Some mortgage customers of State-owned Permanent TSB have been informed that the majority of the money they are owed from the bank's failure to offer them a cheap tracker rate over the past decade is being applied to paying off their loan arrears.

This is part of the financial redress scheme that PTSB put in place recently relating to its “failure” to offer a tracker interest rate for some 1,370 mortgage account holders who came off fixed rates from 2006 onwards.

The Irish Mortgage Holders Organisation (IMHO) has become aware of about 35 cases of PTSB home loan customers who are in arrears and have been told that most of the interest they overpaid in recent years is going to be put against the warehoused portion of their split mortgage.

Anger

This has created anger among the PTSB customers, and the IMHO plans to challenge the bank on this controversial policy. “The IMHO will be writing to PTSB to formally request that this policy of withholding overcharged interest is reversed immediately,” said

Stephen Curtis

of the organisation.

“This affects many clients and is a serious matter that needs to be dealt with to allow borrowers access to a full return of what they have been overcharged.”

One offer by PTSB, seen by The Irish Times, states that the bank has calculated that the “loan balance adjustment” would have been just under €50,000 if a tracker rate had been applied to their account in late 2009 when their fixed interest period ended. “The above balance adjustment will be applied to your warehouse account,” the bank states in its compensation letter.

In effect, the overpayment of interest is now being treated as capital and applied to the balance that is outstanding on the warehoused portion of the customer’s split mortgage.

This reduces the balance on the warehoused loan to about €160,000 from around €210,000 previously.

In addition, PTSB has calculated a net refund of overpayments due to the customer of about €4,000, and compensation of €5,800, which includes a €400 fee to seek independent financial advice.

Mr Curtis added: “All the interest should be repaid directly to the customer to do what they want with it as opposed to being unilaterally applied to the loan balance by PTSB. Some people may need these overpayments returned to them in order to comply with their current financial obligations.”

The bank said the objective of its scheme was to put the customer’s mortgage account into the position it would have been in had this failure not occurred. It will also pay compensation for the failure.

“Putting the mortgage account into the position it would have been involves adjusting the loan balance, and depending on the extent of the overpayments, the customer may receive a net refund payment following this balance adjustment,” a spokesman for PTSB said.

Split mortgage

“In the case of a split mortgage where a loan has been split into a main account and a warehouse account, the loan adjustment is applied firstly to reducing the warehouse balance, as to do otherwise would not be consistent with the principle of putting the account back to the position it would have been in had the failure not occurred.”

The IMHO has also criticised PTSB for failing to include the detailed calculations of the interest overpayment in its letters. Instead, account holders are expected to phone the bank for the information.

The bank said the calculations were a “significant piece of information in their own right” and it “would have added considerably to the information given to customers in the original detailed letter that they received”. The calculations are available on request, the bank added.