The day before Brexit, Permanent TSB shares soared amid speculation that the 75%-state-owned bank may eventually merge with another lender. Shares surged by 10 per cent though they had fallen by more than half since the government sold shares last year. Michael Noonan said: “The share price has been under pressure for a myriad of reasons”. He listed some of them but failed to include the important legacy issue of under-paid depositors.
After the vote for Brexit, Davy Stockbrokers reported: “Brexit has clearly heightened the uncertainty around the timing and price of the sale of PTSB’s residual UK assets, delaying the bank’s normalisation”. The shares had sunk by around another quarter. If the bank ever merges, its partner may have to address legacy issues that just might create significant liabilities.
Meanwhile in June the bank consented to Joseph Wallace, a mortgage holder from Mahon, Co Cork, being discharged from his bankruptcy after it overcharged him interest. Wallace claimed he would not have had to go bankrupt, after being unable to meet repayments on his home, if he had not been overcharged. He told the High Court he only learned of the overcharging after becoming bankrupt. The outstanding mortgage at the time of Wallace’s bankruptcy was around €326,000 with €75,000 arrears, his barrister told the court.
However, the actual amount, without the overcharge, was around €284,000 with €52,000 arrears. Wallace was charged interest at a rate of 4.5 per cent when he was entitled to 1.5 per cent. David Hall of the Irish Mortgage Holders Association welcomed the judge’s decision and said his organisation was in discussions on behalf of a number of other people in similar situations who had cases pending.
In 2014 the TSB shareholders challenged the constitutionality of laws permitting the bank’s €4bn recapitalisation by the State. The matter was referred to the European Court of Justice. Another headache.
THE ENORMOUS PRECEDENT
From 1958 to 20 February 1993 TSB Bank, a forerunner of Permanent TSB, did not disclose the basis of calculating interest in its application form for new accounts, in the notice of interest rates in its branches and in the daily newspapers – with a view to ‘defrauding’ most depositors. The bank was convicted and fined £1000 for breaching the Consumer Information Act 1978, as a result of a private prosecution by me, after the aptly named William Fagan refused to prosecute. Mere days after the convictions and fines, the bank started paying everyone the full advertised rate.
DISCOVERY OF ‘FRAUD’
In April 1990, I had opened an Investment account with TSB Dublin, lured by its offer of significantly higher interest than other banks. Ten months later, I lodged a bank draft and enquired as to when the draft would attract interest. I was shocked to find that interest was paid from the 21st of any month on the lowest monthly balance.
I closed the account in January 1991. Two months later, I wrote to the bank requesting a copy of the rules Swindle at TSB 2016, and 1958 to 1993 Victims of Windle-stopped-Swindle never reimbursed £339m leaving PTSB open to possible claims by Srinivasan Devrajan Depositors or their successors who held a deposit or investment account with TSB Dublin or in Cork and Limerick Savings Bank between 1958 and 20 February 1993 are invited to contact the author July 2016 1 5 of the bank and whether interest was calculated on a daily basis. The bank sent me a cheque for about £62 on an ex-gratia basis, without prejudice. Smelling a rat, I sued the bank in the High Court.
On 2 September 1992 TSB settled with me, out-of-court, for £30,000 and a commitment that I did not inform other depositors that they had been ‘defrauded’. As part of answers to interrogatories raised by me, the bank conceded that the accounts were “not strictly investment accounts” though that is precisely what they were called. Six months later I launched a private, criminal action against TSB.
ORDINARY AND CUSTOMARY PRACTICE OF BANKING
The ordinary and customary practice of banks and building societies in the State is to pay daily interest on deposits.
MODUS OPERANDI OF THE ‘FRAUD’ ON MOST DEPOSITORS FROM 1958 TO 1993
TSB Dublin and Cork and Limerick Savings Bank ‘defrauded’ most depositors from 1958 to 1993 by not paying the clearly and categorically advertised interest on savings and investment accounts.
The banks tricked depositors by not disclosing, in the application forms for accounts and in newspaper advertisements of interest rates, the following material information:
1. Interest was calculated on the lowest monthly balance (Rule 18 certified under the Act of 1863)
2. Monies could be held for up to 60 days (from the 21st of any month to the 20th of the second following month) without earning any interest, regardless of the sum of money lodged or withdrawn.
3. Money earned only 11/12ths of the clearly advertised rate, except for deposits lodged or withdrawn on the 21st day of any month.
CENTRAL BANK OF IRELAND AWARE OF THE ‘FRAUD’
Dr Michael Casey, Senior Adviser to the Central Bank, advised by letter dated 6 March 1990 to TSB Dublin and Cork and Limerick Savings Bank that they should publish the gross and compound annual rate of deposits so that depositors could make an informed choice between the rates offered by different banks.
The Central Bank knew that TSB was advertising Compound Annual Rate 1/12th higher than in fact paid, in breach of the Trustee Savings Banks Act 1989 section 27 (1), as is evident from the letter of Dr Casey which stated:
“While we understand that the TSB’s traditional method of crediting interest to deposits might lead to some difficulties with expressing annual interest rates, we feel that these should not be insurmountable”.
This is a subtle acknowledgement of the fact that the advertised annual interest rates were what most people would call fraudulent. The question arises on whose behalf Casey felt surmounting was needed. It was certainly not that of the consumer or the public interest.
COMPLAINT TO DIRECTOR OF CONSUMER AFFAIRS
I complained about the ‘fraudulent’ advertising to the Consumers Association of Ireland (CAI) and copied the letter to the then Director of Consumer Affairs, William Fagan, TSB Bank, the Central Bank of Ireland and the Advertising Standards Authority for Ireland (ASAI).
‘INVESTIGATION’ BY WILLIAM FAGAN
In 1991, Fagan refused to prosecute the bank for not disclosing, in the application forms for accounts and in newspaper advertisements of interest rates, that interest was calculated on the lowest monthly balance. Moreover, TSB has not redressed the ‘fraud’ perpetrated on most depositors after the ‘investigation’ in 1991, such as it was, by Fagan.
WARNING BY CONSUMERS ASSOCIATION OF IRELAND IN CONSUMER CHOICE MAGAZINE
The CAI published two letters from me warning about the misleading advertising of TSB, in the magazine Consumer Choice in 1991, but did not see it fit to approach the High Court for an injunction restraining the bank from continuing to perpetrate the ‘fraud’.
ADVERTISING STANDARDS AUTHORITY OF IRELAND (ASAI)
ASAI did nothing all to stop the bank the bank from misleading its depositors, despite the warnings in Consumer Choice magazine and my complaint.
TSB MISLEADS FAGAN
TSB wrote to Fagan admitting that all depositors were, and would continue to be, paid on their lowest monthly balance. However, TSB did not disclose to Fagan that some depositors including trustees and employees of the bank were being, and would continue to be, paid interest on the basis of their daily balances. In fact, the bank distributed passbooks in 1985 with a note advising, “Investment accounts – a daily rate may be paid in certain cases”.
TRUSTEES AND EMPLOYEES OF TSB BENEFITED FROM MORE FAVOURABLE REGIME
So, the bank’s trustees and employees were helped to the daily interest, despite the bank’s own Rule 18 which prohibited interest for any period less than one full calendar month.
WINDLE STOPS £339 MILLION SWINDLE ON MOST TSB DEPOSITORS
I, a lowly colonial alien, took and won a private prosecution of the TSB for advertising an interest rate of 8% pa on its Investment Account and 3.5% on its Deposit Account in the Irish Times of 5 June 1992, when the true rates were 7.333% and 3.208%. The bank pleaded not guilty, and elected for summary trial in the District Court.
On 17 February 1993, District Judge Desmond Windle convicted TSB Bank, fining it a total of £1000 on two counts for breaches of s8 of the Consumer Credit Act 1978 which states:
A person shall not publish, or cause to be published, an advertisement in relation to the supply or provision in the course or for the purposes of a trade, business or profession, of goods, services or facilities if it is likely to mislead, and thereby cause loss, damage or injury to members of the public to a material degree.
The judge declared that the fine would have to be the maximum of £500 on each count, highlighting the Court’s displeasure at the severity of the offences.
Though the bank appealed the convictions and fines, it started paying the full advertised interest – interest on the aggregated daily balance – on the two accounts to all depositors from 21 February 1993. Significantly, the bank elected to pay the full advertised interest rate to all depositors from 21 February 1993 rather than to disclose its extraordinary method of calculating interest in the application forms for the accounts and in newspaper advertisements.
The convictions had no impact the minority of depositors who received daily interest.
HARRY LORTON, TRUSTEE & CHIEF EXECUTIVE OF TSB ASHEN-FACED
On 21 October 1993, the convictions and fines were affirmed by Dublin Circuit Court, after TSB withdrew its appeal on the day of the hearing. I remember clearly that Harry Lorton, Chief Executive of TSB, was ashen-faced outside the Court almost as though he was staring at death.
KPMG AND PRICE WATERHOUSE COOPERS
KPMG and Price Waterhouse Coopers certified the accounts of the TSB Bank for the year ending October 1991, despite the convictions being reported in the daily newspapers and on RTÉ. They must have tried very hard not to detect the ‘fraud’, as interest on deposits would have shot up after 21 February 1993, when the bank started paying everyone interest on a daily rate.
CARMEL FOLEY REFUSES TO REOPEN INVESTIGATION
In 2003 I presented Carmel Foley, the then Director of Consumer Affairs, with documentary evidence that TSB hoodwinked Fagan in 1991 by claiming that all depositors were, are and would be, paid interest on the lowest monthly balance. Foley asked only,”What do you want me to do?”.
Silvia Scatizzi of the Commission was of the expert and considered opinion that Ireland had not failed to uphold the Misleading Advertising Directive, despite the convictions and fines.
SOME SETBACKS IN THE COURTS
In 2006, the learned Justice Hanna considered that the convictions and fines were for misleading advertising, not fraud. I would be of the view that not paying the clearly advertised interest for 35 years is ‘fraud’ in anybody’s language. Though he was technically and legally correct. The issue arises because there is no statute of limitation for a possible civil action for fraud.
An application by me to the District Court in a further private prosecution, this time for breaches of the Larceny Act, Section 8 of the Consumer Information Act 1998 and Section 27(1) of the Trustee Savings Banks Act was dismissed by Judge James Paul McDonnell on the grounds of abuse of process.
In 2011 Judge Mella Carroll refused me an injunction against TSB’s misleading advertising on grounds that damages would be an adequate remedy.
In 2000 Judge Paul Butler dismissed a civil action taken by Alfie Smyth against TSB on the ground that the sum sought, £8.80 was too small to be heard in the High Court.
IRISH INDEPENDENT, IRISH EXAMINER, IRISH TIMES AND RTÉ
I tipped off the Indo, Examiner, Times and RTÉ about the consequences of the ‘fraud’ by TSB. They studiously ignored me.
RIGHTS OF DEPOSITORS
TSB Bank has its origins in the penny savings banks established to help the poor. It behoved TSB not to ‘defraud’ its depositors. It should have paid the outstanding interest, compounded annually at the then prevailing interest rates.
Ironically, TSB now pays interest rates that are in general above market rates. According to Davy stockbrokers: “PTSB continues to pay 75bps [basis points. One basis point is equal to 1/100th of 1%] for one-year money compared with 25-45bps at Bank of Ireland and 30-40bps at AIB (EBS 55bps)”.
Depositors or their successors who held a deposit or investment account with TSB Dublin or in Cork and Limerick Savings Bank between 1958 and 20 February 1993 are invited to contact the author by email for a draft copy of a ‘Statement of Claim’ for an action to right this wrong. Based on a claim of fraud, which would not be statute-barred.
Srinivasan.Devrajan@gmail.com is a Tamilian who failed maths at school and lives in Meath.
By Srinivasan Devrajan