Irish mortgage lenders can no longer impose legal fees and other charges on borrowers in arrears who are co-operating with their bank to resolve the issue. Irish regulator, the Central Bank has written to all the main Irish lenders, reminding them of their obligation not to impose charges on borrowers ahead of a decision by a court on whether to repossess property or of a settlement between the two parties.

The regulator has also said costs cannot be added to a mortgage account until a borrower was in a position to redeem the debt and had requested to do so.

The Central Bank’s move comes after an investigation that concluded that added charges only make it more difficult for borrowers who are in arrears to address the problem.

The report found that lenders typically frontload legal charges to borrowers in arrears – for example by charging them for legal correspondence sent regarding those arrears, a situation which adds to the arrears owed by households to banks. That debt is then exacerbated with interest charges on those legal costs.

Banks have been given until December 20th to confirm they have undertaken a review to establish instances of inappropriately imposing charges and to outline how they intend to deal with the issue.

The letter to the banks said “The Central Bank is of the view that the application of the costs prior to the conclusion of repossession proceedings and prior to the decision by a court to award the costs associated with the legal process to the regulated entity is not in borrowers’ best interest and is therefore not in accordance with the Consumer Protection Code.”

“Additionally the Central Bank is of the view that it is not in a borrower’s best interests or in accordance with the code to apply the costs prior to settlement between the parties concerned or prior to a borrower being in a position to redeem the mortgage and requesting to do so.”