Remarks by Gerry Cross, Director of Financial Regulation - Policy and Risk to the BPFI Mortgage Market Council

06 December 2022 Speech

Gerry Cross

Good morning

l am pleased to be here to speak with you today. Together with my colleagues we look forward to an exchange of views on some important topics. As representatives of mortgage lenders you will be fully aware of the critical role that you play in helping secure the wellbeing of Irish citizens.

I would like to explain a little, and then hear your views about, the work we are currently undertaking to review the Central Bank’s Consumer Protection Code. Our discussions this morning form part of the significant engagement process that is underway to understand stakeholders’ views on financial services consumer protection, its strengths and weaknesses, and how it might be improved.

I also want to take the opportunity this morning to speak with you about an important piece of research that we will be publishing in the coming days related to mortgage switching and re-financing. We have recently concluded a piece of field-based consumer behavioural research which will be important to mortgage customers (and potential customers), to us as policymakers, and to yourselves.

Review of the Consumer Protection Code

Starting with our review of the Consumer Protection Code. The Code is a cornerstone of the consumer protection framework – comprising a set of rules and principles that firms must follow when providing financial products and services to consumers. 

The Code was first introduced in 2006. It has been enhanced over the years as we have sought to ensure that it remained fit for purpose over time. It has served consumers well. In its specific provisions - for example requiring that products are suitable for the particular customer, or that customers are effectively informed, or that complaints are properly handled - it has helped to ensure that financial services provision is well oriented to the situation of consumers and their circumstances. And in its more general provisions - for example the requirement that financial firms act in the best interests of their customers - it has underpinned a number of significant developments in consumer protection. These include our unprecedented intervention in relation to tracker mortgages; the securing of policy-holders interests in the area of business interruption insurance during the Covid 19 shutdown, and the implementation of the principle that a determination in relation to one customer’s fair treatment must be applied to others in relevantly similar circumstances.

But looking to the future, as part of our multiannual Strategy we are committed to the ever enhanced delivery of our mandate to deliver a very well functioning financial system and one which optimally secures the interests of customers. As we said in our response to the Department of Finance’s Retail Banking Review consultation, achieving this requires that we seek to ensure choice and availability in a system founded on high quality competition, strong innovation and the centralisation of customers’ interests. Against this context it is timely for us to review the Code and the framework of consumer protection that it underpins. 

Changes to the framework must be informed by the experiences and insights of both those whose interests it seeks to secure and those it regulates. Our Discussion Paper provides the basis for extensive engagement by outlining a number of important  themes on which we are seeking evidence-based views. 

There are two broad themes - Choice & Availability, and Securing Customers Interests - which are at the heart of and underpin all the rest. Under Choice and Availability we consider in particular the role of competition, innovation, and high quality regulation in the delivery of financial services that meet the needs of users at appropriate cost throughout the different phases of their lives.

Under Securing Customers Interests, we explore the duty of firms, their management and boards to place their customers’ (and potential customers’) interests at the heart of their business model, their culture, and their decision-making. This is something that firms’ have struggled with over the years. Both they and their customers have at times paid a significant price as a result. 

So what we are seeking to do now is to explore in some depth what precisely it means to act in customers’ best interests. In the Discussion Paper, we consider the balancing of shareholders and customers’ outcomes, the objective of making a sustainable profit and doing so in a way which is fully aligned with the interests of customers. 

On the basis of this discussion we plan to develop regulatory guidance which will provide forward looking clarity and predictability on the different aspects of this duty towards consumers. Now you may say, well isn’t this a case of knowing an elephant when you see it. And there will always be a certain element of that. Nonetheless we believe that there is the potential for a real advance in spelling out more clearly the issues involved and the requirements deriving from the general duty. In the Discussion Paper we outline what such regulatory guidance might look like. We very much want to hear from you and other stakeholders on this and the other questions raised in the paper.

Mortgage providers are key stakeholders in this regard and we want to hear your views on how consumer protection in financial services should evolve to remain effective. 

Mortgage re-financing research

The second, not unrelated matter, that I want to talk to you about today is mortgage re-financing information provision, and consumer behavioural research results that will be published in the coming days.

In June 2018, the Central Bank introduced changes to the Consumer Protection Code to help consumers identify opportunities to make savings on their mortgage repayments. The changes included requirements for lenders to provide customers with information on alternative mortgage options that are available from their provider. In particular, variable rate mortgage customers should be notified annually of these options as well as when the interest rate changes, and borrowers coming off a fixed rate should be notified 60 days prior to the expiry of the fixed rate period.

Historically, on the whole, levels of switching in the mortgage market have been limited. Over recent years, there have been several studies of refinancing activity in the Irish mortgage market. For example, a Central Bank study in 2020  reported that “mortgage customers in Ireland have not engaged to any large extent with the option to switch their mortgage, despite downward movements in interest rates, and policy initiatives to improve the switching process”.   The authors found that 3 in 5 mortgaged households in Ireland could save at least €1,000 within the first year, or €10,000 over their remaining term by switching to a lower interest rate. Cumulatively, these estimates amounted to potential unclaimed savings of approximately €236 million over a one-year horizon. Another 2022 study  showed that two-thirds of borrowers at an Irish retail bank did not take up a cost free refinancing offer from their financial institution, foregoing average savings of €5,400 over the remaining term of their mortgage. 

As a result, we decided to undertake a piece of consumer behavioural-based research in the area. Our aim was to improve understanding of what would prompt greater consumer engagement with mortgage refinancing opportunities available from an existing lender. 

The work was undertaken by the Central Bank’s Behavioural Research team in close collaboration with our Consumer Policy team. Partnering with a retail bank and working with a sample of approximately 12,000 variable rate mortgages, we tested the impact of a series of consumer-friendly enhancements - informed by behavioural economics - to the application of disclosure requirements under the Code. 

Consumer Behaviour Research Findings

The findings that will be outlined in the research show that small but targeted changes made to lender notifications can significantly increase customer engagement with the options presented to them. 

Two features in particular emerge from the research as likely to drive better consumer engagement: 

First, the inclusion, in the notification required by the Code, of personalised euro savings estimates listed alongside each presented product option.  In the research we will show an example of a notification including personalised euro saving estimates

Second, a specific reminder sent to customers in relation to mortgage refinancing options, issued between four and eight weeks from the first notification.

In the research you will see that these enhancements brought about a 76% increase in the number of mortgage refinances prompted by that notification, compared to the pre-existing standard communication without a reminder. This is a substantial result  - indeed, impressive - and shows what level of engagement can be prompted where firms act in the customers interests in a proactive and sustained way.

I urge you all to read this research when it is published. It is very informative about how consumers behave, and how consumers react to prompts from their lenders.

Through proactive mortgage refinancing, borrowers can benefit from significant savings. In an environment where cost of living pressures are impacting many consumers’ personal finances, it represents an indication of the scale of the benefit of enhanced disclosure by lenders to improve customer financial well-being. 

Opportunities to Enhance Customer Notifications

There are really important learnings in this research. It relates directly to the question of how firms can implement requirements, not simply to comply with the rules, but to optimally secure the interests of their customers and in a way which is aligned with their longer term sustainable profitability. In the case of all mortgage lenders, the aim in this regard should be to bring available refinancing options to the attention of customers effectively and in a way that supports action. 

Acting in the best interests of customers includes lenders focussing on ensuring that borrowers are effectively informed of better mortgage terms which might be available to them.

Firms should therefore consider their overall approach to communicating mortgage refinancing-related information, to make sure it supports customers to make effective, timely and informed decisions. In doing so, a firm’s overall approach should be less about simply ‘providing information’ and more about ‘seeking to support practical understanding’ by the customer – so that the customer is enabled to take action to enhance their own financial well-being. 

The research provides the basis for lenders to make enhancements to the way they communicate mortgage refinancing-related information to customers –in terms of ‘what’, ‘how’ and ‘when’ they communicate.  You, as lenders, are encouraged to consider the findings from the field trial.

We envisage that lenders can proactively apply the learnings from this research in a number of different contexts. For instance, while the research findings relate to annual notifications to variable rate mortgage holders, similar considerations are likely to apply to customers who are approaching the end of their fixed-rate term, and to whom a notification is also required under the Code. 

And there are likely to be other related areas where the findings of this research will have direct relevance for firms as they consider how to most effectively secure their customers’ interests by providing information in a way that supports real understanding and practical, situation-improving, action by their customers. 

All of takes takes on even greater relevance in the current context of an increasingly challenging economic environment. In that regard, firms are reminded of our recent letter in which we reminded firms of their responsibilities to customers in that context.

For our part, we will of course be incorporating the findings of this research in our considerations in our review of the Consumer Protection Code


I would like to now hand you over to my colleagues to present some more detail on our review of the Consumer Protection Code. 

As I have mentioned, our discussions this morning form part of the wider engagement that is underway in relation to the Code review and securing the best interests of financial services’ consumers and users. 

I look forward to our discussion this morning. And to our further engagement as the Code review process continues in the coming months.

Thank you again for inviting me here this morning.