomes for all customers. I note that a number of lenders have recently apologised to the customers where they failed. Our view is quite clear that this does not have a material meaning unless the lender both stops the harm to all affected customers and provides appropriate redress and compensation for the suffering caused. Lenders must now demonstrate that they are doing everything possible to ensure this happens. This is our goal in overseeing the examination.

The way the framework has been put in place is intended to provide appropriate redress and compensation to affected customers. One of the quality assurance steps in this process is that each lender has had to appoint an external, independent party to oversee the conduct of its lender-specific examination. The framework of the examination is in phases. Phase one involved the development and submission of detailed plans by relevant lenders, which is completed. Phase two requires lenders to conduct the review of their books in line with our framework. These reviews are extensive in that lenders must review the underlying loan documentation and customer files for the in-scope accounts to determine the specific contractual obligations and also to determine more broadly if the documentation that each customer received had the potential to confuse or mislead the customer both on a stand alone basis and also when read in conjunction with other communications, written or verbal, made to the individual customer.

In this respect the Central Bank invoked its powers under section 22 of the Central Bank (Supervision and Enforcement) Act 2013 to set specific deadlines for each lender to complete phase two of the examination. The last of these deadlines is the end of September 2017. The timelines have varied in line with the size of the relevant lender's loan book, the scale and complexity of issues raised in each lender and the complexities associated with completing a thorough review in line with the objectives of the examination. By the end of next September, the Central Bank expects all lenders to have identified all affected accounts, stopped further harm and to have commenced engagement with most impacted customers. The Central Bank is rigorously monitoring the completion of this work.

Phase three of the examination relates to calculating redress and compensation for customers identified as having been affected by tracker-related issues.

Phase four relates to implementation of a redress and compensation scheme. It is important to appreciate that phases three and four, dealing with redress and compensation, can run concurrently with phase two. We expect lenders to initiate phases three and four once affected customers are identified. There is no need to complete phase two in its entirety before moving to redress and compensation for cohorts already identified. In that regard, thus far under the examination, around €78 million has been paid out in redress and compensation to approximately 2,200 affected customers.

Separately, in regard to the mortgage redress programme for PTSB and Springboard Mortgages that was announced prior to the examination, additional redress and compensation amounts were paid. PTSB paid €36.8 million and its subsidiary, Springboard, paid €5.8 million. Due to legal requirements which restricted the degree to which I can discuss individual firms, I cannot provide a detailed lender-by-lender breakdown of payout of redress and compensation. We are detailing aggregate amounts and there are tables with the available data in the statement I have provided to the committee.

I emphasise the Central Bank does not have the statutory power to compel lenders to implement redress and compensation in respect of failures that occurred prior to the 2013 Act. Having sought such powers, we were granted them in the 2013 Act but they are not retrospective. However, I believe the Central Bank's robust approach in this matter is evident from the principles of redress we have laid down and published and with which we expect lenders to comply. To illustrate our robust approach, it is important to emphasise that this work is not just being conducted by our consumer protection directorate but also our separate enforcement directorate which is involved in the exam. Where regulatory breaches are suspected, cases may be referred to enforcement. We are committed to taking robust enforcement action aimed at promoting principled and ethical behaviour by and within regulated entities. To date, the Central Bank has concluded an enforcement investigation in regard to Springboard and imposed a monetary penalty of €4.5 million on that entity in respect of these failures, which is the highest penalty ever collected by the Central Bank. This is on top of the direct payout to the affected customers.

In addition to the investigation into the tracker issues at Springboard and Permanent TSB, the Central Bank has initiated an enforcement investigation at Ulster Bank. We may also commence other investigations as appropriate into other lenders and persons concerned in the management of such entities where there is evidence of non-compliance with regulatory requirements. In this regard, enforcement activity will be influenced by the outcome of the reviews currently being conducted as part of the tracker examination. In short, all possible enforcement angles, including potential individual culpability, will be thoroughly investigated and analysed in the context of the legal framework. Enforcement measures will be deployed as appropriate, including investigating issues and taking cases under our administrative sanctions procedure, together with the use of our fitness and probity powers. Boards of lending institutions are expected to ensure appropriate control, governance and management in those firms.

In line with international regulatory standards, we operate a risk-based framework for the supervision of regulated firms. In its regular supervisory work, the Central Bank cannot pre-approve every single commercial decision taken or contract entered into by a regulated firm. Rather, supervision entails challenge of firms, judgment of the risks they pose to the economy and to the consumer and mitigation of those risks we judge to be unacceptable. Targeted enforcement action against those firms whose poor behaviour risks jeopardising our objectives, including financial stability and consumer protection, underpins this framework. Consumers are further protected by other relevant State bodies in this area such as the Financial Services Ombudsman, the Competition and Consumer Protection Commission and the courts system. Taken together, these form the State's protection for individuals.

I recognise and acknowledge the committee's reflection that the examination has taken some time and that it will take some further time to complete.

I reiterate that lenders are working to the specific timelines we have imposed and are required to examine all relevant individual contracts. Given the harm the actions of some of these lenders have caused, it is essential the examinations be both comprehensive and robust. Our objective is to ensure that every impacted customer is identified and appropriately redressed and compensated.

The Central Bank welcomes the focus that this committee and the cost of insurance working group led by Minister of State at the Department of Finance, Deputy Eoghan Murphy has brought to bear on the issue of motor insurance. The Central Bank appeared before this committee in regard to insurance last year. The Central Bank recognises that volatility in the price of insurance has an unwelcome impact on consumers. We do not have a role in the setting of premiums, in common with all supervisory authorities across the EU. It is explicitly prohibited by European law under Article 181 of the Solvency II directive. The Central Bank is committed to working with this committee, the cost of insurance working group and other stakeholders on aspects related to this issue in ways that are appropriate to our mandate.

There were a number of common themes between the findings of this committee's final report and the work of the cost of insurance working group in which we were involved. For example, both found there was scope to improve the renewal process to assist consumers in the purchase of insurance. Equally, both the committee and the working group recommended substantive work be undertaken to improve data availability. The Central Bank, through the working group process, is the lead owner for a number of recommendations and actions in these areas. Work has begun on implementation. In the area of renewals, the working group recommended that insurers provide additional information on the premium breakdown to consumers and that the renewal notification period be extended from 15 to 20 working days to make it easier for motorists to compare pricing when purchasing insurance. The requirements for provision of information in non-life renewal notices are set out in the Non-Life Insurance (Provision of Information) (Renewal of Policy of Insurance) Regulations 2007. The process to amend these regulations requires us to undertake a standard consultation process including engagement with consumers, stakeholders and industry. The consultation will be conducted in the fourth quarter of 2017 in line with the timeframe set out by the working group. Regulatory change, if required, will take place in 2018.

In the area of data availability, the working group has recommended the establishment of a national claims information database. We are currently working with the Department of Finance and other stakeholders to define key aggregated statistical data on motor claims for publication in the near future. This will assist with the development of the database in 2018 as recommended. It should be noted, however, that the database function will represent an extension of our mandate and will require legislative change.

As I said at the outset, the Central Bank is committed to working with this committee, the Department of Finance, the cost of insurance working group and other stakeholders on this issue in ways that are appropriate to our mandate.

Brexit is a priority area for the Central Bank, dealing with the implications both for the wider economy and for the financial system. Our current near-term forecasts are for relatively favourable growth in the economy, driven by continuing recovery in underlying domestic demand. Consumption and the domestic-driven component of investment is set to remain robust and is supported by a strong labour market. However, there is no doubt that the outlook remains subject to unusual uncertainty related to external risks, including Brexit and the uncertainty regarding the post-Brexit trading relationship.

Last week, the UK Government triggered Article 50 of the treaty, starting the two-year negotiation period. In fact, the European Commission has indicated that an agreement would need to be completed by October 2018 to allow ratification by the UK and European Parliaments before the two-year timeframe elapses. It is clear that this timeframe is very ambitious, given the volume of issues that must be negotiated. It can be extended if all member states agree.

For the domestic banking sector, Brexit to date has had a relatively benign impact. We have not seen any funding impact or decline in credit quality. We continue to engage with all regulated entities to ensure they are adequately prepared.

It is too early to accurately predict any Brexit-related effect on foreign direct investment. In the financial sector we have had increased engagement with a range of entities, including banks, market and insurance firms, and queries about payments and electronic transfers. The inquiries have taken the form of discussions on potential new authorisations and possible balance sheet expansions by existing firms or changes to business type. Where the Central Bank is asked to consider the authorisation of a firm in Ireland, we will want to be satisfied that we are authorising a business or a line of business that will be run from Ireland and which we, effectively, will be supervising. The Central Bank will expect it to have a substantive presence here. For financial services, it operates under a common framework for regulation and supervision at a European level. This is all part of the European System of Financial Supervision, ESFS, which promotes the consistent application of EU legislative requirements.

Potential new entrants pose a challenge to us as an organisation in planning and prioritisation, but we are meeting this challenge. To fulfil our mandate in safeguarding stability, using a risk-based approach to supervising credit institutions and ensuring a robust and transparent authorisation and approval process, we established a Brexit task force within the Central Bank prior to the referendum. This internal task force has a cross-departmental structure involving 15 divisions across the Central Bank. This functional approach is necessary, given the potential for a more diverse cross-section of entity types and new business models across all sectors. We have increased our capacity to deal with this and are developing our contingency resourcing plans.

Our vision is to have a well functioning, well managed and well regulated financial system. Legacies of the past remain material and continue to be worked through. Trust in the system remains very damaged, which reflects the need for continued improvements, including in the underlying culture of financial firms. We endeavour to foster a strong culture of compliance, with firms and individuals within firms acting in the best interests of their customers, backed up by comprehensive and enforceable legislation, rigorous supervision, a credible threat of enforcement and powers of redress when customers have suffered detriment. As I stated, although the examination of tracker mortgages will still take some time, the Central Bank's goal is to ensure every customer who has been impacted on will be identified and appropriately redressed and compensated.

In looking ahead, Brexit poses a number of risks and challenges for the economy, individual institutions and businesses. In line with our mandate, we will continue to highlight these risks, engage with the regulated institutions in order that they will be adequately prepared and provide a transparent and efficient authorisation process for potential entities that choose to establish in Ireland. Equally, on the issue of insurance, the Central Bank will continue to work with the committee, the working group and other stakeholders in ways appropriate to our mandate. I look forward to discussing these issues further with the committee, as well as the others raised in the invitation.

I welcome the Governor of the Central Bank, Professor Lane, and his colleagues. I thank him for his opening statement and acknowledge the update issued by the Central Bank on the examination of tracker mortgages. While it did not answer every question, it went a long way. On customers being denied their contractual rights, does Professor Lane believe the practice was systemic and widespread across the banking system?

Professor Philip Lane

We have seen a lot of cases across a number of institutions, which is why we have had a comprehensive examination. There is a systemic and widespread aspect, but the issue is complicated in that it manifests itself in different ways across different institutions, different periods of time and different categories of customer. Sometimes it is a systemic issue which is straightforward and an issue which repeats itself across all institutions. Unfortunately, the reality in the tracker mortgage universe is that there are a lot of variations of this common problem. That is why because of the differences it requires a comprehensive approach and will take time.

Underneath it all is a cultural issue, as I believe I tried to say in my opening statement. Essentially, it is interpreting contracts in favour of the lender, not the customer. That is the ultimate core systemic issue.

Are all 15 lenders under examination co-operating?

Professor Philip Lane

It might be easier if my colleague Mr. Sheridan were to answer that question.

Mr. Bernard Sheridan

They are all going through the process. We have set out the framework within which the examination must be conducted. It is a live piece of supervisory work and we are carrying out assurance work to see what their approach is.

Have they all completed phase one?

Mr. Bernard Sheridan

Yes.

How many of the 15 lenders have identified customers affected by the tracker mortgage issue?

Mr. Bernard Sheridan

Other than a small number, the rest have. The majority have identified customers who have been impacted on. One of the 15 lenders is not covered because it purchased the loan book from another party which is carrying out the review. Therefore, the number is 14 lenders per se. Of the 14, probably ten have identified issues at this stage, all of different magnitude, depending on the individual institution involved.

I put it to the Governor that this is a classic example of consumers being denied their contractual rights. The Central Bank is the consumer watchdog and consumers expect it to be the watchdog that not only will bark but, if necessary, bite. Is Professor Lane prepared to do this?

Professor Philip Lane

Absolutely. As indicated in our most recent report and my opening statement, as far as we can we communicate it, we have a twin-track approach. It is supervisory in engaging with firms and backed up by enforcement powers. It is important to emphasise that our enforcement powers are now much stronger than they were pre-2013. In 2010 we issued a letter to all institutions expressing our concern about tracker mortgages and reminding them that violations would be subject to enforcement and an administrative sanctions procedure. We have already seen this in the case of Springboard Mortgages and have others in train. We are saying all of it is subject to enforcement and that it has been effective.

Professor Lane has said that so far the cost of compensation and redress is €78 million in respect of 2,600 customers. If we extrapolate from the figure pro rata and say there are in the region of 10,000 customers - I know that it is 10,000 accounts - we are looking at a bill of about €300 million. We know that in the cases of PTSB and Springboard Mortgages, the cost in respect of 1,400 customers was over €40 million. If we extrapolate from these figures and include the other 7,100 customers affected prior to the examination, the institutions are looking at a €500 million problem.

Professor Philip Lane

Given the data we have disclosed, extrapolation in a reasonable way is possible to come up with an indicative number. Let me caution, however, that across the range of problems some are at the high end, large scale and significant. Quite large sums might be involved in individual cases, while in others they could be at the low end. The average will conceal a lot. In terms of the aggregated cost, number one is the redress and compensation paid, number two is any fine we may impose and number three is the compliance cost, which is significant for the banks. I hope the banks will come out and express intense regret and state they should never have taken these risks in the first place in being aggressive in how they interpreted the contracts.

In respect of the individual customers who are also our priority, Professor Lane has said that in more than 90% of cases where a problem has been identified they have been put on the correct mortgage interest rate.

Professor Philip Lane

Correct.

The first priority, therefore, is to stop the problem and the harm. Presumably, it is a priority to get the remainder put on the correct rate as quickly as possible.

On the question of the prevailing rate, I know Professor Lane will not be drawn into a debate around individual banks. However, this issue arises in the case of a number of banks. AIB is certainly one of them where it has identified a prevailing rate of 3.67%. Will Professor Lane advise the committee how the Central Bank approaches that question as to the appropriate prevailing rate? The ECB issue is fixed. The margin is not specified in the contract, but what is specified is that the customer has the right to revert to a tracker mortgage at the prevailing rate. If there was no prevailing rate at the time, is it not reasonable that they would be put on the tracker rate that applied previously? How is the Central Bank approaching this question?

Professor Philip Lane

That is one interpretation, to argue that it should be the rate at the time the initial mortgage was drawn down.

It is not the banks' interpretation.

Professor Philip Lane

This is essentially why, in the middle of a live examination, I do not really want to engage too much on this question because of the fact we are engaging with different lenders exactly on these issues, about what can be considered a fair and reasonable outcome, subject to the details of what was written in the contracts, but also the surrounding information, including verbal information that a customer might have received and might have relied upon in discussions when agreeing either to enter a tracker or agreeing to move to a fixed rate for a period in expectation of coming back to a tracker. We have laid out clear principles on how we expect banks to interpret these cases. These are live issues, however, so I do not want to discuss it in any more detail than that.

Okay. It is ongoing. In respect of individual cases, will Professor Lane clarify who is the ultimate arbitrator or ultimate decision-maker? Where can consumers ultimately take their case for a final decision? Is it the ombudsman? Will Professor Lane clarify that?

Professor Philip Lane

It is clear that, number one, where customers are affected, the bank will write to the customer stating its calculation. What is very important is that we built into the examination, from the word go, an appeals process. We also provided help for customers to take appeals, but without in any way compromising the right of individuals to go to the ombudsman and, in turn, to the courts system. Therefore there are several layers of additionality. Given the range of experiences each person has had, there may well be a significant number of cases that did go to internal appeal, the ombudsman and the court. We allow for that so it is a one-way bet. A person is not compromising his or her ability to take these other channels, which already exist, by accepting the initial offer from the bank.

We have laid out principles of redress. For pre-2013, we are using moral persuasion to say how it should be done. We know we only have redress powers after 2013, but we are saying how we expect people to behave. Therefore, the original offers should respect those principles, but it is entirely open to each individual to move along with appeals, the ombudsman and the courts system.

Fine. If I may, Chairman, I have a final question on a separate topic. I wish to ask the Governor about house prices. The latest data from the myhome.ie survey show that annual house price inflation is 9% nationally and over 10% in Dublin. For newly listed properties, the rate is 5.5% nationally in the first three months of this year and 6% in Dublin. Is the Central Bank concerned by what we are witnessing in respect of new house prices? What are Professor Lane's views now in respect of the help-to-buy scheme? In the context of the changes that were made to the mortgage deposit rules, what is the Central Bank's current assessment of house prices, their sustainability, and whether we are heading towards another bubble?

Professor Philip Lane

Of course, when one sees significant run-ups of that order, it is a source of concern. Of most concern is a scenario where it persists.

It is one issue where, in a given period, if there is a surge for some reason, it then self-corrects. Of course, we do not need to go through all of the supply issues which are relevant to this. It is also important to emphasise that, in an economy that is doing very well at the moment in terms of a strong labour market and so on, there is going to be some degree of reasonable house price increase. Let me emphasise, however, that the contribution of our rules is that the dynamic has self-correcting features. The strongest one is the anchor that mortgages cannot be offered beyond 3.5 times a person's income. Therefore mortgages cannot detach from income levels because of that rule. The second feature is the percentage deposit requirement. It is 10% for first-time buyers, 20% for second-time buyers and 30% for buy-to-let. As house prices go up, those deposit requirements become more demanding, and that is a self-correcting feature.

As regards the help-to-buy scheme, when asked last year, I said that one could make the case that there might be some gains to boost supply by easing the ability of new home builders to access finance. Of course, in the short term that takes time to kick in with a demand effect.

The second point, which is ultimately for the political system, is the distribution element. If one is offering up to a €20,000 rebate for this category, is that the best use of that funding and what else could one do with it? However, it is for the Oireachtas to rank what are the best interventions or best uses for these tax rebates.

Does Professor Lane think the scheme is pushing up house prices?

Professor Philip Lane

I do not think there can be any doubt that if one has additional capacity to enter that segment - new builds only, so it is a limited segment of the overall housing market - that is going to be the impact effect. Let me emphasise that that should moderate over time as it triggers a supply response, but the impact effect, by easing the ability of that cohort to buy homes, will of course drive up prices. Part of the mechanism is that by driving up prices, a strong feature is to trigger a supply response. That is part of what the building industry called for.

I would like to pick up on that point about the building industry. I agree with Professor Lane's analysis. I opposed the help-to-buy scheme - unfortunately, we were in a minority - because I believed it would trigger what we have seen in the past three months with house prices increasing every month in Dublin by €6,000 and by €4,000 per month elsewhere across the State. The real fear is that we will see that happening in the second and third quarters also. The construction industry did not suggest that that was what the help-to-buy scheme was about. Indeed the Government did not suggest that either. It suggested, and continues to suggest, that it is about trying to ensure people can gather the necessary deposits.

Data released to me by the Minister for Finance show that 74% of people who have been approved under the help-to-buy scheme had over the 10% deposit required. Some of them had a 30% deposit and took out a 70% loan-to-value ratio mortgage. There is no clarity on whether the 24% or 25% of people who had a 10% deposit actually required up to €20,000 from the help-to-buy scheme. In Professor Lane's view is the help-to-buy scheme necessary to assist first-time buyers enter the market in terms of the Central Bank's rules?

Professor Philip Lane

As the Deputy just indicated, which is consistent with our data, many first-time buyers put down fairly big deposits compared with the value of a home. The fraction of first-time buyers who were, or are, constrained by the 10% deposit is going to be limited. This is true of any subsidy scheme. It is the conundrum of whether one is able to target those who need a subsidy or, if one sets out a rule, whether it will include many more people who already have a capacity to meet our deposit requirements.

That is an inevitability of all subsidy schemes. It is one reason cost-benefit analyses of schemes are a good idea to work out the ratio between those who alter their circumstances against those for whom it is essentially a windfall and an extra receipt for income.

It is free money. I have been critical but I understand where the Central Bank is. We have a job to do here to debate and agree policy while the Central Bank needs to stand off from it to a certain extent. However, Professor Philip Lane is on the record saying he would act if there was any evidence of a housing bubble or spiralling prices. Increases of €6,000 per month in Dublin over the past three months and €4,000 nationally are spiralling house prices in anybody’s book. How long would that trend have to continue for the Central Bank to intervene?

Professor Philip Lane

We are looking and evaluating the data. A relatively short number of months is not going to be enough. We cannot be intervening every few months. We have pre-committed that every year, in November, we will make our net analysis. Intervening more frequently than an annual basis would be too frequent. In the course of this year, we will be making the assessment if we think there is a destabilising spiral. As I indicated earlier on, there are self-correcting features. It cannot be the case that when we have a mortgage rule of 3.5 times income that prices can be detached from incomes. I must emphasise this is not about affordability. What is happening now is that it is only people on relatively good incomes who can buy a house. It is not a statement to say that the average house price will connect to the average income level. The mortgage market is only one slice of all of the issues the political system is debating such as affordability and ways for people to achieve a home. At least through the end of 2016, we have seen mortgages have not gone above the 3.5 times income level. It essentially means that only people on relatively good incomes are able to buy houses, especially in Dublin.

If we take the example of Dublin, if prices rise at €18,000 each quarter, the problem is that a large majority of people who hope to live in Dublin will not be able to do so.

Professor Philip Lane

This is why it is so vital that the full agenda of supply side issues are tackled.

Given the importance of consumer protection and financial regulation, it is not acceptable that one individual would carry out those two roles. When does the Central Bank expect to appoint a full-time person responsible for financial regulation?

Professor Philip Lane

Prior to launching any appointment phase, we are looking again for precisely what the Deputy just said. The scale of financial regulation is so demanding, we are trying to come up with a configuration which ensures that entire sphere is promptly handled. Within a number of weeks, we will have a revised set-up. Until that set-up is there, I do not want to launch a competition. It will be soon but it makes sense to have a little bit of reconfiguration which we are working through.

I welcome the fact the Central Bank has published on its website quite a bit of information on the framework for conducting a review of tracker mortgages and the principles for redress. I would have hoped that would have been done before. I encourage the Central Bank to publish information promptly.

In one of the documents from the website, I found it fascinating that each bank had to appoint a consumers’ voice as part of its steering group. Will the Central Bank inform the committee who are the consumers’ voices in each of the different financial institutions?

Many of the people I am dealing with feel they do not have a voice communicating with their bank. They would be interested to know who is actually meant to be representing them on this committee.

Mr. Bernard Sheridan

As the lenders are essentially looking at themselves and, as the Governor said earlier, their approach to the interpretation of contractual documentation and transparency, we felt there needed to be somebody in the room who was not involved in the sale of any of these mortgages or in the documentation and who is coming from a consumer perspective. That can include somebody coming from a compliance area or somebody from outside who has got consumer experience. It can range across institutions. There is no one determinant as to who that person will be. It has varied across the institutions.

Are there any criteria for the banks to appoint the individual?

Mr. Bernard Sheridan

No. We have actually seen who these people are and we have challenged the proposed appointments several times that they are not from the consumer perspective. However, we have not set out specific criteria.

Can the victims of this tracker mortgage scandal be informed of who their voice is on the steering committee? Could they communicate with them, so the voice on the steering committee is reflective of the real voices of the individuals affected by this?

Mr. Bernard Sheridan

The framework does not provide for that. However, that is not to say the lenders themselves could not actually facilitate that. Many consumers are contacting us and we are making sure that their voice is heard when they are referred on to the lender. We have engaged quite a bit with several consumer stakeholders to ensure the issues they are identifying feed into the lenders’ approach to this. We are trying to build the consumer element into this. It is one of the key challenges we face, namely that the lenders need to approach this from that perspective and not the legal perspective.

Professor Philip Lane

It remains the case that any individual should contact their bank if they have specific concerns about their case. All the banks invite that. I agree with the Deputy that one of the ways consumers should be represented is through the consumer voice in the process. On top of that, the appeals set-up has a majority of independent members to ensure non-bank interests have the majority vote.

Will the Central Bank encourage the banks to publish who are the consumer voices on the steering group and make them accessible to their customers?

On the 15 institutions which are part of the review, there are 29,000 cases which are being reviewed by IBRC. It does not know how many people will be affected. Is IBRC behind the curve with its review? Will it get additional time or leeway as a result? What is the impact of loans sold on by the banks to so-called vulture funds? How will the review take place given the institution would no longer hold the loans?

Mr. Bernard Sheridan

IBRC is subject to the framework and has been part of this examination from the beginning. It is being put through the same process as all the other lenders, so it is not getting any special treatment. Clearly, it is a different type of institution in the sense that it is being run by a liquidator. The framework being applied to it varies slightly because of the fact it is in a liquidation process. It has to consider all the loan books it is responsible for to determine whether there is any impact on customers. If there are impacted customers, it has to contact them and identify them. It is making progress and we are satisfied with the work it is doing. It is not the case that it is dragging its heels. We are monitoring it closely to ensure it will deliver.

IBRC sold on loans to vulture funds and the Central Bank has absolutely no powers to ensure there is a redress scheme in those cases.

Mr. Bernard Sheridan

This was one of the key points that we wanted to make at the beginning of this framework and examination, that the scope includes all tracker mortgages that were sold from day one or that the option of a tracker mortgage was available. It includes all mortgages and loanbooks that have been sold or transferred. We took the approach that the originator of those loans was responsible. Ultimately, responsibility works back to the person who sold the loan in the first place.

The originator is responsible for carrying out the review and informing the Central Bank how many people it wrongly did not put on a tracker rate, took off a tracker rate, and so on. Once the Central Bank has the numbers that there were so many thousands of cases and so many people lost their homes as a result of the measure, the Central Bank has no power to enforce a redress scheme given that the loans have been sold to vulture funds, which are not regulated by the Central Bank, even after the powers that came in under the 2013 Act, how can the Central Bank ensure that if the IBRC review recommends a redress scheme, as we have seen with the majority of other banks, people are put back on the appropriate rate?

Mr. Bernard Sheridan

It is a very good question, and it is a concern we had from day one as to how these people would be treated. We have set out our expectations and applied the framework to all the lenders. They have all committed to ensuring all the loan books are assessed. We are overseeing that to make sure that happens. If they are being sold on to an unregulated loan owner, they fall back to the originator and the originator is responsible. In the case of the IBRC, that includes, for example, the Irish Nationwide Building Society loan books.

The originator cannot put people back on the rate because it is the unregulated owner who has that authority and responsibility. Has the Central Bank any indication from the new owners of the loans that were held by IBRC that they will comply with the moral suasion that the Central Bank is using to make sure all the other remedies that are being looked at by the other banks will be looked at by the unregulated vultures?

Mr. Bernard Sheridan

That is being actively pursued by us. At this stage we are satisfied that all impacted customers will be dealt with under the framework appropriate for them.

Deputy Doherty can ask one final question.

My last question picks up on the point made by Deputy Michael McGrath about the prevailing rate. I appreciate that the Governor has said that this is a live issue. There are many customers. AIB has been mentioned but other financial institutions have used a prevailing rate. People are very angry because after finding out the bank was swindling them for so long and now they have a redress programme, with many having experienced personal trauma in addition to financial trauma, when they are restored onto the rate, they feel injured and victims all over again.

I understood that the redress programme had to be agreed by the Central Bank. We know that 90% of customers have been put back onto the rate. A large proportion of them have been put onto what is called the prevailing rate. Can the delegation tell this committee that the Central Bank has not signed off on this measure? The impression is that the bank has accepted it. Has the Central Bank accepted it or not? Is the bank continuing to consider the prevailing rate issue? Can the delegation offer any hope to customers who feel that they have suffered another injustice?

Professor Philip Lane

Again, I will get Mr. Sheridan to answer that.

Mr. Bernard Sheridan

To be clear, no, the Central Bank has not signed off on this issue. This is one of the live issues that form part of the examination. It is one of many and it is a complex issue. To be clear, the scope of the examination is not purely around contractual obligations. It is around regulatory obligations, which is around transparency, and also other influencing factors that lenders need to take into account. In the context of this particular issue, we require all lenders to take those three elements into account and not just the contractual element. This is a live issue and, no, we have not signed off on it.

Professor Philip Lane

Let me reinforce that. We said that phase 2, where lenders identify affected customers and so on, will conclude by September. There is a lot going on month by month and we get monthly updates, but we challenge that. Just because a firm says what it thinks is the case does not mean we accept it. There will be waves of revision as we go along.

I thank the witnesses.

I, too, welcome the Governor and his colleagues here today. I want to focus on the tracker mortgages issue. The update of the Central Bank of Ireland's Examination of Tracker Mortgages-related Issues 2017 paper was quite comprehensive and assisted us in getting a deeper understanding of where the Central Bank is in terms of examining this issue. However, where individuals made complaints to the Financial Services Ombudsman and received a negative decision, I am fearful that the Central Bank's examination will not adequately cover all the people concerned. I say this because I have evidence particularly about PTSB. I will refer specifically to PTSB because the Central Bank stated in its report that it had commenced enforcement investigations against the bank. I know of samples of cases where the FSO made a negative decision about complaints and the people concerned have not received notifications that their cases are being examined, neither from the bank nor the Central Bank. Will the Governor give guarantees or assurances to those people that they will receive letters?

Professor Philip Lane

Let me make a point first and then I will ask Mr. Sheridan to go into more detail. All trackers, regardless of the history of complaints, are being examined. It is not the case that a customer receives a letter indicating that the case is being examined. Everything is under examination. I am fully sympathetic that people are in an information gap because it is a lot more concrete to receive a letter than to be told everything is under examination. The practicality of 2 million accounts, however, means all accounts are being examined, including those that have been subjected to an ombudsman process. I ask Mr. Sheridan to reinforce my point.

Mr. Bernard Sheridan

It is a good question. Again, it is one of the issues we identified early on in this examination and we have worked closely with the ombudsman on this. He provided us with an analysis of the complaints that his office had looked at over the years, and it was clear that a large number of complaints were upheld in favour of the bank. Our concern has been that this examination has a broad scope, as I said earlier, in that it is contractual, regulatory transparency and influencing factors, and all of those elements would not necessarily have been considered in previous complaints as such. We have worked with the ombudsman and engaged with all of the relevant lenders to make sure all of those cases are being included in this examination.

It must be acknowledged that the Financial Services Ombudsman is very proactive on this issue and has engaged with us on this. I want to look at one of the thematic areas, namely, data protection. This should be apparent to the Central Bank at this stage but I want to get the bank's assessment of this. In the bank's examinations to date, has it found that there are glaring gaps in how data protection law was applied to individual customers when they sought information on specific telephone calls, dates of engagement or correspondence they had? I understand that when complaints were made or when people sought to interact with their bank, especially on the options issue, and again I am talking about PTSB, there were glaring inaccuracies in some instances in how the bank interpreted that engagement. Also, the bank refused in some instances to acknowledge that telephone calls had taken place or that particular correspondence was entered into. When people sought to have records furnished, they were not furnished or, if they were, they might have been furnished inaccurately or less than adequately. I want to ensure that from a consumer protection point of view into the future, where people have issues with their mortgages, a robust system is in place to ensure the data protection element provides protection to the consumer.

I hope the Central Bank will address that matter.

Mr. Bernard Sheridan

It is a good question. Obviously, the scope of this goes back a long way and, as such, there are data issues. From our perspective, we have made it clear to lenders that if there is any issue in terms of lack of documentation and nothing to back up their position, then it needs to go in favour of the consumer. The other issue is lenders' ability and willingness to share that information with consumers, and also to consider that in the context of the examination. We have required independent oversight to oversee what lenders are doing. We are also carrying out assurance work, particularly in the area where lenders are concluding that borrowers might have been in scope but not impacted upon. That will be an ongoing focus for us.

When looking at this matter, one's instinct is to think that there should be a robust consumer protection entity that is separate from the Central Bank. In other words, it should be decoupled because there is a resources issue. If it is necessary to examine 2 million accounts, presumably microscopically, that gives rise to questions as to whether there should be a separate entity to speak for the consumer in this instance. Professor Lane will understand if there is a certain degree of scepticism in respect of the idea that the banks appoint their own independent advisers to oversee the conduct of the investigations and then liaise with the Central Bank in the process. For all sorts of historical reasons, he will understand that there would be some scepticism about whether the Central Bank can adequately and robustly protect the consumer.

Professor Philip Lane

Let me make a few points about that. Around the world there are all sorts of different institutional arrangements but let me emphasise that there are a lot of advantages to having consumer protection within the Central Bank. It is important to emphasise that there is no hierarchy in the legislation. It is not the case that consumer protection ranks below financial stability. These are twin mandates that we have. I remind the Deputy that our financial regulation activity is funded by fees collected from the industry and that there is not a resource constraint here. If we deem it necessary to expand our personnel to deliver consumer protection, by and large that cost will fall on the industry; it will not fall on the taxpayer. We have advocated throughout that the cost should be fully paid for by the industry.

An advantage of consumer protection within the bank is that we learn a great deal from being the overall supervisor. Around the world, stand-alone consumer protection commissions have a difficulty because they do not have the same access to information that we have. I would think that it is in the best interests of consumers that we have that twin power. It is quite effective. We have done a lot that is at the intersection of supervision and consumer protection. Our codes have been, unusually in the international context, prescriptive in how financial institutions deal with consumers. There is always an uphill struggle to do more and do better, but it is not an issue of resources or of any conflict within the Central Bank.

On the issue of criminal prosecution, to which reference is made in the comprehensive review to which I referred earlier, there are specific powers in respect of the bank's obligations under section 33AK of the Central Bank Act 1942. Has the bank referred or reported to the Garda any aspect of its examination of tracker mortgages?

Professor Philip Lane

Let me turn to Derville Rowland, our director of enforcement.

Ms Derville Rowland

As the Deputy will be aware, we have a number of open enforcement investigations in respect of the tracker mortgage issue. One of these relates to PTSB and the other is an open investigation into Ulster Bank. As the examination proceeds and we get scrutiny of the information on customers' identified approach to redress and other information, we will consider opening further enforcement investigations.

In the context of our work, we conduct a forensic detailed examination of data records to get right down to the heart of the matter - the rule breaches, how it happened, why it happened. It can involve 20,000 to 30,000 documents and we supplement it with interviews. In that context, we always will consider taking cases against senior responsible individuals who participate in any breaches where there is evidence of that. It is a complex regulatory framework. Our responsibility is primarily to bring administrative sanctions cases forward or to look at the fitness and probity context. That is within the remit of the Central Bank.

In addition, we have statutory obligations to make criminal reports to other relevant agencies. An Garda Síochána, for example, is one of those. In this context, no reports have been made to date. That is an evidence-based procedure. However, I met the Garda to discuss trackers and I have opened a dialogue with it. We discussed this in general terms. As our investigations proceed and progress, we will keep that under constant review and we will make those reports where the issue arises. We have regular engagement with the Garda.

Finally, to close the loop, while the Central Bank states that all mortgages are being examined, I seek reassurance that those who have not received correspondence who were the subject of FSO complaints and who received negative decisions will not be outliers. Essentially, I am asking for that assurance because we do not want to come back to this again in the future when another raft of borrowers who have potentially been forgotten about will have a legitimate case to be heard.

Professor Philip Lane

I can offer the Deputy that reassurance.

I thank Professor Lane.

Professor Philip Lane

I can appreciate it might be a little confusing this idea that everything is in scope and the presumption is one is being examined, and only when there is a decision which can take time is there contact with the affected customer.

I welcome Professor Lane. The Central Bank's updated report outlines on page 22 the public warnings and on page 23 where the Central Bank issued communications to Bank of Ireland. That was in 2010. In 2012, Bank of Ireland commissioned a Red C report that would "encourage tracker mortgage holders to move off their product", to "ultimately improve the overall profitability of the Bank of Ireland" Group. There were several hundred letters sent out to customers asking them to come into branches and meet the bank on foot of this report. Was the Central Bank aware of that or is that part of its remit? The Central Bank issued a yellow card and a red card, certainly, to the Bank of Ireland, that there were problems. Then, in 2012, they go off and do this. Would that be where an individual would be held responsible?

Professor Philip Lane

Let me ask Mr. Sheridan.

Mr. Bernard Sheridan

The Senator is correct. We looked across the system in 2010 and arising from that, we had to follow up issues with Bank of Ireland. Also, as a follow-up from that, we introduced measures whereby in future anybody who was coming off a tracker mortgage had to get clear information and also a warning of the implications, and those provisions were subsequently included in our 2012 consumer protection code.

I cannot comment on a specific institution but all lenders were to comply with those requirements in terms of the specific disclosures to be made. I cannot comment on the specific case.

That was discovered on Committee Stage here in the Dáil and was publicised. Should that have tripped a red light, through questioning of the CEO of Bank of Ireland who initially denied it was happening? After the release of the Red C study, it was quite obvious it was happening. Should that have tripped red lights at that stage?

Mr. Bernard Sheridan

I am not commenting specifically on Bank of Ireland. We have had to intervene on a number of occasions where we have seen correspondence with customers that we were not happy with.

As I say, I cannot comment on specifics.

Those customers who were encouraged through this research and the letters that were sent out are part of the overall review to see if they were duped out of their tracker mortgage. The letter sent to customers stated it would be in their interest to come in to talk to the bank to see if there were better products.

Mr. Bernard Sheridan

To be clear, the scope includes all tracker mortgages - anyone who commenced on a tracker mortgage or switched to one. Anyone who ever had one from the beginning or anywhere through the life of the mortgage is within the scope.

Professor Philip Lane

We are reiterating the point throughout that it is not just about the narrow contract, it includes wider communications with the view to establishing if any of this could plausibly have misled or put undue influence on consumers to switch out of a valuable tracker, which is not appropriate. It is wide-ranging. Whether it is marketing material, advertising campaigns, we are looking at it from the point of view of whether it would be misleading for the typical consumer.

Reading the Central Bank's report, it hit me that after all the warnings the banks then went and commissioned Red C to do research. Those are accurate quotations from Red C about how it was commissioned to carry out research and there then followed several hundred letters being sent out to customers inviting them to come in. I am happy that the Central Bank is looking at it.

Professor Lane remarked on the culture that was there. I am not convinced that this could be interpreted entirely as culture. I wonder if any of the investigations are looking at the possibility of collusion between the lenders at the time. It seems too coincidental that so many lenders interpreted the tracker interest in such similar ways. Has there been investigation into collusion between some or all of the lenders?

Professor Philip Lane

As Mr. Sheridan indicated, a lot of documentation will be looked at as part of any enforcement action. Any indication of anything that would be either a violation of our codes or of competition law will be flagged. Until these examinations are concluded, I am not going to rule out the hypothesis of collusion. As I said here in December, there is an economic imperative for many of these banks. What I think happened much of the time was essentially that during a period of financial distress in the economy, the banks were trying to save money by charging customers where they could at a higher, more expensive rate. They might say that it was within the terms of the contract, that they interpret the contract to mean they could do that. There is a common economic incentive to do that. It would be ideal if the ethical standards and the culture within those firms would be that they would not exploit it because they were consumer-focused banks. That is what we want to get to.

Our codes have a degree of prescription in how banks are supposed to treat their customers, unlike many jurisdictions which take the view that a customer has been given a contract and caveat emptor. We have a lot more consumer protection in how we approach things but we still had this massive failure. It is an uphill struggle. Let us see what comes out of the examination and associated investigations. Collusion is not impossible but I can think of other reasons it happened.

But the Central Bank is prepared to look at it in its examinations.

Professor Philip Lane

Sure. If an enforcement action takes place, it is quite comprehensive in how we go about it.

Ms Derville Rowland

To add something to that point, I hear what the Senator says using that word because what we are talking about at the moment is that all the lenders and the bankers are in the scope of this tracker issue.

If one looks at the ability of each individual lender to act, they did not need an agreement with another lender to take action. They are in charge of the contractual position and it is a position between them and the customer. Then it is a position between the Central Bank and the lender regarding the code. To refer to collusion might lead one to think that there is a need for agreement as between each lender to act but there is not. Each one can act unilaterally or may have acted unilaterally and that is something that is probably relevant to consider when looking at that dimension.

But they could have been talking to each other about interpretation because the contracts were all similar. The interpretation across 15 lenders was very similar. It would indicate to me that there was some collusion between the lenders, that there was tick-tacking and phone calls taking place about how they were interpreting contracts.

Ms Derville Rowland

I could not speculate about that. Each lender would be in charge of the drafting of its own contractual documentation and so on but of course everything can be considered. We will follow an evidence-based procedure.

The Central Bank has used EY and Grant Thornton among others. How much have these contracts cost and will the Central Bank recover the costs of the consultants from the lenders?

Professor Philip Lane

We have a process by which we appoint consultants. Of course professional services firms are typically expensive but all this will be charged back to the firms. It is not going to fall on the taxpayer.

Do we know how much we have spent on this so far and how much has been charged back?

Mr. Bernard Sheridan

We have not disclosed that. The work is ongoing, in fact it is intensifying at the moment. Towards the end of the review, we will have a better picture of that. To be clear, we have our own internal dedicated resources committed to this in consumer protection and it is a very dedicated team. We are also using our internal resources in enforcement, in legal and across the bank. These are bringing added expertise and capacity and we are getting to the critical stage in the examination when lenders are reporting that they have completed phase two. We have to do our assurance work and these third parties are assisting us in that. This will happen over the next 12 months or more and at that stage we will be able to give a figure for the cost.

How big is the Central Bank's team? Mr. Sheridan said it was quite comprehensive. How many?

Mr. Bernard Sheridan

We have a dedicated team within consumer protection of eight people. We also have additional resources in our legal area which supplements that. Clearly that does not include all our enforcement resources that are dedicated to these particular cases.

Maybe Mr. Sheridan could come back to me and let me know how many of those supervisors and enforcement staff are involved in that. I do not expect the witnesses to have the figure to hand today.

I welcome Professor Lane and his colleagues.

I want to return to last November when the Central Bank lifted the limit on first-time buyers. If I am correct, prior to that there had been a limit of €220,000 which had been brought in by Professor Lane's predecessor, the loans had to be 90% and for any balance above that there had to be 80%. In November, Professor Lane came along and effectively put it all at 90% with no limit at all on the price. Am I correct?

Professor Philip Lane

Yes.

Why did Professor Lane go for such an expansive measure? There is now a situation where a person could buy a €1 million home and they could be regarded as a first-time buyer. I am being slightly facetious, but take someone in Dublin looking to buy a €400,000 first-time home and they can look for a loan of 90%. Surely by lifting a complete limit that would effectively add to the increase in the price of houses. Why did the Central Bank not lift the limit from €220,000 to say €300,000 or €350,000? Why was the limit removed completely?

Has that move in itself added fuel to the fire in terms of the increase in the price of houses?

Professor Philip Lane

We have to think about the regime as having two instruments. The first is the loan-to-income ratio, which we did not touch. At three and a half times income, the loan limit is quite restrictive. For example, in the United Kingdom, the corresponding figure is four and a half times income. That is the anchor or core of the scheme.

The second instrument relates to deposits. Last November, we published the evidence surrounding what we did. There are two reasons for it. The first is for simplicity. As Senator O'Donnell indicated, we had a scheme with a turning point of €220,000. If that had persisted, every year we would have had to move the number because €220,000 was the median house price for first-time buyers in 2012.

Surely that would have been a reasonable proposition.

Professor Philip Lane

No, and I will explain why not. There are two reasons. First, when we see a rise in house prices, the question is whether we should reduce that number or recognise that the average house price has gone up and relax the number. That would lead to speculation every year about what we would do with the turning point.

We already have a strong anchor in the system with a limit of three and a half times income. We had a layered track of 10% for first-time buyers with only 5% of exceptions. We tightened the ability to go above that limit. The figure was 18% for second-time buyers and 30% for buy-to-let mortgages. That is a fairly severe set of deposit requirements.

The second point is more empirical. There was not much lending caught by the rule because at that point we had many exceptions to the rule. From memory, only 11%, approximately, of first-time buyers were actually being caught by that rule. People had more in deposits than was needed – we discussed this point earlier. Many first-time buyers have more than they need on deposit. They were not caught by the rule. Many people below the rule were getting exceptions. Not many people were being caught by the rule.

I am asking a question. We suddenly had a measure in place by the Central Bank. It was put in place by the predecessor of Mr. Lane. It was a €220,000 limit for first-time buyers with a 90% loan. It was draconian in nature and particularly impacted those in Dublin, more so than those outside Dublin. Suddenly, the Central Bank took away any limit. The Central Bank left the loan limit at 90%, with exceptions for some people who could go to 95%.

Not long ago during the Celtic tiger, we were complaining that mortgages of 95% and upwards were fuelling the price of houses. I want to know why the Central Bank took away the limit completely.

Let us consider the first three months of this year. House prices went up by 4.3% approximately. The Governor stated last November, when the Central Bank took away the limit, that if there was a material change then the bank would make changes to the rules. Now, the Governor is saying that the bank will look at it every November. November is eight months away. That is too long. It seems strange that the Central Bank went from having a limit to no limit at all. Is that a contributory factor in the increase in the price of houses?

What does the Governor regard as a material increase in the price of houses? At what point will the Governor seek to bring some sort of control over the increase in the price of houses? November is eight months away. If house prices continue to spiral at the rate they are going, it will put the value of the average home beyond the ordinary person.

I always look at it in simplistic terms. Can the average couple afford to buy a home? If they cannot afford to buy a home, then we have a dysfunctional system. The Governor referred to stability. Stability is not a macro issue; it is about something else. We saw a couple on an RTE programme last night. They bought a one-bedroom apartment during the Celtic tiger because they were told that was the only way to get on the property ladder.

They have a family and they have to move out of that one-bedroom apartment. The loan is in negative equity and is a millstone around their necks. They are renting elsewhere.

They are not first-time buyers curtailed by Central Bank restrictions. However, let us consider the first-time buyers who are renting, who are in their 30s and approaching 40 years of age. Such people are wondering whether they will ever qualify for a mortgage or buy a family home. I am asking a question. By lifting that limit, is it possible that the Central Bank may be contributing to depriving these people from buying homes that they can afford?

At what point will the Governor consider that a material change in price has taken place, considering we have seen a 4.3% increase in the first three months of this year? At what point will the Central Bank step in and make the changes to ensure that an ordinary person who is making a living in an ordinary job can afford to buy a first-time buyer home?

Professor Philip Lane

Senator O'Donnell has raised several issues. This goes back to the interconnection between financial stability and consumer protection. As Senator O'Donnell has said, these rules have a double effect. Partly, they serve to protect the system in order that we avoid a crisis of the same type from recurring. Partly, they are in place to protect households. That is definitely part of our intention.

Credit rules are not about solving the affordability problem in this country. For people on typical incomes to be able to afford a reasonable home, the answer is all about expanding housing supply.

Senator O'Donnell pointed out the specific change in our rules that might affect a house costing €300,000 or €400,000. The change is rather small because it is only at the margin above €220,000 where the extra deposit was required. This is not a major change, especially in the context of a large fraction of people in that neighbourhood securing exemptions from the old rule. The old rule was complicated and had a wide exemption. Now, we have a new rule that is simpler. The borrowing limit is 90% but there are few exceptions. Only 5% of first-time buyers can get an exemption from that rule. Therefore, it is not the case that it is a material change that is driving the housing market. It is a simplification.

I repeat that the anchor of the system is a limit of three and a half times income. This means that when house prices go up, only people on high incomes are affording houses. That is why all the measures being worked on to increase supply represent the key to that.

Why are house prices going up?

Professor Philip Lane

I will outline a number of reasons for Senator O'Donnell. One is that the economy is growing. Employment is growing quickly. More people are looking to buy homes. Of course, with the dysfunctional rental market, many people are looking at high rents and are concluding that even though houses are expensive, buying is what they believe they should do. It is part and parcel of the wider housing supply issue.

Of course, it is still the case that we live in a low interest rate world. Certain people, especially those who take out a long duration mortgage of 30 years or so, are calculating that some of these levels are affordable. However, this applies to a limited group. What we are seeing is that only people on decent incomes are able to buy houses. That is essentially why it is not part of the overall solution. What we need is affordable housing. That is the core focus.

What do we do until such a time as supply catches up? There is a major problem with supply. Does the Governor not see his role as ensuring control in the market until such time as that happens? Is the role of the Governor not to ensure that the price of first-time buyer houses, ordinary three-bedroom semi-detached houses, does not go out of control prior to that point?

Professor Philip Lane

We have a system whereby the credit environment can only have a limited impact. I repeat the point that a limit of three and a half times income is fairly severe by international standards, especially in a low interest rate world. For that to be the limit on a mortgage is a severe restriction. In a European context, the 90% deposit limit is significant for first-time buyers.

We have put in rules. I will go back to what Senator O'Donnell asked me.

If we see, according to our modelling, that house prices are going above what we think is a reasonable zone, then we will intervene.

What does Professor Lane regard as a reasonable zone?

Professor Philip Lane

Typically these models look at house prices compared to income levels and interest rates. They are fairly basic models.

Let us assume a low interest rate environment continues and that everything is pretty constant barring a rise in the price of houses. At what rate of increase in house prices over the next number of months would the Governor say that we need to change the rules on mortgage lending to ensure the price of houses does not go out of control for the first-time buyer?

Professor Philip Lane

What is going to be critical is the level of house prices, because what we have seen in Ireland is this gigantic boom then a pretty severe plunge. Prices are rising from a low level. We will act if the level of house prices compared to the level of incomes and the level of interest rates is in a danger zone. Our assessment in November last year was that, at that point, it was not in a danger zone. Prices were still in a recovery mode. I do not agree with the Senator that we can do it more than once a year because it would be totally destabilising. Every-----

Professor Lane has said that if the price of houses was to change materially over the year he would go in and effectively change the rules to correct the market. We cannot operate in a vacuum where it is let go for eight months and absolutely nothing is done. The question I am asking is, at what point is there a material change? Professor Lane is a renowned economist, he understands figures. We have seen a 4.3% increase in the first three months, the highest in over two years. The ordinary person looking in will want to know at what rate of increase they will be reading that the Governor of the Central Bank, Professor Lane, has said we need to change the rules to ensure the price of houses does not go out of control.

Professor Philip Lane

Let me be crystal clear. There is a very strong reason to have a calendar-based review. It is once a year in November. It is not going to respond to month-by-month numbers because that system would be totally destabilising. There would be speculation. Every household would be thinking whether they should buy this month. Having a once-a-year review, where we look at the data on a once-a-year basis-----

Is Professor Lane saying that are no circumstances between now and November under which he would change the mortgage rules to ensure the price of housing does not go out of control? If we see a 7%, 8%, 9% or 10% increase in the price of houses on a monthly or bimonthly basis between now and November, is Professor Lane saying that, as Governor, he will not do anything about that?

Professor Philip Lane

I am saying that it is crystal clear. This will happen once a year.

Does that mean he will not do anything between now and November?

Professor Philip Lane

There are self-correcting mechanisms. Prices cannot drift above three and half times income.

The Governor said last November that if there was a material change in prices he would go in and make the necessary changes in the rules to ensure the price of houses would not go out of control. He is now telling me something different and that he will do nothing until November.

Professor Philip Lane

No, I absolutely am not, because we committed to a once-a-year review.

No, that is not what he said last November.

Professor Philip Lane

It is exactly what I said.

It is not. He said that he would act if there was a material change in the price of houses. The ordinary person looking in here, who is looking to buy his or her first home, could possibly be alarmed because he or she is being told that, regardless of the way the price of houses goes between now and November, the Central Bank, through its Governor, will do absolutely nothing in respect of mortgage rules to ensure the price of houses does not go out of control.

Professor Philip Lane

We committed to a once-a-year review. If there is material change in house prices relative to fundamentals in that review, we will alter the rules. That is the commitment, once a year. That, in an international context, is a high frequency. These rules cannot be changed on a month-by-month basis.

I never said anything about month-by-month. Really, the response I have gotten from the Governor is that he will be doing nothing between now and November. I ask him to pay careful heed because we got into this mess in the Celtic tiger period when the price of houses spiralled out of control and suddenly people were taking out loans, which I know had much higher interest then, which effectively put them in negative equity. The loan-to-income ratio is fine, but if the price of houses increases at an exponential rate, there is the risk that there will be people buying houses again who will find themselves in negative equity in a relatively short period of time.

Professor Philip Lane

This is why it is impossible to have an exponential, ongoing rate of increase in house prices. We know incomes cannot grow at that rate. Let me go back. Given the tragic history of what happened here, it is so tempting to be fearful whenever the price of houses goes up, and to say it will trigger extrapolation and a self-sustaining spiral. This is why the loan-to-income ratio is fundamental. Incomes cannot spiral upwards, therefore mortgage levels cannot spiral upwards in this context. That is why there is a limit. With the loan-to-value ratio and the deposit requirements, again people's deposits cannot spiral upwards. They have to save those deposits, so it is impossible to have that spiral in the same way. A degree of predictability is needed in our rules, and this is why a once-a-year review is a good way to do it. Going back, I have said that if we see a material change we will change the rules, but on a once-a-year basis. Doing so more frequently than that is not a good idea.

I welcome the Governor. May I make a suggestion? As costs are rising, in that trajectory there is always a period of very high movement of house prices. To follow on from what my colleague said, we spent two years with a few other members of this committee in these windowless rooms. There needs to be sufficient flexibility. Professor Lane has mentioned that there are fundamentals. I think that is the term he used. Those fundamentals need to be able to trigger something. We need to understand what would be triggered in respect of situations where the Governor may have to intervene more than once a year.

I understand his thought process in respect of the market but, equally, if the fundamentals are moving at such a pace, something else may be necessary. I suggest that he give some thought to how he explains the triggering of those fundamentals to us in order that we are able to have confidence that he is flexible enough to move in a period of high inflation in respect of house prices.

Professor Philip Lane

Let me provide a bit more guidance. Essentially, the way policy in this area should work is to have the decision once a year. Of course, more frequently than that, if we detect early indications that we may need to do something, then through other vehicles, such as forward guidance or through our speeches, we can indicate to everyone-----

I am sorry. I do not want to be disrespectful but previous Governors, in the period before the recession, used that terminology also. It did not work. It is not going to work. Unless the Governor has the flexibility within his structures to intervene in an intelligent way, I think we could be whistling past the recessionary graveyard again. That is not something any of us want to happen. We do not want to see the people in our offices again who we have seen for the past six or eight years.

Professor Philip Lane

Perhaps this might provide some reassurance. We have an additional tool called the countercyclical capital buffer which we look at every quarter - every three months. This is something that can move at a much higher frequency. Its role is to detect overheating of growth in credit growing. I think it is a very good idea. Under European law, every European country has to make a new, fresh assessment of whether credit in the economy is overheating every three months. That is the measure we can move more frequently. In the Irish economy, I would agree with the idea that we need to be continually looking. There is a lot of European focus on the phrase "countercyclical capital buffer". We just released our current assessment a few days ago. We do assess.

We are forced to assess and have a routine of doing so every three months. We have a tool for the quarter-by-quarter-type assessment.

I think that would be helpful.

Professor Philip Lane

That does exist.

While there is a focus on the domestic property market, the commercial real estate market was the sector that collapsed the banks and the Irish economy with it. Is Professor Lane satisfied with the analysis that the Central Bank of Ireland is conducting in respect of the commercial real estate, CRE, sector?

Professor Philip Lane

It is fair to say that not only in Ireland but across Europe there is a recognition that the level of analysis of commercial real estate does lag behind the residential market. A basic issue is that every office block is different, every shopping centre is different, so the data set is less advanced. We and authorities across Europe are doing work now to try to improve that. It is very important to say in the Irish context that in recent years, much of the funding for what we see around Dublin is not coming from credit but from equity. That is a fundamental difference. It still matters quite a lot because if there is a reversal in that market it means that the collateral values of the banks' existing loans will alter. It is fundamentally different when there is a lot of equity funding compared to debt funding.

May I revert to trackers? When institutions are no longer trading, liquidators may be appointed. Does the legislation in respect of liquidators have a different impact on those institutions that are trading? Are they able to hide behind legislation that does not give their clients the opportunity to have full redress?

Professor Philip Lane

Deputy, let me ask Mr. Sheridan to address that.

Mr. Bernard Sheridan

We have engaged with all lenders, including the liquidators to ensure they can deliver on the framework we have set out. In terms of delivering redress at this stage, we are satisfied that will happen. I think there is a separate issue around compensation on top of the redress but our priority, as we have said, is to identify the customers that are impacted, stop the harm and then fix the problem. The redress is the key part of the problem. We have engaged with the liquidators to ensure that will happen.

Will compensation also form part of the remedy?

Mr. Bernard Sheridan

No doubt, yes. The framework we have set out includes principles for redress and compensation. There is a potential issue in a liquidation as to where the claim for compensation would rest. That is a potential issue. As far as we are concerned the framework covers redress and compensation across all lenders but we are engaging with the liquidator on those specific issues.

I am concerned that the liquidator could use legislation that applies when there is no money available for those clients. Has Mr. Sheridan addressed that issue with the liquidators?

Mr. Bernard Sheridan

Clearly that is our major concern with that issue. Where redress is identified money needs to be paid over by the liquidator. I cannot go into the detail of that but we are engaging very closely with the liquidators on that issue.

Have the current loan book owners, all 15 institutions, committed to redress and paying compensation?

Mr. Bernard Sheridan

The 15 lenders were written to and that encompasses the whole market. Clearly some loan books have been sold by lenders and what we focus on is making sure that the originator, the person who provided the loan in the first instance, is actually responsible for ensuring that those loans go through the framework to ensure there is redress and compensation. That is happening at present. At this stage we do not have a concern that people will lose out because their loans have been sold.

If the loan book that originated in an Irish financial institution is now held by an external institution, will Mr. Sheridan clarify that the financial institution which made the original loan is liable? Is that correct?

Mr. Bernard Sheridan

Yes. Those institutions have had to work together to make sure that is capable of being delivered.

Okay. Is the Governor satisfied that the Central Bank of Ireland is correctly structured currently to try to disallow a property bubble?

Professor Philip Lane

We operate under our legislative powers. After the crisis across Europe there was a recognition that what is called a macro-prudential policy should have been interventionist in terms of the credit volumes and that the capital held by banks should be subject to intervention. We have that framework in Ireland. On the subject on which we have just had an exchange, it is not an issue about the Governor writing a speech or a report stating that the Central Bank of Ireland is concerned. One needs tools. We are using two instruments: first, a set of mortgage rules and second, a capital buffer so that if we think the credit market is starting to overheat, we can force the banks to hold more capital and therefore be able to absorb more losses. Now we have brought in these mortgage rules, which I think are fairly severe in a European context but we are open to tightening them if we think it is needed. In regard to the capital buffer, it is still the case that credit is shrinking on net but if we get to a situation where we see credit surging we can intervene.

There are other tools available. We have many tools and we in the Central Bank of Ireland have a lot of autotomy to trigger them. It is definitely my responsibility and by the way, the reason that I took on this role is that I think it is fundamental. I would hope that somebody with my background in economics would be able to make the call when needed.

I get a shiver down my back when I hear the Governor speak of capital losses. We would be in a bad space if we were to end up there. Has the Central Bank of Ireland conducted an analysis of the offers that have been made to people who are seeking redress and compensation? What I am trying to find out is whether some financial institutions have tried to get out of their responsibilities on the cheap? Effectively if the potential liability is X, Y or Z, and the banks make an offer to somebody who might be in a difficult space, which is not the full amount of redress for which they are liable, what is the position?

Professor Philip Lane

The way that is managed is that no rights are lost by receiving that cheque. We are going through the files and where we see a scheme which we do not think is taking into account all of the relevant householders or which we do not like, we challenge it. On top of that, even if the affected person does not like the figure with which we may have ultimately also agreed, there is an appeals process where there is support to launch that appeal within the framework. There is also the ombudsman and the courts. There are many layers but the fundamental point is that persons who receive a cheque should not be concerned that it somehow compromises the individual's options.

What I am asking is whether there has been an analysis of the bank's offers to people and, if so, whether the offers have been below what the ballpark figure should be.

Professor Philip Lane

Let me transfer that question to Mr. Sheridan.

Mr. Bernard Sheridan

The framework provides for redress and compensation. We have set out our expectations clearly in that. In respect of individual lenders, they have to come to the Central Bank of Ireland with their plans.

Has the Central Bank of Ireland done an analysis of the offers the banks have been making?

Mr. Bernard Sheridan

We have challenged lenders coming back to us, where we believe the sum is not sufficient in terms of redress or compensation. We have also embedded in the system an independent oversight of what they are proposing, as well as the overlay we are bringing in terms of our own challenge and own assurance work but ultimately, this will be a decision for the boards of each of the lenders in terms of compensation. Redress is necessary to put the person back to where they were. We are challenging the banks on the compensation element to make sure that is appropriate.

Is Mr. Sheridan stating that he has done an analysis on offers that have been made? Okay.

May I ask the Governor about staff in the Central Bank of Ireland?

I see that Mr. Sheridan is taking up the role of acting deputy Governor. I wish him the best of luck in that position. How long has he been with the Central Bank?

Mr. Bernard Sheridan

Does the Deputy really want to know? I had a lot more hair when I started working in the bank 31 years ago.

I am not in any way being disparaging, but the Governor and his predecessor came from outside. How many on the board are life employees like Mr. Sheridan who joined the bank 31 years ago? I think I was playing football with the under-12s then. People have come in from outside, but we have a habit of promoting from within. In saying that I am not disparaging anybody's reputation or ability. How many protected disclosures has the Central Bank received in the past year?

Professor Philip Lane

On hiring practices, the vast majority of competitions are open. There is a mix of internal and external hires. Of course, pay levels are such that many in the private sector will think they are not high enough. There is, therefore, always limited interest in certain positions. However, the senior positions are really interesting and challenging. I hope that when we launch the competition to fill the new post of permanent deputy governor, there will be a good field. It should be a very interesting job for someone to take on. One needs a mix of people with long careers and fresh voices from outside. I have written down somewhere the figure for the number of protected disclosures. I think the annual number is 40-something.

Professor Philip Lane

Yes. We can give the Deputy the exact number.

Is the figure up or down on the figure for the previous year?

Professor Philip Lane

It is broadly in line with the typical number.

We will come back to it.

I want to progress the conversation to Brexit which was mentioned by Professor Lane and motor insurance. Professor Lane mentioned Brexit as a priority issue for the Central Bank and said that were the bank was to be asked to consider the authorisation of a firm in Ireland, it would still want to be satisfied that it would be authorising a business or a line of business that would be run from Ireland, that it would effectively be supervising and that it would expect it to have a substantive presence here. Has any of the potential insurers or banks looking to move to Ireland and engaging with the Central Bank raised personal taxation rates as being an important issue in its decision to locate here?

Professor Philip Lane

It is not the type of issue a bank would raise with us. I am sure the wider issues are raised with IDA Ireland or other branches of government. What concerns us is much more narrow - the structures needed to meet our regulatory requirements, for example, the amount of capital it would have to invest in its Irish operations. The attractiveness of Dublin or Ireland as a location is not something it would discuss with us.

The Government has complained that other states are acting unfairly in the competition to attract financial institutions after Brexit. The Central Bank has not made such observations.

Professor Philip Lane

Let me make two or three points, one of which is that there is very close co-operation across the European system. There is a single European system of financial supervision. For banks, it is absolute because the decision on whether to grant a banking licence is taken by the European Central Bank through the single supervisory mechanism in Frankfurt. In other sectors such as insurance and investment funds there is a common framework, but there is a degree of difference in interpretation at national level. Within the various committees at which we meet at a European level there would be a discussion to come up with a common philosophy and framework. That process is ongoing.

On motor insurance, Professor Lane mentioned the report of the group chaired by the Minister of State with responsibility for financial services, eGovernment and public procurement in which a lot of requests are made of the Central Bank to fulfil many of the action points.

Does Professor Lane think the Central Bank has the resources to take on those significant extra responsibilities in that area?

Professor Philip Lane

There are two sides to that. One is revising the codes, for example, in respect of lengthening the period for renewal. That is broadly routine. We revise these kind of things all the time. The specific issue about the information database is that as it is not within our current powers, legislation must change. It is also the type of activity where we would require financing to do it. The question arises as to whether it could be from a levy on the industry or something else. That is being worked through at the moment. It is more of a mandate issue. Do we have the legal mandate to do it? It is fine to expand our mandate but we need a law to allow us to do it so steps need to be taken. Planning for that is in train. Work is ongoing to set that up.

Professor Lane was quite stern in telling insurance companies not to chase dividends and riskier investments. We know that a lack of return on investments is a major factor in driving up prices so Professor Lane's remarks could be interpreted as telling insurers that price increases were the only option. Does the Central Bank regard the huge increases in insurance premiums as necessary corrections? Is the Central Bank telling us that a 70% increase over two years across the board is an increase it is happy simply to let pass?

Professor Philip Lane

I think this committee's report and the working group identified all the issues. Our role in this regard is to make sure that the insurance firms have the resources to pay out on claims and that they do not collapse. We want to make sure they are making profits and have enough reserves to pay out on claims. If the cost of claims is going up and if companies cannot compensate through investment income, the end result is that premiums go up. Equally, they can remain profitable with a lower cost of insurance and lower premia if all of the working group's reforms drive down the costs. Essentially, it is a sustainability issue. We need to ensure insurance companies are sustainable but if costs can be brought down, that is consistent with falling premia so it would be good news for premiums to fall as long as it is on the basis of the cost base falling to justify that. Many policies can help with that.

I welcome Professor Lane and his staff to the meeting. One haulier told me that the cost of his insurance has gone up by 300% this year, which is an enormous expense. He also told me about a company in Poland which sells lorries to Irish people who insure them here at enormous cost. The same lorry is being sold in Poland with insurance fixed for four years. Something is wrong somewhere. Would Professor Lane like to comment on that?

Professor Philip Lane

There is no doubt that the cost of insurance is high here for all the reasons this committee has worked through, particularly when one looks around elsewhere. Looking around and understanding why it is high here compared with other countries is an important way to think about it. I hope that the ongoing work does more to find out whether it is because of differences in compensation awards or differences in market structures and so on. A lot can be learned from looking around.

In respect of tracker mortgages, as members of this committee, we have received an enormous amount of letters, queries and questions we have been requested to ask.

We are the voice of those people and we should be asking questions. However, we would be here until Christmas if we asked every question we have been requested to put to the Central Bank at this committee.

Professor Lane passed the buck when he said that people should go directly to the bank with their correspondence. In many cases, they are not getting any response from the bank. They do not know where they are at. They do not know when their tracker is going to be restored or when they are going to be paid their compensation. Bearing in mind that Professor Lane said that the framework requires each lender to appoint an external independent party to oversee the conduct of its examination, where does he think these people should go with their queries?

Professor Philip Lane

I agree it is very frustrating for many people that there is a big information gap. The nature of this comprehensive approach is that banks are trying to come up with policies that treat all customers fairly. The banks ask to be told of concerns about individual accounts but they are working from the full universe of all accounts. They then have a cohort who took mortgages out in 2006 when there may have been an issue with an incorrect rate or being moved off a tracker onto an incorrect rate. Month by month, I hope that more cases get finalised. Only when the bank feels ready to announce it has a policy for this large group of people will it ride out and announce its rewards. If people do not like what they are receiving, there is a wave of appeal mechanisms available to them. Unfortunately, it is taking time. One might imagine that any one complaint could be handled promptly. However, when that complaint is folded into a very large examination, it does lead to delay. It is frustrating but our intention is that this will conclude with all of these cases being dealt with. Moreover, it does not mean waiting to the end. As a cohort is dealt with, then redress and compensation should be paid. A significant number have received redress but not a majority.

So the witness has no comfort for the people who have genuine questions?

Professor Philip Lane

We are pushing the banks to deal with this as promptly as possible. However, there are a lot of cases. Month by month, I hope the number receiving redress increases.

Does the Governor think that in situations where the bank has admitted that there is a problem, that the people affected should be paid part of their compensation and put back on a tracker rate straight away?

Professor Philip Lane

Of cases identified where people were on the wrong rate, 90% have been rectified in terms of their being put onto the correct rate. Not all cases have been identified yet. Banks are calculating offers but nothing goes out. When the Central Bank looks at it there may be revisions to those offers but in an upwards-only direction. No one will receive less than his or her original offer. There is also the appeals mechanism. We are in an intense phase, as Mr. Sheridan said. However, month by month, more will be concluded.

Professor Lane said that there was a culture in the bank of interpreting mortgage contracts in favour of lenders rather than borrowers. He also said there was a systemic and widespread aspect to it. Does he think there was a cartel in the banks?

Professor Philip Lane

As discussed earlier, I would not rule that out until we have looked at the evidence. However, there is the alternative explanation of a common culture across the banks and a common economic incentive. If banks thought they were entitled to charge a customer more under a contract, particularly in a period when the banks were under financial pressure, they may have all been in similar circumstances and made similar decisions without a cartel existing.

I am not going to pre-empt any examination but the fact that they had faced common circumstances, a common corporate culture-----

Did they all start doing it at the same time?

Professor Philip Lane

It is not the same set of issues across all banks. Some issues are due to flawed processing caused by computer codes that do not work and that kind of thing. There is a huge range of different things going on. It is not the case that it is one problem at one point. There is a wave of different problems overlapping which has different manifestations in different banks.

Have any sanctions been imposed by the Central Bank on any of the 15 lenders?

Ms Derville Rowland

There is a concluded case in the public domain. We can only publish our enforcement outcomes at the conclusion of cases. The case to which I refer is in respect of Springboard Mortgages. A fine of €4.5 million, the highest fine the Central Bank has collected to date, was imposed. More importantly, in the course of the enforcement investigation we detected the consumer detriment and prioritised that as the most significant part of our effort. One of our first actions was to require PTSB, the owner of Springboard, to prioritise the identification of impacted customers and give them redress and compensation. The requirement to prioritise the redress and compensation approach was borne out of the open and ongoing enforcement investigation into PTSB. We demanded that consumer interest be a first priority and that the redress requirement which we sought and obtained in law in 2013 be applied. There is a published concluded enforcement outcome and there are open investigations.

Has the Central Bank published any guidelines relating to circumstances in which tracker mortgages should be restored to customers?

Professor Philip Lane

There are several levels to that. In 2008 or 2009, there was repeated guidance offered to the banks about correctly treating customers in terms of information and so on. When cases arose, we sought to have customers put back onto the correct rate. There is a lot of work on that issue as part of the current examination.

Mr. Bernard Sheridan

There are various elements to that. We have set out the framework within which the examination must be conducted by the lenders in the various phases and how they have to approach that in terms of internal governance and the controls they need to put in place. We have also published principles as to how redress and compensation is to be approached and what our expectations are. We have provided other clarification documents which we have published along with the recent update.

Each bank designs its own scheme. Has the Central Bank changed the schemes of any lenders?

Mr. Bernard Sheridan

Under the framework, the lender has to come to us with its proposals for redress and compensation schemes. We have challenged a number of proposals and the lenders have made changes to them, improving them from the consumer's point of view.

It was suggested that a lot of financial institutions would come here in the wake of Brexit. That does not now seem to be the case. There are difficulties with some of them coming here, possibly because financial services are going to jurisdictions with more relaxed regulation.

Professor Philip Lane

It is way too early to tell. The regulations, by and large, are European in nature. There is not a huge amount of variation in the regulatory regime across Europe. For banking, it is imposed because the single supervisory mechanism of the European Central Bank is the decision maker. The Senator referred to recent examples of other industries.

There is a degree of variation in the interpretation of these rules across the system. By and large, however, there is a big effort to ensure there is not too much variation. Over time, we must see what happens. Dublin is being looked at by many institutions. Let us see where the final decisions are.

There seems to be some difficulty. We do not seem to be as popular a destination as first thought.

Professor Philip Lane

I do not think it is a good time to make that conclusion.

I know a question has been asked already about loans acquired by vulture funds. It has been reported that those customers affected are feeling the heat since with extra pressure to pay exorbitant interest rates. The Governor said the original lender will eventually pay the compensation and so forth in the tracker issue. However, can something be done about the pressure the vulture funds are putting on people to pay exorbitant interest rates?

Professor Philip Lane

The mechanism is that credit servicing firms have to be appointed which are subject to our regulations. These customers will also have the benefit of the code on mortgage arrears. What is also important to remember is that the types of loans these funds have bought. There could be a mix of how a firm treats arrears but, as time moves on, how long-term arrears cases are dealt with across the system. Over time, final solutions are necessary.

There may well also be differences in strategy. We released the mortgage arrears report a while ago where we did call out that these could have different strategies compared with local banks. That is true and a consequence of the different ownership. It is worth keeping an eye on.

The Governor said before that 8,200 customers were affected.

Professor Philip Lane

That was back in December. It is 9,900 now. That is an interim number, however.

Could it still be rising?

Professor Philip Lane

Yes.

On Brexit and relocation, the Minister of State, Deputy Eoghan Murphy, accused other jurisdictions of regulatory arbitrage and suggested they are making it easier or we are making it difficult or a combination of the two. Obviously, there have been two reasonably high-profile announcements with AIG and Lloyds announcing relocation plans from London to places other than Ireland. While I accept the Governor’s position that it is early days, the initial signs are not great. The two companies mentioned already have business and involvements in Ireland but have decided to locate elsewhere in the EU rather than here. I know Professor Lane will already have addressed these points to a certain extent. Will he address the specifics and the Minister of State’s comments?

Professor Philip Lane

I will not talk about specifics. On a firm making a decision about where to go, apart from the regulatory issue, there is a whole pile of other factors, such as location and proximity to London, which will enter that decision. I must emphasise again the scope for regulatory arbitrage is not zero but is limited. By and large, all EU countries operate under the same framework.

There are European supervisory authorities, for example, with insurance. The European Insurance and Occupational Pensions Authority, EIOPA, means all insurance regulators get together frequently. There are plenty of discussions about what we want to ask of a firm moving from London and exchanges about coming up with a common framework. It will not be conclusive in the sense that there is still room for risk assessment. There will be variation in the exact risk posed to the host country by a given corporate structure. There may well be legitimate differences of opinion across a system. The Senator gave two examples. Let us see as time moves about the balance on when there is a wider set of examples.

Does the Governor contend that Ireland does not have anything to fear relative to other jurisdictions? Do the Department of Finance, the IDA or other State entities attracting business to Ireland need to up their game?

Professor Philip Lane

They are pretty active in that regard. The IDA is super-energetic and active in trawling the world. The good news for us is that Ireland has a long track record and experience of how to handle foreign firms looking to locate here.

On the more narrow regulatory issues, there are ongoing exchanges and discussions to ensure European regulators can converge on a common understanding of what is required of firms looking to move business out of the UK into the EU. The more we can converge on a common understanding, the less influence any differences of interpretation will play. We have already publicly stated we have six applications from insurance companies. It is not that there is no interest. There is plenty of interest across all sectors.

Are there any particular reasons AIG or Lloyds decided to plump for other locations rather than here?

Professor Philip Lane

These firms have to some degree publicly stated some of the issues which entered their decision. We obviously have to think about these issues and have looked at them. We are comfortable, however, with where we are.

This committee has spent much time dealing with motor insurance costs and has engaged with many different stakeholders, including the Central Bank. The Governor referred to a legislative change being required for the Central Bank to compile a motor insurance database to give us more accurate information. How far away is that change? Has the Governor has sight of a timetable for giving the Central Bank powers to compile this database? The issue of the lack of visible aggregated data from the insurance companies to back up their claims was important at our hearings.

Professor Philip Lane

My understanding is that fairly soon there will be reporting on aggregated data. The bigger challenge is when one goes to more granular-type data and where legislative change is required. I am not privy to the legislative calendar, however.

Is the Central Bank ready to take on this particular role?

Professor Philip Lane

There is plenty of planning going on in recognition that if legislation goes through, this will have to be dealt with within the agreed timeframe of the working group.

What level of staffing will be required both to compile the data and analyse them?

Professor Philip Lane

I will have to come back to the Senator on that. We have machinery for generating statistics. We generate many statistics based on financial data. We have an experienced statistics department.

That is probably the reason we were asked to do it. Being able to do this is part of our machinery.

The Governor believes the bank will not have any difficulty in terms of the capacity to deal with it when-----

Professor Philip Lane

Clearly, this is a ring-fenced new mandate, which requires a legislative platform and dedicated funding. We could not pay for this from other resources. If those conditions are in place, I believe we can do it.

We discussed earlier that the bank's staffing numbers were under par.

Professor Philip Lane

Yes.

Where are we on that at this stage?

Professor Philip Lane

There are two ways to view that, one of which is that we are growing. In 2016, we grew by approximately 5.5%, so numbers went from approximately 1,500 to 1,600. We are in the low 1,600s now. We have identified that if we were fully staffed and incorporated an expanded rate of activities, we would like to be at 1,800 by the end of the year. In terms of hiring net 200 in one year, the nature of the Central Bank, like any central bank or regulator anywhere, is that our employees are attractive to employers. We believe a particular feature of Brexit is that this will get worse because firms coming to Dublin will ask who they can hire and, naturally, they will be looking at our employees and employees of other banks here. That is an ongoing challenge. I could say to the Senator that if our pay levels were higher it would be easier but that is part of the wider context in terms of public sector pay. There are many factors to deciding what is appropriate on that.

In terms of house prices, the Governor's point that it is all about supply is the most valid point anyone can make about the housing market. However, in terms of borrowing and having a certain amount on deposit, if the requirement was 20% of €400,000, that would be €80,000. However, if house prices increase, 15% of, say, €600,000 would be €90,000. Is there an argument to be made that when the guidelines are relaxed or it is made easier for people to get in the race, to a certain extent that creates a problem in that house prices rise to match the relaxation and the consumer is no better off? They have just got a smaller percentage of a higher amount, which in overall terms is no different from or potentially higher than the original. Does the Governor get the point I am making?

Professor Philip Lane

I do. In some severe conditions that could possibly work out but, by and large, in the conditions we have I do not believe it is that kind of one-for-one, zero-difference-type situation.

Professor Philip Lane

Our framework provides a good deal of protection and stability, and I re-emphasise that the core of the system is three and a half times the income. In the United Kingdom, it is four and a half times the income. There is a lot of lobbying effort taking place with a view to saying it should be four and a half times the income here. That is the linchpin in terms of anchoring the system. There is a limit to how much credit can fuel the housing market when we have that restriction.

Going above that, we have three layers of deposits. It is appropriate that first-time buyers have a lower deposit requirement than second-time buyers. It is 10% for first-time buyers, 20% for second-time buyers, and 30% for buy-to-let properties. We must remember that in the mid-2000s, much of it was buy-to-let properties coming in and competing with first-time buyers but when there is a 30% deposit requirement for buy to let, that restricts that.

There are many breaks in the system. We may have these temporary surges, especially in an economy where employment is growing strongly, wage increases are beginning to happen and so on.

The Governor is saying that in terms of house prices, for certain sectors of the economy it is three and a half times much larger incomes than was previously the case.

Professor Philip Lane

If the base is cut quite narrow. There is not a huge number of transactions. It is true that it is not helping the vast majority of people on average incomes. It is not helping with affordability. It means that only people on reasonably high incomes, especially in Dublin, are able to afford to buy a house.

That is a supply issue as much as anything else.

Professor Philip Lane

Exactly. The way to solve affordability issues and to have a pervasive availability of housing is through the supply side.

I remind the Senator of the time.

I thank the Chairman. I have a final question. On the tracker mortgages, the Central Bank gave guidelines to the various banks in terms of the appeals process and their examination of their mortgage book, particularly with regard to tracker mortgages.

Professor Philip Lane

Yes.

Has the bank published those guidelines?

Professor Philip Lane

It might be easier if Mr. Sheridan goes through that.

Mr. Bernard Sheridan

We have been publishing updates on a regular basis and in the latest update we have included additional information on the whole framework, the principles of redress and other clarification that we provided. That is now in the public domain.

Does every bank design its own examination process? They all have different systems, IT and so on. Did the Central Bank have to approve each scheme?

Mr. Bernard Sheridan

Yes. As part of phase 1, they all had to respond to us and outline exactly how they intended to approach this, and that had to be overseen by the independent person. All of those were submitted to us. We examined those, challenged them and made sure that the frameworks would be fit for purpose.

When an affected customer is identified, what is the reason for the delay in getting that refund back to that person? In terms of the redress that has been done so far, the average amount is between €30,000 and €31,000. That amount of redress is significant for most people which means, presumably, that they were out of pocket by that amount of money at the start of or during the process and various personal issues may have arisen for them as a result. Is there a compensation element to the amounts they are getting back-----

Professor Philip Lane

Yes.

-----above the monetary amounts they lost? Where is the actual compensation for what happened to them?

Professor Philip Lane

What they are getting back is a combination of redress, which is most of it, and then compensation. The average, in terms of what we have published so far, is around the €30,000 mark. However, within that and over the course of this examination there will be a mix of fairly minor errors where there is a minor amount of redress and a minor amount of compensation and extreme cases where severe damage was done and the compensation amount will need to be much higher. The average conveys something but it is supposed to be customer specific so when we see a severe case, the scale of the payment should be ramped up.

In terms of the average being €30,000, were there a number of cases on €500,000 and a number on €200,000? Can we get a breakdown of those redress systems, and perhaps a breakdown between the redress and the compensation? Is it possible for the committee to get those figures because it is not nice if someone is affected by €500, so to speak, but it is not the same as being affected by €100,000.

Professor Philip Lane

Exactly. Our goal, as this concludes, is that we will be much more extensive in that regard. The Senator must remember that this is all provisional. In many cases we have not gone in and verified all these numbers. It is a moving target at the moment. We are still in discussion with many of them on the appropriate schemes. Our intention is to disclose as much as we can when it concludes.

I thank the Governor and his staff for attending the committee today. On the tracker mortgage issue, the Governor has been very clear that lenders have failed their customers. That is a very serious environment for the Central Bank to be operating in and it should take it at the most serious level.

On that, we said earlier that the reasons banks treated customers in this way are unknown. We still do not know whether it was for economic advantage or collusion. Padraic Kissane, one of the witnesses who came before this committee, was clear on the harrowing stories families are still living through as a result of this issue yet the consumer has no information on that and no voice in that regard. That is a huge concern because justice delayed is justice denied and many of these families are still living in an environment where they are not aware what is happening and feel powerless.

We have a number of public interest directors in our banking system who one would imagine would be the voice of the consumer on these issues. However, they have been silent regarding these cases, which is very worrying. I have some questions for the Governor. I refer to the correspondence I get as a TD.

If people tell me they are engaging with the financial institutions but are not getting any information and are being ignored, is there anything - having regard to his earlier comments about how the banking system has failed its customers on this issue - the Governor's office can do to compel the banks to give their customers information on their files with respect to where their cases are at?

Professor Philip Lane

I will respond to that question and I will ask Mr. Bernard Sheridan to respond to it in more detail. There is a multi-layered approach to trying to represent consumers. The motivating factor for many people in the Central Bank, especially in our consumer protection work, is to try to protect the consumer through the range of powers we have. There is also the ombudsman process. As Mr. Bernard Sheridan said earlier, it is intended that the framework that each bank runs has a consumer voice. The Deputy might argue about how independent that process is if the bank is picking the framework. There will be a majority of independent voices in the appeals process. I can appreciate the frustration experienced by customers if they are not getting sufficient updates on their individual cases. That leads to considerable distress because of the sheer uncertainty about not knowing what will happen. The only thing I can say about that is that I hope month by month an increasing number of cases will be resolved. We are pushing banks to do this as quickly as is feasible. I will now ask Mr. Sheridan to respond.

Mr. Bernard Sheridan

The Deputy has asked a good question. Quite a number of consumers have contacted us directly. We have engaged a good deal with Padraic Kissane and I acknowledge the work he has been doing on this issue. We have required lenders to put dedicated units in place to deal with customers who have queries. If the Deputy has information on the way particular lenders are treating their customers, we are happy to follow up on that, and we have done that in the past.

We are in this phase that is live, as such. Even though lenders might not be able to explain to their customers their individual positions, they should be able to explain what is happening, the timelines involved and when they can expect to hear back. We are pushing lenders to do that but we are happy to be given information if consumers are not getting that treatment.

That is critical because much of the information I have received suggests that the banking institutions are not giving their customers that information and they feel powerless in this area.

The Governor mentioned the team he has and that the scope of the investigation will be very wide, which is important. We have reports both from witnesses and from those in the media of how some institutions have changed the language they use and how it is very interchangeable and complicated. Article 5 of the Unfair Terms in Consumer Contracts Directive 93/13/EEC states:

In the case of contracts where all or certain terms offered to the consumer are in writing, these terms must always be drafted in plain intelligible language. Where there is doubt in the meaning of a term, the interpretation most favourable to the consumer shall prevail.

Will the Central Bank's investigation be established in line with the provisions of that article?

Professor Philip Lane

Yes. That captures it. That same philosophy pervades many of our codes. There is a whole range of different regulatory requirements which essentially boil down to what the Deputy has just said. I will ask Mr. Sheridan and Ms Rowland to respond on what happens when these codes are violated.

Mr. Bernard Sheridan

The Deputy has made a good point. This essentially is the core of where we are at in the examination. It is up to the lenders to deliver on this now in terms of their approach to, and interpretation of, it. They have to take the interpretation from the point of view of what a consumer would reasonably understand rather than from a legal contractual perspective. We are in the middle of this process with lenders and it is true that none of them is taking that approach regarding their consumer focus, but we still have to continue to challenge other lenders. The test will be the outcomes of this examination in terms of what they deliver, but that is a key element of this examination. The Deputy has captured the key element of its scope.

Ms Derville Rowland

I agree with that point. The essence of the provision the Deputy cited is a civil law protection. It is not a financial services regulatory law protection. It is something that attaches and is afforded to everybody who has commercial dealings in this State as a consumer, and he or she can go to the court and vindicate that right separately.

We cannot chase down an enforcement case based on that provision but it makes perfect sense in Ireland, if consumer protection is at the heart of what we do, that we interpret our regulatory requirements in line with the law of the land and in line with consumer protection provisions in the wider corpus of law that protects consumers. It is our clear expectation that all lenders behave in a way that puts consumers' best interests at the heart of their behaviour and interpretation of such requirements. That attaches to the interpretation of contracts, the transparency provisions in our codes and what we expect as users and enforcers of financial services.

Professor Philip Lane

There are different channels by which a customer who has been damaged can pursue a remedy. One can imagine a customer raising the matter with the Ombudsman and trying to sue the lender and in other jurisdictions such a matter might be resolved primarily through a court case. I believe this will prove to be quite effective for the Central Bank as the regulator using our regulatory powers, which are quite wide-ranging, to essentially avoid having all of these individuals taking court cases, which would be intimidating and costly for them. The Ombudsman framework can be effective. At this scale it is limited, whereas we can deliver a lot more through this framework approach.

Ms Derville Rowland

Our aim was to offer a consumer-focused, more user-friendly approach as an additional option. It is true that it is in a moral suasion space but when we were putting together the consumer redress and compensation scheme we made every conceivable effort as lawyers and regulators to put the consumer at the heart of it. Where it is capable of being used, the money is received upfront and one keeps that money and can appeal the decision. If one does not like the answer one gets on appeal - it is not that we recommend this but these are the available options - in addition to that, one can go to the Ombudsman or to court, but it is preferable that matters are sorted quicker, simpler and easier through the use of an effective redress and compensation option at first pass without having to use those additional protections, but they are available if they are needed. It was seen as a complementary option. Our aim is for this to be sorted as quickly as possible.

That captures where we are in this argument with regard to the banks. When Mr. Kissane and others appeared before the committee they expressed a view that the Central Bank is the appropriate forum as the guardian of our financial system and regulator to investigate these matters and to hold the banks to account. I advise the Governor's team that thousands of people are relying on this and they still have faith that the officials in the Central Bank will sort this out, but the clock is ticking. I ask that they do not betray that faith but ensure they hold the banks to account and get redress for these families.

Professor Philip Lane

Public service is at the heart of our mandate. We are here to serve the public interest. This is a heavy responsibility for Mr. Bernard Sheridan's staff, who are at the front line in leading this, but it is a motivating factor knowing that in the end this will deliver. Time passes and it is very unfortunate that this has happened, but at this stage we are hopeful that a lot can be remedied.

To follow on from Deputy Burke's point and Ms Rowland's reply about the bank dealing with a query at first hand, the context she outlined is not happening in many cases. That is where lies the difficulty. As a result, we have received volumes of correspondence from clients of banks that have been badly affected. I will deal with some of their cases. For example, clients may have written to their banks about their pre-March 2006 tracker mortgage and have gone through the process with the bank only to find that it does not respond or pushes them from pillar to post, often forcing them to get legal advice and legal services at a huge cost. Instead of dealing with the problem, the bank pushes it out and tests the customer in how far he or she is prepared to go in pursuing the problem.

I understand we cannot name individuals, but in one case a client wrote to us anxious that this matter be raised with the witnesses. I refer to the position before 2006, what they bought out of the promotion of the product itself and then the discovery that when they sought redress, the bank simply pushed them around. From 2010 to date, they have not received any approach from the bank that they consider to be constructive or helpful. In fact, they have fought all the way and are now at the end of their tether. This kind of issue falls generally within the area of tracker mortgages but also brings in other matters the bank has ignored. How does the Central Bank enforce this? As Ms Rowland said, it has an obligation to deal with this type of custom before it goes anywhere else and without putting the customer into bad health and arrears because of the associated cost.

Professor Philip Lane

I will make a few points, and then perhaps Mr. Sheridan and Ms Rowland can say more. I agree that the relationship between a bank and an individual customer is typically totally asymmetrical in terms of the balance of power and any legal process, its associated costs and so on. This is why the idea is that much can be resolved through this examination process which bypasses the need for individuals to take legal actions. Importantly, this examination goes back to the mid-2000s so it will cover pre-2006 trackers. Anything with the tracker flavour is covered. I ask my colleagues to give some extra analysis.

Mr. Bernard Sheridan

Professor Lane is correct. Pre-2006 tracker mortgages are clearly part of the examination. The three strands to the examination concern contracts, and that is from day one; transparency, which applies to what people were told at the beginning, during the process and now; and whether there were other influencing factors. All these elements will play a part in the assessment, but the Chairman's point concerns the manner in which the client has been treated, which to me-----

I apologise for interrupting Mr. Sheridan. This is just an example of how people are being treated by a bank that is becoming more arrogant by the day, and most banks are. I wish to put on the record that I see a significant difference between the manner in which banks previously treated their customers and the manner in which they are doing so now. This customer I referred to says there is absolutely nothing in the promotional material they have from 2005 to suggest that a customer might lose his or her tracker. In other words, they have investigated the matter, they have the evidence, they have presented it to the bank and they have asked the bank in a reasonable way to consider the matter and not to push them any further. They have told the bank they are almost a beaten docket because of what it has done to them. However, the bank refuses to deal with them. This has been going on in this case since 2010. The bank is destroying this person's life. How many more lives is it destroying and what action can the Central Bank take?

Mr. Bernard Sheridan

In the context of the examination, the priority of our work in considering what has been happening is to focus on the people who are in scope and who the lenders have said have not been impacted. They are the people in respect of whom we really need to be satisfied that this is true. The lenders are making assessments, as in the case referred to by the Chairman, that perhaps the lender has no case to answer. We have put in a framework and independent oversight to verify this. Our role is to assure this happens, and we have employed and are employing additional resources and expertise to challenge the banks. Ultimately, if we end up in a dispute, we will use all our supervisory and enforcement powers to deliver for the customer.

When the Central Bank gets a letter like this, where does it go? What happens after it gets a letter of complaint from a couple in such a situation? What is the process after they outline to the Central Bank what the issues are?

Mr. Bernard Sheridan

We will consider that in the context of our own investigation and our own examination to see what issues it raises for us in terms of that institution and how it is treating its customers. We will also escalate the issue to the institution to make sure it is properly addressed at the appropriate level.

This couple wrote to the Central Bank on 20 March 2017.

The witness might check the correspondence because I believe the couple have been treated badly by the bank and they are desperately looking to the Central Bank for assistance. Having read the documentation, they have what I would consider to be a fair case. In another letter, the correspondent writes that Ulster Bank, which gave us a commitment in December to write to all of its customers and deal with the issues, did not do so. To say it to a customer is one thing, but it is another for the bank's representatives to say in here, to a committee of the Parliament, that it would write to and explain the matter to customers, and then not to do it. That means the bank ignored its customers. The customer is king and, having been in business, I know one cannot ignore customers but take on board their criticism and suggestions. In this case the bank did not even bother. The bank told us it would write to its customers but the person who wrote the letter I received has asked who protects the customer. This person does not know where to turn.

Professor Philip Lane

We want the banks to be in touch with customers as soon as possible. Mr. Sheridan will outline the process.

Mr. Bernard Sheridan

I will not comment on specific institutions. The framework basically sets out the priorities in identifying the impact to customers, fixing the problem and communicating with the customer at that point. In terms of progress being made in individual institutions, a number have started to contact cohorts. I cannot comment on a particular case as to whether a person has been contacted. They are working through their loanbooks, so maybe the person is not in a cohort that has already been contacted.

This person has been in the system for 18 months, getting regular letters from Ulster Bank. Having read much of this correspondence, it might be time for the Central Bank to call out some of the names of the banks that are simply falling behind, because it is not acceptable.

Professor Philip Lane

I understand that point of view but it is not the legal framework under which we operate. Unfortunately, we must keep saying phrases like "we cannot comment on individual cases" and so on because the legal framework under which we engage with individual institutions prohibits it for good reasons. It is frustrating but we have tried, prompted by the level of interest from committee members and the testimony they have received. In our March report we tried to put out a lot of information, including where we had to request permission from individual institutions to do so. We live in a legal environment in which we cannot discuss certain issues in public as it would be a breach of the legal requirements under which we operate. The committee had representatives of the individual institutions in here and that was quite effective. They can speak about their institutions and the committee can hold them to account. We can hold them to account on a more confidential basis.

I am asking the Central Bank to use its powers to hold these institutions to account. There is another letter where the correspondent has been waiting for seven years. Looking at the correspondence and what is going on, it is shocking that banks do not even reply to these people. The answer is, of course, to bring back in the individual banks, and I am afraid it is something we will now have to do. There is no consistency in how they reply to the committee or their customers. I tested Bank of Ireland, writing to Mr. Boucher and asking him to examine a client's case. One bank said it cannot speak to us about individual customers, which is fine, but that it would contact the client in question. That is fair enough. Bank of Ireland gave one sentence in reply and said it could not talk to us. That is the type of attitude we are coming up against from banks. I have said they are growing more arrogant by the day.

The person who wrote the letter to me stated that seven years have elapsed. Earlier Deputy Burke spoke about Padraic Kissane. On 9 March, Padraic Kissane said that the deception is continuing on such a scale that it is worse it is getting rather than better. We listened to him here. In terms of the cases that he outlined, the Governor can quote us the letter of the law, which is his job, and the regulators and banks will do their business. The customers have been pushed so far from the centre of things that they do not understand the language that the bank is using against them, which is a real problem. Nobody has spelled out to the customer in layman's language exactly what the criteria is in terms of the investigation, how long they can expect to wait or given them a complete brief on where their case is and instead customers have had to fight all of the way. Some of the replies have been as follows: "When you look at your mortgage we gave you the wrong set of terms and conditions due to a manual error. Despite this error we have now decided to honour these terms and conditions." The replies make it sound like the borrowers are the guilty ones. They have been made to feel guilty and thankful that the bank has talked to them at all. I am not saying so. That message has been conveyed in the correspondence sent to everyone.

Professor Philip Lane

The Chairman's comments reveal why this comprehensive examination has been necessary and why it shall prove effective compared with individuals trying to deal with a complaints procedure within an individual institution or collectively trying to use the Ombudsman's framework. We have a lot of effective instruments to hold these banks to account. It does take time because of the scale of the issue and the balance between the first priority of delivering redress and compensation for individuals and to back that up where we see violations of various codes through enforcement actions. We are in the middle of all of this. All I can say in response to these individual customers is that we are working on their behalf. Thousands of customers have received redress and compensation and more cases will be resolved over time. I hope that we can prove to be effective in helping to resolve these issues.

I will read the following paragraph into the record because it tells one everything:

As one of the original PTSB 1,372 it would be hard for me to portray in words the effect that the past eight years have had on my life. Rather than being of help the past two years, since my account was identified as part of the redress scheme, have left me drained. The fight has all about but gone from me. I am now at the hurdle of the independent appeals process and unsure if I have the strength left to continue which I know is exactly what the bank hopes for. However, there is only so much a soul can take and this tracker issue affects every single aspect of your life. The appeals process has, in a nutshell, made me feel like I am on trial. I cannot tell you how many times I have wondered what I did wrong and why I am in this position. I am on trial because I am guilty of wanting to own my own home. I was robbed of my money each month while each month also repaying the bank every instalment they asked for. I never missed a payment but I am the one who is guilty. I am the one through this whole process who has had to repeatedly justify my position through an appeals process to the same bank that robbed me monthly. The banks broke the Customer Act 2007 and yet it is I, the consumer, who is guilty.

That sentiment rings through every single piece of correspondence that I have received. I would love to see the Governor, to the extent of the law and beyond, pressing these banks that have now, in my opinion, regained the same level of arrogance that they had before the crisis struck. I ask the Governor to understand the following.

The language that is being used on this is not informing customers but is pushing them further away. The actions of the banks through legal processes and so forth are frightening the same customers. The banks should be dragged to the point of remedying the situation now. It is unforgivable that they would do this to ordinary people who did no wrong. That is my view. Thousands of letters have been sent to us.

Professor Philip Lane

We also receive communications directly through a variety of mechanisms, including our public communications unit. This comprehensive approach can deliver a great deal, compared with each individual fighting these cases on their own. I hear what the Chairman has said. There is also an effort within the Central Bank to communicate. Obviously we communicate in different ways and some of it may be a little technical but we try. Perhaps we can do more in terms of trying to communicate what we are doing in a way that can be more easily understood by the-----

Get the banks to do it.

Professor Philip Lane

What we have here is the responsibility of the banks in the first instance to their customers. To the extent we can explain how we are coming in through the examination to accelerate the process, that might be helpful also.

I have to pass on two comments to you. The first relates to Ulster Bank and, again, I do not expect you to comment on an individual bank. The lady concerned had to use her solicitor to get the documents she was entitled to from Ulster Bank. That is not right. The second relates to AIB. The person says that AIB refused to supply them with details on their various accounts and that there is a strong possibility that it illegally removed the person from the valuable tracker rates. How do you expect people not so much to defend but to present a case if their bank is reluctant to give them the details or is dragging its heels in doing so? It is outrageous. Many of the citizens of this country who have pushed themselves to pay their debt every month are not able to afford it and are broken trying to do it. I appeal to you to understand what we are facing.

Professor Philip Lane

This is why I believe our approach will be more effective, because we are not requiring individual customers to take actions. It is a comprehensive approach whereby all accounts are being examined. Of course, it is helpful for individuals to deal directly with their own banks, the ombudsman and us. It is also very effective to have individuals such as Padraic Kissane and others acting as the voice for people. All of this will help. However, the concept of our examination is that it does not require individuals to take action. In principle, these are comprehensive reviews. Mr. Bernard Sheridan can probably reinforce that.

The point is that when the individual takes action and tries to find out the details of their situation with the bank they are being stonewalled. They have to continue to pay the inflated cost of their loan while they are waiting for the Central Bank. It is clear from the correspondence that unless they take action, the banks will just ignore them. It seems to me that the banks are not prepared to get to the end of this by a long shot.

Mr. Bernard Sheridan

The Governor mentioned the framework. This is the most comprehensive framework we have put in place to try to resolve these issues. We are putting the onus on lenders to deliver this. We have set specific timelines using our statutory powers. However, I agree with you that there is no point in them delivering a report to us which says something while, behind it, they really have not taken it seriously and taken the approach from the consumer. This examination will continue after the phase 2 reports because that involves our assurance work and our challenge to these lenders. Ultimately, if the lenders' boards do not take responsibility for this in the way they should, that means we will take whatever action we can to ensure the consumer gets the right outcome. I agree with you that the behaviour described from lenders to customers is not acceptable in terms of what they are putting them through.

We are working very hard to make sure that all those cases are dealt with under the examination.

I just want to press this point. When one looks at this, and when one examines the correspondence that we have all received, and there is a huge amount of it, it is clear that the bank took action to take money from their customers illegally. Now they are going to redress it. They are now robbing the rights of the customer to proper redress and proper compensation by dragging their heels and ignoring them. That comes across in every single piece of correspondence I have read through over recent months.

I say again that it is outrageous the banks are seemingly getting away with this. In some cases they will get away with it because they have broken the customer in the process. That is the outrage that jumps off the page, as it were, in the context of this correspondence. Some of these people dealt with the banks for 20 and 30 years, and now they are being treated like this. If the banks were really honest about it and wanted to resolve this, we would not be having these committee meetings. They would be out in the regions, meeting their customers, calling them in and offering them a course of action. We are going to have to call in the banks again now to go through all the details with them because they are simply not telling the truth about their engagement with the different affected customers.

I accept the job the Central Bank is doing, but there is something not right here and there is a relationship issue between the banks and their customers. To go back to Ms Rowland, civil law, and the rights of customers under that law, is just being ignored. The banks are just ignoring it.

Professor Philip Lane

Going back, the civil law aspect has limited value in terms of protection, because of the asymmetry between individuals and large institutions-----

I am sorry, Professor Lane. Are you saying-----

Professor Philip Lane

On civil law, it is important to remember that we have a lot more ability to get banks to deliver than an individual taking a case to the courts. That is what I am saying. Even in the case where someone is so beaten down by a difficult case that they withdraw from the process, that does not influence what we are doing. If those cases come up, they will be receiving the redress and compensation. There will be assistance for people, by and large, if they want to launch an appeal. There is no threat of loss of the redress and compensation. There will be support for people who want to bring appeals.

I accept the Chairman's basic point that at this stage, after so long a time, many people are discouraged and have been distressed by all of this. It goes back to the same point the Chairman has also made about the culture of banks and so on. We have this consumer framework which basically says that there are different ways to protect consumers, but in the end it is essential we have companies that accept, and whose boards and senior management accept, that they should be consumer-focused in how they do business.

Ms Derville Rowland

The motivation for creating the consumer redress and compensation framework actually recognised the exact point that the Chairman has made, that the position of the Central Bank is to seek to assist consumers in redressing and vindicating their rights. This is something that we are conscious of and completely committed to.

Does that include the cases where people who engaged with the bank cannot get their information? I have two short questions after this, but my last question on this issue is if we send all this correspondence on to Mr. Sheridan and if we redirect every letter that comes in to him, will he take it up with the bank?

Mr. Bernard Sheridan

As I said before, there are two elements to it. We examine each of those letters in the context of how the banks are treating their customers and what issues it raises in the context of the examination. We also then escalate that on to the bank itself.

The other question, and I do not know how this is dealt with, is about the issue of EBS tied agents. Is that something to which the Central Bank has a resolution?

Professor Philip Lane

Can you elaborate on that a little? What is the issue?

The EBS tied agents seeking justice wrote to the Governor of the Central Bank on 3 February 2017 in regard to their issue.

Professor Philip Lane

We will have to come back to you on that point.

I have a letter from a credit union to say it was disappointed to hear the Central Bank repeatedly advise that no business model proposals or requests for changes to regulations have been made to it. This arose from our hearings with the credit unions. The letter goes on to state that the credit union has made extensive efforts to engage the registrar on its business model development and has submitted a detailed proposal to the Central Bank specifically on mortgages but has failed to get any type of meaningful engagement or discussion on the matter. I will send that submission on to the Central Bank.

Professor Philip Lane

That is probably best. I thank the Chairman.

I know the Governor is caught for time.

Professor Philip Lane

Yes, I have to go to the airport.

A number of people have raised condition 3.1 with me. It concerns situations where, if someone is offered a tracker mortgage but elects to go on a fixed rate and the fixed rate changes between the letter of offer and when the loan is drawn down, they are entitled to go back to take the tracker rate. Has that come onto the Central Bank's radar?

Mr. Bernard Sheridan

That is one of the issues that is under examination.

When does the Central Bank expect the current process to be full and final? The witnesses mentioned the conclusion of phase 2 by September.

Professor Philip Lane

Phases 3 and 4 can be concurrent and continuous. They can happen month by month. I do not want to give a final deadline because we are pressing the banks to expand their horizons. We cannot give a cut-off date if the cost of meeting that deadline is that certain categories are lost. I think an open-ended process is more effective.

One of the requirements of the review is that lenders must have a customer helpline. A lot of these helplines use scripted conversations which do not provide enough assistance to customers. Is there any detail about what help must be given to customers?

Mr. Bernard Sheridan

Our expectation is that it is not sufficient to just give the standard line. Lenders have to try to explain to the customer where the process is at and where the particular account is at. That issue has come up. We are engaging with lenders in terms of how they are communicating.

Reference was made to the legal framework. Are the guidelines for banks which the Central Bank has published in the public domain?

Mr. Bernard Sheridan

The framework and the principles of redress are in the public domain.

Did each bank design its own scheme? Are there examples where banks have different schemes?

Mr. Bernard Sheridan

The framework sets out how they are to approach the examination while the principles set out the Central Bank's expectations in terms of redress and compensation. Each of the schemes is being designed by the individual lenders. They then have to come to us where we challenge them on their approach. Ultimately, the payment and decisions regarding the payment are matters for the board of each institution.

Of the 15 institutions, with how many have schemes been agreed and with how many does the final decision on the design of the scheme remain outstanding?

Mr. Bernard Sheridan

We have not published that information yet. We have agreed a number but a number are ongoing.

When is it anticipated that the framework will be decided upon?

Mr. Bernard Sheridan

We are committed to publishing regular updates. The next one is planned for autumn and will include more information.

When will lenders be told that they must write to people to inform them that they should have been on a tracker rate and of the level of redress and compensation? Many people approach us with issues concerning trackers. One feature that stands out is the differential between the fixed rate and the variable rate and, more particularly, the significant differential between the fixed rate and the tracker rate.

It is quite significant. I know of cases in which people did not even remember signing documentation to switch to a fixed rate. The fixed rate could have been 4% or 4.9% and the tracker rate 0.81%. The differentials are extraordinary and make an enormous difference. I know of a case in which a family bought a house and over ten years were switched to and from a fixed rate mortgage about three or four times. They would have had to sign various documents, but they have no recollection of signing them. May we have some indication as to when the banks will have to come back? Is the kind of thing featured in the example I have given on the Central Bank's radar?

Mr. Bernard Sheridan

It is a good example because it reflects the complexity of the examination, but it is just one example.

When will the Central Bank instruct the banks? What is the timeframe involved?

Mr. Bernard Sheridan

As the Governor explained, the phases will run concurrently. The key is identifying those who have been impacted and fixing the rate. That is happening. Communication will take place with customers to settle what will happen after that, including the paying of redress and compensation, the next steps in the process.

Therefore, it is expected that once customers have been identified, they will be put straight back on a tracker mortgage?

Professor Philip Lane

In cases in which a problem was identified, 90% of them have been rectified. As not all cases have yet been identified, it might be the case that the examples given by the Senator are lagging behind.

Yes. I thank Professor Lane.

I thank members and Professor Lane and his colleagues.

The joint committee adjourned at 1.15 p.m. until 10 a.m. on Thursday, 13 April 2017.