The Central Bank is preparing to investigate the selling of payment protection insurance (PPI) by Irish banks after lenders in Britain were ordered to refund £9 billion (€10 billion) to up to 5m customers.
Financial watchdogs will also examine whether mortgage lenders are subjecting homeowners to unreasonable delays when they seek to renegotiate their debts. Other inspections will look at the surcharge interest imposed by banks when customers fall into unauthorised overdrafts, which can be as high as 28%, and the way that insurance companies settle personal injury claims.
PPI is optional insurance that is supposed to protect loan repayments if borrowers lose their jobs or are unable to work through accident or illness. Self-employed people are especially vulnerable to mis-selling because it is difficult for them to make PPI claims for redundancy. They must prove that they did not deliberately cease trading in order to make a claim.
Two years ago, the Central Bank gave a largely clean bill of health to the way that PPI claims were handled, although it did not look at how policies were sold.
Some of the banks at the centre of Britain’s mis-selling scandal sold PPI in Ireland too. They include Royal Bank of Scotland, which owns Ulster Bank, and Lloyds, the owner of Halifax, which pulled out of Ireland last year.
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The Central Bank’s planned inspection of mortgage lenders follows concerns that they lack the resources to deal in a timely manner with the growing number of struggling borrowers. By last March, more than 11% of mortgages were in arrears or had been restructured.
The code of conduct on mortgage arrears requires lenders to set up dedicated support units to deal with borrowers who have missed payments or fear that they may do so. Borrowers report, however, that they are waiting months for replies from lenders after asking to renegotiate their mortgages.
Some were illegally charged fees and surcharge interest on arrears, resulting in the Central Bank ordering four lenders to refund almost €70,000 to 3,100 borrowers.
Clearing the backlog could become more difficult later this year when the Central Bank will require that bank staff must be suitably qualified or experienced to deal with loan restructuring.
More customers, meanwhile, are falling into unauthorised overdrafts as banks take a tougher line on the operation of current accounts.
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Permanent TSB recently warned customers that it would no longer honour payments if customers had insufficient funds in their accounts. It has the highest surcharge interest on unauthorised overdrafts — 28.3%. Allied Irish Banks charges 24.2%, Ulster Bank 23.5% and Bank of Ireland 22%. National Irish Bank has the lowest surcharge — 20.5%.