Dáil Éireann debate -
Wednesday, 26 Jun 1996

Vol. 467 No. 5

Written Answers. - Finance Institutions' Hidden and Discretionary Fees.

Charlie McCreevy

Question:

21 Mr. McCreevy asked the Minister for Enterprise and Employment the plans, if any, he has to ensure that in future all banks and building societies will cease to operate a series of hidden and discretionary fees in conducting their businesses. [11587/96]

Minister for Enterprise and Employment (Mr. R. Bruton)

The Consumer Credit Act, 1995 which entered into effect on 13 May 1996 regulates all forms of consumer credit and enshrines a statutory pro-consumer codes of rules which applies to all providers of consumer credit.

The Act defines the true rate of interest as the APR as the total cost of credit to the consumer expressed as an annual percentage of the amount of credit granted. In simpler terms, APR is the true rate of interest. All charges as well as interest are included in APR. APR is therefore considered to be the best means of comparing the cost of different types of credit.

In the area of housing loans, the Act sets out detailed rules for a common method for calculating the total cost of a housing loan. This method comprises interest and all other associated fees and charges.

Before the consumer enters into a loan agreement, lenders are required to supply details relating to the amount of credit advanced, the number and amount of repayment instalments, the total amount repayable, the cost of the credit and the APR. This enables the consumer to compare with confidence and assurance the various range of products on offer as well as giving a clear picture of the total financial obligations and required outlays.

Section 132 requires the consumer to be informed of all administration, acceptance, valuation and legal fees payable in respect of a housing loan. Details of such fees must be included in information documents, application forms and loan approval forms, thus ensuring that such fees are not hidden.

Section 131 contains wide-ranging regulation-making powers which allow for the drawing-up of comprehensive detailed transparency requirements in the respect of the disclosure of all fees, charges, and commissions in connection with a housing loan and any associated insurance policy, particularly endowment mortgages. I am consulting with my colleague the Minister for the Environment on how best to achieve the disclosure and transparency objectives of the Act. I am confident the disclosure regime that will be put in place will be the most advanced of its kind and will provide the consumer with a meaningful basis for making an informed choice. It will be based on regulations and will serve consumer interests best because: it will be prescriptive; it will avoid the lack of flexibility inherent in primary legislation which is neither practical nor suitable in dealing with complex disclosure issues, such as when commissions are paid by way of benefit in kind; regulations will allow for the drawing-up of a comprehensive range of detailed transparency requirements, which can be adapted from time to time to deal with potential circumvention in addition to any anomalies which may emerge; and equal disclosure obligations will apply to both the mortgage lender and the intermediary, which was not the case previously, thus the principle of equity of treatment is being respected.

Finally, section 149 of the Consumer Credit Act contains comprehensive provisions under which banking institutions must lodge with the ODCA the slate of charges to customers on the provision of certain banking services. The section furthermore requires the banks to notify the office of the director of any proposals to increase charges, to justify their proposals and to seek the sanction of the director — who may or may not approve — for their proposed course of action. The cumulative effect of all of these measures is to ensure that all customers will have full information on all fees and charges associated with the provision of credit and other financial services.