MPs in row with out-going FSA over inaction to protect 13,500 Bank of Ireland customers from huge interest rate hike,,

The Financial Services Authority has been heavily criticised by a committee of MPs for falling to protect thousands of Bank of Ireland customers who face their mortgage repayments doubling or even tripling in two months’ time.

The City watchdog was told yesterday by the Treasury Select Committee, it must do more to ensure that customers of the bank were being treated fairly.

Committee chairman Andrew Tyrie also criticised FSA managing director of the consumer and markets business unit, Martin Wheatley, for not providing enough information to demonstrate the regulator had thought carefully about the issue.

Bank robbery: Bank of Ireland has told customers it will be hiking their base tracker mortgage interest rates in May despite no change in monetary policy by the Bank of England.

Last month, the bank wrote to its 13,500 customers to inform them of the rate hike on their base rate tracker mortgages despite the fact that the Bank of England has held interest rates at a record 0.5 per cent for four years.

  More... MARTIN WHEATLEY INTERVIEW: New City watchdog offers power to the people George Osborne's Help to Buy loans 'to be held in Rock' House prices show annual rise for first time in a year despite not budging in March, says Nationwide

Bank of Ireland confirmed last month that a buy-to-let mortgage holder who is currently on a typical interest rate of 2.25 per cent, made up of the base rate plus 1.75 per cent, will see their rate climb to 4.99per cent from May 1. Residential mortgage customers will see their rates eventually jump to 4.49 per cent based on the current Bank rate.

The increase will be introduced in two stages for residential customers. From May 1, the rate will be the Bank rate plus 2.49 per cent, followed by another rise to the Bank rate plus 3.99 per cent  on October 1.

Buy-to-let customers will see their rate increased to the Bank rate plus 4.49 per cent on May 1.

The changes affect 7 per cent of Bank of Ireland UK mortgage customers, and most of those affected have large amounts of equity, amounting to 40 per cent or more, the lender said previously.

The Committee published letters between Mr Tyrie and Mr Wheatley on the matter. Mr Tyrie has now written back to the FSA stating Mr Wheatley had not addressed the main issues in his previous communication with the Committee and asking for a ‘much more substantive reply’.

The Committee chairman said: ‘We need more information to be confident that the regulator has thought carefully about this issue. It must exercise judgment to ensure that customers are being treated fairly.

‘Mr Wheatley's letter appears to fall short on both counts.

In his letter written earlier this month, Mr Wheatley said that the regulator has impressed upon senior managers the need to ‘ensure fair customer outcomes’.

Mr Wheatley said that the FSA did not identify any concerns when looking at the interest rate variation terms to indicate they may be unfair.

He continued: ‘However, only a court may determine whether a term is unfair under the regulations.

‘If a customer is eligible and complains to the Financial Ombudsman Service, it may come to its own view about what may be fair and reasonable in the circumstances of any particular case."

In response to a question concerning whether the regulator would treat the rate rises as a ‘prima facie case of mis-selling,’ Mr Wheatley said in his letter that the regulator has ‘no plans’ to do so.

He said: ‘We have reviewed the terms and conditions provided to us by Bank of Ireland UK and did not identify any concerns which led us to believe the terms may be unfair.’

The move comes at a time when many mortgage lenders have been slashing their rates to offer some of their cheapest-ever deals as a result of a Government scheme to unblock lending.

Bank of Ireland has blamed the rises on increased funding costs and the need for banks to maintain greater levels of capital.

The rate increases do not affect customers who have taken out a mortgage through the Post Office, which has a financial partnership with the bank.

On Tuesday, the FSA will be replaced by a new beefed-up system of regulation which includes the Financial Conduct Authority (FCA), which has promised to force firms to put customers at the heart of their business models. Mr Wheatley is the incoming chief executive of the FCA.