‘More bank overcharging cases on the way’

CONSUMERS are set to be hit with a ‘double whammy’ of more bank overcharging scandals and increased mortgage rates, according to the new Financial Regulator.

Matthew Elderfield told a Dáil Committee Ireland’s recent climate of low mortgage rates was a direct result of the country’s flawed banking system and that a clean-up of the banks will partly result in rising rates for borrowers. Each of the three leading Irish lenders has moved to increase mortgage rates in the past couple of months.

“Part of the reason for such favourable rates was that the banks’ business models were, as we now know, fundamentally flawed. That skewed business model now needs to be fundamentally recalibrated and at a time when banks’ costs of funding are significantly higher. Interest rate increases for borrowers are an unfortunate, but inevitable, consequence of this new world,” Mr Elderfield told a sitting of the Joint Oireachtas Committee on Economic Regulatory Affairs.

He added that a further extension to the recent 12-month rule, in terms of the length of time a bank must wait before taking action in mortgage arrears cases, could be considered.

On the issue of banks overcharging their customers, Mr Elderfield said that bad practices have prevailed and the mis-charging track record of Irish banks has been “disappointing”.

He said his office has a backlog of overcharging cases, which is understood to include instances yet to come to light.

The regulator’s powers are set to be strengthened to allow him to impose deadlines on how fast banks communicate overcharging instances and re-pay customers.

Mr Elderfield said the overhaul of the financial regulatory framework needs to be underpinned by “a credible threat of enforcement to ensure that firms and their management are much more accountable for their actions”. He said his office would need to build an enforcement capability “pretty much from scratch”.