It’s normally urban myth when you hear about people profiting from websites mistakenly offering flat screen TVs for €3.99 when they really meant to offer them at €399. In practice, what usually happens is when the website learns of the mistake which is when the first customer complains that he is not getting his TV for €3.99, the company cancels the orders at the incorrect price. Not so, state-owned Permanent TSB, which in 2009 allowed borrowers to switch to lower interest rate mortgages without any fee. In a court judgment from Dublin’s High Court in August 2012 which has just been published today, it is revealed that Permanent TSB lost a staggering €33m when, in January and February 2009, it allowed mortgage customers to switch from fixed rate to lower variable rate mortgages free of charge.
The judgment states:
“While ILP honoured the no penalty quotations, the uncontradicted evidence before me was that this computer error was extremely costly for ILP – with a net loss of over €33m.-and that ILP suspended switching in February 2009 when the problem was discovered until it could be rectified.”
The offer to borrowers to change mortgages was via a promotion on the Permanent TSB website and this is why it is referred to as a computer error. But “Computer error”? This looks like a colossal management failure.
The judgment published today deals with a number of PTSB’s mortgage borrowers who switched from fixed rate mortgages to variable rate mortgages, and the mortgage borrowers claimed that they were then not allowed revert to tracker rates when the original fixed period expired. The Financial Ombudsman upheld the complaints of the four sets of borrowers, and PTSB appealed the decision to the High Court. The High Court partly upheld the determination of the Financial Ombudsman though it overturned elements of his determination.
One of the worst business mistakes in modern times was the 1992 Hoover promotion where free flights were offered with every vacuum cleaner purchase. The company had to spend GBP 50m on flights on the back of just GBP 30m of sales of vacuum cleaners. Heads rolled, Hoover was taken over by another company and the case became celebrated worldwide for “how not to do business”. This error at PTSB from 2009 has cost the State €33m – it’s the first I have heard of it, and as far as I can tell from online searching it has not been reported before. Most tellingly, there is no apparent reference to the incident in the 2009 Annual Report for Irish Life and Permanent, the old name for the group which included Permanent TSB.
Is this what we now do in this country with this scale of cock-up, brush it under the carpet and not talk about it?
The Permanent TSB spokesperson had no comment on the matter at time of writing.