Central Bank ‘determined’ to avoid ‘tracker mortgage scandal Mark II’ over Covid insurance payouts

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Gabriel Makhlouf was addressing the Special Dáil Committee on Covid-19 this morning.

CENTRAL BANK GOVERNOR Gabriel Makhlouf has told a Dáil committee that the bank is “absolutely focused” on resolving the issue of insurance companies refusing to pay out on business interruption policies as a result of Covid-19.

Makhlouf was taking questions from the members of the Special Dáil Committee on Covid-19 during a briefing on the overall fiscal and monetary position of the Irish economy.

Responding to queries from Sinn Féin finance spokesperson Pearse Doherty, Makhlouf said that the Central Bank is “absolutely determined that insurance companies should pay up where they have to pay up”.

Four publicans have sued insurance firms in the High Court over their alleged failure to pay out on business interruption policies after being forced to close their pubs in March.

Doherty claimed that “another thousand publicans ready to take a case” and that some hairdressers are also preparing to follow suit.

He said he believes that Ireland is heading into a “tracker mortgage scandal Mark II” as a result of the issue and asked what the Central Bank is doing.

“We’ve got lawyers and all sorts of people involved in looking at what is essentially a legal issue, which is ‘does the contract that the insurance companies entered into with a publican, for example, does it entitle the publican to cover?’”, Makhlouf said.

“These are legal questions but we are absolutely determined that insurance companies should pay up where they have to pay up.”

Highlighting the actions of the Financial Conduct Authority (FCA), which regulates insurance companies in Britain, Doherty said that the British response has been for the regulator to step in and take legal actions on behalf of consumers against the “giants of the insurance industry”.

Asked if the Central Bank had any plans to follow suit, Makhlouf said that he had been “taking advice” on whether it could follow the UK’s lead.

He added, “The fact that the FCA are doing what they’re doing is interesting. We talked to them, but they’re in a different jurisdiction. They’re looking after what needs to happen in the British system, where we’re actually looking at what needs to happen in the Irish system.”

Governor Makhlouf also weighed in on the ongoing controversy about whether banks are required by regulation to charge interest on mortgage payment breaks.

Last weekend, The Business Post reported on minutes of a meeting, released under Freedom of Information legislation, between the heads of the main Irish banks, the Banking and Payments Federation and then Taoiseach Leo Varadkar and Finance Minister Paschal Donohoe on 11 May.

At that meeting, the banks claimed that they were obliged to continue charging interest to mortgage holders during the break period. Otherwise, they claimed, the mortgage would have to be classed as being in default.

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Questioned by Doherty on the controversy, Makhlouf confirmed that there were no such regulatory rules in place.

He said that as long as the arrangements for the payment break follow a set of criteria outlined by European Banking Authority, “then it won’t trigger a default”.

In his opening remarks, the governor also addressed the quarterly economic forecasts published by the Central Bank last week. The bank expects the pandemic to shave at least 9% off Irish GDP this year and for unemployment to increase from just 5% to over 14% by the end of the year.

For the moment, Makhlouf said that increases in government spending to fund wage support and unemployment schemes are “warranted”, “necessary” and “currently affordable”. However, he warned that the significant increase in the government debt to GDP ratio could leave Ireland vulnerable to shocks in the future.

“There needs to be a continued focus on building economic resilience to future shocks, including a more sustainable debt position but also the longer-term structural changes that would help to manage the challenges of international tax reform, the longer-term implications of the UK’s withdrawal from the EU and climate change,” he said.

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