How to deal with compensation offers in respect of Tracker interest claims

We now know that more than 13,000 bank customers were incorrectly charged a wrong rate of interest on their tracker loans by the various banks. The Central bank reported in December 2017 that it had found “material deficiencies in certain lenders’ responses” which had required “robust and sustained” Central Bank intervention.

The banks, including Allied Irish Banks, Bank of Ireland, Ulster Bank, PTSB and KBC are still in the process of identifying affected customers and getting in touch with them. Some customers have already received offers of “redress and compensation”. The “Redress” payment is the amount calculated as being necessary to return the customer to the position they would have been in if the correct rate of interest had been applied. The “Compensation” payment is exactly that, it is compensation.

From the cases that we have seen it appears that the level of “compensation” being offered can vary from 5% to 30%  based on the interest overcharges.  The question is: Should customers accept such redress and compensation in full and final settlement?  Obviously, every case depends on its particular facts and circumstances.  We set out below some of the factors that should be considered when evaluating compensation offers.

Most customers at this stage have been notified of their entitlement to compensation.  However, we believe that some customers, particularly those customers who “switched” to another bank in advance of being notified by their existing bank that their interest rate was about to be increased, may not have been notified of their entitlement to compensation. We also believe that some customers who “switched” banks at the time may be unaware of how valuable their claims for compensation may be.  For example, a customer may have been charged the incorrect rate for, say, just 3 months in 2010 before they switched bank, and may have received a compensation cheque for just those 3 months.  The customer may not realise that he/she is now actually entitled to a tracker mortgage in 2018, and for 8 years compensation!

What was the correct “prevailing” rate?

In many cases the biggest issue is to determine if the bank is correct in deciding what interest rate should apply to a customer who came off a fixed rate. Some banks may argue that it should be “standard” variable rate, whereas in some cases it should be a tracker rate. Frankly speaking, the underlying documentation can be very ambiguous, and it may take some court cases to decide.

Statute of limitations

Technically the banks could have argued that some of the claims are statute barred.  However, as the banks are acknowledging, in writing, the claims then a new period of Statutory Limitations kicks in from the date of the written acknowledgement.

Domino Effect

In some cases the inflated interest charges triggered a loan default which enabled the bank to “call in” the loan and allowed the bank to appoint a Receiver. The losses caused by the “Domino” effect of a bank improperly appointing receivers to properties can be very substantial. In some cases, properties were sold by receivers into a market place where there was no liquidity and thus the properties achieved a low price, in comparison with the value that could be achieved today.

Health Effects

Some people will be able to make claims for stress induced illnesses such as depression, heart problems etc. In some cases, marriages fell apart due to the stress caused.  Such customers may be able to make successful claims for additional compensation in respect of medical bills and damage to health.

Damage to credit ratting

Some people may have found that their access to credit was cut off because of negative reports to the Irish Credit Bureau. This could lead to a claim for defamation, particularly if the customer was refused credit on the basis of an inaccurate credit report.

Costs of finance

Some customers might have been forced to use expensive forms of finance such as credit card debt or money lenders to buy groceries as the normal “household” monies were used to pay unjustified interest charges.

Is customer already adjudicated a bankrupt?

Some of the 13,000 customers who are being offered compensation may already have been adjudicated bankrupt.  If the customer had gone bankrupt because he felt that his situation was hopeless as a result of that particular bank overcharging him, then he may have a substantial claim for compensation.

If the customer is still in bankruptcy whilst the Redress/Compensation is due/received, then an allocation will need to be made between what amount is due for personal damages (pain & suffering) versus breach of contract.  Why is this allocation important? Because the Official Assignee cannot keep what compensation relating to personal injury claims, as such monies belong to the debtor personally.

Is customer going through a PIA?

If the customer had undergone a PIA because he felt that his situation was hopeless as a result of that particular bank overcharging him, then he may have a substantial claim for compensation.

If he is currently going through a PIA with multiple creditors, then any compensation payments may be captured by the “windfall” provisions of the PIA, and thus there may be little motivation for the customer to appeal any settlement offer.

It is possible that some existing PIA’s might require a “Variation”

Can the settlement offer be used to do a PIA/DSA?

Some people have been unable to do a PIA/DSA to date because they had no surplus to offer their creditors after allowing for Reasonable living Expenses. A lumps sum settlement may enable some people to do a PIA/DSA settling all creditors.

Loss of family home

In a limited number of cases people will have lost their family homes as a direct result of being charged incorrect interest rates. Such customers should be entitled to high compensation.

In threat of losing family home?

Some customers may have had such large mortgage difficulties that even if they had retained their tracker rates they may still face the risk of their house being re-possessed.  In such cases we have seen banks just offering to set off the redress and compensation payment against the existing mortgage.  It could be argued that such customers should reject the settlement offer, and thereby make it more difficult for the bank to obtain a re-possession order. Any delays in a re-possession order would give the family time to improve their financial circumstances and possibly do a Personal Insolvency Arrangement.

Should customers avail of the Appeal procedures?

Banks are presently computing redress and compensation payments on a mathematical basis without consulting customers.  Accordingly, banks may be unaware of customers having to resort to expensive finance to meet interest payments or may be unware of medical bills incurred etc.  Accordingly, we believe that most customers should avail of the Appeal procedures to enable the bank to assess such new information.  Like any adjudication process, the best results are obtained with professional advice.

However, those customers with substantial claims might be advised to immediately instruct solicitors to issue a 7 day “Demand” letter and then follow up with legal proceedings. Such an approach can put more pressure on a bank to make a more “reasonable” settlement offer; otherwise they could end up paying both sets of legal costs.

Consequential Losses

Customers may have a “direct” loss attributable to the breach of contract and may also have an “indirect” loss e.g. being unable to finance another investment property. “Indirect” losses are more difficult to calculate and require specialist legal advice.

On-going stress of making appeals

Some people will just want to accept the compensation offered and move on with their lives.  Those who decide to appeal, or to issue legal proceedings, may face ongoing stress until the matter is finally resolved.

Becoming personally liable for legal costs

Those customers who take the decision to take legal action could become liable for both their own legal costs and the bank’s legal costs if they lose.

The banks are very well resourced and will, in our opinion heavily defend any initial legal actions to avoid any legal precedent being set.

In order to be successful in any such legal action it is likely that the customer will need to retain a forensic accountant.  In some cases, for example, the accountant might have to calculate the costs of medical bills incurred as a result of the stress caused, and in preparing such calculations he would have to consider whether the customer obtained tax relief on the medical bills etc.

What information do we need to advise you as to whether you should accept the offer of compensation?

In order to have a full proper assessment of your claim,  we need to consider all of your financial circumstances. In order to do this we would email you an “Interview” form for you to complete in advance of meeting with us. For further information please contact one of us by email on:

jim.stafford@frielstafford.ie

tom.murray@frielstafford.ie

Please note that we charge a fee of €300 (inclusive of VAT) for the initial consultation at which time we will outline the various options open to you. If we believe legal proceedings are necessary then we can recommend experienced firms of solicitors to progress your claim for redress and compensation in respect of tracker mortgages.