Watchdog was far too lenient, says report

THE financial services sector would not have taken such high risks if the Financial Regulator had not been far too lenient in policing larger players,according to a high-level consumer group.

The representative group from a wide body of lobby groups also criticises the failure of the Financial Regulator to indicate if it had done any analysis or required any actions before Permanent TSB increased its standard variable mortgage interest rates by 0.5% last July in a stark departure to the European Central Bank’s policy of low rates.

The move by the country’s largest mortgage lender drew criticism and sparked fears that other lenders would follow suit in the new year.

“While we accept that the Financial Regulator does not have a role in dictating the interest rates that lenders charge, they do have a role, especially in light of the Government bank guarantee scheme, to require financial institutions to demonstrate the impact of any such decision on their customers, especially in the mortgage market where many borrowers are under severe pressure,” the report said.

“We are disappointed that the Financial Regulator did not conduct any analysis as to the extent and speed by which lenders passed on ECB interest rate cuts to their customers,” it said.

The report said that the regulator might have sent out a signal that it meant business if it had got tougher with Irish Nationwide Building Society on the overcharging issue, which was repeatedly highlighted by the panel.

“Similarly, their failure to act on the Anglo Irish Bank loan concealmentissue sent out a signal that it was not serious about policing the larger players.

“The Financial Regulator also failed to ensure adequate timely disclosure of stakes built in financial institutions using Contracts for Difference which may have contributed to instability at Anglo Irish Bank,” the report said.

The panel also believes the Financial Regulator has not done enough to protect consumers from institutions seeking to rebuild balance sheets by passing on higher mortgage lending rates to hard-pressed consumers, particularly those who borrowed when asset prices were high.

Concerns are also expressed about what the panel perceives to be inadequate measures introduced to protect or assist consumers and businesses. For example, it points out that the statutory code on mortgage arrears prohibiting legal proceedings for repossession in the first six months of arrears offers little additional protection as evidence suggests lenders rarely initiated proceedings in the first six months anyway.

The panel also believes no serious effort has been made to promote or make the public aware of the consumer protection code in place since July 2007.

“While the code in itself has enhanced the rights of consumers, it is of little use if consumers are unaware of these enhanced rights and do not seek redress when these rights are infringed,” the report said.

It goes on to raise doubts about the effectiveness of the February 2009 code of conduct for business lending to small and medium enterprises in ensuringa supply of credit toviable and sustainableenterprises.

“The recent report that the two main banks have only loaned out 7.5% to date of the European Investment Bank backed €350 million facility which was established in March 2009 indicates that despite the rhetoric from the banks that they are open for business, that is not the general experience of small business customers,” it added.