Seanad Éireann - Volume 137 - 27 October, 1993
Adjournment Matters. - Bank Charges.
Mr. Cosgrave Mr. Cosgrave
Mr. Cosgrave: I thank the Cathaoirleach for allowing me to raise the charges announced recently by one bank. I would like to welcome the Minister of State to the House. I am glad she is taking action in relation to this question. The Minister of State is, I think, fully aware of the situation which has evolved in recent weeks. It represents a further chapter in the saga of the ordinary consumer being penalised. It is another penny-pinching and money-grabbing exercise by the banks. I ask the Minister of State, when she meets the banks or representatives of the Central Bank or both to impress on them that it is not on for them to bring in charges at will. She is aware that many charges brought in by the banks are often hidden charges. We must look in particular at the charges recently announced by Allied Irish Banks and the whole question of how the banks and building societies operate.
We have seen responses from other banks on how competition has worked and there is no doubt that the banking and financial world is going through a period of rapid change. In the past, people were met by their friendly bank manager and, with the exception of the parish priest, probably confided most in him. Unfortunately, times have changed. I am concerned that people are now not much more than a number to the bank. The banks do not want to see them. I  understand the need to improve the system, particularly to ensure that people are paid by cheque so that there is less cash in circulation and not as great a need for security measures. However, people are increasingly being penalised if they want to use the old methods of withdrawing and lodging cash or pay for certain items by cheque. If people do not wish to use the latest plastic card in ATM machines which reduces their dealings with a bank, the banks either do not want to know them or penalise them in relation to the operation of their account.
The proposed changes, particularly in relation to Visa cards and cheque book accounts, will mean that people who cleared their account on time will have to pay an extra fee, an extra £15 charge on top of the Government charge of £10. It is up to the Minister of State, possibly in co-operation with her colleague the Minister for Finance, to insist on the Central Bank becoming more active and consumer oriented and not to accept these charges. I hope the Minister of State will make it clear that legislation will be introduced if the consumer is not protected. The Minister of State has contacted the Director of Consumer Affairs about the introduction of these charges. I have had complaints from constituents about banks sending them letters about them. The banks claim they are not making a profit if customers keep their accounts in credit. As a result they impose penalties or reduce the credit period. For those who go over the limit, and there are few of us who do not, the banks are introducing administration fees, referral fees and other charges.
The Central Bank has a role to play in this regard and I am pleased the Minister has taken the initiative and arranged to meet the banks, the Central Bank or both. I hope the Minister impresses on them the gravity of the situation and how consumers are affected. The ordinary person who has completed paper transactions through the years does not want to change to the “hole in the wall” system. People should be welcomed in the bank but they are complaining that  the meter is running from the moment they speak to the bank manager about accommodation, mortgages or loans.
There must be competition in the banking sector. Some years ago one had to wait to get an application form for a mortgage from a building society. Now bank and building society managers are chasing customers in the same way as lawyers are accused of ambulance chasing. Borrowers must be made aware of the various hidden charges by some of the building societies or banks. I welcome the aggressive approach by some banks. Perhaps I am only getting half the story, but at least some banks are making an effort and putting the customer first. Interest should be paid on current accounts which are in credit.
I am glad the Minister of State has taken steps to deal with this. However, she and the Minister for Finance must act if there is no response. The Central Bank must be more than an observer at the proceedings. The banks believe they can introduce any charges they like and hidden costs. The consumer must be protected, particularly in regard to overcharging. I compliment the Minister of State on taking action and I hope she will take steps to deal with this if there is not a satisfactory response.
Minister of State at the Department of Enterprise and Employment (Mrs. O'Rourke) Minister of State at the Department of Enterprise and Employment (Mrs. O'Rourke)
Minister of State at the Department of Enterprise and Employment (Mrs. O'Rourke): I thank Senator Cosgrave for raising this matter on the Adjournment. Once again, the Seanad's speed in responding to an issue which has aroused great interest throughout the country proves its relevance. I am surprised at the response to this issue.
Senator Cosgrave has acknowledged that the banks play a major role in economic development. They provide services at a cost to producers and consumers. I am interested in having those services provided as competitively as possible. Senators will be aware that this emphasis on competitiveness was stressed in the Culliton report.
I expressed my concern last Friday when the new arrangements were announced by Allied Irish Banks. Bank  charges are regulated under section 28 of the Central Bank Act, 1989. Section 28 (2) requires each holder of a banking licence to notify the Central Bank of every proposal to change any charge, terms or conditions which have been previously notified to the bank. The Central Bank has powers under section 28 (3) to direct a holder of a banking licence to refrain from imposing or changing a charge, term or condition applying to the provision of a service to the public or to any class of the public, without the prior approval of the Central Bank.
The House will be interested to hear that in the four years since that Bill was passed the Central Bank has never exercised those powers, as far as the Department is aware. Charges made by the banks and the proposals for increases in bank charges are not examined in any detail. The apparent justification for this approach is that market forces should determine the optimum level of charges.
As a result, banks are setting their charges in a way which directs the customer into the practices which the banks require of them. Instead of the banks being glad that consumers are buying their product, money, and charging well for that product, which they do, the consumer is being directed away from paper banking transactions to the new era of technology. Many people have contacted me because their way of life suits the cheque book, rather than this new transaction. This extra £20 charge is only applicable if one is overdrawn. A person who is not overdrawn would be unusual but, perhaps, the Senators could tell me of such a person.
The banks are probably in a position to carry on this quasi-monopolistic behaviour because customers do not react and go elsewhere when charges increase. We are meant to be in market forces and out of the cartel. However, there is a subtle cartel in operation because when one bank introduces a charge another bank does the same six months later. We tend to condone such matters. The reasons consumers do not leave are because they have built a relationship and a system in a bank and  they are apprehensive about moving elsewhere; they fear loss of references should they change and there is a belief on the consumer's part that if one bank changes its charges and is not challenged the others will follow.
The Central Bank must play a more positive role in relation to the responsibilities of banks towards their consumers. We are not talking about deposit rates or the defence of the currency, but about consumers and their rights. There must be a balance between the concern of bank solvency and the needs of Irish producers and consumers. There is a rate of safety for liquidity purposes and the Irish banks are above this. Therefore, that will not be called into account.
The Central Bank might tackle a more positive consumer role in a number of ways, including the promotion of increased competition through the interest rate mechanism, the promotion of fair competition between the holders of banking licences and other institutions taking money on deposit and offering credit, thereby expanding the choices available to the consumer.
I contacted my colleague, the Minister for Finance, Deputy Ahern, in whose area of responsibility the Central Bank rests, with a view to determining what action may be taken expediently towards these ends.
The draft consumer credit Bill which will be introduced shortly — I hope we will be able to introduce it in this House — will deal with interest rates in credit agreements. It will provide a formula for calculation of annual percentage rate of charge. It is also my intention to provide scope in the Bill for the transparency of advertising regarding the availability, the cost or the provision of credit to the consumer and the necessary power to amend such provisions by regulation if and when it is considered necessary. A section of the Bill will deal specifically with advances on current accounts and information in relation to their operation which, when the Bill is passed, must, by law, be given to the consumer.
I am meeting AIB tomorrow to discuss their recent announcement and following  that meeting we will be in a position to determine further action. In the meantime, I would draw the attention of bank users to the need to look around for better value including that available from non bank financial institutions. Senator Cosgrave asked what we are going to do after the meeting tomorrow. There are two routes open to us. The Minister for Finance could have discussions with the Central Bank pointing out their responsibilities under the Central Bank Act, 1989 and, if that is not rigorous enough, consider amendments to it. Alternatively, we could, either by legislation or regulation, through the consumer credit Bill intervene in this process if and when the rights of consumers are clearly seen to have been transgressed.
We are trying to get away from regulation and intervention but when dealing with financial institutions, and the product they sell to consumers, that is money, the consumer is still very much the supplicant when the reverse should be the position. The consumer is buying a product and paying heavily for it through a variety of charges and it seems always as if the financial institution is giving a privilege when in fact the consumer is buying a product and paying dearly for it. There should be some way in which consumers' rights and interests can be more clearly observed. In response to the motion tonight, I intend to do something about it.
Seanad Éireann 137 Adjournment Matters. Bank Charges.