Overcharging - Probe into rip-off by banks vital

ANYONE who ever had to look a bank manager in the eye will empathise with the report showing Irish customers are paying more for overdrafts, credit cards and unsecured personal loans than most other EU citizens.

Hard-pressed consumers who pay exorbitant rates for such facilities, can be forgiven for regarding the banks and other financial institutions as hard-hearted, Shylock-style moneylenders, grossly overcharging their customers.

Yet the only probe conducted into this scenario, a Department of Finance survey, hardly saw the light of day and is now gathering dust on a Government shelf.

However, so many consumers and business organisations complain of exploitation by the banks, that the Competition Authority is preparing to conduct a formal investigation into their practices.

So blatantly are customers being ripped off that Irish banks boast Europe’s second-highest level of gross profit margins on overdrafts; the second highest margins on unsecured personal loans, and more than twice the average profit on credit cards in the eurozone.

Coupled with spiralling prices, despite Government promises they would not go up following the introduction of the euro, the overcharging of consumers by banks further serve to confirm growing perceptions of Ireland as a nation where people are ripped off as a

matter of course. In addition to surveying the rates personal customers are being charged by banks for loans, overdrafts and credit cards, it is also crucial to turn the spotlight on the way business customers are currently being squeezed. So dire is the situation that ISME, the umbrella group for small companies, accused the banks of adopting bully-boy tactics.

With the exception of Portugal, Irish banks make higher profits on overdrafts than those in other eurozone countries. The dominant players, AIB and Bank of Ireland, charge customers more than 50% more than other EU citizens.

It would be folly to ignore warnings from the Department of Finance that the high degree of market concentration, with AIB and Bank of Ireland controlling more than 80% of all banking transactions, increases the danger of uncompetitive practices and possible overcharging of customers.

That alone is a compelling argument against a bank merger which would copperfasten the prevailing lack of competition in the market. Unfortunately, because of legal, taxation and language barriers, Irish banks seem unlikely to face overseas competition in the domestic market.

Therefore, unless appropriate action is taken, they look certain to maintain a degree of dominant market power over their customers.

Even though rates imposed on personal and business customers are unashamedly exorbitant, the Central Bank has utterly failed to protect customers and has rightly been criticised by the Consumer Association.

The blatant level of overcharging by the banks makes an in-depth investigation imperative. If necessary, extra personnel should be assigned to enable the watchdog authority carry out a realistic probe into the competitiveness of the financial and banking sector.

Unless there is greater competition in Irish banking, consumers will continue to face far higher charges than their counterparts in most other EU countries.

Banking practices based on a philosophy of maximising profits at any cost are unacceptable.