AIB faced fine of only two days’ profit

AIB could only have been fined a maximum of two days’ profits for its customer charging failures, even if current legislation to penalise banks for overcharging had been in place at the time.

The regulatory body responsible for monitoring AIB’s customer charges knew as far back as 1998 that its staff did not have the expertise required to adequately police the banks.

New legislation that came into effect in August provides for fines of up to €5 million for companies found guilty of breaches of the 1995 Consumer Credit Act and other laws governing financial institutions. AIB reported pre-tax profits of over €1 billion last year.

Irish Financial Services Regulatory Authority (IFSRA) chief executive Liam O’Reilly said institutions that allowed activities like those uncovered in this week’s report into AIB could expect to face sanctions under the new powers granted to the authority. Individuals found guilty of wrongdoing that took place since August can also be hit with hefty fines.

The IFSRA report found the main methods used in the late 1990s to make sure banks were complying with consumer law consisted of periodic written requests to each bank to confirm their charges were in order, as well as spot checks on individual branches. The spot checks were mainly confined to Dublin branches.

But a 1998 report prepared by independent consultants for the Office of the Director of Consumer Affairs (ODCA), which was responsible for monitoring bank charges from 1996 until last year, recommended that staff “with appropriate audit experience” needed to be hired to allow the ODCA to make sure banks were complying with the law. The ODCA never found instances of systemic overcharging of customers during the period when it had the responsibility for monitoring charges.

IFSRA’s report also said AIB could not have been prosecuted even if the foreign exchange failures had been identified. This was due to a legal loophole that arose after the Consumer Credit Act came into force and which was not rectified until this year.

The ODCA was not granted the powers necessary to prosecute breaches of consumer law, unlike the Central Bank which regulated other spheres of bank activity at the time.

IFSRA said yesterday that it had stepped up monitoring of banks since taking over the regulatory function last year. In addition to the activities formerly carried out by the ODCA, it has put in place a number of codes of practice for financial institutions and has undertaken wide-ranging “consumer-focused inspections” of bank branches and headquarters.

Compliance levels had improved as banks invested more resources in specialised units to monitor day-to-day operations and observing legal requirements.