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Payment breaks,Banks not required to charge interest

CENTRAL Bank governor Gabriel Makhlouf has confirmed banks are not required under regulatory rules to charge interest on mortgage payment breaks.

This contradicts claims made by the banks in a meeting with the then Taoiseach Leo Varadker.

Governor Makhlouf told the Covid-19 Committee it was up to banks to decide whether or not to charge interest.

The Central Bank boss agreed with Sinn Féin’s finance spokesman Pearse Doherty that interest does not have to be charged on a mortgage to avoid it being classed as being in default.

This is on condition that the arrangements for the payment break follow European Banking Authority guidelines.

Close to 80,000 residential mortgage accounts are subject to payment breaks. This is where the householders have a deal to stop making their monthly repayments, but interest still accrues.

The breaks can be taken up for to six months.

It has been agreed that taking a payment break will not impact on a customer’s credit rating.

Calculations by comparison site Bonkers.ie show that a family with a €300,000 mortgage that takes a sis-month payment break will end up a €4,300 interest bill.

This will be added to the monthly repayments when payment resumes, or the term of the mortgage can be lengthened.

At a meeting between the main banks, the Banking and Payments Federation and then Taoiseach Varadkar and Finance Minister Paschal Donohoe the banks claimed they were required under regulatory rules to charge interest on payment breaks, according to minutes obtained by ‘The Sunday Business Post’.

But Governor Makhlouf told the TDs and senators on the Oireachtas Special Committee that there was no regulatory requirement for banks to charge interest on payment breaks.

He admitted this would not trigger the loan being classified as being in default.

He said regulators do not tell banks what to charge.

The meeting was attended by Banking and Payments Federation boss Brian Hayes, AIB Group chief executive Colin Hunt, then Permanent TSB boss Jeremy Mading and Bank of Ireland’s ceo Francesca McDonagh, among others.

Mr Doherty quoted from the minutes of the meeting where all four of these people claimed they were required by regulatory rules to charge interest.

But Mr Makhlouf said: “We don’t get involved in telling them to charge interest or not.”

He said he was not at the meeting and people could have been talking at cross purposes.

Asked a number of times if banks had misled the Government at the meeting, the Banking and Payments Federation insisted that it was required by European regulators to charge interest, which it was the politicians were told.

“The Irish Payment Break initiative, organised by the industry in Ireland in mid-March, is fully in line with the current EBA [European Banking Authority] Guidance issued on April 2 as confirmed by the Central Bank of Ireland. “

The banking lobby group quoted from EBA guidelines that state that the payment break “changes only the schedule of payments… and should not affect other conditions of the loan, in particular the interest rate….otherwise, this could lead to a significant change in the value of the credit obligation and a forbearance classification would have to be considered”.

The EBA is the EU agency tasked with implementing a standard set of rules to regulate and supervise banking across all EU countries.

And Governor Makhlouf dismissed suggestions from the Green Party’s Neasa Hourigan that consumer protection is down the list of priorities at the Central Bank.

Source :Irish Independent Charlie Weston

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