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The Central Bank has fined Ulster Bank Ireland nearly € 38 million for dozens of regulatory violations in handling its tracker mortgage clients.
The fine of 37,774 million euros is the highest imposed on a company by the regulator.
During its compliance investigation, the Central Bank discovered what it described as “serious flaws” by Ulster Bank in its treatment of 5,940 clients over a 16-year period from 2004 to last year.
In total, Ulster Bank has admitted 49 different regulatory violations.
Their actions, the Central Bank found, caused avoidable and unacceptable damage, including prolonged periods of overload and the loss of 43 client properties, including 29 family homes.
“Our investigation identified the many opportunities that UBID had to do the right thing on the part of its clients and the efforts that UBID made to evade its obligations to these clients,” said the Central Bank’s Director of Compliance and Anti-Money Laundering, Seána Cunningham.
“Although it was clear to UBID from client complaints that certain clients were paying more for their mortgage than they owed, UBID continued to deny clients the lowest follow-up fees to which they were entitled,” he said.
Tracking mortgages use an interest rate that follows the main rate of the European Central Bank.
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Ulster Bank introduced follow-on mortgages in 2001, but like other banks withdrew them in 2008 when the financial crisis hit and made them more expensive.
The bank’s chief executive, Jane Howard, said she deeply regretted the impact her handling of the tracker’s mortgage problem had on her clients and their families.
The central bank said that Ulster Bank had not disclosed to the clients of affected trackers all the consequences of fixing its interest rates.
He also designed and implemented a deliberate strategy not to provide certain clients with their correct tracker mortgage right, unless they complained.
The Central Bank has fined Ulster Bank Ireland DAC 37,774,520 euros for serious flaws in the treatment of its tracker clients who had 5,940 mortgage accounts between August 2004 and April 2020. https://t.co/DOKmp6rdYN pic.twitter.com/YXPnDNVcwz
– Central Bank of Ireland (@centralbank_ie) March 25, 2021
The bank also failed to properly implement a principle known as “Stop the Harm,” which would have protected all potentially affected trackers clients from further harm, the central bank said.
Ulster Bank also failed to ensure that its operating systems and controls were sufficient to ensure that its clients received their correct mortgage rights.
The Central Bank also found that Ulster Bank devised and sought to implement a campaign to encourage certain tracker customers to convert their tracking rates to fixed rates during 2008, without telling them that they would not be entitled to return to their original rate if they moved.
The Ulster Bank also failed to meet the legal deadline for providing information in the context of the Central Bank investigation.
“By deciding in 2011 to return only clients who complained about their follow-up fees, UBID calculated the cost of returning all affected clients to their follow-up mortgage rate,” the central bank said.
“Instead, informed by that financial analysis, he decided to take the option that cost him the least and return only customers who complained at their correct rate,” he said.
“Having initially provided its clients with unclear information and without warning them of the very real consequences of their mortgage-related decisions, UBID put further obstacles in the way of its clients,” he said.
“The onus fell on customers to complain, and to do it in a certain way, to get what they were entitled to,” he added.
The Central Bank fined Ulster Bank almost 54 million euros, but reduced it by 30% under its settlement discount scheme.
The fine is much higher than the € 21 million penalty imposed on Permanent TSB in 2019 for similar infractions, and the € 18 million that KBC Bank Ireland was fined last year following the regulator’s investigation into its handling of clients of trackers.
Ulster Bank has also paid out € 128 million in compensation, clearing and account balance adjustments to clients.
The Central Bank’s Director of Financial Conduct has said that “the choice to do absolutely the wrong thing on the part of its clients” is at the heart of the problem surrounding the handling of tracker mortgage clients by Ulster Bank.
Speaking on News at One, Derville Rowland said the fine was intended to punish Ulster Bank and send a message to other lenders that this conduct would not be tolerated.
He said he sympathized with “the devastating impact that lenders’ conduct has had on people,” but the onus is on lenders to treat their clients fairly.
The tracker’s general mortgage investigation is ongoing and investigations on individuals and other businesses are open.
“All angles are being considered,” Rowland said.
The Central Bank issues a stern warning to all lenders
The Central Bank’s Director of Financial Conduct also issued a stern warning to lenders that uncovered behavior at Ulster Bank will never be tolerated and that “decisive and relentless action” will follow any similar conduct in the future.
Derville Rowland said the tracker’s mortgage investigation at Ulster Bank is “a sad story of misconduct” by the bank that involved deliberate behavior informed by its “bottom line” rather than the rights of its clients.
He said the fine of almost 38 million euros is the highest fine ever imposed to punish the bank and warn others against similar actions.
“The root of this problem is choosing to do the absolutely wrong thing on the part of their clients and that attitude and posture permeates every aspect of these cases. That thought runs through this horrible set of actions,” he said.
He said that it is clear that Ulster Bank had ample opportunity to see the problems caused by its own shortcomings and yet it chose to take the wrong course of action.
Rowland said Ulster Bank failed in its duty to provide 6,000 customers with really important information about the products they had and the consequences for them of moving from a follow-up mortgage to fixed-rate products.
She said she also failed to warn clients looking to switch from a follow-up mortgage that they would lose their rights.
Rowland said that instead, Ulster Bank implemented a “strategy finally failed in 2018” to seek to encourage clients to convert their valuable tracking indices to fixed rates and never informed them that they would lose their right.
He said that the Central Bank has clear expectations of financial services firms, which means that if a problem is identified they will solve it and rectify it, but said that “the opposite happened here.”
The central banker also said it was happy to say that not all clients were fooled by this, but attempts were made to encourage them to move away from follow-up mortgages.
Rowland said that when Ulster Bank customers complained, the bank “deliberately devised and implemented a strategy to ensure that only those who complained regain their tracker mortgage rights” and made it difficult for customers to succeed in their complaints.
He said that when the complaints were received, the bank “sat down and did the bottom line calculation and that’s what their course of conduct reported, rather than doing the right thing for their clients.”
Last month, Ulster Bank said it would close its operations in the Irish market in the next few years.
The final report of the Central Bank tracker’s mortgage examination concluded in 2019 that 40,100 clients of the major banks had been affected by the controversy, and at that time the lenders had paid 683 million euros in compensation and indemnification.
In a statement, Ulster Bank CEO Jane Howard said she deeply regretted the impact the bank’s handling of the tracker’s mortgage problem had on customers and their families.
“These clients placed their trust in us and I regret the impact our failures have had on their personal lives, especially those clients who lost their homes,” he said.
The Ulster Bank CEO said the follow-up mortgage review has had a significant impact on his business, how he does things and how he serves his customers.
“We have learned important lessons and made fundamental changes in the way we work. Most significantly, there has been a profound change in our culture and behavior,” said Ms. Howard.
“In considering customer outcomes, we have learned that we must constantly listen more closely and act faster – this must be at the heart of our culture,” he said.
“Across the bank, we have made many changes, for example we have introduced the voice of the customer in decision making and fundamentally changed the way we deal with and learn from complaints, the content of our customers’ documentation, how we sell products and our approach to operational risk and our control environment, “he added.
Ms Howard also acknowledged and apologized to the Central Bank that Ulster Bank’s responses to their investigation, particularly in relation to a legal deadline, did not always meet the standards they demanded.
He also said that today’s announcement does not close all the tracker’s problems and that Ulster Bank will continue to work on those cases that are under appeal or are brought to a conclusion by the Financial Services and Pensions Ombudsman.
“Today is an important milestone for our colleagues and, more importantly, the affected clients who have now received some 128 million euros in compensation, compensation and account balance adjustments,” said the general director of the banks.
“While we cannot undo the past, I sincerely hope that today’s sanction marks the beginning of some level of resolution for those clients,” he added.
Ulster Bank well ‘too little too late’
Sinn Féin finance spokesman Pearse Doherty described the multi-million dollar Central Bank fine imposed on Ulster Bank as “too little too late” for the losers.
Mr. Doherty described the bank’s action as “robbery.”
He said the whole affair underscored the need for the government to close legislative loopholes and hold bankers to account.
Meanwhile, Ged Nash, Labor finance spokesman, said the fine will not undo “the damage to countless lives.”
He said: “It has been 12 years since the tracker mortgage scandal first came to the public’s attention, which has now cost banks about 1.5 billion euros.
“However, it is impossible to calculate the damage caused to the lives, family relationships and finances of the 40,000 bank customers who were misled by their lenders and went outside the follow-up rates to which they were entitled.
“We must never forget the victims of this scandal, and especially the 100 families whose homes were improperly seized due to the actions of the banks.”
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