Bruton attacks new bank charges plan

FINE Gael has criticised the Competition Authority’s recommendation that the financial services regulator no longer be required to approve bank charge increases.

As part of last week’s report on the banking sector the authority said Section 149 of the Consumer Credit Act, which stipulates that banks must get regulatory approval to increase banks charges, should go.

However, Fine’s Gael’s finance spokesman Richard Bruton said this was “is one of the few provisions that have proved effective in protecting consumers.”

In a letter to the Competition Authority chairman John Fingleton, Mr Bruton said he fundamentally disagrees with the recommendations.

“If this provision had not been in place, the recent welcome pattern where banks have been forced to pay back consumers for overcharging would never have happened,” he wrote.

“The concept of bank overcharging would be airbrushed out of our consumer law. Indeed, the recent spate of scandals within the banking system which is focusing long overdue attention on compliance requirements would never have surfaced.”

The study of the banking sector recommended 53 separate actions by the Department of Finance, the banks themselves and the Irish Financial Services Regulatory Authority to improve competition in the current account and small business lending markets.

It found the Irish banking market was highly concentrated with 70% of all current accounts in the hands of just two banks.

It also found small firms have paid an extra €85 million a year in interest because of the banks failure to pass on all interest rate cuts.

Mr Bruton said the recommendation made by the consultants in the report is not based on any analysis of the existing level of bank charges in the Irish market place.

“Analysis by other sources would suggest that the Irish consumer is vulnerable to a big hike in charges if the system of approval is removed.”

He said banking charges here are currently only about a third of the level in other European countries. If banks were allowed to bring them to the European average, it would mean consumers would pay millions more each year.

“We are told by banking interests that these charges have been frozen since 1995. If that is the case, it is surely to be expected that the banks will move rapidly to restore their real value to the pre-1995 levels. This would involve an increase of almost 40% in the level of these charges.

“If this was to occur Irish consumers would pay an increase of over €200m in current account charges,” he said.

The banking report found that regulating charges increases the entry costs of new entrants to the market. But Mr Bruton said it was vital that regulation of charges be maintained.

“In key markets where there is a persistent failure of competition we should be capping the share of dominant players and make it easier for small entrants to compete seriously,” he said.