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17 July 2003 Edition

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Dáil Committee exposed rip-off by banks

Irish banks have failed to pass on European Central Bank interest rate cuts and people with loans, overdrafts and credit cards are being ripped off as a result. This was clearly exposed at the Oireachtas Committee on Finance and the Public Service last week, which met all the main banks and the senior state official charged with looking after the consumer's interest. The special meeting was held on the proposal of Sinn Féin Dáil Finance spokesperson, Caoimhghín Ó Caoláin.

Mary O'Dea, Consumer Director of the Irish Financial Services Regulatory Authority, revealed that the interest rate cut was not passed on and that the Authority was now inquiring into the conduct of the banks. While the European Central Bank had reduced the interest rate, the banks here increased their interest fee. In the case of credit cards, the rate rose to 16%. "There is a strong view among bank customers that interest rate cuts are not being passed on and that even where they are there is a delay in doing so," O'Dea told the committee.

Addressing the representative of AIB, Ó Caoláin pointed out that the bank had made §1,375 million in 2002 - the highest recorded profit from an Irish company. He said: "That's more than §5.3 million per working day, or more than §11,000 a minute. How in this context, can you justify the stated opposition of the Irish Bankers Federation, to which you are affiliated, to the government's banking levy, which is just §300 million shared across all the banks over three years? Given that you have also benefited massively from the slashing of Corporation Tax in the Budget from 16% to 12.5%, do you agree that this levy is a drop in the ocean of your profits and a relatively small contribution to the public purse?"


CREDIT CARD RAKE-OFF



The representatives of both AIB and Bank of Ireland claimed their rates and charges were 'competitive'. On credit cards, Ó Caoláin pointed out that rates of Irish banks for credit cards are 7% above the EU average. "Such a rake-off cannot be justified," he said.

The Sinn Féin TD said that small busineses were also being penalised because Irish bank rates for loans to businesses are the highest in the EU at 8.87% for short-term loans and 8.07% for loans of over a year.

Ó Caoláin also questioned the banks and the largest mortgage lender in the Irish market, Permanent TSB, on their lending policies. He pointed out that lenders are encouraging customers to over-extend themselves by borrowing too much. People are being encouraged for example to add car loans to their mortgages, thus costing them much more in the long run. Central Bank figures published on 4 July show that mortgage lending continues to grow at an annual rate of 24%. The Central Bank has written to the financial institutions expressing concern.

The Central Bank also warned last week that lenders were focusing on "volume growth and market share". With the slow down in growth rates in the economy, and growing concern regarding jobs and the housing market, Ó Caoláin urged the banks to put in place strategies to prevent massive indebtedness.


CARTEL IN ACTION



The meeting heard how a complaint has gone from Cork County Council to the Competition Authority over the tendering for a new banker for the Council. Its current banker, AIB tendered, as did Bank of Ireland and TSB. The other two banks withdrew from the tendering process, resulting in the collapse of that process and leaving the Council with no choice but to continue their account with AIB. They dictated terms to the Council, going from the present 80% discount on the gross commercial scale of fees payable on all accounts to 10% in 2006, costing the people of the County an extra §187,000 in bank charges. Ó Caoláin urged a full investigation into what he said was a "carve-up".


CLOSURE OF RURAL BANKS



The Cavan/Monaghan TD challenged the banks on their closure of branches and offices in rural areas and urged them to consider the "real damage this is doing to communities". Both AIB and Bank of Ireland were negative in their response to his call for worker directors on the boards of the banks, a demand raised by the Irish Bank Officials Association. Ó Caoláin urged the banks also to make all their facilities available through Irish for those who wish to do business with them as Gaeilge.

Summing up the committee hearing, Ó Caoláin said:

"This hearing has confirmed my belief, as I stated at the committee, that the Irish people both as individual consumers and as a society and an economy are being grossly exploited by the banks and other financial institutions. AIB and Bank of Ireland operate a virtual duopoly. They and the other main financial institutions are raking off excessive profits in their dealings with customers through charges and through the range of practices which ensure their dominance of the market."
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