Ulster Bank’s appeal against three tracker mortgage cases, where the Financial Services and Pensions Ombudsman (FSPO) decided that borrowers were entitled to refunds and compensation, may have an impact on “thousands” of customers and trigger “enormous financial” consequences for the lender, the High Court heard on Wednesday.
The three cases related to borrowers who were excluded from redress in an industrywide examination overseen by the Central Bank between late 2015 and mid-2019, in which more than 40,000 cases of overcharging were identified across Irish lenders.
Tracker loans are tied to the European Central Bank’s (ECB) main lending rate, which only started rising in recent months for the first time in more than a decade.
An affidavit written by Ulster Bank’s chief financial officer, Paul Stanley, said there are 42 cases with the FSPO that are similar to the three before the court. However, the wider group of borrowers that may be affected by the outcome of the court cases “could number in the thousands”, he said.
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“This matter is of enormous financial ramifications,” Eoin McCullough, SC, representing the bank, told the court on Wednesday. Ulster Bank is in the process of withdrawing from the Irish market.
Focusing on one of the cases for much of Wednesday’s hearing, Mr McCullough highlighted that an FSPO decision last year saying the borrowers in question were entitled to a tracker rate was based on contract wording that the ombudsman’s predecessor organisation, the Financial Services Ombudsman (FSO), previously said did not give individuals in similar circumstances that right.
The FSPO was established in 2018. Ger Deering was the ombudsman at the time of the decisions on the three cases.
[ Ombudsman made ‘serious errors’ in tracker compensation cases, Ulster Bank saysOpens in new window ]
Mr McCullough also said Mr Deering failed to explain how his decision in the first case, based on a complaint from the borrowers, was also partially grounded on a finding that Ulster Bank’s conduct was “otherwise improper”, which would allow for a customer complaint to be upheld.
The contested case relates to two borrowers who took out a mortgage in April 2004 that initially had a one-year reduced interest rate, before reverting to Ulster Bank’s so-called home loan rate, its standard variable product.
The borrowers, who cannot be named in reports on the case, signed a so-called flexible mortgage transfer form in early 2006, entitling them to move on to a tracker loan, set at a 1.55 percentage point margin over the ECB rate.
The borrowers applied in May 2007, as ECB rates were rising, to fix their interest rates until August 2010. The relating loan documents — known as a fixed rate authority — said that Ulster Bank may offer to extend the fixed period at the end of the fixed term or offer alternative available products. However, if these were not accepted, the contract stated that the borrowers would automatically revert to the bank’s home loan rate.
The borrowers ended up moving automatically to the home loan rate, as they did not avail of the alternatives. Ulster Bank stopped offering tracker products in October 2008 as the funding costs of banks soared during the financial crisis. The ombudsman decided last year that the borrowers had an “enduring entitlement” to a tracker rate and directed Ulster Bank put them back on a tracker rate as of August 2010 and pay redress and compensation.
However, Mr McCullough on Wednesday cited a number of prior FSO decisions about a decade ago on fixed rate authority contracts, where the authority concluded that the borrowers were not entitled to a tracker rate.
Mr McCullough told Ms Justice Marguerite Bolger, who is presiding over the cases, that the same documents could be seen as having been used to reach the opposite result.
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While Mr McCullough noted that the FSPO says it is not bound by precedent, he questioned how this is the case when the ombudsman’s expressed reason for publishing decisions is to provide information for potential complainants and financial firms.
He added that it is also “hard to swallow” that each case is decided on its own merits, when “significant parts” of the FSPO’s final decisions on the three cases were “copied and pasted”.
Eileen Barrington, SC, for the FSPO, said the practice of publishing decisions only started after 2017.
Hearings on the cases are set to run into next week. Ms Barrington is expected to start delivering the FSPO’s response on Thursday afternoon.
