Dáil Éireann Debate, Wednesday - 5 December 2018
156. Deputy Michael McGrath asked the Minister for Finance if enforcement proceedings or a review by the Central Bank have taken place regarding the miscalculation of mortgage arrears by a licensed credit institution, retail credit firm or credit servicing firm; and if he will make a statement on the matter. [51069/18]
View answerI have consulted with the Central Bank of Ireland and in their reply to me, the Central Bank have assumed that the matter that Deputy McGrath is referring to is the practice of Automatic Arrears Capitalisation. The Central Bank has advised me that a briefing note on the same topic was requested by Deputy John McGuinness on 18 May and a response issued by the Central Bank on 22 June. A copy of the response can be found at: https://www.centralbank.ie/docs/default-source/publications/correspondence/oireachtas-correspondence/20180622-response-to-finance-committee-re-calculation-of-mortgage-arrears.pdf?sfvrsn=4
Automatic Arrears Capitalisation refers to a methodology used by some lenders to recalculate borrowers' contracted monthly installment (“CMI”) on their mortgage, following a trigger event (such as an interest rate change).
Based on the Central Banks' supervisory work to date, they have advised me of the following:
- Having considered the findings of the Central Bank's review to date, in the context of the regulatory framework in Ireland, the Central Bank are of the view that the practice of Automatic Arrears Capitalisation is not in the best interests of consumers.
- The practice is not widespread in Ireland. Where the practice was identified, the Central Bank intervened to ensure that the practice ceased.
- The Central Bank do not have concerns that borrowers were overcharged, rather they were not satisfied that borrowers' arrears were presented in a fully transparent manner.
- Borrowers in arrears, who have an agreed Alternative Repayment Arrangement with their lenders are not affected.
- Borrowers' overall indebtedness is not impacted nor are the interest calculations on the mortgage accounts
The Central Bank has provided me with further background information on the issue as set out as follows.
Under Automatic Arrears Capitalisation, lenders' mortgage systems recalculated borrowers' CMI on the basis of each borrower's overall outstanding mortgage balance (i.e. mortgage principal + arrears). This differs from the 'traditional method' of calculation in Ireland, whereby lenders calculate CMI on the mortgage principal only, with the arrears remaining outstanding pending agreement of an Alternative Repayment Arrangement with the borrower.
Automatic Arrears Capitalisation originally existed in the UK. The practice is driven by lenders' historical calculation systems, which aim to ensure the CMI is sufficient to ensure the overall outstanding mortgage balance (including any arrears) is repaid fully by the end of the mortgage term.
