Banks face crackdown by EU over hidden fees

Customers getting poor value, claims hard-hitting report

Charlie Weston Personal Finance Editor

THE European Commission yesterday condemned Irish banks for bamboozling customers with hidden charges and shoddy advice.

It said retail banks offered poor value to customers, and it warned bankers across Europe that it may begin a major crackdown on the sector.

The damning report will further enrage the public less than a week after Finance Minister Brian Lenihan announced plans for a €54bn bailout for Irish banks.

EU Commissioner Charlie McCreevy, in charge of the EU single market, said the commission was ready to "set the ground rules" for the conduct of banks towards their customers, if the banks failed to tackle the issue themselves.

The Internal Market Commissioner said: "This consumer market monitoring shows the difficulties consumers face in their dealings with retail financial products and services. The commission is determined to combat those problems.

"That means imposing transparency with understandable and comparable information and setting the ground rules for the conduct of business."

The hard-hitting commission report pointed out that complaints about bad financial advice had doubled in Ireland last year. This is based on a surge in complaints to Financial Services Ombudsman Joe Meade in 2008 compared with 2007. Almost three-quarters of the complaints were resolved in favour of the consumer.

Banks were castigated for having a conflict of interest when giving consumers advice. This was because they were more inclined to push the sale of products where bank staff got high commissions.

The report added that there was suspicion that many of those selling financial products did not have a good enough understanding of them. Irish banks were also criticised for having high charges for current accounts.

The commission said many banks appeared to try to hide charges with complex fee structures that many customers said they found difficult to understand. Information from the Financial Regulator in Dublin shows that:

• AIB charges €10 if a standing order is not paid because there is insufficient money in a bank account.

• Bank of Ireland charges €12.70 for a bounced cheque.

• Ulster Bank has an overdraft rate of 13.55pc.

• Permanent TSB charges €2.50 for a duplicate bank statement.

The commission referred to a 2008 Eurobarometer survey that revealed 30pc of Irish consumers had difficulties comparing current-account offers.

"Only 7pc of consumers have switched their current account in the previous two years, despite the fact that 71pc of those who did reported finding a cheaper provider," the report points out. Banks were also accused of using legal and financial jargon in documents and of hiding important details in small print.

The sharp criticism of Irish banks comes a day ahead of Permanent TSB chief executive David Guinane being hauled in front of an Oireachtas committee to explain why his bank has increased mortgage rates for existing customers.


The chairman of the Oireachtas Joint Committee on Finance and the Public Service, Michael Ahern, said the bank would be asked to explain why its standard variable rate would be going up by half a percentage point. This move would see monthly repayments on a €300,000 mortgage increase by €70 a month.

A spokesman for the Irish Banking Federation said recent European Central Bank statistics confirmed that average rates in Ireland for mortgages and consumer loans were among the lowest in the EU.