JOINT COMMITTEE ON FINANCE AND THE PUBLIC SERVICE debate -
Wednesday, 25 May 2005

Draft Interim Report on Bank Charges and Interest Rates: Presentation.

Chairman

We will now deal with item 3.1 on our agenda, a consideration of the draft interim report on bank charges and interest rates. A revised draft interim report has been prepared and submitted by Mr. James Dorgan, consultant on behalf of the committee. I welcome Mr. Dorgan back and thank him for attending the committee meeting today.

Before the discussion commences, I advise everyone that while the comments of members are protected by parliamentary privilege, those of visitors are not so protected. I remind the committee that members should not comment on, criticise or make charges against a person outside the committee or outside the Houses of the Oireachtas.

At our previous meeting on 11 May, I indicated that the committee would consider the report with a view to concluding our consideration today, if possible. We will commence with a short presentation from Mr. Dorgan on the second revised version of the report.

Mr. James Dorgan

Thank you very much, Chairman. This is the second revised version or third draft of the report. Members will recall that we went through a number of paragraphs the last time. We can probably continue where we left off. However, there were a few issues that were discussed at the last meeting. I was not quite sure that my drafting, which I now have in this version, the third one, meets the wishes of the committee. Perhaps, therefore, we might start on what is now paragraph 5.7.

Chairman

What is the page number?

Mr. Dorgan

It is page 24.

Chairman

Have we cleared everything up to that page?

Mr. Dorgan

That is not much, Chairman, but we have cleared a number of matters, even on page 24. In the discussion that emerged last time, I was not quite sure that I fully grasped what was recommended because different points of view were expressed.

Paragraph 5.7 concerns the general discussion of some of these loan products which carry high rates of interest and rather severe penalty clauses. Some of the products are being marketed from the United Kingdom and there seemed to be a view that the financial services ombudsman should be involved. I think this was because members felt the institutions were not subject to the financial regulator. On reflection, however, I feel that if there is something wrong with the type of loan product, it is a matter for the financial services regulator. Even if the product is offered from the United Kingdom by an operation located there, the fact that it is retailed here or the contract is signed here brings it within the terms of the financial services regulator. The financial services ombudsman is dealing with the complaints of an individual against an individual institution in a particular transaction. Therefore, I feel the financial services ombudsman should not be involved in this issue except when an individual person makes a complaint.

The other item concerned interest on current accounts. Deputy Bruton pointed out that interest is mandated on current accounts in the UK and he asked why we cannot do so here.

Chairman

Before we move on, may I clarify paragraph 5.7? Mr. Dorgan is recommending that it is a matter for the Irish Financial Services Regulatory Authority rather than the ombudsman.

Mr. Dorgan

I think so, yes.

Chairman

The committee would agree with that. The ombudsman deals with one-to-one cases, whereas, if there is a group involved or a policy issue, it is up to IFSRA to regulate.

Deputy Ó Caoláin

May I raise a point of clarification?

Chairman

Yes.

Deputy Ó Caoláin

It does not relate to the detail but relates to the format for proceeding. Mr. Dorgan is now working off the new draft the sections and subsections of which do not relate directly to those in the preceding document. There is a change in the numeration of the subsections in each section. Is that not the case?

Mr. Dorgan

There have been some changes, yes.

Deputy Ó Caoláin

There are.

Mr. Dorgan

From paragraph 5.7 onwards we have changes because I have brought in new text.

Chairman

On Committee Stage of any legislation, it is normal to make changes to references, paragraphs and sections, although it makes it difficult to follow.

Mr. Dorgan

Any changes are underlined, however.

Deputy Ó Caoláin

I appreciate that but I ask the committee to bear with me. Paragraph 5.6 is a new introduction in Mr. Dorgan's draft of 23 May 2005. I was still working off the last draft in terms of my preparation and I did not move into the new draft as presented. I have it now, however, so I beg the committee's pardon. Paragraph 5.6 remains the same.

Mr. Dorgan

Yes, except for the last recommendation.

Deputy Ó Caoláin

Yes.

Mr. Dorgan

At the last committee meeting it was agreed that the recommendation that there should be a reduction in interest rates, insisted on by IFSRA, was too strong. Therefore, the last bullet point has been changed to a softer one.

Deputy Ó Caoláin

Has Mr. Dorgan just introduced a new paragraph 5.7?

Mr. Dorgan

That paragraph 5.7 is new, yes.

Deputy Ó Caoláin

I have it now so I can follow this. It is out of sync by one subsection numeration.

Mr. Dorgan

It gets more out of sync as it goes on.

Chairman

We will proceed. Are we still on page 24?

Mr. Dorgan

Yes, we are still on page 24. Deputy Bruton's point concerned interest on current accounts. I looked into this and it appears that the situation in the UK relates to small and medium enterprises and not to current accounts, as far as I can make out. It seems that in Ireland interest is paid in some circumstances on Irish current accounts. That does not answer Deputy Bruton's point fully. He said that we should do what they are doing in the United Kingdom, but what they are doing there is not exactly what he had in mind for Ireland.

Deputy Bruton

I would be happy to include a reference to the fact that the UK Competition Authority has concluded in a report that, in a banking sector that is much more competitive than our own, SMEs were doing badly, and it made this recommendation. The Competition Authority is also looking at the position of SMEs and should assess UK practice in this area.

Chairman

Is that agreed? Agreed. We will draft that accordingly.

Mr. Dorgan

Paragraph 5.8 relates to bank charges. We have discussed this already. The regulation of bank charges should be kept under ongoing review, at least in the short term.

Chairman

Do members agree to paragraph 5.8?

Deputy Ó Caoláin

I am happy with it.

Chairman

That is agreed. We had an important discussion the last day.

Mr. Dorgan

The next paragraph relates to stamp duties. The discretion here ranged from abolishing stamp duty altogether in the interests of competition, which was considered too expansive, leaving it exactly the same or somewhere in between, perhaps reducing the schedule of stamp duties in some way, to perhaps restructuring stamp duty.

On the question of restructuring, we could adopt a proposal which states that the total yield from the tax should remain the same but that the imbalance which exists between transactions on credit cards and cheques should be rebalanced in order that it is approximately the same. In other words, the stamp duty on a credit card, bearing in mind the number of transactions on the average credit card, would be the same as that on cheques. At least there would be neutrality in the impact of the stamp duty and the revenue would be preserved. I cannot work it out exactly but it would increase stamp duty on cheques from 15 cent to 35 cent and it would reduce stamp duty on credit cards by approximately one half.

Chairman

I do not think we will sign up to doubling the stamp duty on cheques.

Deputy Ó Caoláin

I would like to clarify that. That certainly was not the message this Deputy conveyed. It is very difficult for the consumer's mind to differentiate between what he or she has to pay from his or her account on the collection of a cheque book or having it sent to him or her and the myriad charges which commence with use. I do not think an increase is tolerable and I would certainly oppose it. However, I made it very clear I was not equally enthusiastic about revisiting the issue of stamp duty vis-à-vis credit cards because there is a responsibility on us all to finance the Exchequer from a variety of sources and this remains a legitimate source of income. The main concern people will have will be the punitive interest that applies to credit cards and not the stamp duty.

Chairman

The recommendation is satisfactory. We are effectively saying reliance on this form of taxation should be reduced in the interests of promoting a cost effective means of payment. It is only a peripheral item in the overall scheme. I think we will agree to the amendment to paragraph 5.9. We will move on.

Mr. Dorgan

I suppose we could focus only on the recommendations. There is a recommendation that cheques should be reduced to a minimum in the interests of efficiency. In addition, there was some discussion in the Competition Authority's report on how technology can be used to make things more efficient in the use of cheques, one being the adoption of digitalisation of cheques. I think we can support the idea that such technology should be used. It is noted that the banks do not think this is cost effective but it has been adopted in other countries.

Chairman

This is a serious issue, namely, that we recommend the Government review its use of cheques with a view to reducing them to a minimum. That might impact on many social welfare recipients who prefer to get a cheque and cash it in the post office or wherever as opposed to having the payment made directly into their bank account, which would enable them to withdraw money from an ATM when the money is lodged. I want members to be satisfied that we are saying the Government should move away from issuing cheques to social welfare recipients and that they should all go to the nearest ATM.

Mr. Dorgan

It issues cheques to everybody, including contractors, suppliers and so on.

Chairman

We are more worried about——

Mr. Dorgan

One might make a distinction between the two categories.

Chairman

Does Deputy Ó Caoláin appreciate the point I make?

Deputy Ó Caoláin

I do, of course. The ideal is consumer choice, that is, the right of the individual recipient to nominate the method most suited to his or her circumstances. We have a right to defend the consumer, the recipient of a social welfare or other payment. Choice is the critical issue. Increasingly, choice is being ruled out. I remember, as I am sure do most members, when people used to get paid in cash. Then there was this wonderful idea — I was still working in banking at the time — that everybody would have to be paid by cheque. It opened a whole new customer base in terms of banks' opportunity to impact on the daily lives of ordinary citizens. Increasingly, customer choice is being eroded. We should emphasise that.

Chairman

We should insert an additional sentence.

Mr. Dorgan

We should state: "However, where social welfare cheques are concerned, the recipient should have the right to opt for whatever means of payment he or she chooses."

Chairman

I agree with that. That is the reason I wanted to highlight that issue.

Deputy Ó Caoláin

People should be able to opt for payment through the post office for a variety of payments, including pensions and child benefit. I think one can opt to receive payment directly into an account or to receive payment at one's local post office. People opt for different means of payment. That needs to be defended.

Chairman

While it is a different issue, the customer no longer has the choice in respect of some social welfare payments which go straight into a person's bank account. One cannot go to the post office. However, that is another day's work but we should insist on the choice.

Deputy Burton

What is the fate of the euro cheque? If someone from Ireland rents a house in some part of Europe and must pay by cheque, the banks charge extraordinary fees to process what is meant to be an available method of payment. I do not know whether the message is that foreign banks should improve their on-line banking service. It is a very expensive bank service once one goes outside the jurisdiction.

Chairman

Is there a paragraph on euro cheques in this report?

Mr. Dorgan

No. We are working from the terms of reference which were drawn up at a much earlier stage. That issue did not really arise, although it was discussed in the evidence. I thought it was said that the euro cheque had virtually disappeared.

Deputy Burton

It has in Ireland but it has not——

Mr. Dorgan

Not only in Ireland.

Deputy Burton

There is a problem when people overseas require payment for relatively small amounts of money. The charges the banks impose for the service are extraordinarily high.

Chairman

We should include a section stating——

Deputy Burton

It is more the principle of Irish people paying abroad than the euro cheque principle. As far as I know, it is not a problem for business but it is a problem for individuals who must make a payment abroad and must incur considerable charges. It is like roaming charges on mobile telephones. That is when the banks pounce and really charge.

Chairman

What are the options at present? Can one get a bank draft?

Deputy Burton

One can get a bank draft, which is often unsatisfactory. It is really a problem for the individual customer; it is not a business problem.

Chairman

We all agree with the Deputy.

Mr. Dorgan

Is the Chairman talking about a transaction outside the euro zone?

Chairman

No, inside it.

Deputy Burton

Inside and outside it. I should not distinguish but there was meant to be a euro facility of payment within the euro zone. Roaming charges are an example. Once one engages in transactions outside this jurisdiction, the charges are extraordinarily high. Information and charges should be made clear to customers to ensure they are not ripped off.

Chairman

A paragraph will be drafted to reflect the Deputy's point.

Mr. Dorgan

With regard to the issue of people switching accounts and the time it takes to set up new ones, there should be a system of portability for direct debits so that it would be a simple matter to transfer from one institution to another.

Paragraph 5.14 addresses the bundling issue, which was discussed at the last meeting. We are agreed on this.

Chairman

That reflects what was said at the previous meeting.

Deputy Bruton

I presume transparency means an awareness that customers have a choice. For example, Bank of Ireland was selling an insurance product that was not necessarily required but it was bundled and customers had to pay for it even if they did not want it.

Chairman

The second sentence states customers should not be forced to buy a second product.

Mr. Dorgan

They were not obliged to take it in the Bank of Ireland case. Under the code of practice being adopted by the regulator, mandatory bundling will not be permitted, which this recommendation opposes.

Deputy Burton

I referred to this on a number of occasions. It is difficult for people aged over 50 who take out additional loans. Banks insist on significant loan protection insurance and the cost of these policies is astronomical. Where customers are armed with information, it is not strictly necessary and it is not necessary to buy the insurance product of the bank providing the loan. In cases where people have been aggressive towards banks, they have backed off and offered to waive the protection premium because, for instance, significant security such as a house was provided.

The committee should welcome the move by IFSRA to shed light on bundling so that associated products are clearly priced and customers are advised that they can shop around for best value. Little else can be done.

Mr. Dorgan

A later recommendation endorses the code of practice prepared by the regulator and in so far as is it is possible to insist on transparency, the code of practice does so. Customers will receive notes from the bank saying why it thinks the instrument for which they are contracted is suitable for them. They will be advised that they do not have to take ancillary products.

Chairman

Is paragraph 5.14 agreed? Agreed. Paragraph 5.15 deals with introductory offers.

Mr. Dorgan

There was a discussion about controlling introductory offers. This item was listed on my agenda but predatory prices are pro-competition. They are not, strictly speaking, predatory.

Chairman

Is the recommendation needed?

Mr. Dorgan

It was on my agenda and I had to respond to it. It is a statement that no recommendation should be made.

Chairman

We do not need to say that. We will delete it.

Deputy Ó Caoláin

Why?

Chairman

To make it clear. Let us not do it. The committee will not make a recommendation.

Deputy Ó Caoláin

Therefore, it states, "it is proposed to close it to attract new customers".

Chairman

Yes, the rest of the paragraph states the committee will not make a recommendation so we should not get into it.

Paragraph 5.16 is accepted. I acknowledge the note from the Irish Bankers' Federation but we accept the recommendation, which states "the permissible delay in effecting switches should be at least the same as the UK".

Mr. Dorgan

The federation contends there is not much difference, but if there is not, that is okay. Paragraph 5.17 concerns money laundering. Perhaps it goes too far but if one is a customer of good standing with bank A and one moves to bank B, it should not be necessary for bank B to go through an elaborate procedure to find out whether the funds one has transferred from bank A are laundered unless it has doubts about bank A.

Chairman

This needs to be amplified. If one is a customer of one of the main banks and moves to a different branch down the road, one must go through the same procedure. It applies within banks.

Mr. Dorgan

It should do.

Chairman

The paragraph should refer to switching from one bank to another or from one branch to another within the same bank. That is how I heard about the problem.

Paragraph 5.18 deals with security.

Mr. Dorgan

This relates to mortgage stamp duty and legal fees, which are extremely expensive and which make it difficult to move a mortgage. Land law will not be reformed overnight or even over a decade but a recommendation can be made that work should——

Chairman

Paragraph 5.19 states, "The Joint Committee recommends that banks be required to publish all of their interest rates and that IFSRA compiles interest rates, including interest rates from the non-clearing banks." That is fine. There is nothing problematic about that.

Mr. Dorgan

This is the controversy about the clearing. Bank of Scotland claimed it was being excluded by the incumbent main banks and it was anti-competitive.

Chairman

Has paragraph 5.20 been deleted?

Mr. Dorgan

The bank maintains that it was anti-competitive, while IPSO maintains that it was not. The Competition Authority considered it was somewhat anti-competitive that a bank should be excluded from the clearing if it had the intention of development a substantial current account business. The text has, therefore, changed. Deputy Bruton suggested there should not be a charge for entering the clearing, which is proposed in the recommendation but, on reflection, it is not practical for the reasons explained later.

Chairman

We are dealing with 5.24, which states, "The Joint Committee believes that access to clearing should be as easy as possible in the interest of competition and, therefore, recommends that, in principle, entry charges of any kind should be prohibited". It is a little extreme. Can IFSRA adjudicate on what is a reasonable charge?

Mr. Dorgan

The Central Bank is the supervisory authority of the IPSO. Bank of Scotland complained about fees amounting to hundreds of thousands of euro but it spent €100 million on a network to develop a retail business. Since a bank needs at least that much to develop a network, fees of a few hundred thousand euro will not be a deterrent. The fees were reduced by the Central Bank.

Deputy Bruton

We should point out that financial institutions are not entitled to recover some costs. That practice has been voluntarily suspended but they could reapply it. We should take the view that the costs should be the minimum to meet the operating costs of being in the system. The incumbent should not be repaid its costs. The same issue arose with the ESB. It had been pricing in recovering costs based on historic investments, which it was not entitled to recover money against. The joint committee should recommend it should be the minimum costs to allow new entrants and the Central Bank should be the adjudicator.

Chairman

Is that agreed?

Deputy Ó Caoláin

Could Mr. Dorgan give an example of a financial institution seeking access to the clearing which did not have the intention to develop a retail banking network or to offer greater competition?

Mr. Dorgan

There is at least one institution which does not have a retail network which apparently exists to facilitate the indirect membership of many other low volume bank transactions.

Deputy Ó Caoláin

Did they not have to make a substantive contribution?

Mr. Dorgan

I assume they had to make the same contribution as everyone else.

Deputy Ó Caoláin

It is recommended that entry charges should be prohibited for institutions intending to develop retail banking activities. How does one differentiate in this regard? Mr. Dorgan is saying there are those which would be prohibited but the implication is that others——

Mr. Dorgan

I understand the point the Deputy is making. It is unlikely that anyone would want to enter the clearing system as a direct member unless they intended to develop. They would need to declare this intention at the outset. They would have to give some indication of volume because it would be necessary for the others to know what reorganisation of systems they should provide for. I did not mean to distinguish between non-retail and retail activities.

Deputy Ó Caoláin

Perhaps the wording of paragraph 5.24 can be revisited.

Mr. Dorgan

The proposal is that some cost will be encountered by those joining the clearing system as direct members. However, it would be minimal and not include a contribution towards costs.

Chairman

The Central Bank would adjudicate.

Mr. Dorgan

We re-emphasise that the Central Bank is the adjudicator.

Chairman

Paragraph 5.25 states the joint committee endorses the recommendations of the consultants for improving access to the clearing system and making it more user-friendly. There cannot be a problem with this.

Paragraph 5.26 states the joint committee agrees with the suggestion of the director of IPSO that a national payments forum, including financial institutions, users and ordinary customers, should be convened to draw up a strategy for the development of an efficient clearing system for Ireland. I do not think anyone can have a problem with this. The next paragraph is 5.28.

Mr. Dorgan

This relates to Deputy Burton's point about internal audit which she said should be placed on a statutory basis. I wonder whether it has reached the point where it could be placed on such a basis. Perhaps the regulator will adopt a code of practice as an intermediary step.

Deputy Burton

In regard to the banks and insurance institutions, unless internal audit is given statutory protection, it will always play second fiddle to management of a company. When Allied Irish Banks came before us, Mr. Buckley made it clear in its presentation it had decided to boost the status of internal audit. It remains a fact that the watchdog most likely to bark in a bank or financial institution is internal audit. If staff have what they perceive as problems, the watchdog to whom they are most likely to have recourse is internal audit but internal auditors, like anyone else, are simply employees of the bank or financial institution concerned. There is a well established body of experienced internal auditors, most of whom are qualified accountants. I do not think that nowadays any bank would dare to employ an internal auditor who was not professionally qualified because the status of internal audit in the financial institution would be perceived to be pretty low if it did so. Internal audit should receive some statutory protection because it is the frontline defence against fraud and malpractice. While the bigger financial institutions now appear to be addressing the issues involved, there are many financial and insurance institutions about which we do not have a clue.

It is interesting that in the past couple of days there has been a renewal of queries regarding the reinsurance business in the IFSC. Banking and financial services represent a significant and important industry now and will do so for the foreseeable future. We are only as good as our reputation.

Chairman

Is the Deputy happy with the recommendation that IFSRA should be developed?

Deputy Burton

The joint committee should recommend that internal audit receive statutory protection, as I said when the IFSRA Bill was being debated. What is being suggested is a lesser halfway house.

Chairman

Is it agreed that internal audit should receive statutory protection?

Deputy Burton

This represents a significant improvement but internal audit still lacks statutory protection.

Chairman

I understand that. We will go the extra mile. We will proceed to paragraph 5.29.

Mr. Dorgan

Paragraph 5.29 refers to whistleblowers, for whom members have made it clear there should be protection. The proposal is that the Bill introduced by Deputy Rabbitte in 1999 which I understand received a good deal of cross-party support should form the basis for such protection. It is recommended that it be reactivated. Perhaps there are other models.

Deputy Burton

I recommend that the sentence, "The Joint Committee also believes that whistleblowing should receive statutory protection", be moved to the beginning of the paragraph because it is the net point.

Chairman

The next sentence is problematic because it refers to a particular Deputy. I understand the Bill was passed on Second Stage. Therefore, it was approved by the Government, even though it was taken during Private Members' time. The whistleblowers Bill which is awaiting Committee Stage should be concluded quickly. We will call for it to be completed. Is that agreed? Agreed.

Paragraph 5.30 is important because we are increasing fines. The final sentence states we find the fines totally inadequate considering the profitability of some of the big financial institutions. It states the maximum fine should be €50 million. It should also include a reference to a daily fine while the offences continue. I cannot put a figure on it but it should not be just a once-off. Financial institutions should be penalised if they continue to offend. The best way to bring a practice to an end is to impose a daily fine. However, we do not have to specify a figure.

Deputy Ó Caoláin

Is the Chairman proposing that paragraph 5.30 should stand?

Chairman

I am but I am adding to it a little.

Deputy Ó Caoláin

In the second last sentence the word "ones" should be substituted by the word "institutions". In the final sentence the word "be" should be inserted. The sentence should read, "It proposes that the maximum fine should be €50 million".

Chairman

Paragraph 5.31 reads, "The Joint Committee endorses the proposals in IFSRA's Fitness and Probity Consultation Paper". Is that agreed? Agreed.

Paragraph 5.32 reads, "The Joint Committee believes that these should be brought within the same framework as deposit taking institutions". What is the issue involved here?

Deputy Burton

If it has not done so, IFSRA should be asked to undertake a review of financial service providers outside its remit.

Chairman

We received the IFSRA document and circulated it prior to our previous meeting with the recommendations of the committee originally chaired by Deputy Michael McDowell. If the Deputy checks, she will find she has received the document she requires from IFSRA.

Deputy Burton

Is the Chairman saying IFSRA has completed the review?

Chairman

Yes, we received its document last week and it was circulated to members. We will get the Deputy a copy. We wrote to IFSRA a few weeks ago on this matter and received a comprehensive reply last week. We do not have it to hand.

Deputy Burton

We seem to be at cross purposes.

Chairman

We are talking about the bodies IFSRA does not regulate.

Deputy Burton

Yes.

Chairman

We received that information last week.

Deputy Burton

Has IFSRA completed its review?

Chairman

No, it just gave us a list. We asked what areas——

Deputy Burton

I received that. My point is slightly different. It is a separate recommendation that IFSRA should positively seek to identify other bodies. We found out about Chesterton Finance because of the particular circumstances involved. I am sure other bodies have not been captured. The joint committee should recommend that we ask IFSRA to systematically review these. We may need legislation to capture some of them.

Chairman

I agree with that proposal.

Mr. Dorgan

It is suggested that some undertakings engaged in lending are not authorised or regulated, not being deposit-taking institutions, and should now be brought within the framework of IFSRA's regulations, like anybody else.

Chairman

I would extend it further.

Mr. Dorgan

What more could there be than spending money?

Chairman

Will Mr. Dorgan repeat that proposal?

Mr. Dorgan

A small number of undertakings engaged in lending are not authorised or regulated, not being deposit-taking institutions. The joint committee believes these should be brought within the framework of regulations.

Deputy Burton

The point I raised concerned institutions advertising in Ireland and offering very attractive loan products, etc. I understand that in some cases, because they advertise from outside the jurisdiction, they fail to be captured. This captures what we were talking about with regard to Chesterton Finance. There is a need for IFSRA periodically to review financial institutions which advertise but which are perhaps outside the scope of its regulations. This is an ongoing issue.

Chairman

That is a logical follow-on from our first inquiry.

Mr. Dorgan

If they sell a product in Ireland, they are covered by consumer protection or money-lending legislation.

Chairman

A large number of bodies are engaged in financial activities as a secondary part of their main activities.

Deputy Burton

They advertise heavily on television and so on.

Chairman

IFSRA's point may be that there are other regulations covering them. I am sure some of the financial, legal and medical businesses which sell insurance products as a minor part of their activities are not regulated by IFSRA because, although they are operating in the financial arena, the basic activity being engaged in is not of a financial nature.

Mr. Dorgan

They might be caught as financial intermediaries. For example, car companies bring in cars.

Chairman

Let me give an example. Some vets sell health insurance for dogs. They sell a financial product which is peripheral to their main activities. I do not want to highlight vets but there is a range of similar activities.

Deputy Burton

There are also showbiz personalities selling financial products on afternoon television. I have asked IFSRA about one or two cases brought to my attention and understand that because the products or companies concerned are outside the jurisdiction they may not be regulated.

Chairman

They are regulated in the country where they are based.

Deputy Burton

Perhaps.

Chairman

If we examine the IFSRA correspondence, we will be able to cover the issue. All we are asking IFSRA to do is to examine the issue and report to us. When the report is received, we will deal with the issue.

Deputy Ó Caoláin

We must send a full and holistic message. Mr. Dorgan used the interesting word "undertakings" to cover a wide raft of players. We are talking about institutions, bodies, etc. There are those operating within the broad money-lending area who are almost individual players. IFSRA is equally responsible for ensuring the same criteria apply to them without exception. While we should examine the issue of advertising on television, we also have a responsibility to examine those who do not use the telecommunications industry to promote business and who operate from various street corners and prey on the most vulnerable in society. We have used the word "undertakings" but the word "players" would incorporate everybody and show that we intended it to apply to everyone without exception. We must make that message clear.

Chairman

I will move on because the representatives of the Standards in Public Office Commission have yet to come in.

Deputy Ó Caoláin

Does the Chairman agree or disagree, or is that he just wants to move on?

Chairman

I am just saying representatives of the commission have yet to come in. We are now down to the matter of over-indebtedness. Paragraph 5.33 states the joint committee recommends that IFSRA should review the lending criteria of banks with a view to ensuring they can identify applicants at a high risk of over-indebtedness. We agree with this.

Deputy Ó Caoláin

I wish to make an addendum. The Chair has my wording. With regard to the words "a high risk of over-indebtedness", it is important to send a balanced message because the focus can often work contrary to the interests of those on low incomes. It is important that we add to that provision in order that it would read: "The joint committee recommends IFSRA to review the lending criteria of banks with a view to ensuring that they can identify applicants with a high risk of over-indebtedness, while protecting the right of access to lending of low income earners". I want this addendum included because it is important that one section of society is not penalised through our enthusiasm to get our message out.

Chairman

Agreed. In paragraph 5.34 we have a sentence stating the joint committee recommends a credit institution should provide funding of, say, €5 million for the further expansion and development of the Money Advice and Budgeting Service. IFSRA should recommend the basis for quantifying the contributions of individual institutions. I think we are agreed on this.

Mr. Dorgan

MABS spends approximately €12 million or €13 million a year. Therefore, a figure of €5 million would be a major boost. Perhaps it could be €5 million over a period of years.

Chairman

No, we actually say €5 million per annum. Committee members know of the difficulties being experienced on the ground because of high-balling, etc. and agree with the figure of €5 million per annum.

Deputy P. McGrath

We recognise there is much good work done by MABS. However, I am conscious of the fact that there are differing levels of output and expertise across the service from one office to another. With expenditure of €13 million of taxpayer's money, there needs to be a good review of the service, for which goals must be set. While I am conscious of the good work it has done, I am also very conscious that the output of some offices differs dramatically from that of others.

Chairman

A constituency colleague of Deputy McGrath's chairs the Joint Committee on Social and Family Affairs. Does MABS come within its remit?

Deputy P. McGrath

Yes. Has he expressed a similar concern?

Chairman

No. Does this come more within the brief of that committee?

Deputy P. McGrath

I agree. However, we are strongly endorsing everything MABS is doing. It developed in an ad hoc manner. I think it was in Deputy Burton’s time——

Deputy Burton

Not in my time.

Deputy P. McGrath

It arose from voluntary committees. In many cases volunteers became full-time workers on substantial salaries. Some of those on the Chairman's left would not be paid as well as some of them.

Chairman

In view of the fact we are recommending additional funds for MABS——

Deputy P. McGrath

I would doubt that.

Chairman:

——we should ask the Department of Social and Family Affairs to review its activities.

Deputy P. McGrath

I suggest by way of a letter from the joint committee asking if there is up-to-date information on the operation of MABS.

Deputy Burton

What Deputy McGrath is suggesting is that MABS should offer a proper professional advisory service for those looking for specific money budgeting advice. The quality of the serviceand the advice given can vary. The Deputy is correct in saying that when I was Minister of State at the Department of Social and Family Affairs, I encouraged the expansion of MABS——

Deputy P. McGrath

As I did.

Deputy Burton:

——because where I grew up nobody had recourse to anyone except moneylenders. I used to get money from moneylenders and pay them. I used to arrange for others to get money because it was the only source of credit working-class people had in the part of Dublin where I grew up. I am very clear about what moneylending is all about.

The MABS service should be confidential, professional and business-like. For some the service is absolutely excellent but in other cases it is not as helpful as it might be. MABS was meant to be placed on a statutory footing by the Government. This is a good idea. Last week the One Parent Exchange Network produced an excellent report on credit and lone parents. I suggest the joint committee commend such work. Some can only borrow the money they need from moneylenders.

Deputy Ó Caoláin

What needs to be achieved is common proficiency. MABS provides an excellent service which needs to be enhanced. It is also important to note that in its most recent report it indicates that it is not solely addressing one stratum of societal experience but is moving into a whole new area because of the current economic circumstances of many families who traditionally would not have fallen within its ambit.

Mr. Dorgan

The banks fund a large proportion — about one quarter to one third — of the budget of MABS. Is there any concern this would compromise, or might be seen to compromise, its independence?

Chairman

I take Mr. Dorgan's point, but no.

Deputy Burton

Very often the banks push irresponsible levels of credit on people. It is a regular occurrence that people go in with a Brown Thomas or other store card and come out as the owners of magnificent objects of which I am not always convinced they have a particular need.

Deputy Finneran

To comment on the MABS contribution to those in difficulty, some circumstances are addressed very poorly. In some cases it is the simple suggestion that part of one's money be stopped at source from a social welfare payment and that is the end of it. In some areas the service is semi-professional and in others very unprofessional. It needs a radical overhaul and people with expertise. Some of those who started off as volunteers are now full-time officials but they do not have any qualifications or expertise other than that they are very committed.

I take the point made by Deputy Burton that financial institutions make money readily available to certain people. Unfortunately, many cannot get credit, which is a very serious matter. I know of many cases where single parents and others are not considered by financial institutions which do not want them inside their door. It is, therefore, very difficult for them to enter the housing market or make progress in their lives through education, for instance, on the basis that they do not have any financial backup.

Can pressure be exerted on banks to fulfil a public service responsibility? I acknowledge they are private commercial institutions and that State banks no longer exist. I know of many cases which I have brought to the attention of financial institutions in various towns. They seem to have too many good customers and do not need to deal with others and when they do, they charge a rate for credit higher than that offered to good customers. Has the joint committee any comment to make on how we can make progress on behalf of those who find it difficult to get credit except through credit unions?

Mr. Dorgan

The credit unions were developed to meet that particular need. Before that, the Trustee Savings Banks had that responsibility but they became sophisticated and a bank the same as the others. From the 1950s onwards the credit unions targeted this group but there are signs that some of them are becoming very sophisticated. I do not have an answer to the Deputy's question; I do not think anybody does.

Deputy Finneran

The persons concerned are discriminated against in the housing area. The local authority and social housing system is in place but people want to own a property. Unless they can obtain a mortgage somewhere or other — the credit unions are not able to offer such a service — the financial institutions will push them aside.

Deputy Burton

Perhaps the way to address Deputy Finneran's concern is to include a paragraph on access to mortgage finance. Is access to credit a necessary right in the market society in which we live? It probably is. The picture is mixed, even in the case of access to affordable housing, to which perhaps we need to make specific reference.

Deputy Finneran

I asked for this because one cannot be denied insurance, for example. If one is refused insurance by ten insurance brokers, one can make a case to the Department of Enterprise, Trade and Employment, which will uphold the obligation on insurance providers to offer insurance to everyone. No such obligation is imposed on those who offer access to credit.

Chairman

The difference is that one is legally obliged to have motor insurance.

Deputy Finneran

The right to get credit so that one can put a roof over one's head is equally important.

Chairman

Can Mr. Dorgan reflect in the report the principle of what has been said about the availability of credit? I would like the committee to comment on two sentences in page 33 of the draft report. The last sentence in paragraph 5.35 of the draft report states that "subject to some points made in this report, the Joint Committee endorses IFSRA's proposed Code and urges its speedy adoption". We agree with that. The last sentence in paragraph 5.38, which relates to the banking levy that is due to expire shortly, states that "the Joint Committee considers that the tax rates paid by the banks are concessionary and therefore recommends that the bank levy be continued". I think we can agree to that. I will conclude this discussion with Mr. Dorgan.

Deputy Ó Caoláin

I would like to help Mr. Dorgan by referring briefly to an aspect of the executive summary at the beginning of the draft report. The sixth point in the summary states that "the Joint Committee is also concerned at the number of incidents in recent years in which banks have failed to conform to comply with acceptable standards". I am sure the correct reference should be "to comply" rather than "to conform to comply". I suggest that the words "to conform" be removed from the draft text as the joint committee wants the banks to comply with the relevant standards. I think the phrase "to comply" is more appropriate in this case because it is stronger. The words "to conform" should be deleted and the words "to comply" should be retained.

Mr. Dorgan

The executive summary, which is supposed to summarise the recommendations, will have to be changed in light of what we have discussed today.

Deputy Ó Caoláin

I rest my case. I would have liked to have argued not only for the bank levies to be continued but also for them to be increased.

Chairman

We are doing well. The levies are due to expire.

Deputy Ó Caoláin

I hear what the Chairman is saying. I had to measure my chances.

Chairman

That is fine.

Deputy Ó Caoláin

I know what I can win.

Mr. Dorgan

I feel obliged to point out that there is some question about whether the levies are legally sustainable. I presume the Deputies will be happy to take a chance with that.

Deputy Ó Caoláin

They certainly are legally sustainable.

Deputy Burton

Bring them on.

Deputy Ó Caoláin

The EU directive that differentiates between the various corporation tax rates of 40%, 24%, 20%, 16% and 12.5% was examined to ascertain whether a special rate could apply to one part of the commercial and industrial sector. The EU indicated that such a rate could not be imposed on an individual sector. The rate was proposed as a means of ensuring that the banks, which have benefited significantly from the major reductions in corporation tax in recent years, make a credible contribution. It is important that the banks should make an additional contribution to the Exchequer because they are reaping the benefit of the reductions in corporation tax. I am glad that we have agreed on the principles in that regard.

Chairman

Some minor changes will need to be made on foot of our examination of the entire text. I hope we will be able to run through the draft at our next meeting so that we can formally conclude this process. We have had a full discussion. I ask Mr. Dorgan to amend the text in line with today's discussion. I hope the new draft text will be returned to the joint committee for consideration and final adoption as quickly as can be arranged.

Mr. Dorgan

We have not considered the first four chapters, which are supposed to be factual and descriptive. I presume it will not take much time to deal with them.

Chairman

I thank Mr. Dorgan.

Sitting suspended at 3.55 p.m. and resumed at 3.57 p.m.