Banks vow to fight planned restrictions on offsetting
Published 25/03/2011 | 05:00
BANKS are opposing moves by the Central Bank to restrict them from dipping into customers' savings accounts without permission.
A number of banks reserve the right to dip into a customer's savings or current account when payments on loans, mortgages and hire purchases with the same bank are missed.
Regulators want banks to give customers three months' notice before they attempt to take money out of a bank account without a customer's permission.
But the Irish Banking Federation is resisting this, the Irish Independent has learnt. The banking body said its members should continue to be allowed "exercise rights under the terms and conditions" of bank accounts.
The Central Bank has proposed a raft of changes to the Consumer Protection Code, a statutory rule book that dictates how finance firms must treat customers. The regulators sought submissions on the proposed changes.
AIB and Bank of Ireland have both admitted to this newspaper in the past that they dip into customers' savings accounts in certain circumstances if payments are missed.
Banks call this offsetting. Other banks are known to do it also, but haven't admitted the practice.
Bank of Ireland said it would take money from a customer's savings accounts to make credit card or loan repayments.
A spokeswoman said: "This is only used in extreme circumstances and would only be done by Bank of Ireland at the end of the collection cycle (after 150 days), as a last resort, where the customer has not responded to numerous contact appeals to make new arrangements."
Now the Central Bank proposes that a bank must give three months' notice in writing before offsetting any credit balance against an unpaid loan.
The Irish Banking Federation, which used a senior counsel to prepare its submission, said giving notice to a customer that you were going to dip into their account would mean consumers would take action to avoid having the money taken.
"This provision, if implemented, would very seriously trench upon the right of set-off," the banking body said.
Bank of Ireland said the proposed change in the code on offsetting was "potentially very damaging".
The same bank also hit out at proposed changes requiring it to keep detailed written records of all dealings with customers.
It will be forced to charge its customers up to €16m more each year in banking fees if it has to introduce what it said was this type of stringent measure.
Bank of Ireland said that while it welcomed the Central Bank's review of its current Consumer Protection Code, any new measures should be proportionate to the benefit, as the costs would ultimately have to be passed on to customers through increased fees and charges.
It estimated the costs to them of operating the new draft code would be between €11m and €16m a year, with onerous letter-writing requirements to customers alone costing €2m.
"Bank of Ireland would regrettably have no option but to seek to recoup these incremental costs through increased fees and charges on these products and services," it said in a submission to the Central Bank's consultation process.