Ulster Bank says ombudsman failed to show it behaved improperly in tracker cases

The Financial Services and Pensions Ombudsman (FSPO) failed to show how Ulster Bank breached regulatory consumer rules and behaved improperly when he ordered the lender to put three mortgage accounts on tracker rates, counsel for the bank said in the High Court on Thursday.

Ulster Bank is challenging ombudsman’s decisions on the three cases, which were based on grounds that the bank breached the borrowers’ contractual entitlement to cheap tracker loans linked to the European Central Bank’s (ECB) main interest rate, and that it acted in an improper manner and contrary to the Central Bank’s consumer protection rules.

Eoin McCullough, SC, for the bank, argued on Thursday that if the court finds that Ulster Bank did not break its contracts with the borrowers, the other premise of the decision — that the bank was “otherwise improper” — “can’t stand” either.

Mr McCullough, who focused on one of the three cases during the first three days of hearings, said that the ombudsman did not say in its case decision last year how Ulster Bank breached the Consumer Protection Code 2006 by not allowing the borrowers to return to a tracker rate.

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“One can’t tell what breaches of the code are being alleged,” he said, adding the ombudsman should “at the very least” have identified what part of the general principles of the code the bank had breached.

‘Enduring entitlement’

The contested case involved two borrowers who took out a mortgage in April 2004 that initially had a one-year reduced interest rate, before reverting to Ulster Bank’s so-called home loan rate, its standard variable product.

The borrowers signed a so-called flexible mortgage transfer form in early 2006, entitling them to move on to a tracker loan. They subsequently applied in May 2007, as ECB rates were rising, to fix their interest rates until August 2010. The relating loan documents — known as a fixed rate authority — said that Ulster Bank may offer to extend the fixed period at the end of the fixed term or offer alternative available products. However, if these were not accepted, the contract stated that the borrowers would automatically revert to the bank’s home loan rate.

The borrowers ended up moving automatically to the home loan rate, as they did not avail of the alternatives. Ulster Bank stopped offering tracker products in October 2008 as the funding costs of banks soared during the financial crisis. The ombudsman decided last year that the borrowers had an “enduring entitlement” to a tracker rate and directed Ulster Bank put them back on a tracker rate as of August 2010 and pay redress and compensation.

Mr McCullough said that the ombudsman’s view that a tracker rate should have been offered as an alternative product after the fixed-rate period expired “is an untenable interpretation” of the fixed-rate authority documents.

The outcome of the cases will have a direct impact on “thousands” of other borrowers who did not secure refunds and compensation as part of an industry-wide tracker mortgage examination overseen by the Central Bank between 2015 and 2019, the court heard on Wednesday. This could result in “enormous financial ramifications” for Ulster Bank, according to Mr McCullough.

Eileen Barrington, SC, for the ombudsman, is scheduled to present its response the Ulster Bank challenge on Friday.