The High Court has recently ruled on four co-joined Appeals brought by Irish Life and Permanent Plc. (ILP) against decisions of the Financial Services Ombudsman (FSO).
The Appeals involved ILP customers who had switched in 2009/2010 from fixed interest Tracker Mortgages, to variable interest rates, only to discover that upon the expiry of the original fixed period, they could not retain the original Tracker Mortgages. Interest rates on Tracker Mortgages rates are currently at record lows and the product has since been withdrawn from the market.
Key questions for the High Court included:
Why didn’t ILP charge a break fee when permitting certain customers to switch from fixed to variable rates?
Typically, financial institutions charge consumers seeking to switch between these mortgage products, a break fee. In evidence, it emerged that an IT glitch had permitted ILP customers to switch without having to pay a break fee. Consequently, the waiver by ILP of a break fee in two of the cases, did not, in the Court’s opinion, amount to an inducement to customers to make the switch.
Was ILP under a duty to inform the customers of the consequences of the break, including that they could not revert to the Tracker Mortgage?
The Court found that the relevant clauses were not sufficiently clear to spell out the consequences of exiting from a fixed interest mortgage. The Court held that “it behoves the bank to spell this out in plain language for the benefit of all customers”.
While the Court confirmed that the mortgagor/mortgagee relationship is not a fiduciary one, he noted also that in each of the cases, the customers had dealt with ILP personnel described as ‘mortgage advisors’ or ‘advisors’. On this evidence, he was of the opinion that ILP had gone beyond the mortgagor/mortgagee relationship and therefore ought to have alerted the customers “if only in the most general of terms [to] the potentially serious adverse consequences of a particular decision”.
This case emphasises the need for, and importance of, clear communication between financial institutions and their customers. It shows that very high standards are expected of institutions where a change in mortgage terms may adversely affect customers.