category:
Mortgages

Mortgage scandal shows we’d be better tracking the bankers

There is little reason to hope that this week’s showdown with the banks, when finance minister Paschal Donohoe takes them to task over the tracker mortgage scandal, will yield results. Previous encounters of this kind were nothing more than an excuse for the government to be seen to do something about the contempt in which bankers clearly hold their customers.

Donohoe’s predecessor Michael Noonan summoned bank bosses in 2015 to explain how they planned to reduce the high cost of mortgages in Ireland. Two years later, little has changed, with Irish homeowners still paying way over the odds compared with other eurozone countries. The bankers’ trump card is that taxpayers remain accidental shareholders in three big lenders: AIB, Bank of Ireland and Permanent TSB. The state is unlikely to take substantive action, such as interest rate caps or higher bank levies, that might undermine the value of this investment.

The Central Bank of Ireland, whose job it is to investigate the tracker mortgage scandal, is similarly conflicted. Time and again it has shown that protecting the financial health of the banks will always take precedence over guarding the interests of customers. This might explain the almost cavalier disregard displayed by some banks towards the Central Bank’s attempts to force them to make amends to customers cheated out of tracker mortgages. Derville Rowland, director-general for financial conduct at the Central Bank, told the Oireachtas finance committee on Thursday that relations had all but broken down with some lenders because of their refusal to offer redress to all customers who had been wrongly denied a tracker.

Such defiance does not suggest that the industry is ready to come to terms with past transgressions. It is also remarkable because the consequences of playing chicken with the regulator can be costly. The only fine arising so far from the tracker mortgage scandal — €4.5m levied against Springboard Mortgages — was also the largest collected by the Central Bank. Springboard was a minor player with only 222 customers affected by overcharging. If similar sanctions were imposed for all 30,000 of the mortgages estimated to be caught up in the tracker scandal, the penalties across the banking industry could top €600m.

While chunky fines might assuage public anger, they would do nothing for the homeowners who wrongly lost their trackers. Penalties imposed by the Central Bank — over €12m last year for a range of offences — are paid to the exchequer, not to the victims of the financial misconduct. For wrongdoing that occurred before 2013, including the tracker mortgage scandal, customers must make do with whatever compensation their banks opt to offer. The Central Bank cannot order compensation or dictate the terms. Based on the handful of lenders that have shown their hands so far, the compensation they are prepared to pay ranges from 7.5% of the amount overcharged on tracker mortgages up to 20%, depending on the bank’s and customers’ circumstances. The wide discrepancies between different lenders will do nothing to restore confidence that customers are finally getting a fair deal.

The emphasis on penalties and compensation has drawn attention away from an important aspect of the tracker scandal that has been overlooked: accountability. The current crop of bank bosses can deny responsibility because the decision to rob customers of tracker mortgages was taken long before they got their jobs. This cannot absolve the banks of responsibility, however, for the way in which they have tried to derail the current investigation.

The best way of ensuring account- ability in future would be to shift responsibility from the institution to the individual. This would end the current ease with which bosses throughout the financial services industry can sidestep their responsibilities by feigning ignorance of wrongdoing or pinning the blame on their predecessors. Banking has become a revolving door career, where those responsible for ripping off customers will have moved on to something better long before the consequences of their actions catch up with them.

The lesson from the tracker mortgage scandal is that this cannot be allowed to continue. If the focus of regulation moved to the individual, he or she would think twice before engaging in behaviour that might come back to haunt them.

In vino veritas, even at €30

It is not only words that must be chosen carefully to avoid a political faux pas, but breaths too. Gerry Adams meant to taunt the cabinet’s extravagant tastes when he cited the €30 bottle of wine last week, but took an unfortunate pause in mid- sentence and allowed hecklers to pile in.

However, as some well-heeled commentators have dismissed the €5 social welfare increase as “a cup of coffee”, his suggestion that the €30 weekly pensions discrepancy would seem a trifling sum to ministers on huge salaries was a fair point.

The Dail restaurant’s cheapest bottle is €21, but for something drinkable a Châteauneuf-du-Pape would set a TD back €50. Given that a €5,000 tab at the bar was written off, and the taoiseach’s vow to find the defaulter forgotten, the taxpayer will probably end up with the bill, anyway.

Britain may be getting out of European Union just in time

A photo at last week’s Brussels summit summed it up better than any communiqué: it showed the German chancellor and French president covering their mouths in a cosy chat, with Britain’s prime minister stuck in the middle looking awkward.

Has Theresa May offered a bigger bribe? Are Angela Merkel and Emmanuel Macron raising the Brexit stakes? No wonder the country is anxious. Britain appears boxed in, time is running out, and the European Union is making the running. Mr Macron dismisses talk of “no deal” as bluff and claims Mrs May has never raised it as an option. Her £20bn (€22.4bn) offer, he adds, is “not even halfway there”.

Britain is apparently being held to ransom. Yet there is another way of seeing it. The British have always been the most practical nation in Europe, leaving the creation of Utopia to the continentals. With few exceptions they have little to be proud of in the bloody history of the past century. That is why they invest such pride in their one success, the EU.

But is the EU too big to fail? Don’t bet on it. Events in Catalonia have reminded us how fragile some European nation states have become. If Madrid continues to mishandle the crisis, a new Spanish civil war is no longer inconceivable. Meanwhile, the Austrian election swept a new kind of conservative into power. Everyone noticed Sebastian Kurz’s age, 31, and good looks but more important is his blunt message: no to immigration, Islamism and “more Europe”. Mr Kurz will probably go into coalition with the far-right Freedom Party, soft on Austria’s Nazi past and led by Heinz-Christian Strache, a former neo-Nazi. More than a quarter of Austrians voted for the Freedom Party, which had been leading until Mr Kurz moved his party to the right.

Coming soon after the German election, at which the far-right Alternative for Germany came third, the Austrian election showed Europe still in the grip of centrifugal forces. In France, Marine Le Pen scored 34% but took nearly half the youth vote. Although Mr Macron won a parliamentary majority in June, turnout was only 43%. In March, Dutch prime minister Mark Rutte saw off the maverick Geert Wilders, but has taken months to form a coalition while dancing to Mr Wilders’s tune. Next year’s Italian election may see the populist Five Star Movement in office, perhaps propped up by an octogenarian Silvio Berlusconi.

Jean-Claude Juncker’s vision of a European finance ministry and army looks improbable. Waiting in the wings are Vladimir Putin, itching to cause trouble on Europe’s vulnerable northeastern flank, and Recep Tayyip Erdogan, stirring up Turkish minorities and threatening a flood of refugees from the southeast. The British are leaving just as voters are shunning Brussels in favour of populists, nationalists and separatists.