Consumer protection - Bank reform welcome but not complete
The new consumer protection code is the result of more than two years of consultation with the financial services industry.
In the circumstances no one should be deluded into any false sense of security about the nature and design of the new code. Reforms that are industry-inspired and backed are most likely designed primarily to protect the more responsible elements of the industry, and the benefit to consumers is frequently only a secondary consideration. But all responsible elements should benefit from the new code, which is partly designed to prevent banks from bombarding vulnerable customers with offers of cheap credit.
Interest-only loans are frequently an enticement to people to borrow more than they can afford to repay. With interest rates on the rise and the Central Bank sounding warnings about people overextending themselves financially, irresponsible borrowing should be discouraged rather than encouraged with such offers as pre-approved loans.
The regulator also sounded a note of warning about the level of bad debts at credit unions.
Getting into mortgage lending could pose a real risk for credit unions, unless their protection is tightened.
Under the new consumer protection code banks will be obliged to ensure that all charges are transparent. They must also inform customers of similar products at other institutions. This should help to protect society against the kind of misbehaviour that became endemic in some financial institutions. They engaged in practices that were nothing short of criminal.
The manner in which some banks promoted tax evasion was an outrage for which bankers in other countries would probably have gone to jail.
Those customers caught evading tax have been heavily penalised but some bankers who facilitated and even encouraged the process were essentially rewarded for their outrageous conduct. They drew their salaries and were frequently promoted for the enterprise in drumming up this form of business for the banks.
Since 2004 a whole series of massive rip-offs have been exposed within the financial services industry. The extent of these has been truly astounding.
In the latest report of the Irish Financial Services Regulatory Authority for 2005, which was published yesterday, Regulator Mary O’Dea disclosed that 36 different institutions in the banking and insurance industry overcharged customers by over €50 million between May 2005 and May 2006.
This brought the overall total for the series of rip-offs uncovered since 2004 to €118m.
The banks are now repaying the money that they overcharged. Allied Irish Banks has to repay €34m overcharged to foreign exchange customers, while the Bank of Ireland is repaying €18m for overcharging for insurance protection. This is €3m more than was initially estimated. National Irish Bank is paying back €11m for overcharging for its services.
The banks have given a whole new meaning to the term “bank robbery”. Some of the biggest robbers in our history are the banks themselves, yet nobody in those banks has been held accountable, which is a further scandal in itself.
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