No hard evidence that shows there is a banking cartel in Irish banks

By April 3, 2018Articles
Fine Gael MEP Brian Hayes lodged a complaint at the European Union’s competition body calling for an investigation on Irish banks who may be intentionally denying customers tracker mortgages and overcharging them to the extent that some of them lost their homes. 

Tracker mortgages are beneficial to customers but disadvantageous for banks

A tracker mortgage is one that follows the Base Rate of interest which is set by the Bank of England and it will be fixed at a percentage above this rate. This Base Rate of interest is much it costs banks to ‘purchase’ money. The Bank of England sets this sets depending on the behaviour of the economy, in line with this, they will either raise or decrease this rate of interest which means that when the economy is thriving, payments on a mortgage will be increased and the opposite if time is tough. Simply put, it’s the base rate with an additional charge that will be pre-agreed for a set amount of time. An example would be: If a tracker mortgage is the Based Rate 2%, and the Base Rate itself is agreed on 1%, a customer will pay 3%. If that Base Rate rises to 2%, payments will be at 4%. 

Some banks in Ireland which include Allied Irish Banks, Bank of Ireland, KBC, Permanent TSB and Ulster Bank are being accused of deliberately and collectively denying or moving off customers a tracker mortgage rate and instead overcharging them. This resulted in higher mortgage payments for customers some of whom were charged thousands of euros of payments and some even lost their homes. It was pointed out that Ireland’s main lenders acted in a similar manner in moving their customers off the tracker mortgage. Around 20,000 customers are believed to have been wrongly denied a tracker mortgage rate whereby they paid thousands of euros in excess in interest than they should have.

A complaint has been lodged at the European Union’s competition body

Fine Gael MEP Brian Hayes has lodged a complaint at the competition section of the European Union which falls under Commissioner Margrethe Vestager, who possesses the power to probe into any breaches of the European Union’s competition law, including cartel activity. He called for an investigation to be made on Irish banks who potentially are in a cartel. “There are serious allegations that Irish banks have colluded together with the objective of overcharging customers by wrongly denying customers their tracker interest rate and placing them on a higher interest mortgage rates. It is alleged that the Irish banks involved have breached their contractual obligations in these cases,” he wrote in the complaint letter. 

Mr. Hayes based himself on the evidence found through the Central Bank’s two-year investigation and said that there seems to be a clear link which suggests cartel activity by the banks. “If Irish banks intentionally collaborated to ensure that customers did not get the correct interest rates on their mortgage product, this is effectively an example of controlling rates in an effort to restrict competition in the mortgage market and to share that market. While we still don’t have all the facts in the tracker mortgage scandal, the clear indications are that there was a collaboration between the banks in order to intentionally deny customers their correct tracker mortgage rate. If this proves to be the case, this would be, in very simple terms, a cartel,” he said. The Central Bank is currently running investigations on 11 banks. 

His complaint at the European Union’s competition body is justified as he added that “while the Central Bank has its powers to examine the banks, it can only investigate from a regulatory and consumer protection perspective. It cannot investigate the tracker mortgage scandal from a competition perspective.”

There is no hard evidence suggesting Irish banks are part of a cartel

There is no proof that has been submitted to support the statement that Irish banks are in a cartel despite their systematic overcharging customers part of the tracker mortgage system, said the head of Ireland’s competition watchdog.

Nevertheless, Isolde Goggin, the head of the Competition and Consumer Protection Commission (CCPC) said that she is not dismissing the allegations made on the banks as cartels are secretive by nature. She is additionally, urging any whistleblower to come up and help in the investigations. 

Goggin added that there are several factors that could be pushing banks to act in this manner, that is, to move customers off the tracker mortgage system and that it does not necessarily mean that they are part of a cartel, given that no evidence has been produced so far. She said that in the absence of any evidence, there is little that the competition watchdog can do concerning starting a criminal investigation on the matter. “For cartel activity, you want to take the criminal route and if you’re looking to go before a judge you have to be able to explain why you’re looking for a warrant. You can’t go on a fishing expedition.” Goggin said.

“We haven’t been provided with sufficient evidence to believe that there is a cartel. We have not recovered any information that would allow us to open an investigation,” she said in a statement at the Oireachtas Finance Committee.

Isolde Goggin said that the Irish market is dysfunctional

She said competition will be welcome and “If the German banks can do that (help diminish Irish mortgage rates) I wish they would, it would shake up the market, but the point is that they haven’t done it.”

There is little competition in the Irish market with three companies accounting for most of the market share. Germany’s biggest public bank Sparkasse wants to introduce public banking in Ireland. As public banks are not profit oriented, introducing the system of public banks to the country would provide a credible alternative to Ireland’s main commercial banks, providing competition and driving down prices. 

Article published in The mechanisms of personal insolvency in Ireland :


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