Pepper operating profits fall amid €4.5m hit from undercharging error

Pepper Advantage Ireland, the mortgage services provider used by banks and investment firms, saw its operating profit fall last year as it took a €4.5 million hit for erroneously undercharging a group of mortgage holders on behalf of lenders.
The company disclosed in February it had undercharged some 2,500 tracker and variable-rate mortgages after telling customers their interest repayments would increase in line with European Central Bank (ECB) rate hikes, but then failing to bill them the correct amount.
The cases went back as far as August 2022, two months after the ECB began a period of aggressive rate increases to rein in inflation.
Pepper did not seek to claw back the interest amounts that had not been collected.
The financial hit pushed the company’s operating profit down almost 17 per cent to €8.75 million last year, according to its latest annual financial statement filed with the Companies Registration Office (CRO) on Friday.
Its client assets under management fell almost 2 per cent to €22.8 billion last year, leaving it with 130,000 residential, commercial and consumer loans.
However, revenues grew 12.6 per cent to €66.6 million, reflecting increased activity from taking on new portfolios from lenders.
“Pepper Advantage Ireland delivered another strong financial performance in 2023. Our results reflect the onboarding of a number of new clients and the ongoing trust clients have in our data and technology solutions, extensive expertise and, in particular, our people,” said Fraser Gemmell, interim chief executive of Pepper Advantage Ireland.
“Year-end results were also impacted by our firm commitment to carry the cost of the repayments error discovered during the year and not seek to collect it from customers.”
Pepper has been in the headlines in recent years for charging some of the highest mortgage rates in the Irish market after the ECB hiked its official lending rate from zero to 4.5 per cent in the 15 months to September 2023. The higher rates relate to loans acquired by overseas investment firms from banks in the wake of the financial crash.
Still, the company started to cut variable rates last month after the ECB began to lower official rates.
It notified over 9,000 residential mortgage customers at the time of decreases in their variable mortgage rates – representing almost 53 per cent of its 17,000 variable-rate customers.
The majority of customers receiving this initial reduction received decreases of between 0.35 and 0.5 of a point.
It has brought the average rate for such customers down from about 7 per cent previously. It is understood it reduced its highest rate, currently charged on some 100 legacy sub-prime loans Pepper took over after the crash, to about 10 per cent.