Dáil Éireann

DÁIL ÉIREANN AN COMHCHOISTE UM AIRGEADAS, CAITEACHAS POIBLÍ AGUS ATHCHÓIRIÚ, AGUS AN TAOISEACH JOINT COMMITTEE ON FINANCE, PUBLIC EXPENDITURE AND REFORM, AND TAOISEACH Dé Máirt, 4 Aibreán 2017 Tuesday, 4 April 2017 The Joint Committee met at 10 a.m. MEMBERS PRESENT: Deputy Peter Burke, Senator Paddy Burke, Deputy Michael D’Arcy, Senator Gerry Horkan, Deputy Pearse Doherty, Senator Kieran O’Donnell, Deputy Michael McGrath, Senator Fintan Warfield.* Deputy Sean Sherlock, * In the absence of Senator Rose Conway-Walsh DEPUTY JOHN MCGUINNESS IN THE CHAIR. 1 JFPERT Banking Sector: Quarterly Engagement with Central Bank of Ireland Chairman: Senator Fintan Warfield is attending in substitution for Senator Rose Conway- Walsh. I remind members and everybody else present to turn off their mobile phones as they interfere with the broadcasting of the proceedings. We will proceed with our quarterly engagement with Professor Philip Lane, Governor of the Central Bank, on a number of issues we have discussed previously. By virtue of section 17(2) (l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of the evidence they are to give to the committee. If, however, they are directed by it to cease giving evidence on a particular matter and continue to so do, they are entitled thereafter only to quali- fied privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or an entity by name or in such a way as to make him, her or it identifiable. I invite Professor Lane to make his opening statement. Professor Philip Lane: I welcome the opportunity to appear before the joint committee. I am accompanied by the acting deputy governor for financial regulation and the director of consumer protection, Mr. Bernard Sheridan, and the director of enforcement, Ms Derville Row- land. I will focus on three topics in my introductory statement - the examination of tracker mortgages, the role of the Central Bank in supporting initiatives to reform the motor insurance market and Brexit. I will address each of them in turn. On the examination of issues related to tracker mortgages, I fully share the committee’s concerns. Where these issues have arisen, it is clear that lenders have failed their customers. Moreover, I am acutely aware of the unacceptable impact these failures have had on tracker mortgage customers, ranging from the burden of having to pay more than they should to in- stances involving loss of ownership of mortgaged properties. I acknowledge that committee members frequently deal with such cases in their constituencies and that the committee has heard powerful testimony about the effects these failures have had on individuals and families. The Central Bank is also aware of many of these cases from callers to our public helpline and our ongoing engagement with various consumer representatives. These are important sources of information which continue to inform the examination. The Central Bank is pursuing a comprehensive, industry-wide examination precisely to ensure lenders will identify every affected customer, stop the harm and pay appropriate redress and compensation. The fair treatment of tracker mortgage borrowers has been a key supervisory and policy focus for the Central Bank for the past few years. In line with our mandate to ensure the best in- terests of consumers are protected, the Central Bank intervened with a number of lenders in the period 2008 to 2015 on a range of issues related to tracker mortgages. The interventions ranged from lender-specific supervisory and enforcement actions to, more generally, strengthening the statutory protections for tracker mortgage customers, specifically through the consumer protection code and the code of conduct on mortgage arrears. During the period before the examination we dealt with a range of lender-specific issues, resulting in approximately 7,100 customer accounts affected by various tracker issues being resolved prior to the beginning of the current examination. We also intervened in a number of additional cases on a preventative basis to pre- vent detriment to tracker customers before it occurred. Other issues were being actively inves- tigated at the time of the commencement of the examination and these are now being dealt with 2 4 April 2017 as part of the examination or, where necessary, have been escalated for enforcement action. Where appropriate, the Central Bank has required certain lenders to offer affected customers the right to return to a tracker rate and-or payment of redress and compensation. The Central Bank has also commenced enforcement investigations into tracker-related measures at Perma- nent TSB and its subsidiary, Springboard Mortgages. As a result, these lenders were required to implement a comprehensive mortgage redress programme to address the issues identified. Although the underlying characteristics of each issue have differed, the Central Bank, taking all of this evidence together, decided to launch a system wide examination in 2015 given the range and nature of the customer impact of the issues identified. The examination’s scope requires a robust review to identify and deliver fair outcomes for all other affected customers in addition to those cases known to the Central Bank prior to the start of the examination. The tracker examination is the largest, most complex and significant supervisory review the Central Bank has undertaken to date in respect of its consumer protection mandate. It has involved an initial review of the total mortgage book by lenders in the relevant period, which amounts to more than 2 million accounts. In line with our commitment given at the start of the examination, we have been publishing regular status updates in respect of this ongoing and current supervisory work. The most recent was published last month and has been provided to the committee. The aim of the examination is to ensure that all relevant lenders conduct a comprehensive and robust review which delivers fair outcomes for all customers. I note that a number of lenders have recently apologised to the customers where they failed. Our view is quite clear that this does not have a material meaning unless the lender both stops the harm to all affected customers and provides appropriate redress and compensation for the suffering caused. Lenders must now demonstrate that they are doing everything possible to ensure this happens. This is our goal in overseeing the examination. The way the framework has been put in place is intended to provide appropriate redress and compensation to affected customers. One of the quality assurance steps in this process is that each lender has had to appoint an external, independent party to oversee the conduct of its lender-specific examination. The framework of the examination is in phases. Phase one involved the development and submission of detailed plans by relevant lenders, which is completed. Phase two requires lenders to conduct the review of their books in line with our framework. These reviews are extensive in that lenders must review the underlying loan documentation and customer files for the in-scope accounts to determine the specific contractual obligations and also to determine more broadly if the documentation that each customer received had the potential to confuse or mislead the customer both on a stand alone basis and also when read in conjunction with other communications, written or verbal, made to the individual customer. In this respect the Central Bank invoked its powers under section 22 of the Central Bank (Supervision and Enforcement) Act 2013 to set specific deadlines for each lender to complete phase two of the examination. The last of these deadlines is the end of September 2017. The timelines have varied in line with the size of the relevant lender’s loan book, the scale and complexity of issues raised in each lender and the complexities associated with completing a thorough review in line with the objectives of the examination. By the end of next September, the Central Bank expects all lenders to have identified all affected accounts, stopped further harm and to have commenced engagement with most impacted customers. The Central Bank is rigorously monitoring the completion of this work. Phase three of the examination relates to calculating redress and compensation for customers identified as having been affected by tracker-related issues. Phase four relates to implemen- 3 JFPERT tation of a redress and compensation scheme. It is important to appreciate that phases three and four, dealing with redress and compensation, can run concurrently with phase two. We expect lenders to initiate phases three and four once affected customers are identified. There is no need to complete phase two in its entirety before moving to redress and compensation for cohorts already identified. In that regard, thus far under the examination, around €78 million has been paid out in redress and compensation to approximately 2,200 affected customers. Separately, in regard to the mortgage redress programme for PTSB and Springboard Mort- gages that was announced prior to the examination, additional redress and compensation amounts were paid. PTSB paid €36.8 million and its subsidiary, Springboard, paid €5.8 million. Due to legal requirements which restricted the degree to which I can discuss individual firms, I cannot provide a detailed lender-by-lender breakdown of payout of redress and compensation. We are detailing aggregate amounts and there are tables with the available data in the statement I have provided to the committee. I emphasise the Central Bank does not have the statutory power to compel lenders to implement redress and compensation in respect of failures that occurred prior to the 2013 Act.

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