Fianna Fáil Finance Spokesperson Michael McGrath has called for legislation to be implemented to deal with scandalous situation whereby variable rate customers of Danske Bank are paying a standard variable mortgage rate of 4.95%. This is 99 times higher than the current ECB rate.

Danske announced in 2013 that it was pulling out of the personal banking market in Ireland. It currently has 14,000 mortgage customers in the country whose accounts are managed on its behalf by Pepper Asset Management. While the majority of these loans are on tracker rates, there are a significant number of Danske variable rate customers who are paying the highest rate in the Irish market of 4.95%.

Deputy McGrath commented, “While the overall situation in relation to variable mortgages continues to be of major concern, the situation in regard to Danske is by far the worst in the market and needs specific action to resolve it.

There was a chink of light for Danske customers earlier in the year as a result of the “Millar case”. The original ruling by Judge Hogan who found that Danske Bank had acted incorrectly in raising their SVR rate at a time when the ECB was actively cutting its lending rates had given hope to mortgage customers. This was overturned on appeal. Essentially the courts found that the law as it stands currently cannot be invoked by a mortgage customer who feels their bank has hiked the standard variable rate payable to an excessive extent.

In October, the Minister for Finance closed the door on taking any action on the issue of rip-off interest rates saying he wants to wait a number of months to see if competition forces down rates. This is a serious climb down from the Minister who had previously threatened to increase the levy on banks or introduce legislation to give the Central Bank powers to tackle excessive interest rates.

Minister Noonan’s belief is that competition alone will solve the problem. While customers are to be encouraged to shop around, the truth is that switching a mortgage from one lender to another can be difficult and is not an option open to everyone. In particular it is of no use to customers of Danske who are in negative equity. The option of switching to a lower cost lender is effectively closed to them. As they are leaving the Irish mortgage market Danske are immune to market pressures or moral persuasion.

I have been contacted by Danske customers who are at their wits end trying to cope with their monthly mortgage payment. It is very cold comfort to them when they hear Minister Noonan talking about competition reducing rates. There is no realistic prospect of Danske cutting their variable rate unless they are forced to do so.

In fact there is nothing to stop the rate of interest on these loans being increased to 6 or 7% or even higher. That is why I published legislation (Central Bank Variable Rate Mortgages Bill 2015) which would amongst other measures allow the Central Bank to impose a cap on mortgage rates where it deems it appropriate. Such interest rates caps already apply in Ireland in respect of credit union loans and moneylenders. Given that a mortgage is the biggest financial commitment most people enter in to during their lives there is an even stronger case for the Central Bank to have the power to set a maximum rate. This also occurs in other European countries,” concluded Deputy McGrath