Ireland’s AIB fined record € 96.7mn over tracker mortgage scandal

Ireland’s central bank has fined AIB a record € 96.7mn for denying customers access to cheaper mortgages that tracked base rates, inflicting “devastating consequences” on almost 13,000 households.

AIB, the country’s second-largest lender, was fined € 83.3mn for failings in its treatment of 10,010 mortgage tracker customers between August 2004 and March of this year, the Central Bank of Ireland said on Thursday.

EBS, a subsidiary of the bank, was hit with a penalty of € 13.4mn for similar failings affecting 2,845 people that continued up until June 2020.

The industry-wide scandal was triggered by the European Central Bank’s move to cut interest rates close to zero in 2011, a move that made tracker mortgages unprofitable for Irish banks.

As a result, 42,000 customers across the Irish banking system were affected. Most of them were switched to more expensive interest rates, including fixed or variable rate loans, depriving them of the benefits of falling interest rates; others were denied loans.

Twenty-one of the affected customers at AIB and EBS lost their homes after the lender overcharged borrowers, breached contracts, failed to handle complaints fairly or excluded some affected customers from compensation, the central bank said.

“The fine against AIB is the largest fine imposed by the central bank ever,” Derville Rowland, director-general of financial conduct at the central bank, said, adding that the penalty reflected the “harm and distress” caused.

“AIB put its own interests before the interests of its customers,” said Rowland, adding that the central bank expected lenders “to learn lessons.”

The fine comes after a seven-year investigation by the central bank into a scandal that further dented the reputation of Irish banks, which had to be bailed out during the financial crisis.

Neither the central bank nor AIB would say how the bank was still failing tracker mortgage customers just three months ago.

“It is right to say that breaches were occurring right up until March 2022, but those particular breaches that were ongoing were not significant matters in the scheme of the case,” said Rowland.

AIB, which had made a provision of € 70mn to cover the expected fine, admitted to 57 separate regulatory breaches in relation to mortgages which were supposed to track ECB interest rates. EBS admitted to 36 breaches.

Colin Hunt, AIB chief executive, said the scandal was “a very large stain on the bank’s reputation” and he hoped the fine would close the “dark chapter”.

The fines come on top of the more than € 125mn paid by AIB, and € 105mn paid by EBS, in compensation and redress to their affected customers.

The penalties take to € 174mn the total Irish banks have been fined over tracker mortgage failings, the central bank said. Overall, lenders have paid customers € 737mn in redress and compensation.

Rowland said it was now “up to them [the banks] to demonstrate whether they get it or not ”and had the customer’s best interests at heart.

It was a view echoed by the Irish Banking Culture Board, an independent group set up by Ireland’s five retail banks.

“It is actions, not words, that are essential in this context,” the group said.

The AIB fine dwarfs the highest penalty yet handed out in the scandal – the € 38mn imposed on Ulster Bank last year. The country’s largest lender, Bank of Ireland, is also expected to be fined, but Rowland would not be drawn on timing.

Diarmaid Sheridan, banking analyst at stockbrokers Davy, said the AIB fine was “slightly larger” than expected “but still quite manageable”.

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