Bank rip-off costs customers €1bn

THE failure of banks to pass on European interest rate cuts has cost consumers €1 billion in extra interest charges, the Oireachtas Finance Committee heard yesterday.

The extent of the rip-off by financial institutions came as the Irish Financial Services Regulatory Authority (IFSRA) announced it was launching an investigation amid growing public concern.

The IFSRA, which has been in operation for just 10 weeks, is also set to challenge the banking sector and promote competition by publishing league tables comparing the cost of banking services and encouraging customers to move their business to the cheapest option.

IFSRA consumer director Mary O’Dea said it was incumbent on banks to pass on savings to their consumers.

“There is a strong view amongst bank customers that interest rate cuts are not being passed on and that even where they are there is a delay in doing so,” she said.

The average personal customer pays around €50 a year in non-interest bank charges but a mortgage holder can lose that amount in just one month if a 0.5% cut is not passed on.

Fine Gael finance spokesman Richard Bruton said that although European Central Bank (ECB) rates fell from 4.7% to 2% in the last two-and-a-half years, banks passed on just half of that reduction to customers while continuing to increase their own interest charges for banking services.

“This to me looks like a direct rip-off,” he said, pointing to increases of 23% in financial charges in the last 12 months alone.

AIB and Bank of Ireland yesterday defended themselves against charges of operating a cartelcartel-like behaviour. AIB’s general manager of retail banking John Hickey said the bank’s charges compared favourably both internationally and domestically.

However, Bank of Scotland chief executive Mark Duffy said there were serious problems in the Irish banking market.

“We believe that the Irish banking market is riddled with anti-competitive practices,” he said, pointing to the control exercised by the existing Irish banks and a lack of willingness to allow customers easily move their accounts to another bank.

A separate investigation into the competitiveness of Irish banks was launched last year by the Competition Authority after it was revealed that Irish credit card and overdraft charges are among the highest in Europe.

Calling for the IFSRA to be given full legislative powers to act against banks, Consumers’ Association chief executive Michael Kilcoyne was downbeat at the prospect of an investigation. “We have been disappointed too many times to expect action being taken but you live in hope,” he said.

Felix O’Regan, of the Irish Bankers’ Federation, said the IFSRA investigation should look at all the factors and take account of each bank’s overheads.