Central Bank does not want powers to stop vulture funds charging sky-high mortgage rates

THE Central Bank has told the Minister for Finance it does not want powers to cap the interest rates that vulture funds can charge mortgage holders. It comes as thousands of borrowers are at risk of going into arrears as they are being charged rates as high as 7pc by vulture funds that bought their loans from the banks.

“We would have serious reservations around potential policy interventions that seek to regulate the setting of interest rates by financial institutions,” a Central Bank spokesperson said in a statement.

“Such regulation has the potential to hinder competition in the market, impact pricing and deliver unintended consequences particularly with regard to managing risk.”

Finance Minister Michael McGrath had raised the issue of people stuck in overpriced mortgages with Central Bank Governor Gabriel Makhlouf in a meeting at the end of last month. He asked the Central Bank to write to him to say if it wanted powers to cap the interest rates that can be charged on mortgages. This is to help tens of thousands of mortgage holders who are trapped paying high interest rates to overseas funds. Around 100,000 borrowers who took out their loans years ago with mainstream banks, and who later fell into difficulty, had their loans taken over by vulture funds. The funds are not regulated by the Central Bank, but the firms that service the loans on behalf of the funds are regulated. These credit servicers include Pepper and Start.

With the European Central Bank raising its key rates five times since the summer, most of these hikes have been passed on to mortgage holders owned by the funds. This is because many of them are on variable rates, and the funds have passed on most of the ECB rate rises. The Central Bank estimates that about 38,000 borrowers are stuck paying high variable rates and are mostly unable to move back to mainstream banks because of their chequered borrowing history. They are not being offered the option to lock in to fixed rates as these are not offered by the credit servicing firms.

Mr McGrath said recently his officials wrote to the Central Bank ahead the meeting with the Governor setting out his concerns, and asking for its views about “its powers and functions” and how customers on top rates can be protected. Now the Central Bank has responded that it does not want extra powers to regulate mortgage rates. It argued that it is not appropriate for a regulator to have a role in setting prices. It has said its powers that set out how borrowers who are in arrears are to be treated are sufficient, as first reported on Virgin Media News.

Consumer advocate Brendan Burgess has called for the funds be forced to charge no more in mortgage interest than the banks that sold them the loans.Mr Burgess has argued that the Central Bank has intervened in the general insurance market to stop insurers overcharging loyal customers.

Mr Burgess said: “It is clear that the Central Bank has no intention of protecting consumers in this area. Protecting customers who are in arrears does not fix the problem.”

He said Mr McGrath will now have to bring in legislation to protect vulnerable borrowers whose loans are owned by vultures.

Source: Charlie Weston, Irish Independent.

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