JOINT COMMITTEE ON ECONOMIC REGULATORY AFFAIRS debate -
Tuesday, 13 May 2008

Banking Issues: Discussion with Friends of Banking Ireland.

Chairman

The next item is a discussion with Friends of Banking Ireland. I welcome Mr. Jerry Beades, chairman of Friends of Banking Ireland, Mr. Eddie Fitzpatrick, director of Bank Check, Mr. Liam Gaskin, media consultant and Ms Niamh Kelly. I draw witnesses' attention to the fact that members of the committee have absolute privilege but the same privilege does not apply to witnesses appearing before the committee. Members are reminded of the long-standing parliamentary practice that we should not comment on, criticise or make charges against any person outside the House or an official either by name or in such a way as to make him or her identifiable.

We will hear a presentation from Mr. Beades, which will be followed by questions and answers.

Mr. Jerry Beades

I thank the Chairman for allowing me to appear before the committee as chairman of Friends of Banking Ireland. I became involved as a result of difficulties I experienced at the hands of ACC Rabobank in 2004, as a consequence of its being unable to provide me with title documents to my property when I went to repay the loans I had with the institution. These difficulties are now in their fourth year and I have not received any satisfaction or compensation for loss from ACC Rabobank. Following the publicity surrounding my case, I received a large number of telephone calls from people in dispute with ACC Rabobank and a meeting was convened. As a result, Friends of Banking Ireland was formed and I was asked to chair the organisation. Some of the members are very frightened to go public, some are still customers and others are customers who have moved their businesses elsewhere.

Friends of Banking Ireland set up a website which hosts details of these difficulties and I will therefore not go into individual cases today but will present an overall position on the situation pertaining to disputes with customers in ACC Rabobank. Some of the grievances suffered by members include misappropriation of customer fees, loss of title deeds and security documentation, queries on loan offer letters and interest charges and inappropriate behaviour of banking staff, to name but a few.

One of the key concerns of the organisation is the lack of regulation for many businesses in Ireland today. The Financial Regulator provides protection for consumers within certain criteria, one of which is incorporated bodies having an annual turnover of €3 million or less in the previous financial year. Given the prosperous economic climate in Ireland today, this automatically excludes a very high percentage of companies which the regulator will assist.

I wrote to the Financial Regulator regarding my situation and posed several questions. The following is a summary of some of the replies received. My first question was: What has the regulator done since my case came to light? The response was:

The Financial Regulator does not have a mandate to investigate individual complaints against institutions. In order to deal with specific complaints from consumers, the Government set up an Ombudsman service, called the Financial Services Ombudsman, in April 2005. When we receive a complaint that appears to be within the jurisdiction of the Financial Services Ombudsman, we are legally required to forward the complaint to him for consideration. The same definition of a consumer applies to the Office of the Ombudsman as it does to the Financial Regulator. Accordingly, your case falls outside the definition and there is no equivalent scheme for non-consumers. However, for absolute certainty on this point, you may wish to seek clarification from the Financial Services Ombudsman.

My next question was: "Is the regulator prepared to investigate and release the circumstances regarding the supervision of ACC?" The response was:

The Central Bank Acts provide for complete confidentiality of information relating to ongoing supervision, and can only be disclosed in circumstances specifically provided for in the Acts. Accordingly, we are prohibited from releasing the circumstances regarding the supervision of ACC or any other institution under our supervision.

My next question was: "Is the role of the regulator to conduct its investigation over the 'phone?" The response was:

As outlined above, the Financial Regulator conducts supervision using a variety of methods, including telephone, exchange of correspondence, on-site inspections, regular review meetings at our offices or that of the institutions, and regular and ad hoc prudential reporting. It would not be unusual for initial inquiries to be made by telephone.

My next question was: "Did the regulator keep a record of my complaint and does it report on the case it claims it is not responsible for to anybody?" The response was:

A record of your complaint is logged under 04/2198 on our filing system. However, as outlined above, the only escalation procedure available to the Financial Regulator for a complaint is referral to the Financial Services Ombudsman. This was not possible in your case because your complaint falls outside the definition of a consumer.

I also put questions about the relationship between the office of the Financial Regulator and the banks. My next question was:

"It appears that the Financial Regulator's office is compromised by the cosy relationship it seems to conduct with the banks." The response was: "The Financial Regulator is an independent body established under law, with statutory responsibilities."

I put another question: "Does the regulator think it is correct for the regulator's office to discuss with an errant bank, whom a complaint has been made against by a member of the public, its response to a public representative who has contacted the regulators office?" The response was:

It is the practice of the Financial Regulator to ensure that, within the parameters of legislation, as complete an answer as possible is provided to all correspondence. In this case, in order to give as full a response as possible to your public representative, who contacted the Financial Regulator directly on your behalf, the Financial Regulator sought as much information from all the stakeholders concerned.

I will share with members the internal memo of those exchanges as recorded by the bank itself and obtained by me under the Data Protection Act. This document was an internal e-mail in the bank, written by Tara Glynn, the bank's secretary and addressed to the chief executive, Mr. Colm Darling, Kevin Barrett in head office and Annemarie Straathof, who was the go-between of Rabobank and ACC in Dublin:

I phoned [the name is blacked out] in banking supervision in the Financial Regulator this morning but she was not available. Later in the day I phoned for [the name is blacked out] or [the name is blacked out] but both were unavailable. I left a message with Miriam Lee re the Jerry Beades case and she said she'd pass on the message. I told her that the title documents had been found during the week, we were looking into the matter with the assistance of the group and that yesterday the customer had been informed that the title deeds had been found.

I also returned a call to [the name is blacked out] who had left a message for Patricia McNamara about the Beades case and he was no longer concerned when he heard that the deeds had been found. The matter had come before him because of a request from a public representative making enquiries about the matter and he was asked by somebody internally to enquire with ourselves. When queried he said he was not asked to prepare anything for public comment. He said he was not personally aware of which public representative had made the enquiry and when I asked whether the Financial Regulator would report back to the public rep he said that generally what would happen in such circumstances was that the Financial Regulator would say they had contacted the financial institution and had been told progress was being made on the matter.

Billy Clarke from banking supervision rang me after my discussion with [the name is blacked out] and I told him of my phone call to that department earlier in the day to put them in the picture re this matter in case they had any concerns arising from any matter reported in the press. He thanked me for letting him know the position.

This is the equivalent of gardaí conducting inquiries with criminals over the telephone. It gives us a detailed insight, the only one we can get, of how the regulator operates. The public representative concerned was Deputy Richard Bruton, who is my local Deputy and had followed this case as Fine Gael spokesperson on finance. The response by the Financial Regulator confirms that he could not assist me with my complaint as I fell outside the definition of a consumer, describing me as a non-consumer. The non-consumer is a new type of person or business in Ireland that appears to be discriminated against by legislation and is afforded absolutely no protection by the Financial Regulator or the ombudsman. This poses the question of whom non-consumers, as described by both the Financial Regulator and the Financial Services Ombudsman, can turn to for assistance when they come up against the large, powerful multinational banks. To whom are the banks accountable when queries are raised by non-consumers, if they are not even accountable to politicians?

In reading Financial Regulator's reports or looking up the Department of Finance reports on the economy, one sees no reference to an unregulated non-consumer. Also, on Tuesday 29 April 2008, several people appeared before this committee, including the chief executive of the Financial Regulator, the consumer director of the Financial Regulator and the assistant director general of the Central Bank. Having read the transcript of their appearance here, not one of them advised the committee that they did not regulate approximately 75% of commercial banking transactions in Ireland, or that 50% of all businesses, made up of small businesses employing 20-49 people and medium to large businesses employing 50 or more, are totally unprotected and at the mercy of the banking system. My statistics are taken from the CSO statistics, 2004. They are light. The 2006 figures are higher.

When businesses have systematic problems with financial institutions, there is very little they can do against the might and financial and legal resources of the banks concerned. The Financial Regulator should have the legislative power to force banks to comply with the spirit and letter of the Consumer Protection Act, a power it currently claims not to possess. The regulator hides behind the cloak of confidentiality. Clearly, it has to be extremely sensitive when dealing with the solvency of a bank or building society but it should not have to be secretive on consumer related issues. The Advertising Standards Authority, ComReg and other bodies name and shame businesses that are in breach of their codes of practice. Why does the Financial Regulator not do the same? It appears the regulator is only interested in the prudential supervision of banks. Such supervision is important but it should not interfere with the protection of consumers rights.

It is important that a recording system for all complaints and a process for dispute resolution are established. Many of our members have suffered large legal costs in arguing their cases. Had they been described as consumers it is likely they could have received information and advice from the Financial Regulator. Currently there is no legal obligation on banks to follow a specific complaints procedure. We suggest that a new dispute resolution framework which is recordable and timely should be immediately introduced to the sector. This framework would provide for the recording of all complaints lodged to banks, along with annual statistics, in a similar manner to the accident books required of every business under health and safety regulations. A time limit should be set out for dealing with a complaint at local level and, if the complaint is unresolved within a specific time frame, it should be officially lodged with a statutory body and then referred to independent arbitration. Failing resolution at this stage, the option of bringing the complaint to the relevant court should be explored.

I accept that the Financial Regulator does not have a role in resolving complaints on behalf of customers. However, the fact that a number of complaints have made against a specific bank suggests that the regulator should investigate whether the company is operating properly. Where systematic problems affect numerous customers, the regulator has an obligation to highlight this under its consumer protection role. I understand the section of the Act which enforces secrecy on the Financial Regulator allows it to name companies where it is in the public interest to do so. It is frustrating for customers to make complaints that are not addressed. It is also frustrating when the Financial Regulator does not get involved or does not report in the interest of consumers.

Friends of Banking Ireland calls for the establishment of a commission of investigation in respect of what has taken place at the formerly State-owned ACC Bank, which was sold in 2002 to Rabobank from Holland, and to include in the investigation the mismanagement of this former State asset. According to a report in the Wall Street Journal of 2 May 2008, Rabobank is currently under investigation in the USA for assisting US companies in tax avoidance. Rabobank is also involved in a highly publicised dispute in California, where farmers are protesting against its actions. If the Financial Regulator claims it is unable to report to the public or this committee on the facts surrounding this bank, the establishment of a committee of investigation is an urgent necessity. If a commission of investigation is approved by this committee, the Minister for Justice, Equality and Law Reform could have the process under way within weeks and a report could be completed within three months.

Friends of Banking Ireland asks this committee to make recommendations on the following areas: a review of the definition of "consumer", as regulated by the Financial Regulator and the Financial Services Ombudsman and the immediate removal of restrictions on the size of a business in the scope of regulation; the establishment of a regulatory body with the remit to regulate the entire financial services sector in Ireland from a business and consumer point-of-view; the establishment of a framework to record and track consumer complaints within the banking and financial sectors and a time line for dispute resolution; the establishment of a framework for dispute resolution between all consumers and financial institutions; the recording of disciplinary measures taken against banking employees; the publication of annual statistics for all financial institutions regarding customer disputes; and the establishment of a commission of investigation into the management of the former State asset, ACC Bank.

I will be happy to answer questions from members. Mr. Fitzpatrick of Bank Check, who has experience in recalculating customer accounts, is familiar with the practices of ACC Rabobank and is also willing to answer questions.

Deputy Denis Naughten

I welcome Mr. Beades and his colleagues. I have found his presentation extremely interesting and it gives rise to serious concerns. I wish to focus on his comments in regard to consumers versus non-consumers. From the correspondence Mr. Beades has received and the difficulties he is experiencing with Rabobank regarding non-consumers, have problems arisen with the present regulatory system or does this matter solely concern people who are defined as "non-consumers"?

It appears that a large element of the banking industry is completely unregulated. Concerns have been expressed about the operation of some of the banks located here. Small businesses, many of which employ people in rural areas, are already struggling to keep their heads above the water and further jobs will be lost if they have no recourse to justice. Perhaps Mr. Beades will comment on that issue.

Deputy Seán Sherlock

I welcome the submission as a fellow citizen who has a bank account. It appears those who have genuine complaints against banking organisations have no recourse to mechanisms that would provide a remedy.

I am amazed that in response to the question of whether it kept a record or reported on a case for which it claimed it was not responsible, the Financial Regulator stated: "This was not possible in your case because your complaint falls outside the definition of a consumer". That is an extraordinary scenario. It would be appropriate for this committee to ask the Financial Services Ombudsman and the Financial Regulator the questions Mr. Beades posed in his conclusion. We should at least write to them to seek answers to some of these questions. If we are now in a situation whereby complaints made by individuals are defined as "non-consumer complaints", what recourse is open to anybody who holds a bank account in this State? If the role of the Financial Regulator and the ombudsman is protecting consumers, it is clear that a flaw exists in the system. Questions must be answered by these taxpayer funded bodies in regard to the practices of the banking sector.

Deputy Peter Kelly

I welcome the representatives of Friends of Banking Ireland. Mr. Beades noted that a number of customers have disputes with ACC Bank and Rabobank. Do the people to whom Friends of Banking Ireland has spoken believe the regulatory authorities are dealing with them in a satisfactory manner? I do not refer to Mr. Beades's own particular case but seemingly there are others. The statistics produced indicating that 75% of banking transactions are unregistered are taken from a CSO report from 2004. From where did the CSO get this information?

The new owners bought the bank from the State. Have they served the State well since the purchase?

Senator Paul Coghlan

I welcome Mr. Beades and his group and thank him for his overview which concerns one bank. Has Friends of Banking Ireland had meetings with any of the plethora of regulatory agencies and structures in place? I agree with Deputy Sherlock that we may have to call back the regulator and the ombudsman to ask them a few questions. The organisation must have had meetings with them on these subjects. Perhaps Mr. Beades could tell us a bit more in that regard.

There must be a formula for the resolution of these disputes without the need to go to litigation. Obviously, individual cases would be for civil action and not be something with which any committee of the Oireachtas could deal, as Mr. Beades accepted in his preamble. Perhaps he has had meetings with Departments, Ministers or senior civil servants and there is something more he could tell us in this regard.

I am searching for an area in which this matter should go. There may be some form of pan-European regulatory function which is now necessary, given the penetration of foreign banks in Ireland. That is also something we should consider. Has Friends of Banking Ireland sought mediation in any case? There must be a role for mediation in these matters.

Deputy Leo Varadkar

Do many individuals or large customers come to Friends of Banking Ireland with complaints about banks, ACC Rabobank in particular? What types of complaints are made? I ask Mr. Beades to forgive my ignorance, but is the €3 million threshold enshrined in legislation or is it a decision taken by the ombudsman and IFSRA on the basis that they do not consider anyone with a turnover of more than €3 million to be a consumer? What was the basis for choosing that figure?

Senator Ned O’Sullivan

I am sorry for leaving but I had some other business to attend to, although I was able to follow the submission on the monitor. I welcome the delegation. Clearly, this issue is of widespread national interest. One regularly reads of the public's concerns about the manner in which it is treated by financial institutions.

With regard to Mr. Beades's submission, are we talking specifically about ACC Rabobank or is this problem general and endemic in our mercantile lending organisations? I would also like to hear more about the misappropriation of consumer fees, as it presents a serious challenge.

Chairman

Friends of Banking Ireland was set up for customers of ACC Rabobank. Other members have asked whether serious issues are being brought up about other banks. Does the group have members from a range of financial institutions across the spectrum or is it specifically directed at ACC Rabobank?

Mr. Jerry Beades

Friends of Banking Ireland has received queries regarding other financial institutions but we have confined ourselves mainly to attempting to capture the main issues with ACC Rabobank. There are other issues but there are also good banks. I am not here to castigate the banking sector but ACC Rabobank appears to be a particularly bad case.

With regard to the issues with that institution, Mr. Fitzpatrick, from Bank Check, has experience of getting refunds for customers from that institution. He has also worked with a number of other institutions and all the banks in seeking refunds for customers. He can talk in particular about ACC Rabobank. My main issue with this bank is that when issues are brought up with its members, they bury their heads in the sand and do not deal with them. They have a tendency to pull up the drawbridge and hope the problem will go away. I will ask Mr. Fitzpatrick to comment on the types of issues with which he is familiar.

Mr. Eddie Fitzpatrick

What I got from Mr. Beades's speech today was that the institutions and regulatory bodies were all trying to hide behind technicalities as opposed to actually getting to the crux of the problem, which is correcting mistakes. That is where we see the biggest problem. Typically, when we contact a bank, it will state it will get back to us but it will then contact us six or nine months later and make an offer which will usually be a lot less than what is actually required. Even when mistakes are pointed out to the various institutions, they have no interest in giving consumers back what is owed. They prefer to throw money at them and hope they will go away.

To expand on this, it is not just a problem with ACC but a serious banking problem within Ireland. Every single bank is at it. There is definitely a need for tighter regulation because the banks are self-regulated. Somewhere along the line somebody must say enough is enough. A mistake is a mistake, regardless of whether it is made in the banking, farming, retail or hospitality sector. The banks should correct mistakes, not hide behind technicalities. This is happening far too often for my liking. Where a complaint is genuine, the institution should deal with it in a suitable manner and not try to hide behind the small print in letters, which such institutions often try to do.

Mr. Jerry Beades

I was not aware of the non-consumer issue, despite having been a businessman for 25 years. As a result, I started looking at loan offer letters. As a businessman, I can confirm that the banks are well aware of non-consumers because every time we sign for loans or finance as business people the bank inserts a clause similar to one from IIB Homeloans which states the borrower warrants to the lender that in accepting this loan he or she is acting within the business-trader profession and thereby is not a consumer within the meaning of section 2 of the Consumer Credit Act 1995. What appears to be happening is that the banks have two methods of dealing with complaints when they arise. The ones to the left of the slide are the consumer issues and the ones to the right are non-consumer issues. It is only when one finds oneself a non-consumer that one discovers the complete mess one is in.

In the code of practice published and all the documentation from the regulator there is not one reference to non-consumers. However, this question was asked in my communications with Departments and I have written to every agency about regulation. I have files on the issue. When one writes to public representatives, they refer one to the Department of Finance which then refers to the code of practice. Nobody refers to the non-consumer issue. However, once it hits the regulator's office, it states one is a non-consumer.

The €3 million threshold is included in legislation and a cut-off equating to €60,000 per week in turnover, not profit. This threshold is relevant to any shopkeeper in Ireland. Figures from the CSO show that 50% of all businesses in Ireland have a turnover of €3 million plus per year. It is not a large figure for any business in this day and age. More than 50% of businesses cannot be helped by the regulator when they find themselves in difficulties. To whom does the code of practice in the document apply? It refers to everything but a non-consumer. I went through this book from beginning to end and there is no reference to non-consumers in the code of practice. I spoke to numerous politicians about this issue and they said they were not made aware of it before. This is why we felt we would have to bring it to the committee's attention.

The types of complaints the Friends of Banking Ireland receives are varied. We try to deal only with serious regulatory issues and we do not get involved when people merely do not want to repay banks. Banks are entitled to get their money back - I have no problem with banks seeking repayment but I have a serious problem with the way they go about it. In the first four months of this year there were 536 cases in this area in the courts. These statistics are taken from the Courts Service website. Anglo Irish Bank, which made a profit of approximately €500 million, had one case in the Irish courts. On the other hand, AIB, which made a profit of €2 billion, had 71 cases. Start Mortgages, which is in the subprime sector, had 151 cases. I am not saying there is anything wrong with AIB but ACC Rabobank made €45 million in profit and has 46 cases in the courts, which indicates that, for its size, it has at least three or four times more cases than AIB. This stands out in the statistics and if the regulatory authorities kept proper statistics this issue would be obvious. However, the regulatory authorities operate in such a way that nobody knows about this and everything has a code of practice.

The bank's internal memo was a case of Deputy Richard Bruton inquiring with the regulatory authorities on behalf of a constituent. The regulatory authorities discussed with the errant bank how to reply to a public representative, which is scandalous. There was a similar situation when the Garda investigated the Garda; we set up a separate ombudsman who investigates the Garda and the same applies in a number of other areas in society. The cosy relationship between the regulator and the banks must end. Who are the regulators? They are mainly former bank officials who have worked in institutions and are dealing with former colleagues. The memo is the clearest indication of the complete failure of the regulatory authorities to investigate issues seriously. If that is how they treat a public representative, what hope is there for a member of Friends of Banking Ireland or a person in dispute with a bank?

The other issue relates to the matter of 75% of transactions and those figures come from the Central Statistics Office findings for 2004. If one goes through the statistics for small businesses in Ireland and uses the given figures, one finds that 50% of small businesses employing up to 50 people are totally unprotected. Some 75% of all transactions in banking are in this sector so this means 75% of bank transactions are not open to sufficient scrutiny.

I was asked whether I had meetings with the Central Bank. I corresponded with its representatives a good deal but had no meetings. I was more than surprised when my case was highlighted in the newspapers because I assumed the Garda Síochána would contact a person when an offence happens and is to be in the newspapers. I received no contact and the Data Protection Act shows that the regulator saw the newspapers but did not contact me for my side of the story. This is another scandalous issue. Some €100 million is being used on supervising the banks and, if only 25% of the sector is being regulated, some €400 million would be needed to supervise the banking sector properly.

Mr. Liam Gaskin

Another question raised related to €3 million mentioned in legislation. It appears this figure is in legislation or, if not, it has been set by regulatory bodies as a cut-off. That is quite scandalous as few small businesses would have a turnover of less than €3 million. A small business, by its nature, does not make considerable profits. It may be acceptable for large companies to take banking institutions to court but the same does not apply to small businesses. When a small company gets into difficulties its only recourse is in law. Such companies may have less income than a substantial number of individuals in this country. They cannot afford the process and will, therefore, roll over. Small companies that do not roll over and, instead, take court action, become bad credit risks and cannot move business. They are at the mercy of banks. No individual or company employing people in this country should be at the mercy of a bank without protection afforded through legislation. This protection does not exist at the moment.

Senator Paul Coghlan

We are all anxious to lower the risk for customers and if the figure of €3 million is enshrined in legislation there is an onus on this committee to investigate the matter. I agree with the suggestion that the regulator and ombudsman be recalled. Regarding the legislation, we may have to make contact with the relevant Minister on this point.

Two issues arise from what has been said, namely, the non-consumer and the €3 million cut-off point. The committee could examine these matters and we could recall the regulator and ombudsman, as was said. We want to provide for mediation and lessen exposure to litigation, which is the right of every citizen. It seems there are many civil cases, which are not the business of this committee, but we want to lessen the exposure of citizens. I have mentioned two useful things we can do.

Mr. Eddie Fitzpatrick

Last year banks in Ireland made a profit of between €5 billion and €6 billion. If I said over €1 billion of that derived from excessive charges on accounts, surely this would lead us to strive for better regulation of banks. It is not the big boys who are affected but farmers, shopkeepers and small businesses that keep this country's economy alive.

Chairman

I thank the delegates very much for their presentation and their frankness on this matter. As members said, serious issues have been raised and we must deal with them either by bringing in the regulator or expanding the role of the financial ombudsman. We will take up the issues raised and follow through on them. The committee will communicate with the delegates again.

The joint committee adjourned at 4.50 p.m. until 4 p.m. on Tuesday, 27 May 2008.