PTSB fined €4.5m for overcharging at subprime unit

Permanent TSB has been left to pay a €4.5 million fine imposed by the Central Bank against the lender's former subprime unit for overcharging tracker mortgage customers.

The bank has also been forced by the regulator to pay 222 customers of its Springboard Mortgages unit €5.8 million in redress and compensation to date.

The penalty is the highest to be paid by a company regulated by the Central Bank. It is the first enforcement action to conclude in an industry-wide probe of issues relating to the treatment of customers on tracker mortgages.

The Central Bank is taking a separate action against Permanent TSB (PTSB) for similar infractions by its main mortgage business, which has already cost the bailed-out lender millions of euro in redress. That investigation is expected to conclude next year.

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The regulator said that Springboard Mortgages, a subprime lender set up by PTSB in 2006 and sold in 2014 to Mars Capital, an affiliate of US investment group Oaktree, had failed to apply the correct interest rates to 222 mortgage accounts that track the European Central Bank's main rate. The failure lasted for seven years until July 2015.

‘Totally unacceptable’

While the average customer was overcharged by €19,351, amounts ranged from approximately €100 to €68,000. The breaches stemmed from Springboard’s decision in August 2008 to scrap tracker mortgages for new and certain existing customers. As a result, it failed to recognise that some existing borrowres on fixed rates were entitled to move to a low-cost tracker rate once the fixed period had expired.

"The consequences for impacted customers were seriously and totally unacceptable," said Derville Rowland, the Central Bank's director of enforcement. "All 222 customers paid more than required, some fell into mortgage arrears and some were subjected to legal proceedings.

“Taking on a mortgage is one of the biggest financial commitments that a customer will make, “ she said. “Every mortgage customer must have trust and confidence that their account is being managed properly by the firm providing their loan.”

PTSB’s liability for the fine is said to be the result of its providing Mars Capital with an indemnity against such charges under the terms of the sale of the portfolio, which at the time had a face value of €468 million. The loans were sold at a deep discount, reflecting the fact that many of the mortgages were in default.

A spokesman for PTSB declined to comment on the fine.

Springboard failed during the period under investigation to “act with due skill, care or diligence and in the best interest of its customers”, according to the Central Bank. It also did not employ adequate resources or systems to protect the borrowers, it said.

Compensation

PTSB first revealed in July last year that some 220 Springboard mortgages counted among 1,372 tracker mortgage customers of the group who had been overcharged over several years. The bank had set aside as much as €145 million to cover redress and legal and compliance issues, which are understood to be largely related to the tracker mortgage breaches.

PTSB's chief executive Jeremy Masding, who took on the role in 2012, told the Oireachtas Finance Committee last week that more than 90 per cent of customers affected by mortgage overcharging at PTSB and Springboard have been compensated.

The Springboard settlement brings to €54 million the amount of fines levied by the regulator since 2006.

While Quinn Insurance and Irish Nationwide Building Society each received fines of €5 million between 2013 and 2015 for regulatory breaches, neither was collected. Quinn Insurance was under administration at the time, while INBS did not have any assets, as its then parent, Irish Bank Resolution Corporation, was in liquidation and owned by the State.