Bank review - Consumers should have more choice

The Competition Authority initiated a review last year of competition in Irish banking. Yesterday it published an interim report setting out the scope of its review, which will look at personal accounts and loans to small businesses. A full report will be drawn up by the middle of next year.

In the area of personal business, one of the issues will be whether banks should pay interest on money in current accounts. A couple of years ago, the British Competition Authority, which has more extensive powers than its Irish counterpart, compelled British banks to pay interest on current accounts at a specified rate.

Anticipating the Competition Authority’s interim report, the Irish Small and Medium Enterprise Association (ISME) issued a statement accusing the banks of ripping off business customers by charging them twice as much as other EU countries.

ISME claims small businesses in this country have to pay up to 8.9% interest, compared with rates as low as 4% or 5% elsewhere in the EU, with the result that Irish banks are making exorbitant profits.

One of ISME’s main complaints was the dearth of banking competition in this country, where Allied Irish Banks and the Bank of Ireland hold 77% of all accounts. By comparison, there are 350 licensed banks in Finland. However, new banks are being kept out of the Irish market by the prohibitive cost of setting up business here.

Small businesses borrowing money do not have access to capital from big venture capitalists or from equity houses. They are dependent on their local bank, which seriously limits their field of choice.

The Bank of Scotland has been particularly vocal about the cost of access to the money transmission system used to clear cheques and transfer money between different accounts. This is run by the banks already established here, and they can charge prohibitive fees to other banks to avail of the system. As a result the established banks have virtually monopolised banking in this country.

They insist that before being admitted to the transmission system, a new bank should have to pay a share of the development costs that were incurred by the established banks in setting up the system.

But those banks inevitably passed on the costs to their consumers, who are now being further penalised by having their choice restricted.

The banks are also calling for the removal of section 149 of the Consumer Credit Act, which requires them to justify any increase in their charges and fees. Such requirements could well be relaxed in a sector where there is open competition, but this is clearly not the case in the Irish banking sector.

This has already been apparent for some time and it must be asked how much time the Competition Authority needs to make a recommendation.

It took it years to decide to initiate a review; it has taken a further year to decide the extent of the review, and it will take the best part of another year to conduct that review before it will hopefully come up with some recommendations. Then the issue will be handed over to the politicians, when the process will start all over again. The system lacks real accountability, is much too cumbersome and badly needs to be streamlined.