The prospect of Irish banks facing criminal proceedings after wrongly forcing more than 20,000 homeowners off tracker mortgages was raised by the Central Bank on Thursday.
However, after it was raised by the bank at the Oireachtas finance committee, the bank's governor Philip Lane suggested that a bank culture which persistently worked against the interests of consumers rather than collusion or criminality was most likely at the root of what was described by one TD at the committee as "the greatest consumer rip-off in the history of the State".
The Central Bank was harshly criticised by TDs and Senators for the length of time it had taken to hold financial institutions to account over the scandal and accused of a “dereliction of duty” over its handling of the issue.
The bank's director general of financial conduct Derville Rowland told thecommittee that the tracker scandal had been "discussed" with gardaí but said a formal investigation had not been launched.
She said she "couldn't say" if criminal proceedings would come in the wake of its investigation into 11 of the 15 mortgage lenders who were operating in the State between five and 15 years ago who wrongly took people off tracker mortgages, but confirmed the regulator had met gardaí on two separate occasions to discuss the issue. She said it had also raised the matter with the Competition and Consumer Protection Commission.
Legal resources
The Committee was also told that financial institutions had deployed considerable legal resources to avoid offering some customers redress. Ms Rowland said that while no financial institution had formally instigated legal proceedings against the Central Bank as it carried on its examination process, she said she was aware that such action had been discussed informally by financial institutions.
When Mr Lane was asked by Fianna Fáil’s finance spokesman Michael McGrath how a scandal of this scale could have unfolded by accident and how all of the banks could have made the same mistakes at the same time, the governor said there was an issue with the culture of the banking system.
“We do think there is a common culture across the banks, which is that if there is any doubt or ambiguity about how to interpret a contract, they interpret it in the bank’s favour.” He added he believed that the banks had a culture of seeking profitability to the detriment of their customers.
Mr Lane told the meeting that the Central Bank was of the view that certain groups of people had been wrongly taken off tracker mortgages, a view some banks disputed. He said if such cases could not be resolved in its discussions with the banks then that cohort would have to go to the Financial Services Ombudsman (FSO) or to the courts to seek resolution.
No power
He said the Central Bank had no power to compel the financial institutions to give this cohort redress but said that the regulator would insist that the banks write to this group alerting them to the situation.
Sinn Féin's Pearse Doherty, a committee member, said he was "shocked" at the response, describing it as insufficient to tell somebody in dispute with a bank over being forced off a tracker that they had to deal with the FSO, which, he pointed out, was "in itself a lengthy process".
He said telling these customers they would need to “go to another agency of the State was . . . a dereliction of your duty under consumer protection” and added that if the Central Bank did not have the power to force financial institutions to restore people to their tracker mortgages it was a case of “the dog that won’t bark”.
Mr Doherty said such an approach was sending out “a terrible signal to financial institutions”.
