The Financial Services Ombudsman has strongly criticised what he termed as “unwarranted and unsolicited” moves by banks to entice people off low-rate tracker mortgages.
Bill Prasifka said his office had witnessed a sharp rise in the number of complaints relating to banks offering financial inducements to customers in return for switching mortgage contracts.
The cost to banks of tracker mortgages has risen significantly during the financial crisis as the interest on loans is fixed at a set margin above the European Central Bank base rate, which no longer reflects the banks’ own borrowing costs.
“It is very hard to see how banks trying to entice people off their tracker mortgages were acting in the best interest of their customers,” Mr Prasifka said.
Publishing his annual reporting for 2009 today, the ombudsman said the recession had seen “explosive increase” in the number of complaints over the selling of investment products.
The report showed complaints by consumers about financial institutions rose by 28 per cent, to 7,619 last year. Some 4,668 complaints were made against firms in the insurance sector and 2,951 complaints against financial institutions such as banks and building societies.
However there had been a fall-off in the level of investment complaints so far this year, Mr Prasifka said, as certain policies began to unwind, and some markets showed signs of recovery.
Many of the complaints upheld by the ombudsman related to investment advice, misrepresentation or poor investment performance.
But the report said that because of the downturn some financial providers had gone out of business were unable to pay the awards made by the office.
“The fact that the consumer may not get compensation directed by the ombudsman is a problem,” the report noted.
To remedy the problem, the ombudsman has proposed the establishment of an investor compensation fund funded by the financial services sector.
Although the office had not seen a significant rise in the number of complaints about mortgage arrears so far, the matter was likely to be a “big issue in the future” given the number of people in financial distress.
Last month, the Government approved a series of measures, recommended by an advisory group, to aid people who found themselves in mortgage arrears. The measures allowed borrowers who failed to agree a debt restructuring plan with their bank a right of appeal to the Financial Services Ombudsman.
“This is a potential area where there could be a significant workload for the office,” Mr Prasifka said.
His report identified a significant rise in the number of complaints last year about the size of the breakage fee charged for switching from a fixed rate mortgage to a variable rate.
In some instances the amounts varied between €20,000 and €45,000 where only six months of a mortgage had elapsed.
