Regulator steps up mortgage break charge probe Sunday, July 12, 2009 By David Clerkin and Ian Kehoe The Financial Regulator is to conduct detailed on-site investigations into the mortgage operations of the country’s main banks amid concern that some institutions are overcharging customers who break out of a fixed-rate mortgage for a cheaper variable rate deal.
The regulator told the Department of Finance that it needed to dig deeper into bank records after an initial investigation, which was based on outline information submitted by the banks, failed to uncover evidence of systematic overcharging.
A preliminary report said that banks appeared to be charging penalties that were limited to refunding them for breakage costs they incurred on foot of each customer’s decision, but that the investigation could not be wound up yet as it was based solely on information provided by the banks and needed to be verified independently.
‘‘The regulator concluded, and has confirmed to my department, that its analysis indicates that the early redemption fee calculation in all cases appears to seek to recover costs and that lenders do not generally apply additional fees in the case of early redemption,” said finance minister Brian Lenihan.
But he added that, ‘‘since its findings are based on a review of material provided by lending institutions, rather than verification by means of on-site inspections, it intends to carry out at least six on-site inspections on this issue’’. Lenihan also said that he had instructed the regulator to make any additional information public ‘‘immediately’’ if it subsequently came to light that overcharging had, in fact, taken place.
Banks are entitled to charge mortgage customers a penalty if they break out of a fixed-rate deal ahead of schedule. While the penalty should be limited to reimbursing the bank for the cost of breaking the deal, Lenihan ordered a probe to ensure that institutions were not seeking to penalise customers unfairly and boost profits.
Banks have been experiencing a rise in the number of customers seeking to break out of fixed-rate deals in recent months after variable rate customers benefited from ECB decisions to slash interest rates aggressively in response to the credit crunch.
Those on fixed-rate deals are protected from rate hikes but also agree, when they sign up for the fixed-rate period, not to seek to benefit from any cuts in rates.
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