General Banking Matters: Discussion

The engagement this morning is on general banking matters and we have three witnesses in attendance: Mr. Cormac Butler, who has attended our committee before; Mr. Shane Kavanagh, who also attended our committee before on an issue; and Mr. Tony Lawlor, who will tell us about his experience on the tracker mortgage issue. We had a different agenda for today’s meeting which we will deal with later in private session which will comprise giving an update to members. The format for today is that Mr. Butler, Mr. Lawlor and Mr. Kavanagh will give some brief opening remarks. I believe we have their statements, and members will then ask questions.

I remind the members and witnesses of the notice of privilege. Anyone attending this meeting from Leinster House or from the Convention Centre Dublin is covered by privilege. Witnesses who are attending remotely or from outside Leinster House or the convention centre may have limited privilege.

I now invite Mr. Butler to give his opening remarks.

Mr. Cormac Butler

I thank the committee for inviting me to appear before it to speak on banking matters

I will start with tracker and variable interest rates. The mortgage tracker scandal has revealed attempts by most Irish banks to charge interest well above what the law allows. Sadly, banks have used loopholes to avoid the Central Bank’s tracker mortgage examination. The Central Bank has warned that high interest rates often push customers into unnecessary default. In the rush to window dress with short-term artificial profits, banks create considerable long-term problems for themselves and their customers and lessons from the banking crises are ignored. Many defaulting customer loans are sold to vulture funds at huge discounts. Tony Lawlor has first-hand experience of some of these obstacles and will address this committee shortly.

The Central Bank wants commercial banks to examine buy-to-let customers as part of the tracker process, yet banks say that only home loans qualify as tracker. In addition, some banks will only advance Covid-19 loans provided those customers reclassify themselves as non-consumers thus enabling banks to use unfair terms and avoid a tracker examination by failing to retain historic interest rates. Banks have used this opportunity to increase interest rates without justification or customer consent. One bank has forced a customer to sell his property at distressed prices and even threatened the auctioneer with legal action if they attempted otherwise. Worryingly, the Irish courts believe there is nothing wrong, otherwise, the Central Bank would have investigated this behaviour.

The second topic I intend to discuss is banking licences. To the distress of many borrowers, the Irish courts will not examine whether the former mortgage provider IIB Homeloans and Finance Limited had a proper licence before 2008 thereby causing illegal repossessions. Courts say the burden of proof rests with the borrower not with the bank. IIB Homeloans has refused to confirm that it did not have a licence. The Central Bank has repeatedly avoided questions on this matter but instead said that IIB Homeloans did not need a licence. In a recent parliamentary question, the Minister for Finance refused to answer a direct question on the licence issue and simply repeated the Central Bank’s answer that a licence was unnecessary.

Fortunately, on 26 May 2021 the Central Bank, after persistent questioning, eventually confirmed that IIB Homeloans Limited did not hold a licence prior to 2008, an important admission that will help overturn illegal repossessions. Section 7 of the Central Bank Act 1971 requires entities describing themselves as a bank to hold a valid licence. On 20 May 2021 the Central Bank was asked to clarify why IIB Homeloans had an exemption from section 7. Clearly, this matter requires an urgent answer. Looking at the Irish court system, in practice, if the borrower as defendant claims that IIB Homeloans acts illegally and the Central Bank has not raised the issue then the courts have nearly always found against the borrower.

On another matter, a group of EBS tied agents has also suffered from Central Bank inaction as Shane Kavanagh will reveal shortly. Some of this group are before the courts facing repossessions. Their defence is straightforward, that is, that EBS was in a perilous financial position which it failed to disclose and therefore signed contracts that it was not able to honour. The group has evidence from former EBS directors and sworn evidence from the Committee of Inquiry into the Banking Crisis that EBS knowingly misrepresented its financial position.

A legal opinion from George Bompas QC confirms that such practices are contrary to EU and, therefore, Irish company law, yet the courts have ignored the tied agents because the Central Bank, as regulator, has not raised the matter. The courts have ruled that sworn evidence at the Oireachtas banking inquiry is not acceptable and have simply ignored evidence from barristers on the application of EU company law, yet they are happy to rely on evidence from redacted documents provided by the vulture funds. Clearly, Central Bank investigations are necessary if the courts are to take repossession defences seriously.

With regard to money laundering, during the 2008 financial crisis, banks used window dressing to conceal substantial deposit withdrawals from worried customers. At least one bank funded substantial but artificial deposits by lending money to itself. In a particular case that I have come across, a bank advised a customer that he could receive a bank loan only if he entered into a partnership with associates of the bank. Although named as a borrower, the customer never actually saw the loan advances. The bank instead paid loan proceeds to its associates, who placed much of it back on deposit with the lending bank in an account held with the Irish Central Bank. The customer saw his business collapse with unnecessary cash flow problems, yet the courts were completely unsympathetic. In my view, the courts assume that all regulated banks are operating above board if the Central Bank does not raise an issue. Injustices, therefore, arise.

In conclusion, this committee has already raised these matters with the Irish Central Bank and it wrote to Chartered Accountants Ireland on a serious matter of potentially

wrong legal advice, yet no one has responded, despite a Financial Times article raising very serious concerns. I hope the committee will continue to address these important matters.

Mr. Tony Lawlor

I thank the Chairman for inviting me to speak, to highlight and to provide a human picture of the sheer devastation the bank has caused me and my family for the past 11 years. I approached the bank in good faith in the hope of reaching agreement with regard to a loan facility for the purchase a family home. I am a strong family man and live for my children and my one grandchild. I have always prided myself on my honesty and have a huge resistance to dishonesty and wrong-doing. I come from a very much respected Kilkenny family and my late dad was awarded Kilkenny person of the year in 2002 for his lifelong dedication to amateur drama and sport.

The agreement that was reached in April 2004 between Bank of Ireland and me was for a credit facility equating to a loan to value ratio of 90% for the purchase of a family home to the value of €245,000. The bank provided for a discounted variable rate of 2.69% for a period of 12 months, which was welcomed, noting no arrears. The bank had unilaterally retained a higher marginal rate of 1.10% some 12 months after the negotiation of the contract. However, it applied a rate of 1.60%. This higher marginal rate formed the central aspect of my mortgage contract with the bank and I entered into it in good faith. The expectation that the bank would act in my best interests and honour the central aspect of my mortgage appears to be a lost expectation.

Twelve months after reaching agreement with the bank, a business record detailing my business relationship going forward was entered into my mortgage file by a Bank of Ireland financial adviser as the discounted period was nearing an end. This business record identified with my mortgage account and qualifying tracker rate prerequisites, namely, a home loan, a loan amount of in excess of €200,000 and a loan to value greater than 60%, contractually entitled me to an ECB tracker rate in addition to a 1.10% Bank of Ireland Group marginal rate above the ECB rate.

The bank had informed me, following my complaint and investigation in 2014, that “there is no provision anywhere in your mortgage agreement for a tracker rate of interest”. This is untrue and contradicts the business record of my banking relationship with the bank entered on my mortgage file as interpreted by the bank’s financial adviser dating back to April 2005. The bank set about denying my business relationship in pursuit of increased interest payments and was prepared to rely on redacted documents, withhold relevant documents, misrepresent terms and, in my case, produce a mortgage deed that triggered a civil procedure to possess my family home. How wrong was I to expect the bank to act in good faith with my best financial interests front and centre when profitability for the bank is at stake.

The operational effect of my variable rate mortgage with the bank allowed for positive and negative variable rates to be adopted by the bank and applied to my mortgage contract on foot of ECB announcements during this time. Following the banking crash of 2008 and the removal of tracker rates as a viable option for Bank of Ireland Group in 2008, positive and negative reflections continued to be applied to my mortgage account, reasonably understood as a tracker mortgage. The bank cannot exercise discretion over ECB variable rates of interest. How wrong was I to expect the bank to honour its side of the bargain.

Following the banking crash, my mortgage agreement fundamentally changed. In April 2010, two years after the banking crash, the bank unilaterally and fundamentally, without consent of any description, changed my mortgage contract and agreement whereby it exercised total control over my variable rate mortgage. ECB rates were no longer adopted and applied to my mortgage contract. This totally changed my life. The immediate impact was that it generated arrears for the first time in my life on my mortgage, pushing me into me an unnecessary default.

Several case managers adopted the same attitude. Terms were introduced into my mortgage, with bank officials misrepresenting my contract in a way that was not visible in loan offer documentation, and these terms were known or should have been known to unilaterally alter the central aspect of my mortgage contract. A common thread adopted by the bank was to deny, defend, delay and destroy anyone who dared to question. The psychological reign of terror put on me by the bank had a devastating effect on all aspects of my life. The line adopted by the bank was that at all times when a variable interest rate applies to the loan, the interest rate chargeable will vary at the lender’s discretion, upwards or downwards. What the bank failed to include and consider is that clause 6(a) in the loan offer was that it was subject to a referencing index in the same loan offer. For Bank of Ireland to apply the term “variable rate” in such a manner is unfair within the meaning of the EU directive on unfair terms in consumer contracts, and it was utilised to deprive me of a tracker mortgage examination and appeal procedure mandated by the Central Bank.

How and why the bank was retrofitting my mortgage contract with higher rates caused me untold and life changing personal damage, and the reason for this was simply to increase the bank’s profitability. Over the time period involved with dealing with the bank, my health deteriorated very significantly. I suffered two heart attacks, was fitted with cardiac stents and finally was subjected to a quintuple coronary artery bypass graft in 2014. I was left with no other option but to retire from my very well paid job with the National Ambulance Service, a job I loved.

Due to what can only be regarded as a presumption at law, namely, that the bank at all times acted honourably and honestly, the court moved to grant a possession order on my family home, despite forensic evidence of overcharging and overwhelming evidence of a tracker mortgage scandal, of which I was a part. On appeal, the court did not admit my sworn evidence of truth as it was claimed by the bank to contain legal argument. My contractual business relationship with the bank in 2004 and 2005 was knowingly withheld from me and from the entire court process by the bank, including my appeal, despite freedom of information requests prior to the commencement of a summary application made to the court seeking possession of my family home.

The court's own motion regarding an assessment of unfair contracts was sidetracked and cast aside. A general data protection regulation, GDPR, data request under Article 15 in 2019 subsequently discovered, for the first time and following the courts process, the existence of the business record and the classification of my mortgage product as a tracker product. The bank determined that my account was not impacted and is not within the scope for a tracker mortgage examination despite the bank’s records identifying my mortgage as an European Central Bank, ECB, tracker variable, with the rate set at 1.10% above the ECB rate in 2005. The bank also chose to ignore the criteria set by the Central Bank of Ireland in determining whether accounts are within the scope. This, in turn, also deprived me of an appeal process under the examination process.

The impact on me personally during this reign of terror, during which the bank defended the indefensible, delayed the inevitable, and denied the obvious, has been akin to living a hell on earth. One stares financial ruin directly in the face and lives with the real and present risk of homelessness destroying one as a person as one receives the dreaded visit from a sheriff or private security firm to evict one from one's family home.

I thank the committee for giving me the opportunity to expose this clear and obvious wrongdoing. It stands in plain view to the reasonable man, although this is a contention the bank will do anything to deny. I hereby call on Francesca McDonagh to honour a commitment she personally gave to the Oireachtas Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach on her appointment as chief executive officer to the Bank of Ireland Group.

Mr. Shane Kavanagh

I thank the committee for this invitation. In 2018, I appeared before the committee as a representative of a group of EBS agents to express my concerns about accounting and other irregularities within EBS. Despite letters from the joint committee to EBS on the matter, EBS refused to engage. A former EBS director confirmed my concerns and appeared before the committee to outline the consequences of these accounting irregularities.

In a separate case taken by another agent to prevent termination, the company claimed it was being terminated because it resisted pressure from EBS to adopt underhanded sales tactics for investment products. Mr. Justice Jordan ruled against the EBS and noted that he was being told to move along, there is nothing to see here. In his 2019 ruling, the judge called on EBS to “lead by example” adding:

I would have thought that a competent mediator could bring sense to bear and mediate a solution to the dispute between the parties. If the parties are committed to doing business with integrity and in accordance with the regulatory requirements that exist, then what possible obstacle stands in the way of both sides starting on a new page

Sadly, the bank did not listen and instead, in 2020, brought the case to the Court of Appeal where once again all three judges ruled against the bank.

Today, our group of EBS agents are like insects caught in a spider's web. Since our last appearance before this committee in 2018, there has been no attempt by EBS to engage with any of the agents in respect of our dispute. Sadly, two of our colleagues have passed away, both of whom are in our thoughts today, as are their families. We have now spent more than ten years trying to get justice and, to add insult to injury, EBS will not negotiate with us, although it appears to be willing to negotiate with a third party who is soliciting a fee.

EBS signed contracts with us knowing that it was unable to fulfil its obligations. The result was that we could not sell mortgages and EBS instead instructed us to sell investment products associated with a high commission, although they were highly unsuitable, and to do whatever it takes. These products were not suitable for every customer as many customers simply did not have a tolerance for risk. We objected to these instructions and were warned that if we reported it our lives would be hell. Agents who failed to comply lost their livelihoods. Clearly, having the courage to speak out was dangerous.

I welcome the protected disclosures legislation which must be transposed later this year and I hope my comments will be of assistance. If we are to restore the integrity of the financial services industry in general, the foundation stone must be accountability. Every decision which impacts customers or consumers must be traceable to the individual or individuals who made the decision. If we tackle the issue of accountability, we will, at the same time, tackle inequality, dishonesty and corruption in our banking industry and become a beacon of hope for the world's banks, which have, in recent years, lost the trust of the nations to the point that Bitcoin, which is not regulated, has established itself as an acceptable currency on the world stage. Where will this end if we do not stop the rot?

Sadly, whistleblowers are often seen as conspiracy theorists, troublemakers and a threat. They are exposed to bullying and retaliation, leading to financial insecurity and stress. The courts will normally ignore criticisms of regulated banks if the Central Bank and the Office of the Director of Corporate Enforcement, ODCE, have not raised any objection. Having first-hand experience, I have outlined the efforts we personally made with regard to resolution. I refer the committee members to Exhibit 1, which I included as part of my opening statement. It is a map regarding the activity of our group of EBS agents.

If Government regulators are unwilling to act, the role of the whistleblower becomes more important. Ireland's record of dealing with conscientious workers is extremely poor. Conscientious workers are not being publicly represented, apart from the representation provided by a few politicians who are simply doing their job. The very fact that our group exists tells one that Ireland has a long way to go. The State's attitude is concerning. Healthy scepticism is one thing, but when one knows one is correct and is telling the truth, it is soul-destroying to be dismissed as a crank.

What do we have to do to win the interest of the gatekeepers with a view to ensuring an independent and transparent investigation? Personally, I must admit I was very naive. I thought we were all on the same side. I was wrong. The powers that be are just not interested in uncovering the truth and appear more interested in covering up for their corporate cronies. The question must be asked: why does the Garda Economic Crime Bureau not take the lead and investigate these issues irrespective of establishment perception?

In our case, the Central Bank wants this issue to go away simply because it did not do a sufficient job and, as it turns out, it was in its interest that the truth be circumvented. The Minister for Finance and his Department have made it clear to me that they are never going to believe me no matter how well the evidence is presented. The result of all this is that reputations are saved, careers are made and society pays. The time has come for the State to exit its bunker mentality, to stop turning a blind eye, to turn over a new leaf and to engage and support those who speak up for the betterment of society.

I suggest that a dedicated independent anti-corruption agency should be established to tackle white-collar crime and corruption in the corporate world and political spheres. The State should establish a fund to financially support conscientious workers who find themselves with no income and introduce legislation which will provide free legal aid for all conscientious workers who have no alternative but to take their case to the courts for resolution. The State should also introduce an incentive scheme to encourage employers, including State bodies, to employ conscientious workers who find themselves with no work having previously made a qualifying disclosure.

I believe that very few people are aware that the Protected Disclosures Act 2014 exists and that there are legal protections available. The relevant authorities need to educate people on how to use the Protected Disclosures Act safely and to ensure that people are aware of its protections. The State and its representatives also need to educate themselves on the Act and when it applies as there appears to be some confusion among some State employees. I have personal experience of making a disclosure to a State entity only to be told that my complaint did not fall within the Act under a section that I never mentioned in my original disclosure. When I appealed this decision, I highlighted the section of the Act under which I believed the matter fell. However, my disclosure was dismissed on the grounds that it was a matter for another entity, that being the same entity against which the disclosure was made. I responded and informed the recipient that there was nothing in the legislation to allow that body to evade its responsibilities where the responsible company, for whatever reason, refuses to investigate. I provided evidence demonstrating that the company in question was not independent when investigating matters that I was raising. To this date, this concern remains outstanding. I have a question for all legislators on this committee. Do they believe this behaviour is legitimate?

I thank the speakers for sharing their experiences and strongly speaking about an ethical vision of what the finance industry should be. A few areas struck me. Mr. Butler mentioned the pressure on people to reclassify themselves, to be pressed into inappropriate financial instruments and loan structures that do not match their needs, and the abuse of power. It is striking that only a European legal provision, GDPR, has allowed Mr. Lawlor to have the information about the business record. GDPR is proving useful to prevent blanking of information by institutions. It leads to a question about when contradictory information is intentionally withheld in a legal or court process, with devastating impacts. That should be challenged. There is a question about where those decisions are being made. I will ask Mr. Kavanagh about some of the ideas to have accountability. We need to look at measures for when contradictory information is intentionally withheld by a major actor such as a bank. There need to be ways to re-enter the appeal process when such things emerge.

Mr. Kavanagh mentioned the protected disclosure legislation. This is timely because it is an opportunity for us to try to improve it. I have heard similar stories to what he has told us from people who have had the same experiences, where they are referred to the entity about which they are complaining. It seems to be a matter of going from pillar to post as an attempt is made to shift the responsibility when, in fact, it cannot be shifted. Mr. Kavanagh mentioned what we can do about protected disclosures. The senior executive accountability regime is the other thing that we have been talking about in this committee. Protected disclosures provide protection for those making the disclosures. GDPR requires that decisions can be appealed and that there is transparency in how decisions are made. To ensure accountability for the individuals making decisions, how important is the implementation of the senior executive accountability regime? Does Mr. Kavanagh have suggestions about how that could be strengthened?

I agree with Mr. Kavanagh about cryptocurrency regulation. That is a separate discussion but it is a sign of issues in this area.

Does Mr. Kavanagh think that the anti-corruption unit needs to be separate from the Garda National Economic Crime Bureau or could it be reframed to serve that anti-corruption purpose?

Mr. Shane Kavanagh

The reality is that the senior executive accountability regime needs to be introduced. I have no difficulty with it. It is correct and right but I cannot understand what the delay is in introducing it. How many standards do we need to get this over the line?

The anti-corruption agency needs to be separate and absolutely independent of everything. Ireland is a small nation. Everybody seems to know everybody. It goes around in a circle, being passed from pillar to post. The terms of reference of that agency need to be clear and there needs to be absolute accountability. We sent correspondence to the gardaí, they said that company law matters are not for them and sent it to the Office of the Director of Corporate Enforcement, which then sent the correspondence back to the gardaí. It is a merry-go-round. The banks say that it is a matter for the Central Bank which then says that it does not see any evidence of criminality, that it is a matter for the gardaí and that it does not have anything to add. If there is evidence and possible criminality, why does the Central Bank not simply do its job and pass it on to the Director of Public Prosecutions to let it make the decision? The Central Bank is essentially saying that it is deciding that there is no criminality. Let the Director of Public Prosecutions do its job, independent of the Central Bank. There seems to be significant reluctance to do that. I cannot understand or get my head around that. Mr. Butler may have points to make on that too. We have spoken about this before.

Mr. Cormac Butler

As Mr. Kavanagh said, we lodged complaints with the Office of the Director of Corporate Enforcement and the Central Bank. Neither took an interest in it. The issue is serious since, as Mr. Kavanagh explained, he signed contracts on the basis that EBS would provide mortgages. At the time, when he signed the contracts, EBS was aware that it was in financial difficulty and could not really honour those contracts. Therefore Mr. Kavanagh and his group have a legitimate claim against EBS, because these contracts should not have been signed. We have tried to raise this matter with many people but there does not seem to be any concern about the fact that some banks are not complying with company law. Compliance with company law requires showing financial positions correctly. That means that banks must show that they have enough capital to withstand losses.

Prior to the banking crisis in 2008, the banks went through a reckless period where they loaned money without any regard as to whether they would get the money back. The aim was to constantly expand. They were able to record short-term profits even though they were entering into loss-making transactions. This should all have been exposed in 2008 but the attitude at the time was to cover up the fact that the banks were not complying with the law and to pretend that they had complied. There was a pretence that they were all solvent, then they were given money to keep things going. Banks at that time had many hidden losses and they had to generate profits to cover up the black holes.

They adopted a few policies, one of which was to increase interest rates as much as possible. This is why people like Mr. Lawlor are affected. The European Central Bank said that it would reduce interest rates to protect people like Mr. Lawlor but the banks did not pass on those interest rate reductions. Instead, they appear to have increased the interest rates. The view seems to be taken that when borrowers are vulnerable, they are good for profits. We therefore have a situation where people like Mr. Lawlor were paying excessive interest rates to the point that they were pushed into default. That did not seem to worry the banks, which said that short-term profitability had increased and nothing else mattered.

It got to the stage where people like Mr. Lawlor were classified as having defaulted, and many loans, although not Mr. Lawlor's, were sold to vulture funds at extremely high discounts. Anyone with a half-hearted knowledge of economics will say that that is a disastrous thing to do. Why sell loans to a vulture fund at a significant discount when it is possible to negotiate with a customer directly? The consequence of selling loans to vulture funds at significant discounts is that the capital of the banks was depleted because they lost money when they sold to vulture funds. Their capital decreased. This is why we have a situation, together with the fact that banks are not producing proper accounts, where it is difficult for banks to borrow money on the open market. The result is that Irish mortgage borrowers are suffering. I am not just talking about Mr. Lawlor, although his case is severe.

I am talking about young people who are paying in rent double what a mortgage for a similar property would require, yet they are denied a mortgage. What Mr. Lawlor has exposed is quite important but it is not confined to a few people in mortgage arrears. There is a large group in their 20s, 30s and 40s who will be rent captives for life. They will be paying high rents to consumer funds for the rest of their lives. Mr. Kavanagh has pointed out that the Office of the Director of Corporate Enforcement and the Central Bank of Ireland have no interest in the matter. If those two entities have no interest in it, we can rest assured that the courts will not have any interest in it. It would be very difficult for Mr. Lawlor to say there are problems with the Central Bank and that it is not doing its job properly. We can guess how the judges would react to that.

There is a very serious problem and Mr. Lawlor has explained it very well. Mr. Kavanagh has explained, on behalf of a group of EBS agents, the difficulties they are going through and the fact that very few have any interest in what is going on.

It strikes me that we are at a very vulnerable point right now, with banks leaving and loans that should be matters of negotiation or dispute being recategorised as non-performing loans to facilitate an exit or divestment from----

Mr. Cormac Butler

It also facilitates the vulture funds because if a customer is classified as defaulting, it is very easy for the vulture fund to force him or her into repossession.

Even though it may in a case such as Mr. Lawlor's involve a very legitimate dispute and legitimate-----

Mr. Cormac Butler

Let us consider Mr. Lawlor's situation. Euribor rates have come down into negative territory. The Central Bank deliberately reduced those rates so people like Mr. Lawlor could survive. That is not what has happened. The banks stated their position on paying lower rates to the ECB but said they would not pass on the interest rate reduction to people like Mr. Lawlor. They engage in all sorts of actions to get around the mortgage requirements. They say they will keep charging people like Mr. Lawlor a high rate and that if there is a default, they will not be their problem in the short term. This is why many in financial difficulty should not be in it. Once they are in difficulty, they are vulnerable. I can assure the members that once they are vulnerable, the courts will not take any interest in it. The courts will ask why, if there was a major issue with the banks, the Central Bank did not intervene. People like Mr. Lawlor are not being allowed to get that far.

Does Mr. Lawlor want to comment on that?

Mr. Tony Lawlor

I thank Senator Higgins for very prudently addressing the issue related to GDPR. In my submission, I refer to following the court procedure. I was put through a court procedure in the Circuit Court and High Court in which the most significant piece of information was withheld from the process. The banks and legal people are telling me that, in these circumstances, all the banks will do is claim protection according to the principle of res judicata, whereby I am told my case has already been before the court and that I had a chance to raise the arguments with the judge. However, the most important piece of information contained in my entire mortgage file was withheld from me. This would have impacted greatly the affidavit made for the courts and it would certainly have steered the court to carry out an own-motion assessment of the unfairness of the mortgage and the bank. However, the information was kept out of the process in the first instance. I was given the information when the process was over. I have sought legal advice on re-entering the process and have been told the banks will just claim the principle of res judicata. I will be told, "It was already before the courts, Mr. Lawlor", but it was not. The most relevant information was not before the courts.

Let me make it absolutely clear to the committee that I have no intention of trying to seek my home in the way that might be suggested. I will honour the commitment I have given but I will not be blackguarded. That is what has happened here. These people show no mercy. I live every single day in fear of a sheriff arriving at the door. Now I have to contend with the fact that there is legislation going through the Dáil to allow private security firms to evict me from my home. What these people are doing to me is a living nightmare. I have told the bank that I will pay my mortgage at the rate agreed but it is just not interested in that. It just wants more and more profit. It does not care. As I said in my statement, evidence from redacted statements is used to keep the courts happy and to facilitate the granting of possession orders.

I thank Mr. Lawlor. Has Senator Higgins further questions?

No. I thank the witnesses.

I appreciated the witnesses coming before the committee and telling their stories. Some are before the committee for a second time.

I will begin with Mr. Butler. I thank him for his opening statement. In it, he said some banks will only advance Covid-19 loans to customers reclassifying themselves as non-consumers, thus enabling banks to use unfair terms and avoid tracker examination by failing to retain historic interest rates. Can he clarify and expand on that statement?

Mr. Cormac Butler

I will start with the Covid-19 loans. As the Deputy is aware, Covid-19 loans are made available to people who get into difficulty as a result of the financial crisis. That allows them to delay payments until the Covid crisis abates and they are in a position to earn money again. I have a letter on file from an individual who was classified as a consumer and who could therefore avail of consumer legislation, in other words, legislation on unfair terms. When the loan was restructured, the same individual was classified as a non-consumer. The individual was a consumer in the letter with the first offer. For the Covid loan, it was stated the individual is now a non-consumer and therefore cannot avail of the consumer legislation. There are two impacts. The first is that if I borrow money from the bank and it sneaks in an unfair term, as Mr. Lawlor alluded to, I can go before the courts and they are obliged to examine the matter. I do not even have to bring it up in the courts or raise it; they are obliged to examine contracts for unfair terms. If the individual is not classified as a consumer, that protection appears to disappear.

Second, on the tracker mortgage, in order for a bank to carry out the tracker mortgage, it must consider interest rates from about 2005 to the present. If there is proof that between 2005 and, say, 2012, the interest rate charged tracked Euribor or ECB rates, there is an obligation to go into a tracker examination. The customer I have mentioned was told he was a non-consumer and that the institution was therefore not obliged to keep records for the full period, but only for the period from, say, 2012 onwards. By that stage, the banks had been increasing rates regardless of Euribor. Therefore, by changing the customer's classification from consumer to non-consumer, the institution was able to put itself in a much stronger bargaining position. The customer in question is being forced, as we speak, to sell property at distressed prices. The bank has written to the auctioneer to state that under no circumstances is it to put the loan back onto the market, that it, that is, the bank, has classified the loan such that it is to be sold immediately and that it will take legal action if the auctioneer tries to do otherwise.

Has the bank in question provided any rationale for the designation of the individual as a non-consumer rather than a consumer? Would Mr. Butler's client be happy to share both pieces of documentation with the committee, in whatever redacted format is deemed suitable, so we could follow this up with the financial institution in question?

Mr. Cormac Butler

The answer to the second question is "Yes". I spoke to the client and he says he will make the letter available.

As to the Deputy's first question, there is some ambiguity as to whether a customer should be classified as a consumer.

Some banks take the view that if a customer gets it through a different branch, which normally deals with commercial loans, then he or she is not a consumer. It is particularly vague, so there is no rationale as to how banks decide if someone is a consumer. An individual was identified as a consumer in the letter and the consumer Act was used and then afterwards when he had signed the Covid letter he was told that he must be classified as a professional customer.

That is something the committee could possibly take up with both the institution at the heart of this but also with the Central Bank on the broader issue in terms of how banks are able to define a customer as a consumer or a non-consumer and the rationale of the criteria set out for that. I would be happy to follow up on that, as I am sure would the committee.

I thank Mr. Kavanagh for his opening statement and for coming before the committee today. This is not the first time he was before the committee. Three years ago this month, he was before the committee and it is unfortunate that he has had to come back and tell a very similar story to what he told at that time. During the committee hearing three years ago he was asked by a member of the committee whether it was legally permissible for the EBS to have taken the approach it did under the contract to which he replied that it has not been proven otherwise and has not been tested before the courts. Could he take this opportunity to update the committee on any developments since, whether he has considered bringing a case before the courts or whether there have been similar actions before the courts?

Mr. Shane Kavanagh

A couple of agents have taken legal action or begun the legal process but, unfortunately, they found that it is quite costly. One particular agent, who still has an EBS office, has taken a case. The person was issued with an order for termination a while back and took a case to the High Court to secure an injunction to prevent the three offices he has from being terminated. The judge ruled in favour of the agent. As I indicated in my opening statement, EBS was asked to show leadership, sit down with the agent and deal with him in a professional manner on the issues. Instead of listening to the High Court judge, unfortunately, the bank decided to go ahead and proceed to the Court of Appeal. The three judges in that case again dismissed the EBS's argument. The case is potentially going to a full trial later in the year. I do not want to say much more about that because there is a trial pending. That particular agent has spent in excess of €500,000 to get to here. The ordinary agent just does not have that kind of money. I do not have that money. There is not a hope in hell I would have that money unless I won the lotto, and neither would any of the rest of my colleagues. There are 23 other agents involved here and we are not all wrong. We do not have that kind of money. We cannot take a class action because the legislation in Ireland does not allow for it. That is where we are at. We are stuck in limbo and that other case is potentially going to trial later in the year. That is the kind of money we are looking at. Realistically speaking, the taxpayer is paying it and backing up that charge.

What is the core argument of the 23 agents? Is it that they were let go or encouraged to mis-sell? In Mr. Kavanagh's words, what is the core argument they have with the EBS?

Mr. Shane Kavanagh

How this all came about is that we were asked to engage in unethical practices. In other words, we were asked to dupe our customers, mislead them, and sell products. We would have known the risk appetite of much of our client base. Some people wanted their money to be safe and secure in a deposit account with a guaranteed return. We were asked to basically lure people into investment-type products, which many of them would not have been comfortable doing. When we said it was not in the customers' best interest to do this, we were essentially seen as troublemakers and we were told we were not team players. The issue was what to do: whether to do what the bank told us or to trick the customer. Our conscience got to us and we said we were not going to do that. By not doing that, the bank then decided it wanted us gone out the door.

During my time in the office I was put under enormous pressure to sell these products. I was also encouraged to tamper with the evidence; in other words, when I was filling out the documentation for customers I put in customer-centric wording which gave the impression that the customers pushed for the sale of the product rather than me pushing the product on them. If, down the road, the clients realised that they had bought a product they did not necessarily want to buy and that rather than their money being safe it was in an investment product, if they made a complaint to the Ombudsman and he looked up the paperwork and investigated it he would not be able to rule in favour of the client because it looked like the customer had pushed this product. In other words, I did-----

I understand that. It would be impossible for them to show that it was a mis-sold product. Could Mr. Kavanagh give an example of the type of products that he was being asked to push on his customers? I think of laypeople who may not be involved in the purchase of these type of products. What kind of products were they and how were they not suitable for certain individuals?

Mr. Shane Kavanagh

To give an example, at the time we had a protected bond. If people hear the word "protected", they assume their money is protected. It was very well marketed and sold in such a way that it seemed the money was protected and there was nothing to worry about, but the reality is that it was not protected. It was only protected if the customers did not take it out until after a five-year period that they were guaranteed that they would get back their initial investment. In the interim, if they wanted the money and they took it out, there was a chance they were going to lose their money. Therefore, they were not protected, but they were sold a protected bond and customers potentially felt they had got a protected bond.

Another example was a bonus save, whereby if a customer was saving he or she got a bonus. Again, the bonus only applied after a number of years, but before that customers could potentially lose money if they tried to withdraw it before a certain period. It was all trickery in relation to the words that were used.

Let me play devil's advocate. The EBS has avoided this issue and in spite of the great efforts of the Chair to have someone accountable from the EBS come before us, it has continually avoided coming in and dealing with this issue. We will continue to pursue it.

What would Mr. Kavanagh say, if for example, the EBS was to say it did not force agents to mis-sell the product, that it provided an incentive to sell the product but it was up to the agents to do their due diligence on the customers and they decided to increase their profitability through increasing incentives?

Mr. Shane Kavanagh

The evidence suggests otherwise. I have written documentation showing where I was instructed to "do whatever it takes" in the words of the EBS. What does that mean? It did not matter what we did, we just had to get our sales. Our remuneration was on the basis that it was "critical to achieve all targets". In other words, if we did not achieve the targets then our remuneration would be reduced. Essentially, we would argue that it was a case of either turn a blind eye and do what we had to do or challenge management on this and ask what was in the best interests of the customer? Were we looking after the bank's balance sheet or doing what we were supposed to be doing, which was looking after the customer?

I have given the committee plenty of documentary evidence but I can provide it again.

We have that. I wanted to give Mr. Kavanagh an opportunity to put that on the record at this meeting. After contracts were terminated with the witnesses, do they have any information or evidence to suggest that this type of practice continued with new agents? Do they have an estimate of the number of products that EBS was involved in mis-selling?

Mr. Shane Kavanagh

We can only speak of our own experience. I will not put myself in a position where I could be challenged about what other agents have done. We have come together as a group of 23, or 25, if the current case is included. When we were terminated, it was obvious that there was no real selection process for the terminations. People who were not team players were put out the gate. What was interesting was who took up the agencies. Only a handful of people took them and they all seemed to be friends of senior management at the time. I do not know how they were selected but there seems to have been a serious conflict of interest with regard to why it was the same individuals. Two or three people happened to get the guts of 15 or 20 offices. It is questionable.

I appreciate Mr. Kavanagh's evidence. We have the letter from the gardaí saying that they are not following up on this. A significant problem is that some of these matters are not deemed criminal offences. We need to clamp down on this and make these criminal offences. We in Sinn Féin hope to follow up on this with the Central Bank, AIB and EBS.

Mr. Shane Kavanagh

Obviously this came to light after we were terminated. It has transpired that in 2008, the members of the EBS management team knowingly, intentionally, deliberately and willingly deceived us all into signing new contracts, knowing that their accounts were not accurate. They have a duty of care to be honest. Honesty, integrity and ethics are at the core of this. They have all failed.

I appreciate that. I thank Mr. Lawlor again for putting his information and personal story on the record. This is a scandal. These things start with one person. A comment was made earlier about how whistle-blowers are sometimes perceived as contrarians, cranks or such. If somebody said a number of years ago that every single bank that had sold a tracker mortgage in the country had ripped off their customers to the tune of nearly €1 billion, with 40,000 people involved and more than 100 family homes repossessed, and that this was done despite customers and the Financial Services Ombudsman repeatedly challenging the banks, you would say that that is very hard to swallow. That is exactly what unfolded with the tracker mortgage scandal. It takes just one individual and we need to sit up and listen to those concerns.

I hear what Mr. Lawlor is saying. It is appalling that it appears that the bank has deliberately withheld key information about a court proceeding that had a serious impact on Mr. Lawlor's family and led to repossession. That is not acceptable. We need to follow it up as a committee. Whatever about the legal process now, the Central Bank is responsible for ensuring that banks behave ethically, appropriately and within the law with regard to the licences that it provides. I will not go into the finer detail other than to ask that for us, as a committee, to follow up on this, would Mr. Lawlor be willing to share some of that documentation with the committee? For example, might he share the information that he received from the GDPR request and the terms of the contract that would allow us to quiz both the Central Bank and institution about this case?

Mr. Tony Lawlor

I thank the Deputy. Of course I will share any information that needs to be shared. I will borrow a phrase Mr. Kavanagh used, and "do whatever it takes". That fits my entire story with the bank. It did whatever it took to increase my interest payments. It produced a mortgage deal that is not capable of standing up to legal scrutiny. It ignored all the evidence. It changed and abused the terms. It abused me and it will do whatever it takes. To answer the Deputy's question, I will share any and all information that I have in my pursuit of exposing this injustice, getting justice for myself and for any other people who may suffer the same fate.

I appreciate that. I believe that this is a genuine case. I note that many people have issues with banks and financial institutions but some are given advice which is not good advice, and I always encourage people to seek professional advice. The committee needs to follow up on this. Maybe after this meeting, we can send the entire transcript to the Central Bank, highlight some key sections, and seek other documentation as a committee.

I apologise for the confusion. I was trying to attend four meetings at the same time, which is difficult. I am back. I have just heard something that we have sadly all dealt with over the last years. Differentiating between people as being customers and non-customers is nonsense. I would have presumed that everybody is a customer if they have a deal to borrow money and repay it over a certain period.

When we go back to the banks to try to negotiate on behalf of customers, every proposal we put before them is met with a reply that it is not sustainable. If we look at the day on which the loans were granted by the same institutions, they were not sustainable from the beginning if we take into account the necessity to protect the customer. I have said many times that I believe the Central Bank has a role that it needs to exercise in such circumstances because the public needs to be protected, especially in an inflationary market. People were told that they were sitting on assets, that they should borrow money to ensure they put the asset to work and they would become wealthy, and all kinds of nonsense.

Sustainability is an issue. I dealt with many cases where the loan was not sustainable from the first day, given the circumstances of the applicant, but they were encouraged to incur the debt in order to allegedly improve themselves.

Another issue is settlements versus repossession. We have all tried to arrange settlements. It is not unreasonable that in the event of a crash or such, the customer can come to the lending institution and attempt to negotiate. I had a discussion with a lending institution last week. Whenever I turned the conversation around and said that the lender really wanted to repossess people's homes, put them out on the road and make them homeless, they said that I was putting words in the lender's mouth.

That is, in effect, what the proposer wants and we need protection against that. I note the number of evictions that are currently proposed is still very alarming.

The point at issue is this. I cannot see why, when the crash came, it was not possible for the lending institutions, even at that stage, to negotiate with their borrowers some kind of long-term or medium-term proposal whereby they could ease the person back into a business or allow the person who borrowed the money to pay over a period and in stages in order to safeguard their home and property.

My next point is in regard to the courts. Sadly, we have all been in the courts on various occasions with customers over the past ten years or so. Generally speaking, the courts have been very sympathetic but it is true, as was said, that some of the institutions think badly about adhering to what the court decides and will go a different route, if possible. Like the Chairman and other members, I have dealt with cases where, having negotiated what appears to be a reasonable settlement in the circumstances, the lending institution decides it does not want that and that it wants to take everything because the customer finds they cannot meet what was originally intended. The word of the court needs to be observed.

Incidentally, on that question about the courts having dealt with the issue before, I am conversant with this. We need to talk at our private meeting about the ways and means of ensuring that, even though the courts have dealt such issues before, there is a possibility and a structure whereby the courts can deal with them again in the light of emerging circumstances.

I am sorry for the rant but the Chairman and I know we have all been through this many times. Hopefully, we will not have to go through it again. However, anything we can do for people who found themselves in this situation, we must do it. At the same time, we must try to ensure that the Central Bank, which has a very important role in these matters, does its job to the extent that it should in order to protect the customer.

I apologise for arriving late but I was speaking in the Chamber. I agree with the previous speakers who highlighted how outrageous and shocking this is. As Deputy Pearse Doherty said, this needs to be something that we pursue as a committee.

My first question is to Mr. Kavanagh. I note his opening statement mentions the forthcoming protected disclosures legislation and that he stressed the need for accountability. While this legislation is timely and important, concerns have been highlighted by some whistleblowers about how the line of accountability will work in practice. I would like to hear Mr. Kavanagh’s thoughts on this and perhaps he could expand on some of the issues of accountability that he stressed in his opening remarks. That is my first question.

Mr. Shane Kavanagh

I thank the Deputy. The legislation is timely and important and, obviously, Ireland has to transpose it. I would respectfully say to the committee that there are a good few whistleblowers out there who need to have their story heard. At the moment, there is no platform for them to have their story heard and without that platform, we cannot have accountability. If we establish the facts, we can then work to try to get accountability but, at the moment, there is no platform for people in that position. They are trying to highlight serious wrongdoing and they find that every door is closed in their face and that people do not want to hear it.

A massive issue is the amount of time people put into this. It takes years and it affects their families. The onus on them is to always be right - in other words, one little mistake and, straight away, they are discredited. It is so frustrating for the conscientious people involved that the burden of proof is on them at all stages, yet there is no real platform to get that story out there. In order to have accountability, we need to have that platform. I hope that gives the Deputy an idea. As I said, the time involved is huge and I know people who are at this for ten, 12 or 13 years.

Absolutely. For anybody I have dealt with in a similar situation, it is all-consuming. They really are trying to get the truth and the story out there, and they often feel there is barrier after barrier. Mr. Kavanagh expressed that very well and it is very important for us all to take note.

There was a recent scandal in regard to Davy stockbrokers, and I have heard some people compare this with what Mr. Kavanagh was speaking about. We saw that serious regulatory breaches under the EU’s markets in financial instruments directive, MIFID, were uncovered by the Central Bank, which was forced to investigate conflicts of interest, personal accounting and provision of information to the compliance function. What parallels, if any, does Mr Kavanagh see between what went on in his own case and what occurred in Davy, and also in regard to how it was dealt with after concerns were raised? Mr. Kavanagh may have answered this earlier but, as I said, I was in the Chamber. However, he might give a little background because to have this heard is very important.

Mr. Shane Kavanagh

I again thank the Deputy for the question. The big parallel, in my view, is deception. The reality of the Davy case is that senior executives deceived a client and basically tricked them into selling something at a reduced price, knowing they were going to benefit-----

I remind Mr. Kavanagh that information in the public domain is fine but not to draw any conclusions on this in terms of the legalities.

Mr. Shane Kavanagh

I am sorry.

Mr. Kavanagh may go ahead.

Mr. Shane Kavanagh

Deception is the big thing. We were essentially asked to deceive our clients as well, and that was the instruction we had - to trick people into buying products they did not want. I would see that as the big parallel between their story and our story. I will leave it at that.

Go raibh maith agat.

I ask Mr. Butler to elaborate a little, if he can, on IIB Homeloans Limited and the licence. He was going back to 2008. I presume if that one is giving home loans, one is obliged to have a licence. The Central Bank was asked about this and it said a licence was unnecessary. Mr. Butler went on to say that, after questioning, the Central Bank said it did not hold the licence. Can Mr. Butler bring some clarity to the statements he is making in regard to that issue?

Mr. Cormac Butler

Certainly. IIB Homeloans Limited passed itself off as a bank. It often referred to itself as “the bank” and in some trade articles referred to itself as “the bank”. It may well be a subsidiary of another bank but that is not important. What is important is that if IIB Homeloans Limited enters into a contract with customers and says it is a bank, then it must hold a licence under section 7 of the Central Bank Act 1971.

One of the consequences of advancing a loan without a licence is that the customer may not be able to avail of the Consumer Protection Act. That aside, the legal requirement from what I can see is that under section 7 of Central Bank Act 1971 a body describing itself as a bank and-or engaging in banking business is required to hold a licence. Several customers are currently before the repossession courts and I believe they should not be there. IIB Homeloans transferred its activities to KBC Bank, but KBC Bank cannot avail of the Bankers' Book Evidence Act from what I can see because IIB Homeloans does not have a licence.

I imagine that the remedy for IIB Homeloans, given that it advanced a loan without a banking licence, is that it may be entitled to get its principal back, but I cannot see how it is entitled to charge interest if it has advanced a loan without a licence. It is important to emphasise that the Central Bank has a different view on this.

Returning to the Chairman's question, the group of IIB Homeloans customers asked IIB Homeloans to provide the licence and it was reluctant or refused to do so. They then wrote to the Central Bank of Ireland asking it to provide confirmation that IIB Homeloans had the licence when they took out our loans. The Central Bank wrote back on numerous occasions stating that IIB Homeloans did not need a licence. When these customers went to court, the court maintained it is not up to IIB Homeloans to confirm it has a licence but it is up to the customers to prove it does not have a licence. It is clear that the courts are taking the view that IIB Homeloans is always right.

After persistent questioning by this group, a letter appeared around 26 May in which the Central Bank confirmed that IIB Homeloans did not have a licence. It also stated in the same letter, which will make things difficult for those in the repossession courts, that IIB Homeloans did not need a licence and is regulated under the Investment Intermediaries Act. I dispute that, but to keep the argument simple I believe it is up to the Central Bank to confirm where in the legislation section 7 of the Central Bank Act does not apply to IIB Homeloans Limited. It may be that it comes under different regulations and it is quite entitled to make that point, but it needs to answer that question specifically. If it does not answer it, we could end up with many more repossession cases. As I speak, these cases are going through the courts.

One of the problems that the IIB Homeloans customers have is that even when evidence is presented to the courts, they tend to claim it has gone too far and has now gone to the appeals stage, the High Court or the Supreme Court. In other words, whatever evidence the customers have, it is now too late. This is why Central Bank intervention is necessary. The Central Bank has already confirmed that IIB Homeloans does not have a licence, but it needs to clarify why IIB Homeloans Limited was exempt from the requirements of section 7 of the Central Bank Act 1971. Until it does that, there is the risk that these customers will face illegal repossessions.

The matter was also raised with the Minister for Finance, who answered a parliamentary question in May. The question asked if IIB Homeloans Limited had a licence prior to 2008. It is very clear that the Minister was evasive in his answering. He simply copied the Central Bank rhetoric, which states that it did not need a licence. He may be entitled to say that, but that was not the question asked. We can only resolve this if the Central Bank states that a section 7 does not apply because there is alternative legislation which means that in certain circumstances an entity may lend money, call itself a bank and engage in banking business but does not need a licence. We need to get that information. Given that we have been looking for it for a while, the Central Bank should treat this as a priority.

Under what circumstances would IIB Homeloans be exempt from section 7?

Mr. Cormac Butler

I will not get into the specific details because it is quite complicated. In essence, while a building society is not a bank, it can lend money, but it must not call itself a bank and must not engage in what is known as banking business or claim it is involved in banking business. The short answer to the Chairman's question is a building society, a friendly society or a credit union which is authorised as such may be allowed to lend money without a licence provided it does not call itself a bank or claim it is engaging in banking business, but I do not I think that applies to IIB Homeloans.

I know Mr. Butler has extensive experience of financial services and he has appeared before this committee to discuss general banking matters. My question is quite general. Ireland already had a concentrated banking sector before the exits of KBC and Ulster Bank were announced. The State has significant shareholdings in the remaining pillar banks, which I imagine could make it more difficult to attract other banks into the market. Other credit providers, including the credit union movement, have repeatedly told me they are finding it very difficult as a result of regulations and that they are slowly being starved out of existence. Economists, such as Jim Power, have proposed the prospect of a public-led bank, but the Government has been somewhat dismissive of that idea. Credit provision is a fundamental component of any economy. What recommendations would Mr. Butler make for what could be done here?

Mr. Cormac Butler

The question of whether a bank should be under public control or private control has several aspects to it. Let us consider the situation where they are left under private control. There is the possibility that the system could work as long as banks are reminded to comply with company law. That means they must disclose all their losses, reveal everything to the markets and disclose annual reports which are correct. The benefit of that is that it is easier for them to raise capital overseas. It is easy for them to provide capital. We certainly would not have the disastrous situation where a person through the monthly rental payments can afford not one but two mortgages. One quick solution to the problem is to get to the private banks to comply with company law. If they comply with company law, the Central Bank will more or less allow them to lend to whomever they wish provided they record losses correctly. That means it is self-correcting and there is no need for Government intervention.

However, there is a strong case for public intervention in the sense that a public bank may have to do what the private banks are unwilling to do. We know there is a large gap in the market because people in their 20s and 30s will be rent prisoners for the rest of their lives unless something changes. Therefore, there is an argument that the public sector could get involved if the private sector banking system does not clean up its act.

We want banks to be measuring risk correctly. For instance, someone training to be a dentist will have lower income in earlier years and greater income in later years. The bank might decide to exceed the 3.5 times annual earnings limit and perhaps bring it to four times because such a person will earn more money in the future. There is nothing wrong with that. However, the banks are not allowed to do that. They are following the rules the Central Bank offers them, but the Central Bank rules are too crude. A civil servant on a decent salary with wealthy parents can pull the deposit together and will be able to borrow money. However, for all other people, those in the private sector, the rules are extremely unfair. Therefore, there is an argument for public intervention.

The ultimate objective is to ensure that risk is measured correctly. They should be incentivised to say to a customer, "Look, there's no way you're going to be able to afford this mortgage. You need to be realistic and come down to a level that you're willing to pay."

In other cases they may tell a trainee dentist that they realise that it will be challenging in the early years but they will earn more money later on so they can structure a solution for them whereby they can get off the rental sector, get into a mortgage, maybe even reduce the mortgage rent knowing that the customer will become safer down the line.

I will not venture to suggest which way it should go, obviously the committee members are the policy makers and have a better understanding but these are the points that should be considered. First, there is a vacuum in the market. It is possible that the Government may decide to leave it in the private sector but it would need the banks to comply with company law. If it decides to go to the public sector, you need to make sure that there is a system in place where risk is measured correctly to discourage customers from taking out mortgages that they cannot afford.

I will come back to Mr. Butler on what I believe to be a very serious allegation that he his making before he concluded his statement. That relates to a bank that advised a customer that he could receive a bank loan if he entered into partnership with associates of the bank. I do not want Mr. Butler to name the bank or the person. I ask him please not to do so, but will he explain that to the committee?

Mr. Cormac Butler

The background is that between 2005 and 2008, many banks were not compliant with company law. They were hiding huge amounts of losses and people were unwilling to lend money to them. The Chair may recall that there was a radio programme where the presenter was told to calm down on his comments because people were queuing up and taking money out of deposit accounts with the bank. If banks are insolvent, they will face difficulty in retaining deposits.

The litmus test in 2008 was that if a bank had sufficient deposits then everything was okay, and if it did not it was in trouble. Therefore, banks used what I can only describe as window-dressing opportunities to make sure that their deposit figure was going up and not going down. The way they achieved that, put simply, was that they lent money to themselves. They lent money to a customer but that customer loan came back in as a deposit so they were able to say that their deposits were increasing and therefore they were very helpful and there is no need to be concerned and no need to have a run on the bank. In order to do that they had to involve third parties. This is known as a circular transaction where you lend money and then take it back in again through your deposit account.

These circular transactions often involved third parties. Sometimes these third parties were compliant and in some cases they were unwitting victims. The case I came across was where an individual had land and was in a bit of difficulty. He was approached by somebody who said they had connections in a bank and that they may be able to resolve his difficulties. The result was that the bank lent out the money, the money was not given to the customer but the associates. The bank told the customer that it would lend him money as long as he involved an associate. The bank lent the money to the associate and rather than the associate passing it on to the customer, the associate took complete control and we have evidence that the money went back into a deposit account. The consequence of that was that the customer was on the loan agreement as a borrower but they never received the money. One can see what is going to happen next: the customer got into severe financial difficulty and he was left in the lurch by the bank. It was quite a cash flow shortfall but if the bank had behaved properly, that customer could have had a viable business whereas as a result, the customer was forced to sell assets at very distressed prices and suffered losses well in excess of the money that was lent. There was contagion damage as a result of this misdemeanour. My understanding is that this practice was quite popular at the time. As I said, back in 2008, banks were in severe difficulty.

Mr. Butler's statement says that their associates placed much of it back on deposit with the lending bank -----

Mr. Cormac Butler

That is correct, yes.

----- in an account held with the Irish Central Bank.

Mr. Cormac Butler

That is correct, yes.

How does that work?

Mr. Cormac Butler

Basically, the deposit account was on behalf of a commercial bank but it was held in the Irish Central Bank. Therefore, the Irish Central Bank should have known or investigated what was going on. Basically it would appear as a deposit for the customer even though it was held by the Irish Central Bank. It would appear on the bank's balance sheet as a deposit and therefore the bank could say it had deposits with the Irish Central Bank, we have deposits with customers, therefore we are very safe.

Would the Central Bank not clarify those matters because of the impact on the client?

Mr. Cormac Butler

There is certainly an obligation on the Central Bank to clarify this. It was a common practice in 2008, a lot of that was going on. That should really have been investigated in 2008, as it was highlighted and in the public domain, but it was not. The people I am talking about were before the courts a few times and the courts were totally unsympathetic.

Is Mr. Butler saying those kinds of transactions that he says took place in 2008 are still having an impact on individuals today, on the borrowers?

Mr. Cormac Butler

Yes, some of the people I deal with, as a result of that type of transaction, are now in the hands of vulture funds. They are suffering today as a result of those transaction. Basically the transaction put them in severe financial difficulty. There were consequential losses apart from the actual loss. So if the loan was for €4 million, for example, and the person did not receive the €4 million, the person loses €4 million and that puts him or her in cash flow difficulty and the losses are an awful lot more. The result is that the other loans go into default, they are sold to vulture funds and then they are sold at distressed prices, so there is a compound situation.

I thank Mr. Butler. In Mr. Lawlor's opening statement, he said he had a document from the bank that refers to his loan as a tracker. Is that correct?

Mr. Tony Lawlor

That is correct.

He said that he received this document after a court case or after he pursued it with the bank.

Mr. Tony Lawlor

Yes, that document is dated 1 April 2005. It identifies with my mortgage account number and the tracker criteria that the bank requested in order to qualify for that tracker rate. The significance of that document being given to me when it should have been given to me would have made all the difference in the evidence that I could have laid before the register's court, the Circuit Court and that I could have laid before the High Court on appeal. In preventing me from seeing that document, it destroyed any defence that I could have put to the claim that the banks were making against me. When presenting it to me following the legal process, the bank's way out was that the matter was already before the court so "goodbye".

Will Mr. Lawlor tell me about the marginal rates? What is the issue around that?

Mr. Tony Lawlor

My understanding is that the bank could charge me a certain amount on top of the ECB variable rate but the amount it could charge me was capped. In the agreement or businesses record, that amount was capped at 1.1% above the ECB rate. When my discounted period ended one year after I had drawn down the mortgage, it increased that to 1.6%. The mortgage was unproblematic to me at a rate of 1.6%. However, the agreement was for 1.1% above the ECB rate.

In monetary terms, that represented an additional €1,100 per annum for the bank. In 2010, that 1.6% margin, which had applied for the previous six years, was suddenly gone, nowhere to be seen.

At the moment, the banks are charging me 4.34% above the ECB rate, which to me is a very high rate. It might not be very high for bankers, given the type of remuneration they earn, but to me the significance of that was soul-destroying. It destroyed every aspect of my life. My personal retirement savings account suffered, as did my VHI contributions and my family. All my other commitments and little things I used to pay for, such as Sky television - I am a big sports fan - had to go to accommodate all this.

Mr. Lawlor mentioned that the bank produced a mortgage deed. Is that the correct description?

Mr. Tony Lawlor

Yes, this ties in with much of what Mr. Butler and Mr. Kavanagh stated. Before a person can draw down the money, the solicitors give an undertaking that the deeds of mortgage will be signed in advance of the money being given to that person. I have no doubt I did that. I drew down the money on 23 June 2004. The deed of mortgage should have been signed, and was signed, before the money was drawn down on that date, yet when I was in court, the bank produced a mortgage deed signed on 8 April 2005.

I got no money in 2005. It is not possible for that mortgage deed to stand up to legal scrutiny. In fact, my mortgage had been securitised at that stage and had been transferred to another entity. It was not possible, therefore, for me to sign a document that authorised the bank to proceed with an application on a summary basis to possess my home. That does not stand up to legal scrutiny. I should add that I hold an honours degree in law, so I have a basic idea of what I am talking about, although I am sure it is much more complicated than that. In essence, that document does not stand up to legal scrutiny or to the current law in this country, yet banks are allowed to use it in court and the courts do not ask any questions.

Again, I do not want to get into names or into Mr. Lawlor's personal details in any way. I do not want to cause him any distress further to that which has been caused already. Nevertheless, he mentioned that his life had changed completely. Has the bank stopped pursuing him or is it continuing to do so? How stands Mr. Lawlor's house? Does he still live in it? He stated he had had to give up his job due to ill health. Is that correct?

Mr. Tony Lawlor

Yes. In 2014, the stress of everything going on at the time led me to suffer quite a significant heart attack. As a result, I required a quintuple heart bypass, which involved five grafts on my primary arteries. This was the only way in which I could maintain any sort of cardiac stability at that time. Because of the nature of the job I was in, namely, an emergency responder to road traffic accidents and so on, I could have experienced an adrenaline rush and my heart just would not have been able for it. I was advised by my GP that the best avenue for me at that stage was to retire on the grounds of ill health.

Mr. Lawlor remains in his home. Is that the case?

Mr. Tony Lawlor

I am still in my home, but the bank has secured a reaffirmed order from the Circuit Court to possess my home. That was put on my home in 2019 and the bank has since completely ignored me. I live in fear for a number of reasons. Based on the bank's history, it may be the case that it will hold on a little longer and sell the debt to a vulture fund, and then God only knows what will happen to me.

What have been Mr. Lawlor's experiences of going through the courts?

Mr. Tony Lawlor

That has been a great disappointment to me. We laypeople place our trust in these people and in policymakers to make the right laws in order that we will be protected. We place our trust in these people and they are given oversight by regulation to protect us. Some very simple examinations by the court, within its remit, would have identified certain issues. One simple example is that if the bank had calculated my liabilities at the rate they had identified in my business record, I would not have been arrears in 2014, and the banks would not legally have been in a position to issue a demand letter to tell me to get out of my home within seven days or immediately pay back the money I owed. That was a simple exercise the courts refused to examine.

Deputy Doherty earlier asked Mr. Lawlor for some documents. He might provide them to us.

Mr. Tony Lawlor

Yes. I have a number of documents that refer to the marketing materials of the bank, to the entries made on my mortgage file and to the scope of a freedom of information request I had made before court proceedings were initiated, which did not include this business record. I also have a copy of the general data protection regulation, GDPR, application and the scope of that. I have no bother presenting that documentation to the committee.

I thank Mr. Lawlor. The various court cases that have dealt with this issue have found in favour of the agents. Is that what Mr. Kavanagh outlined?

Mr. Shane Kavanagh

That is correct. The High Court case where there was an injunction to prevent agencies from being closed found in favour of the agent. As I said earlier, the bank appealed that in the Court of Appeal and the judges ruled in favour of the agent again in that case.

Mr. Kavanagh quoted a judge who in 2019 stated that a competent mediator might bring about a resolution to this, which I presume is what was being referred to. Mr. Kavanagh was chasing the bank to get it sorted. Was there any attempt by the EBS or AIB to revert to him? Was he always left having to follow them in regard to the case he had?

When the judge made those comments, did the bank respond in any way? Did it invite Mr. Kavanagh to mediation?

Mr. Shane Kavanagh

The answer is no, Chair. We have been doing all the chasing. The bank has not made contact with anybody that I am aware of.

Has Mr. Kavanagh ever spoken directly with the bank on this issue, either with the Educational Building Society, EBS, or separately with Allied Irish Bank, AIB?

Mr. Shane Kavanagh

No. I have sent emails and written correspondence, but I have never spoken directly with anybody. Since the day I left and walked out of EBS, I have not spoken with anybody from the bank.

I thank Mr. Kavanagh for his evidence. I sympathise with his colleagues on the loss of the two agents who were here the last day making presentations. Unfortunately, they are not here today. I call Deputy Durkan, who would like come in here.

I want to again recognise the points made by all speakers. Mr. Butler made a number of references to the Central Bank of Ireland. It is a view I have held many times, both in court and out of court. I am not a lawyer, so I do not have any authority to go into court, other than as an advocate. This is not so easy to do anymore but it was possible in the early stages of the crisis. There is a citation that goes with loans, that they are governed by the Central Bank of Ireland. To my mind, that gives the customers the belief that they are okay and are covered, that the Central Bank of Ireland is looking after them and nothing will go wrong. That was not the case. Did the Central Bank of Ireland look the other way? Whatever happened at the time, I do not know. The fact is that it had disastrous consequences for the ordinary householder or the borrower. That is but one side. The other side is that a number of banks left the country. They came here, raided, and walked off, having undermined the banking system in the country.

Some banks, but certainly not all of them, were, in fact, anxious to talk and to try to work it out. Some of them indicated this. In all of the cases that I have dealt with - and I am sure it is the same for everybody else and Oireachtas Members in general - there were some very combative meetings. The situation developed whereby families were in tears, losing their house, and listening to the harsh words dished out to them by the bank in question. The bank gave them no sign of any kind of willingness to accommodate them at all, other than to ruthlessly enforce the law, insofar as it saw it, for itself. The Central Bank of Ireland needs to be awake to this kind of activity now and in the future, or whenever it may occur. If it has happened once, it can always happen again.

Mr. Butler referred to the Companies Act 2014, and I entirely agree. It was obvious they were not fulfilling their obligations under company law and they did not care. There were no consequences for them and there are still not any consequences for them. Most of those people disappeared from the customers' view. I could go on and on, Chair.

The point is that we need to have regard to the points made by our witnesses this morning. We need to take them into account. We need to try to ensure that as a result of what has happened that, first, perhaps something can be worked out at this stage for their benefit and, second, there should be no repetition of this kind of nonsense and the way some people were treated.

I thank the Deputy and call Mr. Kavanagh who would like to contribute.

Mr. Shane Kavanagh

I have a question for the committee. To explain my rationale for asking this question, up to now, the normal sequence of events has been that the committee will engage with the main stakeholders and they will respond by saying the usual thing that it is a legal matter, it is a commercial mater, etc. We are then back to square one. In my view, this is an attempt by the Central Bank of Ireland to avoid responsibility by telling us to take the matter to court and to pay huge legal fees. As members are aware, the Central Bank of Ireland sympathises with us. However, the courts will not believe regulated commercial banks are acting illegally if the Central Bank of Ireland refuses to take action. In 2020, a court made it clear that if bankers confessed to an Oireachtas committee that they have hidden losses, this will not be acceptable evidence. Neither will it accept legal opinions as evidence. We need the Central Bank of Ireland to publicly express its disapproval of how banks conceal their financial position and, as a result, empower borrowers and EBS agents.

Why is it that private individuals, who are impoverished by the banking system, must fund legal costs and take legal action to do something that the Central Bank of Ireland is required, authorised, and empowered to do? This committee has a duty to reprimand the Central Bank of Ireland and ask it once again to comment on the Financial Times story, which suggested that the Central Bank of Ireland is conflicted. Once we have confirmation that the regulated banks are not following the regulations, we can then set about undoing the great damage that the banking system has inflicted on our society.

It surprises me that those people who are paying high rents and who can afford a mortgage are denied one. Irish banks are not trusted overseas because they continue to conceal their true financial position. The result is that mortgages are scarce and, when they are available, they are expensive. Those trapped in the high rental market should blame the Central Bank of Ireland. While I applaud this committee's work, it is now time to say that it is the Central Bank of Ireland's inaction that is causing the hardship here.

Mr. Kavanagh, we do not want to draw any conclusions in any of this. This was to give witnesses the opportunity to present their cases, which they did very well. It will now be our job, in the banking report we are concluding, to bring some sort of framework to examining all of this. We will do that in the course of our work. That is as much as we can do, to influence policy and influence the policy in relation to the Central Bank of Ireland. Perhaps we can share each of the witnesses’ experiences. We can take the transcript of this meeting and send it to the various named sources the witnesses identified for further comment from them. That is what we are doing here. This is not a court, by any means. It is meant to inform policy and direction. That is the positive contribution that all of the witnesses have made to this meeting. We will take it from here and then we will come back to witnesses after that.

I am obliged to finish the meeting at 2.30 p.m., because of Covid-19 restrictions. I thank all witnesses for their contributions and for coming forward, and particularly Mr. Lawlor, for giving his personal story to us. We will pursue this with the Central Bank of Ireland, Bank of Ireland and indeed, any other entity after we study the transcript of the meeting. My thanks to witnesses and members for their participation in the meeting. The meeting is suspended until 3.15 p.m.

The joint committee suspended at 2.29 p.m., resumed in private session at 3.15 p.m and adjourned at 3.36 p.m. until 12.30 p.m. on Thursday, 17 June 2021.