Article by Conor Pope in todays Irish Times – Governor says banks tend to seek profitability to detriment of customers

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 yesterday.

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 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 the committee 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.

Legal proceedings

But she confirmed the regulator had met gardaí on two occasions to discuss the issue. She said it had also raised the matter with the Competition and Consumer Protection Commission.

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 institutions.

When Prof 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.

Test case

“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.

A Dublin-based lawyer is, meanwhile, hoping to bring a test case to the High Court in the first half of next year, seeking compensation for those affected by the tracker mortgage scandal.

Taoiseach Leo Varadkar said in Brussels yesterday the approach of calling in the banks, as the Government will do, and impressing the Government’s view on them had worked before.

“I know Enda Kenny and Michael Noonan called the banks in on mortgage arrears and you’ll know mortgage arrears have been falling very substantially in Ireland in recent years.

“But we’ll see what happens.The banks have it in their power to sort this out in a matter of months. And I really think the banks have dragged their feels for far too long now.”