Central Bank and Financial Services Authority of Ireland Bill 2003: Second Stage.

I move: "That the Bill be now read a Second Time."

This Bill is complementary to the Central Bank and Financial Services Authority of Ireland Act 2003 which was signed into law last year. That Act established the Irish Financial Services Regulatory Authority to oversee the activities of financial institutions, including their treatment of customers.

This Bill provides for establishment of a financial services ombudsman to deal with consumer complaints about financial institutions; establishment of consumer and industry consultative panels to advise the financial services regulator; new reporting and auditing obligations for financial institutions; power for the financial services regulator to impose penalties directly on financial institutions for failure to comply with regulatory requirements, subject to a right of appeal to the appeals tribunal already provided for in the Act; a right of appeal to the appeals tribunal as regards certain supervisory decisions of the authority; new regulatory requirementsfor money transmission and bureau de change businesses; and miscellaneous amendments to financial services regulations.

The greater part of the Bill is based on recommendations of the report of the implementation advisory group on the establishment of a single regulatory authority for the financial services sector. This document, known as the McDowell report, recommended a new architecture for financial services regulation in this country. The Act passed last year put in place a key component of that architecture, the new financial services regulator. This second piece of legislation provides the remaining pieces of the architecture recommended by the McDowell report. The miscellaneous amendments are mainly technical in nature, correcting flaws and errors in existing financial services legislation that have emerged in the course of practice. They are further pointers to the need for a consolidation of financial services legislation, something that was also recommended by the McDowell group. I am happy to be able to tell the House that a consolidation Bill is now included in the Government's legislative programme.

The drafting of the Bill has benefited greatly from the public consultation process on its contents. The consultation process has led to significant changes in certain Parts such as that dealing with the financial services ombudsman. I thank the many organisations and individuals who took the trouble to comment on the original draft heads. The end product is a more considered set of legislative proposals.

I will now comment briefly on the main provisions of the Bill. The financial services ombudsman will deal with complaints from consumers about their individual dealings with financial institutions. Broader issues of consumer protection are the responsibility of the financial services regulator and specifically of its statutory consumer director. The Bill provides for close co-operation with them and the pensions ombudsman.

This will allow the financial services ombudsman to bring patterns of complaint to the attention of the financial services regulator so the consumer-director can consider if regulatory action is necessary to deal with the issues highlighted. Codes of conduct issued by the financial services regulator will form one of the important criteria against which the ombudsman will assess complaints.

There is also provision for close co-operation with the registrar of credit unions within the financial services regulatory authority regarding complaints involving credit unions. Some amendments to the Credit Union Act are also provided for so that members of a credit union will have the same right of access to the ombudsman as customers of other financial institutions.

In terms of how the ombudsman will deal with complaints, the intention is that a customer should first make his or her complaint to the financial institution concerned. It is in everyone's interest that financial institutions deal with their customers in a fair way and treat their complaints seriously. If a customer is not satisfied with the response of the financial institution, he or she can refer the complaint to the ombudsman. The ombudsman will try to reach an agreed solution between the customer and the financial institution. If this fails, the ombudsman will make a formal determination on the complaint. The ombudsman's determination will be binding on both parties, subject to their right to appeal to the High Court.

Overall, my intention is to provide a simple means for aggrieved consumers to have their complaints dealt with fairly and quickly by an independent person, the ombudsman. The Bill provides that the ombudsman's office will be overseen by a council. I will appoint the members of the council following consultation with my colleague, the Minister for Enterprise, Trade and Employment. The council will consist of up to ten persons and must include people from consumer and industry backgrounds. The council will be responsible for the appointment of the chief ombudsman and deputy ombudsmen. It will also be responsible for laying down the detailed rules governing the scheme, including the levying of charges on financial institutions to fund the operation of the scheme.

Strong accountability arrangements are built into the Bill. There is a requirement on the ombudsman to produce an annual report and an annual strategy statement, both of which will be laid before the Houses of the Oireachtas. The chairman of the council and the ombudsman are obliged to appear on request before a joint committee of the Houses of the Oireachtas.

The structure set out in the Bill differs considerably from that originally proposed. This reflects the comments received during the consultation process and subsequent contact with the current ombudsman schemes for the insurance and banking sectors. I am happy to say that the existing ombudsman schemes have agreed, in principle, to amalgamate with and transfer their staff to the new statutory scheme. This should prove a highly advantageous arrangement for all concerned, not least the customer. The statutory scheme will be able to build on the track record and expertise of the existing schemes and their staffs avoiding what would otherwise be a loss of continuity and expertise. Specific provisions are included in the Bill to facilitate the amalgamation. The Bill also provides for investigations commenced under the existing schemes to be continued under the new scheme.

I now turn to the provisions for the appointment of consumer and industry panels to advise the financial services regulator. The establishment of such panels was recommended in the McDowell report. It is obviously desirable that the financial services regulator pay close attention to the views of those whose interests it is mandated to promote, the consumers of financial services and the providers of those services, financial institutions.

The Bill has been altered significantly in light of comments made in the course of the public consultation process. I will appoint the panels following consultation with the Minister for Enterprise, Trade and Employment and, in the case of the industry panel, the Taoiseach. The financial services regulator will be obliged to consult the panels on all general policy issues. I, as Minister for Finance, am obliged to consult both panels before approving the annual budget of the financial services regulator. Reports and opinions of the panels will be published. The financial services regulator can be obliged to publicly state its reasons if it does not agree with a recommendation from a panel. The regulator is obliged to provide appropriate support to the activities of both panels. Either or both panels can appoint specialist advisory groups on specific issues.

The consultative panels will provide a very useful reality check for the financial regulator on how its activities are impacting on consumers and financial institutions. Again, the public consultation process has provided the impetus for change in the proposals set out in the Bill which I believe will further enhance the effectiveness of the panels.

The general recommendations of the review group on auditing have been given legislative expression through the provisions of the Companies (Auditing and Accounting) Act enacted at the end of last year. Apart from establishing the new Irish Auditing and Accounting Supervisory Authority, the Act includes a further important chapter which strengthens corporate governance standards in Irish companies. Of particular importance are the provisions for an annual statement from directors covering the company's compliance with company tax and other laws material to the company's financial position. The compliance statement must be reviewed by a company's auditor who is obliged to give a view on its reasonableness or otherwise.

The Bill covers the add-ons recommended by the review group on the financial institutions. It provides that the financial services regulator can require financial institutions to provide it or another statutory authority with reports on compliance with obligations under financial services and other legislation. It provides that auditors must make an annual positive statement that they have not come across anything in their examination of a company's finances that would trigger a duty to report to the financial services regulator under various existing statutory provisions. It also gives the regulator the power to require an auditor to provide it with information relevant to its statutory duties. The provisions in this Part of the Bill should be viewed in the context of the Government's determination that we must do all we can to promote the highest standards of corporate compliance in this country.

The McDowell report recommended that the financial services regulator should have the power to directly impose penalties on financial institutions, subject to a right of appeal. Currently, the financial services regulator can only do so through the courts. The Bill provides that the financial services regulator can penalise a financial institution directly if it breaches a requirement of an Act, regulation or code of conduct. The penalty can take the form of a reprimand, a fine, public disclosure or a combination of the three. There is also provision for managers to be disqualified from employment in the financial services sector. The financial institution or manager is given an opportunity to present a case to a sanctions panel and to appeal a proposed penalty to the appeals tribunal already provided for in the Act passed last year.

The McDowell report also concluded that the appeals tribunal provided a suitable mechanism for review of the financial services regulator's supervisory decisions. I have, therefore, tabled amendments to existing financial services legislation to provide, in general, for a right of appeal to the tribunal rather than the High Court.

The system of authorisation which currently applies to bureaux de change is being extended to persons engaged in money transmission business. The main purpose of the authorisation system is to facilitate the effective implementation of the anti-money laundering and anti-terrorist funding provisions of the Criminal Justice Acts. The current authorisation regime that applies to bureaux de change is also being amended to encompass the objective of preventing the financing of terrorism. The new provisions address international concern at the possible use of such businesses as conduits for the financing of terrorism.

The Bill includes a wide range of mainly technical amendments to various items of financial services legislation. A small number of these amendments are more substantive in nature, as I will now describe. Some of the amendments to insurance legislation go beyond the purely technical aspects. I refer in particular to the amendments designed to restore the right of an administrator appointed to an insurance company in difficulty to have access to the insurance compensation fund. While we have not had an insurance failure for almost 20 years, it is important to have in place a range of options to deal with such a situation. The amendments restore the option that was availed of by the then Governments when PMPA and ICI got into difficulty in the early 1980s.

I also draw attention to the proposed amendment to section 77 of the Central Bank Act 1989 on mergers and acquisitions in the banking sector. The heads of the Bill published last year provided for the removal of the role of the Minister for Finance in this area, as recommended in the banking sector strategic issues report published in August 2000. While I respect the arguments put forward by the distinguished members of that working group, I have decided, with Government approval, that it would be going too far to remove the element of political judgment and accountability that the current arrangement provides. The proposed revision to the 1989 Act sets out the criteria that the Minister for Finance must use when exercising his or her judgment.

I refer to three proposed amendments to the Consumer Credit Act 1995. One amendment provides that I, as Minister for Finance, may extend the provisions of the Act to cover business consumers. This arises from a McDowell report recommendation that non-consumer moneylending should be treated in the same way as consumer lending. I only intend to exercise this power after consultation with the financial services regulator and careful consideration of all the arguments.

Another amendment arising from the McDowell report provides that all institutions that lend on the security of a borrower's principal home be made subject to Part IX of the Consumer Credit Act. Part IX provides protection to a borrower by imposing various obligations on housing loan lenders, for example, to warn the borrower explicitly about the danger of losing the family home if repayment conditions are not met. The third amendment extends the definition of mortgage intermediaries to cover so-called introducers. This amendment is being made on foot of the recommendation from the Director of Consumer Affairs.

I will table a number of amendments on Committee Stage, the majority of which will be technical. I will propose more substantive amendments in two areas. One set of amendments will deal with concerns raised by, among others, the European Central Bank regarding the new provisions on sanctions and the appeals tribunal. The second set of substantive amendments will respond to a reasoned opinion from the European Commission about the current exclusion of credit unions from the terms of the consumer credit directives.

Following the passage of the Bill, we will have put in place the essential building blocks of a modern, consumer focused regulatory system for the financial services sector in Ireland. We will also have contributed significantly to the objective of maintaining Ireland's reputation as a business-friendly, but well regulated domicile for international financial services activity. I commend the Bill to the House.

I am pleasantly surprised at the quality of the performance of the financial services regulator, especially in regard to consumer protection. I was sceptical of the notion of rolling into one the consumer protection and prudential functions and I still have misgivings that, ultimately, in a test of wills, the consumer director will be very much subservient to the financial services regulation dimension of the authority. Nonetheless, the present incumbent in the consumer director role has taken a strong position, is producing worthwhile information for consumers and is confronting the banks in respect of a number of their practices such as the failure to pass on interest rate reductions. She must be commended on the excellence of her work. However, the test will be when issues of enforcement arise and the consumer director requires action to be taken to penalise institutions and whether the significant powers of the regulatory authority will be brought to bear in endorsing and enforcing her role.

I also have misgivings about the IFSRA board, which, with the exception of one excellent appointee, Deirdre Purcell, does not comprise a consumer protection expert. There is no provision in the Act to appoint persons to the board of the authority with a specific consumer protection role. The Director of Consumer Affairs is an ex officio member but he or she is an employee of the board and is compromised in that role.

While I have misgivings about the model, significant progress is being made. I read the IFSRA's strategy statement, which was recently published, and I hope to meet representatives of the authority soon to discuss it. It is an impressive document, which outlines seven high level goals and 85 categories of action against most of which the authority has set performance targets. The authority is going about its business effectively and I wish it well.

The balance struck in the legislation is welcome. The appointments of a financial services ombudsman and consumer panels are welcome developments to which I will refer later. The Minister will have read trenchant criticism by Jonathan Westrup, a lecturer in Trinity College, over the past week of the role of the Oireachtas in supervising the financial regulator in particular. He referred to the performance of the Oireachtas Joint Committee on Finance and the Public Service in The Irish Times stating:

It is not hard to conclude that the Irish political system is just not interested in such work because TDs feel that they gain no political advantage from such activity and so there is little political will. The fact remains that the Oireachtas has given regulators great powers but has largely chosen to leave them to their own devices leaving a major gap in the accountability structure.

It is important that we should reflect on this issue. It is ironic that, as we propose to establish consumer and industry panels and give them access to substantial resources through the regulatory authority, the same has not been done in respect of the Oireachtas which is seen by many as the primary supervisor in terms of the performance of the regulatory system. Legislation has not often sought to develop that issue in any way. The Minister has provided that in all cases the Oireachtas has the power to call the various bodies before it, which is right and proper, but on the other hand, no legislation has ever sought to specify a schedule of regular scrutiny. Oireachtas committees are, therefore, not under an obligation, for example, to supervise bodies annually. No format of scrutiny is provided or indicated in this legislation and, therefore, for example, routine access to audits that would be the subject of Oireachtas scrutiny is not provided to give the Oireachtas equality of power in an unequal battle to supervise regulators, particularly in as complex an area as this.

Resources is also an issue for the committee. Mr. Westrup is correct regarding political will because there is little political return from hours of scrutiny of regulators in committee. If the House wants that, an obligation should be put on the committees to do the work and an expectation that they should present the results of this work. That has not been sought in previous legislation nor has it been sought in respect of the authority. The Minister and his advisers need to reflect on the importance of Oireachtas scrutiny of regulators. The important question is who will regulate the regulators? Is it the Minister's role or that of Oireachtas Members? We do not have access to resources.

Before the legislation was published Mr. Westrup wrote an article in which he compared the resources of the Oireachtas Joint Committee on Finance and the Public Service to its counterparts in other jurisdictions. The committee is staffed by one clerk and has access to the Oireachtas legal adviser who is shared with all the other committees. The equivalent UK committee has two clerks, two economists as well as part-time advisers while the New Zealand committee has 2.5 clerks and an audit office which provides reports to the committee, unlike our Comptroller and Auditor General who only provides audit reports to the Committee of Public Accounts.

The issue is not only about giving the committees more resources, as responsibilities must be attached. If we are to go down the road of assigning a serious role to the Oireachtas in overseeing regulators, we must make provision for it. It is instructive that the last time there was a battle when a regulator refused to appear before the Oireachtas, the legislation which had made provision for the regulator had not anticipated such a circumstance and the regulator was able to point out that there was no legal basis upon which the Oireachtas could call her before it. The Minister and his officials give great consideration to the regulation in regard to consumers, industrial users and others but we may need to focus more on the role and responsibilities of the Oireachtas in this area, about which I am interested. It is equally important that the Oireachtas has roles, although the Minister does not support this.

The appointees to the bodies the Minister is seeking to put in place should have some confirmation-type hearings. The Minister has repeatedly said he thinks worthy people would not come forward if they had to appear before Oireachtas committees but that is manifestly untrue. Very worthy people come forward, are proud to have positions on State boards and are happy to be accountable to the Oireachtas in regard to how they conduct their stewardship.

I do not see how the Oireachtas would suddenly become perceived as a star chamber if, before they were appointed, people came before a committee and were asked about their intentions and views. That would enhance the role of the Oireachtas and not, as the Minister fears, be seen as a highly politicised attempt to hand-trip someone who happened to have Fianna Fáil connections because he or she was being placed on the board. That would not happen in practice. It might happen on the first day of a nine day wonder as the Oireachtas began to flex its muscles with its new powers, but it would not become a feature of the way in which it oversaw affairs.

As Deputies and Senators, we have a long way to go in developing our capacity to oversee these regulators who now have extraordinary powers and whose decisions are often surprising — for example, the decision to approve Eircom line rental increases and decisions to repeatedly increase electricity prices, supposedly in the name of competition. Many of these decisions are strange and need Oireachtas supervision. This is a topical issue and is important in the context of our consideration of this Bill.

By and large, I am pleased with the Minister's proposals for the financial services ombudsman and it is clearly a welcome appointment. The ombudsman is to be appointed by the council, therefore, striking the right balance in its make-up will be crucial. I understand the Minister envisages a 50:50 split between representatives of industry and consumers. I suspect that a majority of consumer interests on that council would be more appropriate for an ombudsman to protect consumer rights. The point has been made by others outside the House that those appointed should not only be experienced in consumer issues to the extent of, like me, doing weekly shopping, looking at the shelves and knowing what it is to be a consumer, but also have some expertise in the protection of consumers. It is important that dimension is emphasised as opposed to just nominees' general capacity to be a good consumer.

I understand the Deputy's knowledge of consumer pricing structure, now that I know he goes shopping.

I check out Lidl, Aldi and all the rest of them.

It is important we ensure the council which appoints the financial services ombudsman and has the supervisory role has a proper balance and experience and its manner of selection must be appropriate. While not necessarily suggesting the Minister ought to appoint members to the board, perhaps he should allow an open competition in which people can propose themselves. RTE was this morning advertising for people to apply to be on its consumer user panel. Perhaps the process for the financial ombudsman would be more formal than that, but many people would come forward if they thought it was an open competition and if the Minister gave a clear indication he was not merely appointing his own favoured contacts but genuinely wanted a broad-based council with the appropriate skills. If the Minister advertised for people and ran a selection procedure under his supervision and appointed people on a fair-minded basis, it would boost confidence and it would be seen that the Minister was taking a proper approach to this matter.

On Committee Stage we will want to ensure that the independence of the ombudsman from the regulatory authority is clear. The intention is there but the detail must be worked out.

It is strange that the ombudsman will not be creating the codes of practice. That is a feature of the appointment of a consumer-director to the regulatory authority. Therefore, it is the consumer director, via the regulatory authority, who will create codes of practice rather than the ombudsman. Perhaps, given the present structure, that is the appropriate way but we must also ensure the ombudsman's experience informs those codes of practice, a point which needs to be copper-fastened in the legislation even though it is provided for to a degree.

It is strange that it is proposed to move the existing non-statutory ombudsmen to a sub-role. If there is a working system of oversight, there is a practical argument in favour of using that experience and skill. On the other hand, it is important the Minister provides us with an assessment of the culture and operations of the existing institutions if they are to be transferred en bloc to become the core of the new financial services ombudsman. It is an unusual provision that a new authority such as this would just inherit the work of the non-statutory group. If we go down that road, the Minister needs to demonstrate that the culture and operations of those institutions are up to best practice standard. He must give such assurances that, despite this unusual arrangement, we will still get best practice in terms of the financial services ombudsman.

I welcome the binding nature of the determinations to be made by the ombudsman, which is different from the ombudsman director of the public service who does not have such a power but rather has the power to make reports to the Dáil. Perhaps it is instructive that the public sector is willing to give in to the supervision of others' standards of compliance which it would not accept in its own case. Nonetheless, the provision for binding determinations by the financial services ombudsman is significant.

One anomaly with which the Minister could deal today or on Committee Stage is that it seems a case cannot go to the financial services ombudsman if legal proceedings are ongoing between a consumer and a financial institution. I would like assurances that this will not allow an out for a financial institution which is coming under scrutiny, whereby it can issue legal proceedings and the opportunity for the consumer to use the services of the financial ombudsman is negatived. No one would want to see that happen.

I congratulate the Minister on not accepting the McDowell proposal that the consumer panels should be chaired by IFSRA staff. That was a strange proposal and I was surprised to see it in the McDowell report. I am glad the Minister has not decided to go down that road and proposes to select the chair from within the panel. I say the same thing with regard to the selection of the members of the consumer panel. The Minister should invite those who wish to be considered and establish a procedure for shortlisting a group of people in whom he has confidence and who he believes will do the job well.

The Minister has struck a correct balance in respect of the powers of the regulatory authority. It can proceed with some regulatory and policy documents without first referring them to the consumer and industry panels but only where there is an obligation to act without delay, and when the documents have been issued the authority is obliged to seek the comments of the panels. That strikes the right balance.

It is significant that the Minister has given considerably more powers to the consumer panel than to the industry panel in respect of monitoring and commenting on performance. Only the consumer panel will have the power to make suggestions for initiatives. I presume the Minister feels that to offer an industry panel the power to monitor, comment on performance and make suggestions would risk a conflict of interest. This question can be teased out on Committee Stage. I am sure there are instances where suggestions, initiatives or comments on performance could be permitted to the industry panel rather than statutorily ruling them out. There would have to be tight controls to guard against regulatory capture where the industry panel could gain an unhealthy influence over the activities of the authority. A balance must be struck between the dangers of regulatory capture and denying power to comment on performance or suggest initiatives.

The consumer panel will be given substantial power with regard to the IFSRA. Should it not also be given power to comment on the overall performance of the financial sector? It may be that everything can be seen through the prism of the IFSRA but we do not have a particularly competitive financial sector and the IFSRA does not have the power to create competition. It can only regulate what is there although it can make it more congenial for people to enter the market. Perhaps we should consider allowing the consumer panel to make more general comments on the performance of the financial services sector as opposed to the performance of the Irish Financial Services Regulatory Authority. We should consider this as we move towards Committee Stage.

I welcome the authority's powers to take more immediate enforcement action than the rather slow process available to it at present. The Bill also transfers the new audit obligations to the financial services sector. I am not an accountant or expert in this field and bow to the professional expertise of the Minister and Deputy Burton. Nevertheless, some of the compliance obligations being imposed on directors in other sectors seem to be excessive. I think of the compliance obligations of a director of a widget factory, for example. However, the new demands being imposed on the financial sector are appropriate. They are intimately bound up with the financial security of consumers who deposit money with financial institutions or who raise money from them. While one may argue that compliance obligations imposed on small operations in the general sphere are too onerous, in the financial sector I am persuaded of their reasonableness. That is also a matter which can be teased out on Committee Stage.

Had Second Stage of the Bill not been rescheduled at short notice I might have had more to say about it. I welcome the Bill, look forward to the contributions of other Deputies and hope we can further improve on it.

I welcome the publication of the Bill and its reading in the House. The appointment of a financial services ombudsman is long overdue and has been promised by the Government for six or seven years. Therefore, the proposal in the Bill to appoint one is welcome.

Like most modern economies, the Irish economy is fuelled, to a considerable extent, by credit, especially consumer credit. I note the upbeat Economic and Social Research Institute report on the future performance and prospects of the economy, the importance of the development of the service sector and the impact on the domestic market of the growing population. The consequence of this credit boom is that we live in a world of high pressure advertising by banks and financial institutions which continuously promote their services, instruments and credit to consumers of all ages and classes.

Many families are now counting the cost of pre-Christmas spending sprees and are waking up to horrendous costs being charged to them by various financial institutions. In a significant number of cases consumers continue to be ripped off by financial institutions and financial service providers. Recent examples, of which we are all aware, include credit cards and store cards with extraordinarily high rates of interest charged on them, despite the fact that interest rates in the eurozone are at a historic low.

Another example is the practice of moneylending companies which operate door-to-door businesses providing credit and a collection service at the door. In a number of clearly indicated cases these companies' interest rates run into several hundred per cent. I draw the Minister's attention to a fine investigation recently carried out by journalists from the Sunday Independent into that phenomenon. Some organisations responded to those reports in the Sunday Independent by saying that, while these credit institutions peddling door-to-door credit charge several hundred per cent interest, illegal moneylenders charge even more. Consumers are between a rock and a hard place.

The Office of the Director of Consumer Affairs and the IFSRA have been involved in pointing out the difference between the costs of insurance premiums, especially for young male drivers, and the fees associated with the provision of insurance services by brokers and such like. I commend the work started by the IFSRA and the consumer-director based there, which understandably up to now has largely focused on trying to inform consumers about their rights and give them a strong message that shopping around may save them considerable amounts of money. However, it is very early days yet for the IFSRA, which is still very much under the wing and control of the Central Bank. We have yet to see the day when it will bite. While the work it has done so far, particularly on consumer information, is to be commended, judgment has to be deferred until we see a conflict involving financial institutions or financial service providers. The jury is out on whether it is hidebound by the traditional conflict between the guardian role of the Central Bank and the role of an aggressive pro-consumer pro-regulation IFSRA.

The Bill provides for the appointment of a financial services ombudsman to deal with consumer complaints about financial institutions and for the establishment of two panels, the consultative consumer panel and the consultative industry panel. It is important that consumer interests are strongly represented on both panels and that both panels and the authority are not composed by rounding up and appointing the usual suspects. By that I mean representatives of the various commercial industries and the various organisations in the banking and financial services industries with the usual collection of, in many cases, party political hacks.

Having established a regulatory framework, while within all parties there are people deserving of public appointment, when setting up a regulatory authority we need people on the panels and authority with experience and who are independent-minded. We need people who can act with a degree of judicial impartiality in carrying out their functions as important roles are given in this Bill, some of which break new constitutional ground to which I will return later.

It is not sufficient for the Minister simply to consult the Minister for Enterprise, Trade and Employment and the Taoiseach or other members of the Cabinet as he has indicated. We need a clear public procedure covering the appointment of up to 50 persons to the new structures that will apply when this Bill is enacted. There should be a public appointments process, which may entail advertising or a process of consultation.

It is essential that representatives of organisations such as the Consumers Association of Ireland, which has done much good work over the years, should be on these panels. They have shown a clear expertise and dedication. The Minister should also consider organisations such as credit unions, which have offered not-for-profit credit, particularly to some of the poorest people in society.

I hope the Minister will look at the money advice and budgeting service, MABS, which was the victim of probably the most stupid and cruel cut by the Minister for Social and Family Affairs, Deputy Coughlan. The Minister for Finance pulled the wool over her eyes when he got her to cut back in a mean way the financial arrangements which MABS could put in place for families and individuals who had gone considerably over their heads in becoming indebted to various moneylenders, loan sharks and financial institutions charging extortionate rates of interest. That was a mistake and I hope the Minister will seek to remedy it by consulting widely on the people he chooses for appointment to these various boards and panels.

Members of the Society of St. Vincent de Paul, which has taken a detailed interest in the problems of improper use of credit by poor families, should qualify for the Minister's consideration. We know that the financial services industry will offer people by the dozen and while those people will be well qualified for appointment to those panels, they will represent the sector from which they come. While in some cases their appointments will be appropriate, we also want strong independent voices who are champions of consumer interest. It is only in that way that the new authority will get courage to take on malpractice by financial institutions. I am aware that most banks and financial institutions provide decent services to and have good relations with their customers. However there are corner boys whose sole intention is to rip off consumers.

Like many other Deputies I have occasionally dealt with families purchasing a house who find that they are in the grip of a mortgage provider whereby if they hit hard times and fall behind in their payments at any stage they are subject to unbelievable fines. Such areas of doubtful practice need to be clearly addressed by the new authority.

Section 8 of the Bill deals with administrative sanctions, which can be applied by the regulatory authority where there are transgressions. It provides for fines of up to €5 million, orders to pay costs and, for directors and managers of financial institutions, disqualification from being involved in the management of a financial service provider. These are significant and onerous civil penalties. Has the Minister taken the advice of the Attorney General on the constitutional status of this new mechanism of imposing sanctions? Article 34.1 of the Constitution, one of the cornerstones of the separation of powers, makes it clear that it is for the courts and judges to administer justice and to impose penalties on those who have transgressed the law.

While this model comes through the European Union and under European law it is possible to provide such a structure, there are a number of cases where this law comes very close to carrying out the operations of a judicial function in a non-judicial environment. That has happened previously. I refer here to the judgment of Justice Kingsmill Moore in the case re solicitors in 1954 when he clearly stated that judgments can be exercised which are punitive. Fines of £5 million, disqualification from practising a profession or in a particular area of activity are strong and appropriate sanctions where there are transgressions of financial service regulations. I will be interested to hear the Minister indicate in his reply and on Committee Stage whether he is satisfied that these provisions are constitutional.

There are several examples in the lifetime of the Government where legal advice has been found wanting. Many of these proposals were put forward by the Minister, Deputy McDowell, when he chaired the committee. He subsequently served as Attorney General and is now Minister for Justice, Equality and Law Reform. Despite possessing one of the most eminent legal brains in this country, his record in second-guessing the courts and producing legislation that is acceptable to them is not brilliant. Has the Minister for Finance consulted the current Attorney General in respect of the constitutionality of section 8?

I wish to deal with the section that provides for new reporting and auditing obligations for financial institutions. I was not directly concerned with the debate on the Companies (Auditing and Accounting) Act before it became law. As a fellow accountant, will the Minister for Finance offer a point of view on a specific matter? The Bill provides for the new reporting obligations for financial institutions. Would the Minister be prepared to accept an amendment from the Labour Party to include in the Bill some statutory protection, especially in the case of financial institutions, in respect of internal auditors, independent non-executive directors and the independent audit committee?

As the Minister is aware, where companies have a listing on the Stock Exchange, as do most large banks and financial institutions, regulatory requirements arise from those bodies and they seek to attend to those functions. However, it emerged from the DIRT inquiry carried out by the House that the role of internal audit systems was critical in alerting the bank to what was happening and in obliging the banks and financial institutions to face up to their responsibilities in terms of their participation in widespread tax evasion in respect of customer accounts. Shareholders in Allied Irish Banks lost significant amounts of money in the scandal involving Allfirst Maryland, one of its subsidiaries. If there had been a stronger internal reporting function, a stronger internal audit committee and stronger independent executive directors operating in that bank, AIB might have been saved the grief and the loss caused by the actions of one of its traders.

Will the Minister, in addition to applying to banks and financial institutions the requirements of the Companies (Auditing and Accounting) Act, give specific consideration to the role of internal auditors in the banks? In my experience as an accountant — I am sure that of the Minister is similar — the continuing internal audit function in banks and financial institutions is the major protection and safeguard against fraud and malfeasance on the part of either staff or directors. Frauds are often perpetrated by the management, owners and directors of a company. We saw this in the cases of Parmalat and Enron where overweening and powerful founding families, directors or owners held sway. It takes a brave individual to threaten any of these entities or imply that their financial stewardship and management is less than perfect. The Bill provides an opportunity to provide further legislative protection in respect of the traditionally strong role played by internal audit systems in banks and financial institutions. The same goes for audit committees and independent non-executive directors.

I attended a function last week at which a report was published by business women regarding the small number of women on the boards of Irish companies. It is interesting that the report was launched by Mr. Buckley from Allied Irish Banks who made an interesting and thoughtful contribution. Women are the main purchasers and consumers in our economy. I salute Deputy Richard Bruton for doing the family shopping. I live in an equal household, so I do some shopping and my husband does the rest. I invite the Minister for Finance to visit the shops from time to time to see what is happening in terms of prices.

Will the Minister give a commitment that, of the authority and two panels to be established, at least one if not two will be chaired by a woman? There is no reason that the overall composition of the three bodies, of which there will be approximately 50 members, should not be on the basis of a 50-50 split between men and women. As the Minister stated previously, there are more than enough qualified women available and interested in doing those jobs.

I wish to take up a point made by Deputy Richard Bruton in respect of the panels which will have an important regulatory function. I would like the members of the panels to be recruited through an open process. I accept that the Minister will have the final call on who will be appointed. However, the members of the panels and the regulatory authority should be obliged to make statements of their financial interests similar to those made by Members of the Oireachtas and local authority representatives in order that, especially in the case of people who come from the financial services industry, it can be clearly seen whether there might be potential conflicts of interest.

The job of the panels will be important. Deputy Richard Bruton correctly referred to the ridiculous level of resources available to the Joint Committee on Finance and the Public Service. Mr. Jonathan Westrup, in his lecture to the ACCA, remarked that the capacity of the Oireachtas committees to oversee regulators is limited and that there is not a high level of interest among Members in this regard. In my experience there is a high level of interest and the Joint Committee on Finance and the Public Service, which has a mixture of economists, accountants, former bankers and people with significant experience in business and other walks of life among its members, is an example of this. The members of the committee are well qualified for the job expected of them. However, the committee is entirely without resources to carry out the job of overseeing regulatory agencies.

What resources will the Minister allocate to the panels so they can properly carry out their functions? If their members will simply get a monthly lunch in the Central Bank headquarters at which, just before lunch is served, they will be given a three page statement outlining what is being done, that is not regulation. The panels should be empowered to bring to the attention of the regulator, for example, the fact that people are paying 300% interest rates to loan sharks and to ask what will be done to prevent consumers being ripped off. We want regulatory panels with teeth in terms of the power to raise issues as they affect consumers, big and small, in the operation of financial services and industries. One issue I invite them to address is how mortgage lenders act when people get into difficulty with their mortgage repayments. Some mortgage providers charge extortionate fines when mortgage payers fail to keep to the schedule of their agreement.

There is a great deal of work to be done in detailing and building up a picture for the Oireachtas of how the new structure will work. The new structure is welcome. In principle, much of its operation should go well, although I have grave doubts about the constitutionality of section 8. I welcome the establishment of the panels provided they are independent, appointment is on merit, there is an appropriate gender balance and they do not simply become the province of party political or industry hacks. That is important. The people on the panels must be independent. If we achieve that and if the panels are properly resourced to target those areas that are regularly identified as areas in which consumers and small business may be abused, we will create a financial services regulatory authority ombudsman that will have real teeth.

Following representations from the Director of Consumer Affairs, there is an attempt in the miscellaneous sections of the Bill to regulate the practices of mortgage intermediaries. These are people who find mortgages for clients. In my constituency, and probably in the Minister's, there are many people who provide mortgage intermediary services. Some of them are providing those services as a consequence of leaving banks and building societies. They are providing a good service. Others, however, are charging high fees and I welcome the proposal to regulate the way fees for such services are provided.

I am concerned that some of these mortgage intermediaries are too close to the big builders who are building the estates. It is a closed circle and the young couples buying houses, being so anxious to get into the property market and to get a mortgage, end up with insufficient knowledge of how much they will actually pay in terms of the capital cost, which they are borrowing, and the service charges that surround obtaining the eagerly sought mortgage. I welcome that provision in the Bill but perhaps the Minister will explain in further detail how it is proposed to deal with it.

The consumer-director has also been at pains in recent months to give more information about certain financial services products, in particular, products such as tracker bonds. Many people have little financial expertise. The general rule is caveat emptor and, ultimately, consumers must take responsibility for their actions. Nonetheless, there are financial service products available, such as tracker bonds, which are new and are strongly marketed as almost guaranteeing financial returns. Consumers do not have the capacity to read the small print and significant numbers of people have sustained significant losses from these products as a result of the fluctuating stock markets in the past couple of years. The IFSRA is empowered to give information to consumers about the pros and cons of different types of financial products. I hope that when the panels are established they will go a step further and examine and inquire into some of these products.

I propose to share time with Deputies Finian McGrath, Connolly and Boyle.

This Bill is a follow-up to the 2003 Act of the same name. At its core is the establishment of a financial services ombudsman. This is a long overdue development and is badly needed by users of financial services, particularly the ordinary customers of banks and insurance companies.

The issues dealt with in the Bill were debated in the course of the passage of the 2003 Act. This was followed last summer by a series of hearings conducted by the Oireachtas Joint Committee on Finance and the Public Service. I commend my colleagues on the committee on their participation in those hearings, which examined the charging practices of the main banks. The committee also heard from the consumer-director of the Irish Financial Services Regulatory Authority established under the 2003 Act. The hearings confirmed the need for greater consumer protection and, particularly, the establishment of a financial services ombudsman, which is provided for in this legislation.

Irish people, as individual consumers and as a society, are being grossly exploited by banks and other financial institutions. I instanced my experience and observation of that at the Joint Committee on Finance and the Public Service and in the House when we discussed the original substantive legislation. Allied Irish Banks 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 a range of practices which ensure their dominance in the market. This has a major knock-on effect on the economy.

The reality customers must deal with is shown in the figures. I will offer just one statistic at this point. In 2002, there was inflation of 23% in this State for financial services, which includes both the insurance sector and the banks. Compare that with an EU average of only 4% over the comparable period. These are the figures presented by Forfás in its consumer pricing report for 2003. That is a damning comparison.

We should study the survey conducted in 2001 by ISME, the Irish small and medium enterprise representative body. Among the points gleaned by the survey was that one fifth of customers surveyed bluntly stated that they did not trust their bank. Half the respondents outlined that they were concerned about interest rate charges. Three quarters of those reported that they were concerned about bank fees and charges. Almost half the firms which queried their bank charges and interest rates and which initially received an unsatisfactory response received a refund. What does this tell us? Eight out of every ten ISME members surveyed queried their bank about charges and interest rates, but fewer than two thirds of them received a satisfactory response. When the issue was pressed, nearly half received a refund.

Almost two thirds of respondents stated that their bank charges were not fully explained, while 41% indicated that new charges had been applied in the previous 24 months. What was worse was that almost half the respondents indicated that their bank had debited their account without prior permission or approval. More than 60% indicated that they had been unable to negotiate lower interest rates or bank charges. Unsurprisingly, three quarters of respondents stated that there was no difference between the banks.

The Minister must bear in mind that the customers surveyed were business people directly represented by ISME. Most of them would be able and confident to challenge their banks with the support of a representative body which is flexing itself in the market. Other customers with less clout, such as families on lower incomes and older people, would be more open to abuse from the financial institutions than the sector of which I have given an account.

The Irish Bankers Federation has publicly opposed the Government's banking levy, which was introduced last year. I have spoken about that a number of times during budget debates with the Minister. That levy is only €300 million over three years and it is spread across all the banks. That is only a fraction of what banks should contribute. They are among some of the largest beneficiaries of the Government's decision to slash corporation tax from 16% to 12.5%. The practical result of banks' predominant position and the Government's failure to challenge them is less revenue, resulting in less money for the health services, the repair and building of schools, people with disabilities and badly needed social housing programmes. The untaxed portion of these massive profits enriches a privileged minority in society while our infrastructure continues to suffer and the marginalised not only stay on the margins but, as we have seen in successive budgets, are confined to that position.

What emerged from the hearings of the Joint Committee on Finance and the Public Service was that we have all the problems of exploitation by financial institutions but none of the principal solutions. We do not have Government or EU control of charges because it is laid down on tablets of stone that it would be anti-competitive. I have been arrogantly informed time and again when I raise the issue that the question of having such controls is invalid. Despite this, we do not have real competition, as has been demonstrated in the financial services sector. I am not prepared to accept any claim to the contrary. That was clearly revealed during the hearings of the Joint Committee on Finance and the Public Service.

We also considered the extraordinary situation where Allied Irish Banks, Bank of Ireland and the Trustee Savings Bank operated a cartel in the tendering process initiated by Cork County Council. The latter two banks withdrew from the tendering process, resulting in its collapse. That forced the county council to accept the terms of its then banker, Allied Irish Banks. That dictated the terms for the council because it was not left with any option as no one else was bidding for its business. It went from a position of having an 80% discount on the gross commercial scale of fees payable on all accounts to what will be 10% in 2006. What will be the net effect on the people of County Cork? It will mean a further €187,000 in bank charges which will come from people's contributions to the public funds of the local authority and which should be better spent on other much needed measures in County Cork.

As a submission from the Consumers Association of Ireland stated: "The immediate asset test for IFSRA will be how swiftly it redresses the balance of power between Irish retail banks and Irish customers". The results of that test remain to be seen and have yet to be assessed. The same test will apply to the financial services ombudsman as established by the Bill which, as I have already recorded, I welcome.

I thank you, a Leas-Cheann Comhairle, for giving me the opportunity to speak on this Bill. I welcome the debate on banking and the financial services. However, we have been too silent on the question of integrity and honesty in the banking and business sectors. I have felt for many years that the big boys and girls involved in the different business and banking scams have got away lightly. I strongly welcome the establishment of a financial services ombudsman to deal with consumer complaints about financial institutions.

In recent years Ireland has become known as the island of scandals and tribunals. Politics, banking, business, the church, the legal profession and the medical profession have suffered from the erosion of public confidence. That has had a profound impact on our value system. The Bill must be part of the analysis and the serious debate we need in society. These financial scandals have led to a lack of participation in the democratic process. We must wake up to that reality. We in politics call it the "you are all the same" syndrome. Approximately 33% of voters seem to label all politicians as the same and to blame them for the scandals, especially the financial scandals. Our friends in the media also contribute to that on a daily basis with ill-informed commentary and deliberate misrepresentation of the facts. Many of the electorate believe we live in a liberal democracy. I urge them to think again and open their eyes to the scandals in financial institutions.

When discussing the Bill, it is essential to consider the Minister's earlier remarks about maintaining Ireland's reputation as a business friendly but well regulated country. Those of us on the left of politics — there are not many of us left — are often labelled as being against business and profits. I have no major ethical problems with profits, only with their misuse. Not all profit is greed. When it is used in a positive and constructive way to the greater good of society, I strongly encourage profit-making.

Some matters should be clarified in this debate on financial institutions. Pope John Paul II in the encyclical, Centesimus Annus, published in May 1991, presented a moral evaluation of capitalism:

Can it perhaps be said that, after the failure of communism, capitalism is the victorious social system, and that capitalism should be the goal of the countries now making efforts to rebuild their economy and society?

The answer is complex. Those of us who believe in social justice should tell people straight out that the solution lies in a left of centre mixed economy with a strong public service engine room. The economic policies of right wing philosophers may be rampant in the international arena but they are leading to more poverty, disadvantage, exclusion, injustice and a more violent international community. That is the world of 2004.

This is relevant to the Bill which gives us an opportunity to set out a direction for our country and, above all, for justice and ethics in our financial services. It provides for the establishment of a financial services ombudsman to deal with consumer complaints about financial institutions, which I strongly support. It also provides for the establishment of a consumer and industries consultative panel to advise the financial services regulator and empowers that regulator to impose penalties on financial institutions for failure to comply with regulatory requirements, subject to the right of appeal to the appeals tribunal already provided in the Central Bank Act. These are positive aspects of the Bill.

I am a strong supporter of consumers' rights. The consumer is being hammered and, if the Minister of State does not do something practical about prices, and the way people are overcharged, there is no point in passing this Bill or having this debate. I hope the Minister of State and the Cabinet will listen to a different view and take it on board so that we can move forward.

I welcome the introduction of the Bill, which represents a charter for the protection of the consumer against malpractice by unscrupulous financial institutions. These institutions cannot afford to take their customers for granted as ACC Bank, now owned by Rabobank and formerly known as the farmers' bank, has done. This institution now restricts lodgements and withdrawals to a minimum of €1,000, greatly increasing the vulnerability of rural dwellers to the possibility of violent attacks and home robberies. In effect, it makes them sitting ducks for this type of crime.

I seriously query the ethics of this restrictive practice which forces many elderly people to save up to €1,000 at home thereby placing them at considerable risk to life and limb. Some years ago outbreaks of home robberies and violent attacks on elderly people galvanised the banking sector into presenting attractive terms to rural dwellers and encouraging them to place their savings in banks and other financial institutions.

ACC Bank-Rabobank obviously believes it can dispense with the small customer for whom this deterioration in services will pose a major security risk. It will hardly escape the notice of criminals that every customer who enters or leaves branches of this bank will be carrying at least €1,000. For the criminal it would be a matter of establishing whether the hen is going to lay or whether it has just laid. This irresponsible action effectively changes the bank's status to that of an industrial and business bank rather than a service for small customers.

It also establishes a dangerous precedent for other financial institutions and the associated banks. First Active has already announced its intention to be the first cashless bank in the country. This is another attack on the rights of small customers who may be uncomfortable with technological advances and have always relied on the banks to handle their cheques. These financial services providers are moving to edge out the small depositors and reduce the consumer's right to freedom of choice. They also make it difficult for their local managers to maintain their bread and butter customers in local and farming communities to attain their monthly and yearly targets.

New regulatory proposals will be a deterrent to the widespread disparity between the charges imposed by the money transmission agencies. These disparities are difficult to justify and one wonders why they were permitted hitherto. The regulatory requirements will also help to root out the gangster element from the industry and make money transfers more affordable for student travellers.

One recalls the many exchange bureaux that sprang up in the vicinity of the Border, particularly on the Dundalk to Newry road and the Tyholland-Middletown area of the Border just half a mile from my home. They were located in tin huts and cabins just short of the Border, mainly on the southern side, and did not seem to be regulated. They did not do anything to engender customer confidence in financial service providers and institutions. This confidence has taken a battering in recent times as a result of faulty investment advice. One recalls the great fanfare which greeted the launch of the Eircom shares debacle when pensioners lost heavily as a result of misplaced optimism and faulty advice.

With the impending enlargement of the European Union on 1 May by the entry of ten new states and the free movement of capital throughout the enlarged 25 member EU, the Bill's stated aim of preventing money laundering is laudable. Any measure to reduce the amount of dirty money concealed behind apparently respectable businesses is to be welcomed.

I also welcome the Bill's provision to bring introducers in the area of mortgage sales within the scope of the Consumer Credit Act 1995 thereby regulating their activities. Prior to this many of the middle layer operators in this area were little more than chancers or cowboys who did nothing more than increase the cost of the mortgage service to the client with little if any value added as a result. The Act is also being enhanced by the Bill which obliges lenders of housing loans to make consumers aware of various factors and responsibilities regarding their borrowing. One omission is the introduction of a cooling-off period. This should perhaps be two or three weeks to allow potential borrowers to reconsider whether to proceed with the loan. I welcome the proposed function of the financial services ombudsman in dealing with consumer complaints against banks, credit unions, insurance companies and brokers.

Last year in Britain, complaints about financial products and services increased by 44%, underlining increasing levels of dissatisfaction with pensions, endowments, stock markets and investments. Most of the complaints concerned mortgage endowments which were oversold by brokers in the same way that banking services are oversold to college students. I hope that the financial services ombudsman will be able to outlaw irresponsible and abusive promotions by banks to cajole and encourage college students to borrow for trivial reasons.

The Central Bank and Financial Services Authority of Ireland Act 2003 was the first new Bill discussed in the 29th Dáil and the first on which I had the opportunity to speak. At that time the Opposition expressed several concerns which repeated the view of many consumer rights groups that, as the first building block for a consumer protection infrastructure for the financial services sector, the Bill was putting the cart before the horse. Its philosophical premise seemed to lay too great an emphasis on the prudential role and not enough on the consumer protection role. In many ways those criticisms remain valid but they have been outweighed and ameliorated somewhat by the strong performance of the Director of Consumer Affairs, as previous speakers, and consumer rights groups have noted.

In putting the final pieces of this jigsaw together and, I hope, establishing the type of consumer protection infrastructure which has been long sought and needed, there is an onus on us in this House to get it right. While much of what is contained in the Bill goes in that direction, we still need to ask questions to ensure the necessary fine-tuning and nuancing take place. It remains the case that the overall board of the Irish Financial Services Regulatory Authority is too highly weighed in terms of traditional financial institution and banking types and should have a greater consumer involvement role, as is the case in the Financial Services Authority in the United Kingdom, albeit a different model. If the intention is to bring about an infrastructure in which consumers can have a great deal of faith, this is something we should have sought to change in the Bill.

The idea of establishing new panels, in particular a consumer panel, is to be welcomed. However, it is a step removed from actual board involvement. It is trying to influence the policy direction of the IFSRA from a remove, with no guarantee that influence will eventually pay off. There is also the difficulty that consumer involvement in such a panel is not properly defined or guaranteed by those who have been campaigning in the area such as the Consumers Association of Ireland. It would help the Bill if we were to name the type of consumer groupings which should be involved on both the panel and, ultimately, on the board of the IFSRA. This model is used in the United Kingdom and I see no reason it should not be repeated here.

Deputy Bruton referred to the difficulties of public appointments. The Department of Finance is currently progressing through the Houses the Public Services Recruitment and Appointments Bill, which specifically precludes Government appointments. I would welcome a process whereby nominations would be sought for positions such as this where people would need to justify publicly the role they can play in organisations from a consumer protection viewpoint. It would be welcome if the Bill could be improved in this respect.

Both the Central Bank and financial services authority Bills are based on the McDowell report, to which there have been several references. It is in the remit of the Minister and the Government to pick and choose from such a report if they feel subsequent legislation will be better as a result. The curious thing is the selective way in which the Department and the Minister have approached the McDowell report. The argument about having a standalone authority is now over. It is enmeshed within the Central Bank. It is operating successfully to a certain extent. This is a key recommendation of the McDowell report which was ignored.

Another recommendation the Minister is choosing to ignore in this regard is the separation of consumer credit and business credit. This is a mistake, particularly in regard to small businesses where there is a strong interlinkage. I can cite one case without naming the individuals involved. A woman who came into my constituency office lost a florist business because of involvement with a financial institution based on family security. If the IFSRA and the ombudsman are to be successful, and if the consumer director is to have even greater strength, the organisation must be able to tackle situations whereby credit is given too easily. There is far too much credit in our society. When the credit exists, the linkages between security, which is subsequently sold at a greater value than is still owing to the financial institution, and where a financial institution such as the Irish Nationwide Building Society has the ability to charge late payment facilities, and the legislative need to put in place measures whereby the length of time in which foreclosures can be made, should be strengthened so that people can work their way on a business level out of the difficulties in which they find themselves. We should not make a direct breakage between consumer credit and non-consumer credit.

It appears a contradiction that the Minister will not accept the recommendations in the McDowell report in regard to political involvement in bank mergers and acquisitions. I agree with him on this point. It is important in the future to seek to have some semblance of control over how many actors can be involved in the financial services sector so we do not have to go to one big bank, and we do not have a situation where all the financial institutions are owned outside of the State, as is the case in New Zealand, which is a similar type economy and has a similar population. There are lessons to be learned from the experiences of other countries.

Most of the credit implications of financial institutions foreclosing unnecessarily and dangerously on individuals result from the role of property in this country and the economic value placed on it. I do not think it is a coincidence that the house price bubble here occurred since the direct entry into the mortgage market of the major financial institutions and banks. Deputy Bruton already alluded to the vested interest that developers, builders and construction companies might have with financial institutions. There are other vested interests, for example, the legal profession. This is why thousands of people are unable to get proper legal redress through the legal system. The legal profession is slow to take on people with whom it has an ongoing business relationship in terms of the acquisition of property and conveyancing. This is why the role of a financial ombudsman and a strong consumer director within the financial services authority is vital.

On the basis that several building blocks are left unplaced on the edifice that should be a strong financial services authority, and that these are the blocks that should have been in place in the first instance, I am prepared strongly to support the Bill. I hope the Government will accept several amendments tabled not just by Opposition spokespersons but by consumer rights organisations who still have reservations as to how this can be the most effective organisation possible.

I did not expect to have an opportunity to speak on the Bill today but I am now pleased to do so. I wish to make a number of points which I hope the Minister of State will take note of.

As we have already heard from our party spokesperson on finance, Deputy Bruton, Fine Gael welcomes the legislation and supports the vast majority of the Central Bank and Financial Services Authority of Ireland Bill 2003. It is complementary to the Central Bank and Financial Services Authority of Ireland Act 2003. The Act established the Irish Financial Services Regulatory Authority to oversee the activities of financial institutions, including their treatment of consumers. There are three main purposes to the Bill on which I wish to comment. The first is the establishment of the financial services ombudsman, which is the main purpose of the Bill, dealing with consumer complaints about financial institutions. The second is the establishment of a consumer and industry consultative panel to advise the regulatory authority. The third is to introduce new reporting and auditing obligations for financial institutions.

Before referring to the content of the Bill, I want to put in context why Fine Gael is so supportive of it. In recent months, Fine Gael has adopted an advocacy role on behalf of consumers. We believed it was necessary to do so because it was an area the Government was neglecting. Under our party spokesperson, Deputy Hogan, we launched an insurance campaign which I hope has made some contribution towards ensuring the people in power take action on trying to reduce insurance costs across the board, whether business or car insurance. The other initiative has been the creation of a website, www.ripoff.ie, which has had many hundreds of complaints since it was established. A number of the complaints deal with banks and financial institutions.

I wish to give a flavour of some of the concerns that were raised, which I hope will be dealt with by the ombudsman's office. The first concerns the cost incurred by customers when switching banks. What needs to be achieved is a seamless system in which the customer is king and in which he or she can switch from one bank to another without bearing a cost or inconvenience when doing so. If we are serious about insisting on competition and choice for the consumer in respect of banking, mortgages and other financial services, we need to ensure this is the case. Such a system is not in place.

Concerns arise over stamp duty when switching mortgages. I hope an ombudsman's office will be able to deal with this. In the case of credit cards, the Government, through the introduction of its new levy on credit cards in a recent budget, has added to the complexity of switching between financial institutions, depending on the time of year one switches. Another issue, which continues to be topical, although some improvement has been made in this area in recent years, is the cost of using a credit card in Ireland compared with other countries, the United States being an obvious example. The level of competition in the provision of credit card services in Ireland is not sufficient. We are paying interest rates of between 3% and 4% for the use of a credit card service, yet financial institutions are charging three or four times that rate. The consumer is not getting value for money when using credit cards in some cases. The ombudsman's office could address this and the consumer panel could make suggestions on it.

The most blatant of the issues with which an ombudsman's office may need to deal is that of passing on interest rate cuts by the ECB to the customer after such cuts are introduced. In this regard, consider a press release by Deputy Richard Bruton from some months ago, which sums up this issue very well. He stated that while the large banks have passed on the interest rate cut to mortgage customers, the Irish Financial Services Regulatory Authority must examine the position regarding business and personal customers. The press release states:

Mortgage lending, makes up, less than one-third of all Irish lending. The rest is made up of short and long term borrowings. In the years since December 2000, the ECB rate has come down by 2.75%. In that time the business borrowing rates have only come down by half of this amount. Personal borrowers are in the same boat although those with term loans did somewhat better. Clearly the banks have not been passing on savings to borrowers in these categories, who between them have borrowings of €95 billion.

We have had some complaints similar to that in the press release, which in turn are similar to those found on the website www.ripoff.ie. The problem needs to be addressed. Perhaps the figures in the press release are slightly out of date. However, they make the point that, on foot of interest rate cuts made by the ECB over a period of two and a half years, parallel cuts have been made by the financial institutions in the area of borrowing with the highest profile, namely, mortgages. However, we have not seen the same cuts in the other areas of borrowing people may not be monitoring so carefully, namely, business loans and short-term borrowing for car loans, etc. This can and, I hope, will be addressed by the ombudsman's office and the advisory panels, which will have an advisory role.

Fine Gael welcomes the concept of the ombudsman. In some cases, consumers feel quite powerless when dealing with their banks. Until recent years, the bank manager has been very much a dominant figure in society and he or she often dominated the agenda rather than the customer. This needs to change and it has already begun to change in many ways. New financial institutions, such as the Bank of Scotland, have come to Ireland and provided more competition. However, there are still consumers who feel somewhat powerless in their dealings with banks. To offer them a channel of complaint is important, and this is certainly what the ombudsman's office will provide.

It is important that the body itself is constructed carefully and that it is user-friendly and easy to access. The Minister should ensure there is an adequate PR campaign to promote the idea of the ombudsman so the public will be aware of it. It is often those who need such a facility most who need to hear about it through a PR campaign.

The consumer director of the IFSRA is doing a reasonably good job and this needs to be acknowledged. She has undertaken a number of surveys, raised issues and generated debate. An obvious example pertains to the insurance sector, where she conducted a survey of insurance costs that has helped inform us on the insurance debate.

Let us consider the level of indebtedness in which many now find themselves. The Government could perhaps take some initiatives in this area. The reality is that very few young workers do not have a mortgage, car loan, holiday loan, student loan, high overdraft facility or high credit card limit. Some may have all of these. Given that interest rates are so low, there is a move towards making it too easy for people to borrow money. If there is even a slight change in interest rates, borrowers in this category may find themselves under very significant financial pressure. Five or ten years ago, it was very difficult to get a loan of up to €7,000 or €10,000, yet such loans now seem to be offered without asking by way of an overdraft limit. We need to examine whether our financial institutions are encouraging people to borrow in a way that could be dangerous to the consumer interest should interest rates change or should the economic climate change in terms of employment and earnings.

I welcome the advisory panel on consumer interests. Its role will be to monitor the performance of the IFSRA and provide suggestions for initiatives that could be taken by either the Government or the regulatory authority itself. It is a positive suggestion and I regard it as a type of think-tank panel, which will be helpful. For example, it could undertake studies on behalf of the consumer when it feels there may be issues of concern.

The panel will only be as good as the people who are on it. I do not want to see the type of political appointment system we have had in the past for prison visiting committees. This should not be used to reward local Fianna Fáil cumann or Progressive Democrats branch members.

Fine Gael never did that.

Those involved should be advocates of the consumer interest and have a proven track record in the area. We must be responsible if we are serious about a panel that can make a difference to the consumer. We should appoint the right people, regardless of their political background.

The establishment of an industrial consultative panel is welcome and necessary. We must achieve good regulation and protect the consumer while ensuring that Ireland remains a competitive place to do business. However, we must not frighten off financial institutions or businesses that deal with them through overregulation. The Minister of State is not a fan of overregulation, — he is the opposite — but we must be careful. We need a free, open economy where people can borrow money and there is competition in the area. At the same time, we must have regulations in place and an advisory panel to protect the consumer and ensure that everyone is treated in a fair manner. This will build an open, transparent and competitive market in Ireland. The industry consultative panel will play a vital role in this.

We must ensure the advisory panel advises and does not make decisions. It must not have the capacity to make decisions because people will come from industry into the area with a good understanding of it but their role must be strictly advisory.

The Bill introduces the new reporting and auditing obligations recommended by the review group on auditing following the Committee of Public Accounts investigation into DIRT irregularities chaired by the late Deputy Jim Mitchell. Is the requirement in the Bill for the provision of a compliance statement each year by directors the same as the requirement under the Companies (Auditing and Accounting) Bill? There is a concern that the Bills do not complement each other and we should avoid duplication.

The Bill is welcome and will improve the situation for the consumer. It will empower consumers who currently feel that banks are overly-dominant and will promote more competition between financial institutions, helping people to move from one institution to another. It creates two advisory panels that will assist in financial regulation in future both for the consumer and industry.

Tá áthas orm seans a bheith agam cúpla focal a rá faoin reachtaíocht tábhachtach seo. D'fháiltigh mo chomhghleacaí, an Teachta Burton, roimh an reachtaíocht cheana agus dúirt sí go raibh sé thar am go dtiocfadh sé isteach. Tá Páirtí an Lucht Oibre sásta gur comhlíonadh an gealltanas a bhí tugtha ag an Rialtas, is cuma b'fhéidir go bhfuil sé beagáinín déanach.

There is an obligation that this Bill satisfies the fundamental social requirement to restructure the relationship between clients and the banking sector. I have my own view on the commercial banking sector. Its relationship with the public has been outrageous. What has happened to the average customer within that sector? There has been a destruction of services in the name of modernisation and the service provided to the customer has been fundamentally changed. I came to Galway in 1960 when banking was not an occupation that was used to impress in night-clubs in Dublin. I remember the bank manager in Galway as a remote figure in the downstairs office in Lynch's Castle who pretentiously read the pink pages of the Financial Times to impress the rest of the staff.

I would, however, go back to the era of the pink pages rather than continue the current system. Between then and now there has been a systematic destruction of the skill level of those who provide the service from a trade union point of view and there is a reliance on cheaper labour. Banks suggest that customers have their dockets filled in before approaching the counter and the corralling started by Disneyland in the United States decades ago has crept into the banking halls, with people dividing themselves between lines so the least possible amount of time is spent between the provider of the financial service and the person who is using it. This is all presented as modernisation.

The Minister mentioned an issue closer to the core of the Bill — the outrageous advertising of financial services. There is a long list that begins in the recent scandalous period with endowment mortgages and goes on to the notion of equity-based tracker bonds. The latter are sold to customers on the basis that the financial services adviser who occasionally drops into the bank, but who is usually not on the premises, is available. A question to a person behind the counter results in the customer being given a telephone number which relays the message that the investment adviser is Liz and she can be called on Thursday mornings between 11 a.m. and 12 noon and, even then, she might not be there. This is an outrageous approach towards the public, but the public puts up with it. For many, myself included, this deterioration in relationship represents something appalling about what is presented as modernisation and as preparation for a new globalised existence about which I need not waste my time. One can publish as many 100 page documents as one likes but one does not need to be a rocket scientist to see the margins that exist between the services of Irish banks and those of other banks in Europe and abroad.

In 2004 in this economy, the second richest in Europe and the fourth richest in the world, with the least social protection, it is now impossible to transfer money from one bank to another. That is an extraordinary development. I go from here occasionally, as many Deputies do, to a bank at the corner of a well-known street. If I wish to transfer money to a member of my family who happens to be using another bank, I must take it out in cash, walk across the street and lodge it in the other bank. I am told that one cannot make an interbank transfer.

I find all this interesting as a sociologist. It is as if the only troublesome aspect of the Irish banking sector is the people. One must reduce the number of staff and have lower-skilled staff placed in worse conditions. I remember the late Mr. Titterington who at least retained some sense of standard in the banking sector. The notion is that it is only tedious cranks who do not use the new system. Let me make a perfunctory observation at this point that is fundamental. To say one is making changes, from the Office of the Ombudsman down, and not to put someone who is consuming the services into a strong position on the main board and on the necessary panels will create a very serious deficiency.

On the other side there is what one might call false and artificial advertising. If tested some of it is already unlawful under existing legislation. For example, to advertise on television or radio that one could reduce one's monthly bill by such an amount without specifying what debt one would be accumulating over the new period of the loan is frankly fraud, yet it happens every day. The attitude that has been adopted is that one can say anything to maximise one's commercial return, irrespective of the ethical base.

I lectured in financial economics more than 30 years ago. We read about the relationship of the Central Bank to the commercial banks. People do not realise it but in 1947 the distinguished T. K. Whitaker was running between the Department of Finance and the Central Bank because the Central Bank had told the Government it could not continue to operate as it was doing. There was an effective strike by the Central Bank against the Government. At that time, if people look at the history of the bank and the Department of Finance, the issue was resolved by a set of accommodating letters, a change of Government in 1948 and then, much later, a change in economic policy leading eventually to the point which is now prominent, 1958-63 and the First Programme for Economic Expansion. My point is that the bank's reputation as a source of orthodoxy was very much vaunted at the time. In more recent times there is no doubt, as the banks' representatives appeared before the committees of this House on the question of vigilance in the operation of accounts outside this State and operation of DIRT and so on, that there was a serious lack of even the most minimal diligence that one might have expected in the public interest.

To go back to where I began, this legislation which was promised is welcome, even if late in delivery. The Labour Party spokesperson on Finance, Deputy Burton, has also welcomed it but she has emphasised that consumers are still being ripped off and the necessity for a strong consumer presence in the different bodies that will come into being. I will turn to that in a moment because there are some other questions which she raised on which I would like to elaborate.

I want first to tease out what I am saying. In public policy the issue of ethics is very important. Let me observe en passant that much damage has been done to civil society internationally by the recent events in the United States, from which the international commercial world is reeling. What I am talking about is fraud. There is an assumption that when the figures get a few zeros added it becomes miscalculation rather than fraud or an off-balance sheet mistake, but it was misrepresentation and fraud. The ethical basis of banking and of credit and its relationships will be strengthened by the existence of some of these new institutions. However, they must come from outside the traditional banking sector.

There is more to being responsible in banking and financial services than going away for corporate weekends and looking pink from gin and tonics and port. The reality is that many of the people who have described themselves to me as bankers are a joke. They may have some expertise that they picked up in some part of the economy, but the assumption is that after one has passed some kind of consumption or wealth threshold one is qualified for the board of a bank. They have done very badly for us and very well for themselves. I would love someone to write a short essay some time, which they might make available to all of us lay members of the public, on what precisely are the valuable functions exercised by executive and non-executive directors of banks. Are the decisions so complex and so intricate that they need regular renewal, rather like the barrister who is well paid for a case and who needs a refresher to brighten his mind again and remember the contours of the case?

Our non-executive directors need to be refreshed endlessly, with buckets of money, not drops. That kind of ancient structure is daft and irresponsible and I do not respect it. At the same time these people, who vote huge sums of money for themselves using the shareholders as cover, provide a miserable, narrowing and shrinking service for the members of the public. I remember writing about it and the banks getting very excited 20 years ago, maybe less, when I was writing for Hot Press. I wrote an article called “The Hole in the Wall Gang” as the banks were introducing self-service entities around the country. I was asked by the public relations officer of one of the principal commercial banks to meet him for lunch. He did not achieve much. I will confine myself to the general observation that it is amazing that the public is not organising outside all these institutions to protest against the degrading, shortened, withered level of service being provided.

There is also the notion of inservice staff training in which members of staff are told that their faces are to break into a glazed smile as they tell customers they cannot move their money from one bank to another unless they walk across the road or that they might not have all their figures correct. This is Ireland, the friendly island. This is how we have evolved, and everyone I meet complains about it. I do not need anyone to send me any more questionnaires or people asking me to take a call at home on my private number and spend 40 minutes saying why a particular bank is not meeting its service to the customers. It is an intrusion into my privacy. I wish they would go away on a reflective weekend and not fire paint at each other or imagine there some kind of macho "laddism" that these people feel they should be involved in. They should just think what their relationship to the public should be. Many members of the public are wising up to it. If a person were to tell me when buying his sandwich, "I am a banker, you know," Members can speculate on the comment he would get.

I have already called for strong representation on the new institution in the context of consumer interests. There should be somebody outside the credit relationship for dealing with the social circumstances surrounding credit and the absence of it. This should concentrate on the notion of people being refused credit and the issues involved in credit reputation. The presence of people from the health boards and MABS, for example, would be immensely valuable.

I remember as a child in Newmarket-on-Fergus, County Clare seeing the first cattle buyers arrive with cheque books, in white trench coats, usually from Northern Ireland. It created a sensation. I have been watching the evolution of credit. One thing I regard as incredible are tracker bonds. People have advertised these equity-based securities in four or five of the great regions of the trading world, the US or Japanese or European Union stocks or even Irish equities. The question is whether any of them would declare what charges they are taking in the early period of investment. It may be argued that this information is published, but it is not readily available. What, for example, is being earned by alleged management fees? If they are real management fees, where would the consumer who purchased such bonds ever find out about the complex decisions taken by management over a period of time? They are a skim off the customer's savings with no indication as to the service provided.

One service that is provided is when people are entitled under existing legislation to be told how their investments are doing. A statement will be made about the world economy, saying in effect: "We have been going through an incredibly difficult two years and as you know when you bought our product we previously had four wonderful years." These were "wonderful years" when equities were flying out of the grass. That is the kind of rubbish being provided for the people who are being sucked into this system. The other side of it is interesting. Regularly the Central Bank, which acts as a kind of purveyor of OECD financial journalism, which is not economics, offers comments to the public on the state of world markets. I hope the Minister will appreciate it is not internal reform that is in question. What is needed is a restructuring in the consumer's and the democratic interest and real sanctions on misrepresentation, language that means something and a body that will make representation in favour of the customers. The suggestion that this Bill will give rise to some new obligation that will fall on these principled people who will interpret it themselves and mumble away is simply not acceptable.

I suggest that whatever is proposed in this legislation should not close off or quench any existing legal right available to a customer. That is important. Section 8, for example, needs to be looked at carefully. We should remember that while we can indicate the intent of the Bill and the likely consequences of a judicial kind, we cannot function as a substitute or alternative to the existing judicial process, which should be located where sanctions may be applied through the courts. Most importantly, no internal provision of the Bill should quench any right of any consumer as regards the normal legal process.

I welcome the opportunity to speak on this Bill. The whole issue of the financial institutions and the service they give our country is extremely important. Without strong banking structures and our own banking base, we would have been in much greater difficulties in the years when times were more difficult in Ireland than at present. I will criticise some of the activities of the banks later, but I want to recognise the fact that they have given a good service.

I first turn to the miscellaneous amendments, just in case I run short of time. Sometimes matters termed "miscellaneous" are passed over and forgotten. I notice in the Minister's speech the important issue with regard to the need for amendments to insurance legislation to go beyond purely technical matters. He refers to particular amendments designed to restore the right of an administrator appointed to an insurance company in difficulty to have access to a compensation fund. I raise this because we recently had a situation in my constituency where a company dealing in industrial insurance went out of business, in Clones, County Monaghan. In blunt terms it was one of the major issues that led to the closure of the CPV factory there. It was one of the issues, not all.

I welcome that amendment in this Bill because it is important. The insurance company concerned can be blamed for going for cheaper insurance, but in the present insurance market nobody may be accused of wrong in that context. The same insurance company dealt with many businesses in Northern Ireland and across the water in Britain. Those companies were totally covered under UK legislation, but because CPV was south of the Border, it had to carry its own costs. The tribulations of the company were enormous and some people used the situation to their own benefit.

I pay tribute to those involved who tried to mediate and get the issue sorted. No doubt, this is a welcome concept in this Bill and I support it. The Bill deals with the issue of mergers under miscellaneous amendments. I support this aspect of the Bill. The banking structures have become quite small. There have been many mergers in recent times. If two of the bigger banks in this country were to merge this would have to be seriously examined by the Government because monopoly is a dangerous thing in so far as the consumer and the whole financial services industry is concerned. It is likely they would become more interested — as many of the banks are, at present — in what the shareholders thought rather than what the customer needed.

The Minister indicates that he intends to make amendments on the Committee Stage. I know he has experienced difficulties with the credit union movement in the past and that a major difference had to be brokered between them. I hope this Bill will not impose on the movement, through the backdoor, a regulation that will make it impossible for it to operate in a meaningful way. A regulation in this regard brought before the European Parliament some time ago did not obtain agreement. I am not sure what is the exact intention of this amendment but I will check it out before Committee Stage.

Credit unions provide a tremendous service to their customers. The introduction of a regulation which prevents them lending small amounts will make it impossible for them to operate. All that will do is force people into the hands of moneylenders. This new regulation which is being introduced by way of amendment to current legislation should be reconsidered. I want an assurance from the Minister that is not what is intended because it would have serious consequences.

I know many for whom it would have been impossible to start up in business without assistance from a credit union. Banks will only assist such people when they are established. A credit union will accept a person's word. In many cases employees know the person concerned and his or her family on a personal basis. It is interesting to note that the credit union movement is increasing its number of counter assistants at a time when the banks are cutting back. Banks want to operate via the Internet with as few people as possible visiting branches, yet the credit union movement is making accessibility one of the main planks of its business and is doing an excellent job in that regard. I would not like to be party to a regulation that would impose hardship on the credit union movement.

I do not suggest the movement should be above structures and should not have to act responsibly. I believe it is responsible. We must ensure the movement is not tied up in red tape when making small loans. If enters the area of providing mortgages or loans of €10,000, €20,000 or €30,000, then it must be regulated in the same manner as banks. It should not be tied to meaningless and unnecessary paperwork for loans of €3,000 or less.

Deputy Coveney referred earlier to the fact that Deputy Richard Bruton and I visited some small industries in Monaghan. One of the issues about which directors were very concerned was the amount of red tape they encountered. That is all very well if one has a business large enough to employ an accountant as part of the staff, but onerous regulations that force businesses to pay massive sums to outsiders put industry under further pressure. I refer in particular to those businesses unable to gain access to broadband and other facilities. I know that issue was discussed in previous legislation a few months ago. I want to ensure the proposed imposition will not be unbearable.

We need good regulation, not over-regulation. We need to encourage banks to locate here. There has been criticism of some of the changes brought about by banks which have recently located here such as ACC Bank, now owned by Rabobank, and the Bank of Scotland. We must ensure we do not scare them off. With the number of Irish banks diminishing through amalgamation and so on, we need to ensure the banking sector does not end up like the insurance industry where the number of participants is so small there is little room for competition or opportunity. It is important that, in introducing regulation, we do not over-regulate this area.

The consumer-director will have a major role to play, especially in the insurance sector. I have already highlighted the need to shop around in this regard. There is no doubt that those who shop around the banking structures will get a better deal. Often, it is those starting off in life that are the hardest hit by banks in terms of surcharges and so on. It is not possible for such people to shop around. I hope the Bill will introduce provisions to ensure that can happen. It is important the Minister realises that it is often people at the lower end of the spectrum who are harassed by banks and banking institutions in general.

We can all remember, even those who were not Members at the time, when the House was recalled to discuss the difficulties of a major company. I agree with what was done in that case. I know the individual concerned on a personal basis. He was able to overcome his difficulties and his business operates better than ever. Many small businesses blacklisted for a few thousand euro never recover and those concerned are often forced to go on social welfare. They are the issues about which I am concerned.

As other speakers from my party said, we have no problem with the Bill which provides for the establishment of a financial services ombudsman to deal with consumer complaints, the establishment of consumer and industry consultative panels to advise the regulatory authority, new reporting and auditing obligations for financial institutions and so on. It also provides for a right of appeal, introduces new regulatory requirements and covers many miscellaneous issues. I would like to concentrate on some of these.

Other speakers referred to the establishment of the consumer and industry consultative panels. It is important that the consultative panels include people with a knowledge of consumers and the difficulties they experience. I am concerned that structures agreed in the House often become political. I do not direct my remarks to the Minister of State, Deputy Treacy. I would say the same to a member of my party if he or she was Minister. People of this highest calibre who are knowledgeable about the industry must be appointed. There is no point in appointing individuals who have been good supporters of Fianna Fáil, the Progressive Democrats or any other party. The Bill provides that the Minister for Finance must consult the Tánaiste and Minister of Enterprise, Trade and Employment. That means both Government parties are covered and that is worrying.

Consumer groups and voluntary organisations such as MABS and the Society of St. Vincent de Paul must pick up the pieces daily when people experience financial difficulties. They deal with individuals while the Small Firms Association, for example, deals with small businesses. The people and businesses who experience difficulties pay higher charges to the financial institutions generally. Meanwhile, the larger companies can shop around and hire accountants and auditors to put forward a glossy accounts structure.

I use MABS and the Society of St. Vincent de Paul in cases involving my constituents occasionally to minimise the stress and difficulty they experience. A newspaper recently reported that 8,500 people had received treatment for overdoses and suicide attempts. That highlights the stress many people are under in the so-called Celtic tiger economy. I urge the Minister to appoint people with a background in this area and who have knowledge of the difficulties that arise on the ground. MABS employees are wonderful and the public give generously to the Society of St. Vincent de Paul, especially at Christmas. Without such organisations, people would be much worse off, including some one would not expect to be in difficulty.

Houses are three times more expensive than ten years ago. While interest rates are low compared with rates of more than 20% that were charged in the 1980s, the capital must still be repaid. The capital repayment is significant if ones pays €300,000 rather than €100,000 for a house. In addition, new home owners take out loans to buy furniture, cars and holidays, to clear credit cards and so on. That is fine when everything is going all right but, for example, people still die suddenly. Thankfully, an improved life insurance structure has been implemented but, in the past, even local authority loans had to be repaid following a sudden death, which put enormous pressure on families. People with knowledge of financial needs and difficulties must be considered when making appointments to consultative bodies.

I refer to the administrative structures and the fines proposed in the legislation. Impressive sanctions that may be imposed on a financial service provider are a caution or reprimand, an order to refund a charge, a fine of up to €5 million or an order to pay the costs of the investigation. I welcome the provision of strong penalties but financial institutions are frequently able to avoid them. Last week a business person who had organised a concert for charity was jailed because one of the posters advertising the concert had not been taken down, yet other business people can walk away free from prosecution because they can pay for good advice and the means to be released.

I welcome the legislation and the appointment of an ombudsman. The appointments to the board and the consultative committees must include people who have experience in this area. People who are reasonably well off can make their own deals. It is extraordinary that many of our best workers who put their life savings in banks over the years are only earning interest at 1.5% and, therefore, must use the capital to live on while banks charge between 10% and 12% for overdrafts to small customers. This issue must be examined in the context of the profitability of banks. We cannot survive without profit but there should not be abuse and I hope this legislation will lead to the curtailment of abuses.

I welcome the Bill but I have a few concerns that the Minister of State might consider and address. When I was Minister of State at the Department of the Taoiseach, I chaired an international review of the Irish Financial Services Centre and a number of heavy hitters from Boston and New York provided their services free to the State to participate in the review. I met a cross-section of domestic and international interests from the financial services sector in New York and Boston to discuss their views about the IFSC.

I was briefed to discuss the positive environment in Ireland, the common law system and highlight that we are an English speaking people committed to the European Union, the euro, low interest rates and the certainty that brought, tax rates and so on. However, Americans were interested in investing in Ireland because, according to one senior entrepreneur, they had found in Dublin an enterprising spirit and work ethic that had not been experienced in New York for 25 years. That was an eye opening comment. Every morning the traffic jams begin earlier because workers are heading to their offices in the IFSC earlier and they finish later because there are rewards. That is welcome because I believe in encouraging and rewarding enterprise. The IFSC generates one third of all corporate tax receipts, even though the rate has been reduced to 10%, and the centre also accounts for 7,500 jobs. The Americans also mentioned that the same scenario applied in Luxembourg but at certain times of the year they had to bring half their staff from the United States to Luxembourg because they could not recruit locally.

I was struck this morning by the forecast for development in Dublin over the next decade and the lack of suitably qualified personnel to take on the high-tech jobs which will come on stream. I suspect that in the international financial services sector, we are in danger of going down the same road as Luxembourg if we do not constantly keep that situation under review. That would have serious implications for us. Luxembourg is on mainland Europe and it is easy to move around from there. One can attract staff from Germany and Belgium easily. We do not have the same luxury, therefore we need to attend to that issue if the financial services sector is to continue to be vibrant. I ask the Minister to ensure this issue is kept strongly and actively under review. The availability of a workforce with an ethic which they had not seen for a quarter of a century in New York was one of the great attractions, greater than the tax rate and the other attractions through which we sold the IFSC.

The new development of an EU-wide company has been proposed. This would be set up under an EU statute and with EU-wide powers, not just an Irish company trading in France or Germany. Rather, it would be a European company which would be to the European Union what an Irish company is to Ireland, set up under its own statutes and under European law. This proposal is at an advanced stage and is coming our way quickly. I do not know what the implications of that will be for the Central Bank, the financial services authority or this Bill. For example, will the remit of the ombudsman and the council extend to European companies or is there a need for a specific provision to ensure that companies set up in such a manner would be subject to the full implications of this Bill?

I welcome the provision of a financial services ombudsman and council and hope it will create greater transparency in the financial services sector. I suspect that most of us are, at certain times in our lives, just grateful to get an overdraft facility, a loan or a mortgage and sometimes we do not question how much it costs or what are the bank charges. I am aware we get a separate bank statement showing the charges, but there is no real competition. One does not know whether one would be better off with one bank rather than another. There is a need for greater transparency and competition in this area and a need for the financial services authority to perhaps create an awareness among people that there is competition and that it would be wise for them to shop around.

The psychological relationship between banker and customer is one which favours the bank, and most customers do not want to ask questions for fear it might be held against them when that rainy day comes. However, that is no longer acceptable. There needs to be a change in the relationship between banker and customer. Customers' rights, particularly in terms of explaining exactly what one is paying for a financial service, need to be more transparent.

I am concerned about the danger that over-lending in the housing sector could give rise to difficulties for financial institutions in future. I have no evidence it will happen, nor do I wish to scaremonger, but it is not unreasonable to suspect that house prices in Dublin may well be overvalued, particularly if they continue to rise as they have been. Not so long ago in Britain, negative equity became the order of the day and people were handing back their keys, saying that they could not continue to make their repayments.

I would like to hear what role the Central Bank and financial services authority will have where lending is a multiple of the borrower's income. I do not want to discourage banks from lending. Again, I suspect when most of us took our first mortgages, we went in deep, took what we could and survived. However, I wonder if there are implications in regard to the ratio of lending by banks and financial institutions for the stability of the banking and financial services sector into the future. If there are, will there be someone there to apply the brakes at an appropriate time before something calamitous occurs?

I welcome the provision for the chairperson of the council to be required to appear before a committee of the Houses of the Oireachtas. This should be a standard provision in every Bill, as is the case more and more, which is welcome. However, I note there is no sanction if the chairperson does not appear. Will the Minister point out how he sees such a sanction applying? I recognise that the Bill provides that there are certain matters which should not be discussed by the chairperson while an investigation is ongoing but there should be some provision in the Bill, perhaps for the failure of a person to appear before a committee. That could be reported to both Houses and would become a matter of concern, which could be raised on the floor of either House. There is no penalty in the Bill. It does not, for example, provide that the Minister may suspend a chairperson who refuses to attend or that the committee could recommend such a sanction. I welcome the provision but I am nervous of provisions which give powers to the Houses of the Oireachtas but do not provide for a penalty when those powers are not applied.

There is a Contempt of Parliament Act in the United Kingdom under which, if a person fails to comply with a lawful request to attend before a committee or at the bar of the House of Commons, such a person can be made to account for it. I do not know how we should deal with that situation here. Natural justice must apply and people's good names have to be protected, but this is something which can be done, particularly if the right legal advice is available to the committees of the Houses of the Oireachtas. Will the Minister deal with that point in his reply?

I welcome the general provisions of the Bill. I am delighted to have the opportunity to say a few words and I am sure the Minister will take into account some of the concerns which I have raised.

I welcome the opportunity to speak on the Bill and to address points on the banking and credit sectors in society. I have developed a personal view recently that something is awry in the Irish banking, financial services and credit sectors which, according to words I heard when I was growing up, "will all end in tears". I am increasingly fearful of the results of the massive increase in borrowing and personal credit which has been raised for various uses. Unfortunately, the council, ombudsmen and regulatory authorities for which we are legislating will be hugely important in future years if we allow this massive increase in personal borrowing to continue, particularly should there be changed circumstances in our economy or society. That is what makes these legislative provisions important.

I am not biased. I was interested to hear Deputy Michael D. Higgins's views of the banking sector and agree with many of them. He spoke of going to lunch with a public relations officer of one of the main banks. That may well have been my father who fulfilled one of those functions in years gone by. While Deputy Higgins failed to be convinced by my father, I am sure there would be little difference between the two of them on such matters. I come from a long line of bankers, going back to both my grandfathers and even further. I do not speak these words of warning from a jaundiced position of distrust or dislike of bankers but because I fear that what is happening represents a dangerous change in the way banking operates in society.

My grandfather once told me a story of his first day as manager of a bank in Macroom which he referred to as the premier branch in the country. A seemingly reputable young man sought a loan to buy cattle and assured my grandfather that the deal was a clever one. My grandfather, thrilled to be giving out money for the first time, loaned the customer what at the time was a huge amount of money. When he was walking home that evening along a dark country road my grandfather met the man to whom he had lent the money. He was lying unconscious in a ditch having taken too much drink. He had not drunk all the money and my grandfather vividly described how it was blowing down the road. He spent his first evening in his new job chasing the money down the country road in the dark and picking it out of the puddles. This was a lesson for him for the rest of his time in banking. I would not like to have tried to borrow money from my grandfather. He was a tough man to persuade to loosen his purse, but sometimes that is not a bad thing.

In the early history of the State and until recently we were too conservative in our lending. The Department of Finance was incredibly conservative in the first 40 years of its operation. The inability of that Department to free the country's purse strings before the end of the 1950s did huge damage to our State. I do not advocate an austere hairshirt approach and no lending. However, what is happening at present is at the other end of the spectrum and all the parties involved will suffer tremendously.

As I prepared this speech in my office, I happened to glance at my desk and found, among my post, a document from the National Association of Regional Game Councils — a laudable body with which I do not have dealings — informing me that I could get preferential loans exclusive to its members. I could also get a credit card which offers so much more than other cards, financial flexibility and superb benefits. There is no restriction on the loans I could get and I could buy any make or age of car. No deposit, savings or upfront payments would be required. As a member of this association, which unfortunately I am not, I could obtain just about anything I wanted.

Last week in my post I received a letter from the ESB — not known in the past as a credit organisation — offering to give me €5,000 of credit because I was such a good customer. The ESB wanted to lend me money and get into the game of making interest from my having an extra fridge, video or whatever.

My wife was in her bank branch two weeks ago. It is one of the four main clearing banks and my wife has a standard and unremarkable current account from which she wanted to withdraw €50 or €100. The bank official, in a conspiratorial and friendly manner, whispered to her and asked her if she realised she had been approved for a loan of €20,000. My wife wanted to withdraw €50 and had made no approach or loan application. The bank had seen that her account was trundling along, doing no harm and decided she was a person to whom it could loan €20,000. These are symptoms of the massive credit explosion which is occurring in our county and which, if we are not careful, will lead to real difficulties when we need to change our economic circumstances.

It is important that the regulator begins by examining some of the practices of our financial institutions. Just about everyone is now offering free credit and 0% finance for the first number of years. There is no control of what is happening in this area and we desperately need to impose it before it results in trouble for the financial and commercial institutions and companies involved.

There is huge concern regarding the mortgage market. A reputable banker who spoke to me on this subject said he felt that banks themselves have played a large part in the house price increases of recent times. It is hard for us to believe that banks were not engaged in the mortgage business until ten or 20 years ago. They left it to building societies and credit unions. Their aggressive move into the mortgage sector, at a time when the Central Bank and every international financial institution is saying that Ireland's house prices are over-valued and that this will lead to trouble could be hugely damaging in future if we have a downturn in the housing or jobs markets. The banks must look at what will happen if that occurs and they are faced with repossessions on a massive scale.

The introduction of lending facilities such as the interest-only mortgage facility has added to this effect. Someone buying a second property, usually to be rented, is offered an interest-only mortgage for the first number of years on the assumption that there will be a capital gain on the property which will help pay off the capital sum when the time comes. This is a dangerous lending policy which will have huge ramifications. If there is an economic downturn when these people seek to sell their properties and retrieve their capital, they will make a loss. What will banks do then with all the properties they might have to repossess? This issue will be hugely important and one which the ombudsman must examine.

Whatever about his role as President, Deputy Michael D. Higgins would make an excellent financial regulator or member of the board of the regulatory body. It has been recommended that someone from outside the financial services industry would bring a different perspective on lending and credit. We do not want to hear the same voices from the banking, industrial and commercial world who think everything is proceeding brilliantly, all the institutions are making money and the customers are happy to be able to buy their 04D registered cars. It would be no harm to have someone on the regulatory board who will be prepared to say the emperor has no clothes, that there is madness afoot and that we need to restrict the type of lending that is taking place. I was interested in what Deputy Richard Bruton said earlier about how we in the Oireachtas relate to regulators. Yesterday the Oireachtas Joint Committee on Communications, Marine and Natural Resources had a nine-hour meeting with ComReg, to which the Deputy referred. As usual great work goes on in the committees of which the public may be unaware. While I have spent the past year reviewing the telecoms area with my fellow committee members, yesterday's nine-hour meeting represented the masters on top of the basic degree we had completed in the past year and we learned much from it.

In hindsight I believe ComReg made a poor decision in changing the conditions that applied to Eircom's cap. One of ComReg's responses was to ask the committee why it failed to advise and give its opinions during the nine-month consultation period prior to the decision. This was a valid point. However, as Members of the Oireachtas we do not have time and tend to be reacting to events. We find it difficult to follow all the regulators that now exist. In the communications, marine and natural resources portfolio, there are at least three — ComReg, the Commission for Energy Regulation and the Broadcasting Commission, which is a form of regulator. We need to consider a formal structure of communications between Oireachtas Members and the regulators, and our reviewing of them in order that we do a better job.

A model of how this might work may lie in our scrutiny of European regulations. A dedicated sub-committee reviews those regulations and recommends to committees whether they should closely scrutinise particular directives. The same should apply to our review of and work with the financial and other regulators with which this House has to deal. We could develop a system that allows the committee to be flagged to review important upcoming decisions. A committee cannot spend all its time looking over the shoulder of a regulator. Once in every year or two a regulator might advise a committee to review a crucial decision with important long-term consequences. While we should not consider every directive, when there is an important regulatory decision a regulator should notify the committee, the Minister or other body depending on how it is structured. This should work well. If the committees are resourced properly they can become a very useful tool in providing outside analysis and act as a sounding board for regulatory decision.

I listened to the Minister's speech with interest. He referred to the miscellaneous amendments in the Bill, which are largely of a technical nature. He rightly picked out two as having particular significance. The first amendment restores the right of an administrator appointed to an insurance company in difficulty to have access to the insurance compensation fund. In his speech the Minister trumpeted the fact that since the famous collapses of the ICI and PMPA in the 1980s, there has not been a major insurance failure in this country.

I beg to differ with the Minister. When I was first elected to this House I had to deal with representations from people affected by the collapse of the UK company, Independent Insurance. While this was a British company it had a significant branch operation here. Under the interpretation of existing regulations by the Government, it was decided that those who lost out in that collapse were not entitled to access to the funds they had been paying in as a tax since the establishment of the insurance levy. This was a particularly unfair judgment by the Government. Those who have been paying the 2% levy to cover the cost of any such collapse find that when their insurance provider collapses they get nothing, as the headquarters happen to be in the United Kingdom.

Most insurance companies operating here are similarly arranged. Most do not have an Irish headquarters but one elsewhere. As someone in the insurance industry advised me today, anyone setting up an insurance company today would not do so here, but would go to somewhere like Gibraltar or elsewhere where there are much lower capital requirements.

If the Minister is to address how the insurance levy is administered, I hope he will consider accepting an amendment we may propose to the effect that the ability of an administrator to have access to the fund should not be limited to companies based in Ireland but should extend to all companies operating under branch licence or freedom of services operation with an Irish business here. The Government cannot collect the levy and refuse people access to avail of it. I am not talking about helping the businesses in question, which through their own fault may have collapsed, but about Irish consumers affected by such collapses through no fault of their own. As this seems to be the intent of this Bill, I hope the Minister will amend it to broaden the scope of where the insurance compensation fund may apply.

Another amendment mentioned by the Minister is far from a miscellaneous one and is very significant and interesting. This is his desire to maintain control over mergers and acquisitions within Irish banking contrary to the recommendations of the McDowell report. I agree with the Minister on this. It is important not to let the market decide the development and structure in the Irish banking industry.

How much control will the Minister have even if he changes the legislation to keep certain controls within his Department? Given that the shareholding of major Irish banks is now largely in New York, London or Frankfurt, their future is not really in the hands of Irish people let alone the Government. It would be hard for the Minister to restrict a merger or acquisition in this area. If the board of Deutsche Bank in Germany decides that an Irish bank is an attractive acquisition I cannot see how the Minister could have control over that. Where possible and where he has the powers he should exercise them. It is important that we maintain an indigenous Irish banking industry.

At the start I spoke about how banking works and my experience of it. I was always told it was about risk assessment. It judges whether a person is a decent character who will make a business work, not squander the money and be able to pay the bank back. In the Irish banking market we have developed a completely different culture, where quarterly objectives must be met and sales must be made rather than making a judgment on the character of the person. When banking decisions are made outside Ireland that assessment of risk of character or operation of a company becomes more difficult and there is a strong case for maintaining a close contact between the Irish banking community and its customers.

There is also an important requirement for banks to go back to their core business of analysing risk and character. They should not lend money in the hope that they will obtain an immediate and welcome return on interest while failing to take into account the consequences of customers not being able to pay or resolve difficulties in which they find themselves.

I enjoyed the opportunity to speak on the Bill. While my party supports it, we hope the Minister might consider certain small amendments on Committee Stage designed to improve its intent.

I welcome the Bill. I am glad that a mechanism designed to protect consumers has been brought forward because it is badly needed. For many years banking institutions have creamed off major profits by imposing many charges. Banks will always enjoy profits but customers will never do so.

I agree with my party's spokesperson on finance, Deputy Richard Bruton, who stated that the financial services regulator must immediately investigate whether bank customers are being ripped off in terms of interest rates. For a long period banks have imposed many additional fees and charges. The two largest such institutions have had the market to themselves and introduced a huge number of extra charges over many years.

Deputy Coveney referred earlier to the initiative introduced late last year by Fine Gael whereby people can log on to the ripoff.ie website and inform the party of instances where they were ripped off. Many banking institutions have been referred to in communications to the website from people who were ripped off by the imposition of additional charges.

Many Members referred to instances where they were ripped off by banks. Interest rates are extremely low. In such circumstances, banks recoup the money they would otherwise make if rates were high by imposing additional charges. For example, people are charged for making withdrawals, writing cheques, etc. I have spoken to a number of business people who deal with banks on a daily basis. I refer to those who run supermarkets and need to lodge large amounts of cash or write numerous cheques. They told me that colossal bank charges were imposed on them which made a major dent in their end of year profits. It is sad that business people trying to create gainful employment in their local communities are being charged exorbitant fees by banks. I accept that banks must also make profits but the charges they have imposed over many years are unacceptable.

Reference was made to the ease with which people can borrow money from banks. Deputy Eamon Ryan referred to the ESB offering him credit and his wife being offered a loan by her bank. On each occasion one opens the newspaper, a small leaflet from a banking institution offering loans or credit cards will fall out. This is especially true of Sunday newspapers. One could spend a great deal of time on Sunday reading the leaflets in the newspapers that come from lending banks and lending institutions such as the PTSB and others.

People who have difficulties with banks visit my clinic on a regular basis. I was visited last weekend by a farmer who stated that he was suicidal because of the pressure exerted on him by a bank — I will not name it — in my county. He had an overdraft of €6,000 which he had exceeded by €3,000 and was thus in debt to the tune of €9,000. The bank held the deeds to his 150 acre farm, his house and another property he owned.

The man in question experienced financial difficulties in the past. He was £90,000 in debt but he paid off every penny. Before Christmas, he was not allowed to write cheques or withdraw money from the bank and was extremely disappointed with the way it had treated him. Representatives of the bank contacted him each day to see when he was going to pay off his overdraft. By today's standards, €9,000 is not a great deal of money.

The man in question only told me his story on Saturday last but the matter first arose before Christmas. It was dreadful that he was informed at that stage that he could not write a cheque, even for €200 or whatever. He had a bleak Christmas. I understand that the account was held jointly in his wife's name. For the purposes of discussion, let us say that their names are Michael and Mary. What puzzled both him and me was that, last week, his wife received a letter from the bank inquiring whether she wanted a loan to buy a new car or carry out house renovations and informing her that she could obtain a loan up to the amount of €15,000.

I do not understand how the bank could send this letter to Mary when only weeks ago it was putting her husband under pressure because he had exceeded his overdraft facility by €3,000. That was bad business. I have asked someone to meet representatives of the bank to discover exactly what is the situation. Under no circumstances should a customer be treated in this manner, especially, as in this case, by one of the two major banking institutions. I was surprised by what happened.

Banks have no difficulty lending money. However, if people cannot keep up their payments, banks will show no mercy and will not offer to help out. In recent years they have been giving money away and offering loans and credit cards in leaflets in daily or Sunday newspapers. I have often received letters from my local bank stating that I have been approved for loans of €20,000 or €30,000 and that all I need do is tick a box, sign my name and return the letter. Other banking institutions not based in Wexford but located in the south-east are doing the same. People can obtain car loans, etc., without difficulty.

I feel strongly about the services offered by the banks. Old people are regularly advised not to carry large amounts of cash or hoard cash at home. They are told to put money into the bank, post office or credit union. However, in last year's budget the Minister imposed a charge on credit cards. That galls me. On the one hand, we have been encouraging people to carry a credit card but, on the other, we are charging them for doing so. Where is the encouragement in this? The charge on the credit card is only a small amount but where is the sense in charging a person for carrying the card after encouraging him or her to get one? I could go further and discuss gardaí on the streets but that does not relate to the Bill.

Many old people will not use banks now. They are afraid to bank. They see no security in banking and have lost confidence in it. Before my involvement in politics I worked as a sales representative and had a customer base of between 300 and 400 customers. If €10,000 worth of goods was sold to, let us say, Paddy Doyle and he was not paying the money, the financial controller of any company could ring up the bank to ask how much money he had in his account. That is happening on an ongoing basis in every major business dealing with cash transactions and waiting for money from customers. If somebody asked the financial controller if he or she was doing this, he or she would deny it. Since he or she has contacts in banks such as Bank of Ireland, the AIB, Permanent TSB or the ACC, he or she can ring them and say: "How much has Paul Kehoe in his account? When did he last write a cheque? I have a cheque from him for €10,000, so will you ring me back when he has that amount in his account so I can go to the bank and cash the cheque?" I feel strongly about this. It is happening everywhere. Why should anybody be allowed to do this?

Another important issue is student loans and credit cards. Students are encouraged to carry credit cards. When I was 18 years old, a student had to work at weekends. Under no circumstances could they get a loan. Students never carried a credit card because they could not get one. Now, however, a chap aged between 17 to 20 years can get a credit card without any problem. He simply fills in an application form. The new board proposed in the Bill could examine this practice and clamp down on it. It should not be allowed. It ends up frightening young people. They are given loans which they cannot repay or get into trouble with their credit cards over Christmas or whatever period.

I listened to a radio programme before last Christmas in which a number of young people between the ages of 18 and 25 years told harrowing stories of their experiences over the previous Christmas. They had got loans or used their credit cards to buy presents and so forth and the banks immediately clamped down on them when they could not repay the money. How will they in later years be able to take out loans to buy a house or a car? If they had a bad record when they were aged between 18 and 25 years, that record will continue to exist when they are 30 years of age, when they might be thinking of getting married and taking out a loan to buy a house.

Fees are charged for writing cheques just as there is a charge on credit cards. Cheque books are extremely handy, particularly for older people. They do not have to keep cash in the house. However, they are being charged exorbitant fees for using their cheque book. Banks are moving further away from the customer. Deputy Michael D. Higgins spoke about the telephone calls he receives from banks on his private number. I have received the same calls. The caller rings and asks if one is available for a 15 to 20 minute question time the following evening at 6 p.m. The caller is generally from one of the main banks. I do not have an account in one of the banks whose caller contacted me and do not know how they got my number or why they were ringing me. Out of curiosity, I agreed to take the call. The caller spent 20 minutes on the line. I asked why they were ringing me when I did not have an account in their bank. The caller replied that they were carrying out a survey in which they were ringing account holders and non-account holders to find out what type of service the bank should give to the customer.

It was a little strange. I was asked what bank I used but I did not tell them that. I was also asked how much money I might have in the bank and what type of service I might use, whether it was a daily, weekly or monthly service. I was asked if I had a credit card or ATM card. The questions were about private and confidential matters. I was always told to keep three things to myself — my religion, bank account and politics. This caller was ringing about one of them.

It is probable that every Member of the House has a bank account. I always encourage people to open a bank account because it is safer to do so. However, I am a member of the local credit union in Enniscorthy. I have never received a questionnaire or telephone call from a credit union on how to improve its service to the customer. I have rarely seen an advertisement in a newspaper for a credit union and have never seen a television advertisement for one. However, each time I call to the credit union office in Enniscorthy, it is packed with people. I have never gone to that office and seen only three or four in the queue. That is true of every credit union.

The reason is that the credit union offers a genuine service. It will give the customer every support it can. If he or she falls into arrears, it will do all it can to help him or her. The bank does the opposite. It will give a customer a loan as soon as he or she signs his or her name. If one seeks a loan from the credit union, the board has a meeting to decide if one should get it. Its members will consider whether the customer will be able to meet the repayments. More than likely it will be local people on the board and they will know the customer or know somebody who knows something about him or her. They will find out if he or she will be able to make the repayments and if the loan application is genuine.

Banks are different. They simply look at the customer's name, address, date of birth, salary and place of work and give the loan. However, if he or she falls into arrears, they will bring him or her to court to get the money back or take what he or she has. Many families and business people have had bad experiences with banks. Credit unions operate in a different way.

I was involved in voluntary organisations. Many such organisations have a registered number as a charity whereby they are exempt from bank charges. I was treasurer of my local branch of Macra na Feirme for three years. It was charged a small amount by the bank every year and I had to telephone the bank every year and ask it to drop the charges. I was not annoyed about the money, but about the fact that the bank knew it was wrong to charge an organisation which was a registered charity. I do not know why it did that.

The same is true for penny banks. A woman rang me recently to complain that she had been charged DIRT and banking charges on the penny bank. The small community in Blackwater in County Wexford operate the penny bank twice a week, on Friday and Saturday nights. The penny bank is not worthwhile because it makes little profit as a result of banking charges. The senior citizens' party in the area is funded by the profits from the penny bank. However, the little profit it makes means it is a waste of time. How does that encourage people to save money in banks?

Bank of Ireland and the AIB are two of the major banks in rural Ireland. However, they do not care about rural Ireland. There are few small towns and villages with a major banking institution because most of them are closed. The Bank of Ireland in Enniscorthy closed its branch in Ferns. It does not care about the people in that area. They can go to Wexford, Enniscorthy or Gorey. The bank's attitude is that if the people want to bank, they can go to their nearest branch.

I hope the board of this authority is not made up of political appointments. I repeat what Deputy Coveney said this morning, namely, the board will only be as good as the people on it. I hope I will not be critical of this board in the future. I hope it will be a good board which will work in the best interests of the consumers. I look forward to its establishment and I hope the people on it will work extremely hard. I am glad they will be accountable to the Houses of the Oireachtas. I commend the Bill to the House and hope it works.

I am glad to have the opportunity to speak on this Bill. Reference was made to the ombudsman and the financial regulator. We live in the regulation era and we have become accustomed to regulators in recent years. It looks like we will have more of the same. It should be recognised that regulators have a number of jobs. They must ensure there is fair play in the marketplace and that restrictive practices are not in operation. They must deal with the customers of the services they regulate in a fair and equitable manner. They should operate in such a way to ensure competition prevails and that the consumers' interests are kept to the fore in any debate or action taken.

The introduction of the ombudsman in this legislation is interesting, progressive and challenging. I am sure many people can recite stories about the way they have been treated by financial institutions. I am not criticising all financial institutions as some of them treat their customers in a fair and equitable manner. Others, however, believe their only loyalty is to their shareholders. When the euro was introduced, for example, the banks and financial institutions howled from the highest platforms that it would be the end of their profits, that they would suffer severe penalties as a result of the currency exchange rates and that it was a restrictive era for banking. When I read the annual and six monthly reports for the banking institutions, I was amazed to find that their profits did not fall, but that they increased substantially. I am happy that they are continuing to increase. However, how could they tell all and sundry that they would not be able to exist in the future? The banks shed crocodile tears before the introduction of the euro. However, their fears did not materialise.

There is a lot of investment in financial and international financial services. However, we must accept, whether we like it, that we have become uncompetitive. There are a variety of reasons for that which must be considered, including those associated with activities in the financial services sector. The differential between the amount paid in interest to depositors and the amount charged to borrowers is interesting. The variation of 4.74% is considerably higher than in most other European countries. That is one third higher than the average in the nine EU countries covered in one survey. It is significant that our close competitor and immediate trading partner, the United Kingdom, has a variation of only 0.33%. It operates from a dramatically lower margin. The regulator has not had an effect in that area, but I hope the ombudsman will.

We have been told that we have the lowest inflation rate in Europe. However, the cost of goods in our supermarkets and the services people use, such as the telephone and electricity, has accelerated beyond that indicated in the consumer price index. I do not know how the Government has managed to do this. I am sure the Minister of State at the Department of the Environment, Heritage and Local Government, Deputy Noel Ahern, is as confused as I am. I have tried to find out the reason. It is contradictory when the Government tells us, on the basis of the CPI, that interest rates are low and we should be happy, while every other indicator for the past five years shows that the cost of the goods for which the consumer must pay on an annual basis has gone through the roof.

That is because the Deputy is being selective.

The downside of that argument is that the CPI must also be selective. It must be avoiding the consumer goods which previously gave an accurate record of our inflation rates.

What is more interesting is that five or six years ago this economy was regarded as one of the five most competitive economies in Europe and one of the most competitive in the world. We can talk until tomorrow about financial services and how sophisticated we have become, but there is something wrong because now we are one of the least competitive countries.

This has happened over five years and we are fast becoming one of the least competitive economies in Europe and countries in the world.

Government spokespersons say in response to this that ours is no longer a low wage economy, as if that was a great achievement. Jobs are relocated from this economy to what we deem low wage economies from which we will import the goods that we once produced. The employment will go to those in another economy. There is a serious gap between financial services and competitiveness where this inflation is taking place and it has not been exposed. Those who suggest we have achieved the ultimate by becoming a high wage economy should know that will lead to large-scale relocation of jobs from here to competitive economies, not necessarily low wage economies. The new post of financial ombudsman should have real teeth to challenge the financial services sectors and query the charges they impose on customers, consequently creating the problem of rising prices.

Politicians nowadays must have a political account. Between elections, when nothing is withdrawn, this account diminishes because someone is managing it. What management is involved? If the Ceann Comhairle were to give me €200 in the morning to mind, I would keep it, have the use of it, and do anything I liked with it as long as I had it. Why should I reduce it by a specific amount every six months just because I had the loan of it? That is what financial service providers do all the time. Countless people have accounts which are inactive for a period yet the sum in the account is reduced, allegedly for management. That practice needs to be examined carefully with a view to ensuring that the consumer is protected.

One would expect confidentiality in the payments and charges applied by financial institutions. That is not the case, especially these days. As a previous speaker said, it is quite possible for a person to obtain information on an individual account holder to ensure that the business the person may have with the account holder is guaranteed and secure. That is business and it involves risks, winning some and losing some. Under the present system financial institutions never lose. Only the consumer loses. This issue, which has been raised by several Members, requires consideration and I hope that the ombudsman will take cognisance of it and deal with it when the time comes.

In case one believes consumers are getting away lightly, two years ago my colleague, the Minister for Finance, imposed a penalty on credit cards with one stroke of his pen. Consumers were already paying a penalty on current accounts. The Minister, Deputy McCreevy, is my constituency colleague, a nice man of whom I am very fond and who does good things for people. However, he decided this was a way to make money for the Government, not to provide equity and fairness to the consumer. It was a brilliant stroke but how can it be explained to the consumer in the marketplace? I am waiting for someone from Government to tell us this. Everyone has been encouraged for security purposes to get a credit card to move away from carrying cash and writing cheques. We were to use plastic, the "flexible friend", yet once again the consumer has been caught. This is the rip-off society. The Government is dipping its greedy paws into consumers' pockets to ensure that they not get too far away.

This legislation proposes to introduce consultative panels and I do not doubt that various organisations will be called on to provide personnel for these panels. I hope that will be the case, that they will be picked at random and will not all be Government supporters singing from the same hymn sheet. Whatever happens by way of penalty to the consumer must be approved by the consumer panel because another trend is gaining ground in our regulated society.

If the regulator believes there is insufficient profit available to encourage a competitor into the marketplace, he or she may increase prices to make it attractive. I have heard and read a great deal about competition but have never yet encountered a situation where a price increase was encouraged to attract another competitor into the market at a certain level. This is a contradiction but there are some areas where this is the theme. It has not happened in the financial services area yet but I have no doubt that it will happen there. I do not know who thought of it or what is the underlying business concept. I have never heard of it before. The bottom line must surely be that the consumer has to receive an adequate and fair service at a competitive price while ensuring that there is sufficient investment to continue the service, whatever that may be.

There is no danger that there will be a fall-off in investment in this area. A few years ago we were warned that, when the euro was introduced, the poor banks would starve and go by the wall. This conjured up visions of the heads of banks starving to death outside their institutions, and poverty and destruction descending upon our economy. However, it did not happen that way.

In the event of a breach of the regulations, unfair treatment of the consumer or unfair competition what action can the ombudsman take? Will it be a case of, "Dear Sir or Madam, I noticed you were a little bit off-line. It think it might be a good idea if you changed your tactics." What will be the real penalty? Will it be a couple of million euro, to be imposed daily as long as the action continues? This is an issue which should be looked at very carefully. The whole concept of the merging of the side-by-side activities of the regulator and the ombudsman will depend on how effective each is and what way penalties will be applied in the event of there being penalties.

By February this year, ECB interest rates will have fallen two full points, from 4.75% to2.75%. Needless to say, that full reduction has not been passed on to consumers. This is where it disappears into oblivion in the inner vaults — no pun intended — of the financial institutions. I am sure it is good for the financial institutions. I do not wish to be critical because I realise that we must have a stable financial services sector and a stable economy. If we do not have a stable financial services sector and banking system, we will not have it at all.

Why do we need these regulators? I was a member of the Committee of Public Accounts at the time of the Allfirst banking debacle. I recall asking why someone in the Central Bank or the banking centre, the parent body of the bank concerned, did not pick up a telephone before the $700 million dollar fraud took place pointing out that there appeared to be a bit of a problem, that the bank seemed to be over-stretching itself over the last six months, which appeared to be unhealthy, and asking what could be done about it. The reply I was given, which I have no reason to disbelieve it, was that notwithstanding the availability of the much vaunted modern technology, computerisation, etc., the on-line system we all know about, it was virtually possible to siphon off almost the entire assets of a financial institution in this country by a subsidiary from outside the State without anyone knowing about it. I believed it because it was what we were told. Therefore, I would issue a warning.

My good friend and constituency colleague, the Minister for Finance, stated at the end of his speech — I almost missed it — that he intends to introduce a number of amendments on Committee Stage. One set of amendments will deal with concerns raised by, among others, the European Central Bank in regard to the new provisions and sanctions and the appeals tribunal. The second set of substantive amendments will respond to a reasoned opinion from the European Commission about the current exclusion of credit unions from the terms of the consumer credit directives. This was a small reference at the end of the his statement. The Minister will be pleased to know that I am looking forward to the debate on that issue. This is a subject which has been visited previously. I have a funny feeling that the consumers who currently invest in credit unions, or borrow from credit unions, are about to receive a visitation from the Government.

I am pleased to have an opportunity to speak on the Central Bank and Financial Services Authority of Ireland Bill 2003. The Bill provides for a statutory financial services ombudsman to deal with complaints against financial institutions, consumer and industry consultative panels to advise the regulatory authority, new reporting and auditing obligations for financial institutions as recommended in the report of the review group on auditing, which is important. It also provides for power for the regulatory authority to impose sanctions directly on financial institutions for failure to comply with regulatory requirements, subject to a right of appeal to the Irish Financial Services Appeals Tribunal, a right of appeal to the appeals tribunal in regard to certain supervisory decisions of the authority, new regulatory requirements for money transmission and bureau de change businesses to combat money-laundering and the financing of terrorism and miscellaneous other amendments to financial services legislation.

This Bill is very welcome. The DIRT report recommended that a single regulator should address ethics, professional standards and corporate governance in the provision of financial services in Ireland. The Bill will go a long way towards achieving this goal. The Oireachtas will have a role to play in overseeing the work of regulators such as the Irish Financial Services Regulatory Authority and its parent body, the Central Bank. It is important that the Central Bank should be accountable. Following the Committee of Public Accounts inquiry, under the chairmanship of the late Deputy Jim Mitchell, and the collection of unpaid taxes, it is important that the committee should invite both bodies in to discuss their renewed powers and the changes and level of responsibility of the Central Bank. These bodies should be held accountable to an Oireachtas committee. I intend to bring them before the Committee of Public Accounts at the earliest possible date.

The Bill is to be broadly welcomed. As well as a number of technical matters, it allows for the creation of a financial services ombudsman to represent consumers in complaints against banks, building societies and other financial institutions. This is important given the number of complaints. The level of profits generated by the banks is extraordinary. There is almost a charge now to go inside the door of a bank. There are hidden charges. Some banks make almost €3 million daily. This is a form of indirect taxation. There are opportunities for them to reduce interest charges. Many years ago interest charges were a problem. Interest charges have decreased but other charges have been introduced. If one receives a loan from a bank, one is charged a commissioning fee. These are all stacked-up charges which should be regulated. There should be standard banking charges, whether in retail banking or consumer charges for banking.

Deputy Durkan referred to credit card charges. Given that the Government introduced taxation on credit cards, the Minister might consider the possibility of having a once-off charge on credit cards. Being reissued with a credit card means an additional tax. Some people can pay up to €200 a year taxation on credit cards. The level of credit card charges generates considerable revenue, which is another indirect form of taxation. Given that the banks are now obliged to be more transparent in their dealings, it is important that the Financial Services Authority of Ireland Bill and the Central Bank live up to their responsibility.

The banks have a major responsibility to consumers. It has recently been brought to the attention of Mr. Frank Daly of the Revenue Commissioners that many banks facilitated the opening of offshore accounts. The DIRT inquiry demonstrated that there was a massive exodus of cash out of the country to the Isle of Man, Jersey and other tax havens. One must question the amount of tax that was paid on these accounts. I am delighted that the banks are now co-operating fully with the Revenue Commissioners and making available their balance sheets. The figures gleaned from this exercise will demonstrate that there was a quite startling level of facilitation of tax evasion by banks. It can no longer be accepted that any financial institution of the State can accommodate tax evasion. I am delighted that the Revenue Commissioners are dealing with the problem decisively.

In the United States, the credibility of the accountancy profession and the corporate sector was brought into question by the number of certificates that were signed in respect of certain accounts. It was wrong that those doing exceptionally well and who had received money from unknown sources were facilitated by Irish financial institutions in opening certain accounts that allowed them to evade tax. It was wrong that any financial institution in the State felt that it was accommodating the customer in doing so. The financial institutions now feel they have paid, but they should be penalised heavily.

The establishment of a consumer and industry consultative panel to advise the IFSRA is also very important. I am not sure how the panel is composed but it is important that the Minister include on it consumers and those on the lower end of the scale. Such people now tend to go to credit unions and not to banks. Unfortunately, the days of the bank manager in the small town are definitely gone.

There are now a screen in the wall and machines.

They have been replaced by the computer. The gentleman in the local bank is now just like a checkout cashier. If the relevant information one requires does not come up on the screen, he will refer the matter to the main office in Sligo or wherever it may be. The level of involvement has decreased.

The Minister has been very good regarding tax incentives to facilitate the growth of small towns. I appreciate that he has encouraged and extended the upper Shannon scheme. A small bank in a small town could have up to €35 million or €40 million on deposit. The banks are obliged by law to reinvest part of such capital in their own areas to encourage enterprise, but in certain cases they do not do so. Sometimes they do not invest in the parts of the country where considerable sums have been deposited and they relocate the deposits to what may be a safe investment elsewhere. Banks are very much devoid of sentiment and will not give anyone a free lunch, but it is clear that they should honour their obligations in this area.

The Bill will provide for new reporting and auditing obligations for financial bodies. It is very welcome that the regulatory authority is being given the power to impose sanctions on those financial institutions which fail to comply with the rules. It is important that the body act on the legislative power afforded to it by the Bill. We want decisive action, and a high level of service is critical for consumers.

It is equally important that large and small businesses, borrowers of small amounts, those doing business privately and students are not ripped off. We have a rip-off culture and the banks have definitely ripped off consumers in every possible way. If one were to carry out a value for money comparison with other jurisdictions, such as Northern Ireland and Great Britain, one would discover that the banks in Ireland have made an exorbitant profit in recent years. This should be subject to full scrutiny because the hidden extras that are involved certainly add to inflation.

Fine Gael is an advocate of consumer rights and we act as such inside and outside the House. We have a rip-off culture and cartel arrangements can exist between banks in certain areas. They believe it is acceptable to have an agreement by consensus on certain facilities and charges. Every charge a bank imposes on a person's account should be specified clearly so that he or she will be in no doubt about why it has been levied.

In June 2003, the Fine Gael spokesperson on finance, Deputy Richard Bruton, asked four questions on this vital area, the first of which queried why only half the ECB rate cut of 2.75% from the past two and a half years had been passed on to business and personal borrowers.

That is a good question.

The European Central Bank is now setting the rate but the banks still have a means of varying their rates. When one considers the loaded charges on accounts and the extension of credit limits, one will note that the banks have caveats on every deal known such that very few customers can avail of the lowest-service deal. The system is designed in such a way that, if one manoeuvres by one day, one will automatically pay a higher rate.

The second question asked by Deputy Richard Bruton was why Ireland has the third highest mark-up between lending and deposit rates in the European Union. This is difficult to explain. The financial regulatory authority should examine the mark-up and deal with the banks decisively. We are now part of an enlarged Union and it is important that we be competitive in every sense. We all hear people making comparisons and asking why business is so expensive in the Republic of Ireland by comparison with Northern Ireland and why services are more expensive here than in other EU countries. One must remember that the critical stacked-up costs of doing business in Ireland, such as costs associated with banking, insurance and electricity, are not taken into account. The consumer must pay for all these charges.

Some banks make up to €1 billion per year — very much in a monopoly environment — and should be brought to task over all the hidden charges. The Minister issued his inflation report last week, which was good to see, but he cannot control these charges. We all hear talk about hairstylists' costs and certain other aspects of our rip-off culture, but the worst charges are the stacked-up costs of taking out a loan and opening a business. If the Minister dealt with the major bodies responsible for these stacked-up costs, the rates would decrease.

The third question asked by Deputy Richard Bruton was why financial charges for the consumer have increased by 23% in the 12 months up to the middle of 2002.

That is a good question. It is a serious issue.

The Central Bank is an autonomous body but at least the new authority will be accountable to the House. I hope the people the Minister will appoint to the advisory boards will have expertise in this area.

Deputy Richard Bruton's fourth question was why the average interest rate on short-term loans to enterprises was more than three points higher than that in other EU countries. People think all businesses are ripping them off but the financial institutions are responsible and they must be regulated. No one minds if banks make healthy profits but we must get value for money. There is no reason businesses are paying rates of 23% and that the average interest rate on short-term loans to enterprise is 26%. It is an indictment of the financial institutions in one of the healthiest economies in Europe.

There is an area of Government policy that the regulator should examine — the €40 charge for credit cards. People have to pay it twice if they decide to open a second credit card account. The Minister should re-examine the credit card tax.


If a person has two televisions, he or she does not have to pay for two licences. People often upgrade their credit cards and they have to pay the charge again. Many parents give their children credit cards for going to college and this is another indirect tax. I hope the Minister is getting healthy returns from it.

He is getting it from the consumer, not from the banks. He is clobbering the consumer once again. What has the consumer done to the Government?

The consumer re-elected the Government.

The Minister will be whistling past the graveyard and he will not be able to blame the consumer for that.

I hope the consumer will be more alert at the next election.

This Government likes to talk about Europe and the benefits it brings. As a committed pro-European party, we also do that but we put our money where our mouth is. On the establishment of the European currency, direct control over interest and exchange rates was surrendered to the European Central Bank and by pooling sovereignty our economy benefited. Now, however, Ireland does not have a seat on the executive board of the ECB. There is currently a vacancy on the board and it is vital that we secure a place on it in the enlarged Europe.


There are reports that Belgium has manoeuvred itself into a strong negotiating position for this vacancy. What negotiating position has this Government taken? We hold the Presidency of the EU and should have an automatic right to a place on the board.

The auditing measures contained in the Bill are compatible with those required under the Companies (Auditing and Accounting) Bill 2003. My party does not oppose those requirements, we want to ensure that Government is not just joined up but that there is an interlocking level of management of financial institutions.

The inquiry into DIRT payments by the Public Accounts Committee found that tax evasion was accommodated by banks for the crème de la crème of the country but consumers now expect equality of treatment for all customers, value for money, interest rates the same as those in the rest of Europe and the same level of encouragement of enterprise. Comparing the level of the consumer spend and the value received in return, it must be acknowledged that the cost of doing business in this country is 10% higher than the rest of Europe and it is the consumer who must pay at the check out.

I thank all Members for their valuable contributions to this debate and I appreciate the support of all sides of the House for the establishment of a modern, consumer-focused regulatory system for the financial services sector. Before I address some of the points raised in the debate, I emphasise again two points I made in my speech. The greater part of this Bill arises from a public consultation process on the completion of the McDowell report on recommendations for a new architecture for financial services regulation in the State. I am also conscious of the need for consolidation of financial services legislation and, as a consequence, a consolidation Bill is now included in the Government's legislative programme.

I appreciate the gracious acknowledgement of Deputies of the IFSRA's performance in consumer protection. I acknowledge Deputy Richard Bruton's point about ensuring proper Oireachtas scrutiny of regulators, something we should consider further. I assure the Deputy that I intend to appoint robust consumer representatives to the council of the ombudsman because the culture of the ombudsman should be one of fairness and openness to consumers with grievances. On his comments on the industry panel and the dangers of regulatory capture, I assure him that the circumscribed powers of that panel arose from similar concerns expressed by the Competition Authority.

Deputy Burton expressed concern about the composition of the panels. The Bill obliges me to consult not only my ministerial colleagues but also representative organisations of consumers and industry, respectively. On the issue of penalties, the Deputy expressed concern about the constitutional implications of my proposals. I will propose changes on Committee Stage, having consulted the Attorney General, to ensure that the provisions in the Bill are compatible with the prerogatives of the courts under our Constitution.

On the auditing provisions, I assure Deputy Burton that the provisions in this Bill are add-ons to the requirements in the Companies (Auditing and Accounting) Bill which will give powers to the IFSRA to impose additional tailored requirements on financial institutions. These provisions will facilitate the IFSRA in laying down provisions for the corporate governance of financial institutions.

The comments of Deputies Ó Caoláin, Finian McGrath, Connolly and Boyle reinforce the fact that the significant challenge faced by the financial regulator is to provide for a fair marketplace that benefits both personal and business consumers. They also underline the important investigative work being done by the Competition Authority in the financial services sector and with the Director of Corporate Enforcement in improving the overall standards of corporate governance in the State.

Deputy Coveney made the point that the compliance statement from the IFSRA is at its discretion. It is intended to be complementary to the Companies (Auditing and Accounting) Bill requirements.

Deputy Michael D. Higgins comments underlined the difficult tasks faced by the new regulatory structures in defending consumer interests in an era of rapid technological change and development. The Deputy will agree that the terms and conditions apply to all loans.

I fully understand the vital role played by credit unions in serving the needs of local communities. Deputy Crawford can rest assured that credit unions fully understand the need to comply with EU rules and have been fully consulted on the amendments that will be brought forward on Committee Stage to achieve compliance.

Deputy Gay Mitchell asked about the ombudsman's provisions. The Bill, as drafted, will allow a consumer access to the Irish Financial Services Ombudsman or the equivalent officer in another EU member state. On the Deputy's concerns about the potential failure to appear before the Oireachtas, it would be inconceivable that a ministerial appointee would refuse to comply with the statutory obligation to appear before an Oireachtas committee or that a Minister would not take action if that happened.

Deputy Eamon Ryan echoed the comments of other Deputies on the dangers of excessive lending, especially in the housing area. This is something on which the financial regulator and the Central Bank have been quite active. A second issue raised by Deputy Ryan was that of compensation for Irish customers of insurance companies regulated in another member state of the European Union which fail. This issue is being addressed at EU level on the basis of an Irish initiative reflecting our experience of the impact of the collapse of independent insurers.

Deputy Kehoe echoed from his experience his concerns about the lending practices of financial institutions which illustrate the challenges facing the new regulatory structures. He also pointed out, and it is something on which I agree with him, that the credit unions play a vital role in supporting the local community.

Deputy Durkan was concerned about the competitiveness of the financial services sector. This will be a focus for the new industrial panel. I also thank Deputy Perry for his pertinent comments in matters relating to the Bill. These issues have existed for some time, so I am anxious to progress the legislation. I look forward to an early continuation of this debate on Committee Stage.

Question put and agreed to.