JOINT COMMITTEE ON FINANCE AND THE PUBLIC SERVICE debate -
Thursday, 9 Jun 2005

Business of Joint Committee.

Chairman

Apologies have been received from Deputies Burton, Cregan and Ó Caoláin and Senators O'Toole, John Paul Phelan and White.

The first item on the agenda is the draft minutes of the meeting held on 25 May 2005 which have been circulated. Are they agreed? Agreed.

The next item on the agenda is correspondence. A schedule spreadsheet has been circulated. Some 54 statutory instruments regarding urban renewal areas are listed. As the matter is straightforward, I suggest they be noted. Is that agreed? Agreed.

We have received a reply from the financial regulator regarding the reinsurance industry. I suggest we note the briefing note which members can study.

The next item is a travel report from the committee representative on the conference, Strategies for an Ageing World, held in London in November 2004. We will note the report. The next item is a travel report from the committee representative on the conference, European Economic Policy, a National and European Perspective, held in Brussels in April this year. I suggest we also note this report.

The next item is a revised draft of a letter from me, as Chairman, to the Minister for Finance regarding a settlement made with the Revenue Commissioners following the intervention of the Ombudsman. It is proposed that we forward the letter to the Minister. Is that agreed? Agreed.

The final item is an update on correspondence, item No. 94, from our last meeting, a letter from Deputy Ned O'Keeffe regarding the flood plan for Fermoy. As requested by the committee, the Minister of State at the Department of Finance with responsibility for the OPW, Deputy Parlon, met a delegation from Fermoy in Mallow last Friday.

Bank Charges and Interest Rates: Draft Report.

Chairman:

We now come to the consideration of the draft interim report on the policies of commercial banks on customer charges and interest rates. I hope this will be a brief meeting to finalise the matter. Our intention is to formally launch the report next Wednesday. There is no major item of substance to be agreed at this stage. We had a full run-through at the last meeting and there are only a few minor details that we need to clarify. The report will then be sent to be typed and proof-read. I suggest that any member who has a new major item of substance to introduce should hold it for the next report.

Deputy N. O’Keeffe

I apologise for the fact that I will not be available next Wednesday.

Chairman

The apology will be noted. The report will be launched in the audio-visual room at 2.30 p.m.

While the comments of committee members are protected by parliamentary privilege, those of visitors are not. We will commence with a short presentation by Mr. Jim Dorgan on the third revised version of the draft interim report on the policies of commercial banks on customer charges and interest rates. He should deal with the key items we need to consider today.

Mr. Jim Dorgan

So far the joint committee has been discussing section 5 - recommendations and conclusions. At the last meeting we agreed most of it. As a consequence, it does not require further consideration. However, changes were agreed to some paragraphs. These changes are underlined in the draft report. I am confident I have accurately reflected the wishes of the committee but if the Chairman wishes, they can be examined one by one. There are approximately half a dozen changes, one or two of which may give rise to difficulties.

Deputy N. O’Keeffe

Has Mr. Dorgan gone past paragraph 2.6 which refers to credit unions?

Chairman

On which page is the Deputy?

Deputy N. O’Keeffe

Page 5.

Chairman

The joint committee will complete its consideration of section 5 - the main substantive section - and then complete the earlier sections. We will return to the Deputy's query but section 5 has been the main topic of discussion to date.

Mr. Dorgan

Paragraph 5.7 on page 24 deals with interest on current accounts. The redrafted paragraph has been underlined and I hope it accurately reflects Deputy Bruton's observations.

Chairman

It is proposed to insert the sentence, "However, the Joint Committee believes that the Competition Authority in Ireland should review the situation here in Ireland with respect to payment of interest on balances on personal current accounts and consider whether a similar recommendation should apply in Ireland as that which applies in England to small and medium sized enterprises". The joint committee can agree with this.

Deputy Bruton

Is the Chairman suggesting small and medium-sized enterprises are already getting it here? I did not think that was the case.

Chairman

No, in the United Kingdom.

Deputy Bruton

Why is it proposed to exclude small and medium-sized enterprises from getting the benefit?

Mr. Dorgan

I thought that throughout this document the joint committee was only considering consumer and retail banking. I am not excluding the possibility that it might apply to another body but at present it does not apply generally, although there are exceptions.

Chairman

Should the joint committee simply include a reference to small and medium-sized enterprises? The reference to personal account holders and small and medium-sized enterprise account holders should be included.

Mr. Dorgan

Very well. The recommendation in the United Kingdom concerned SMEs rather than personal account holders.

Chairman

The joint committee will also include it.

Mr. Dorgan

In paragraph 5.11 on page 25 it was suggested a clause should be inserted to the effect that while the joint committee generally thought the Government should reduce its use of cheques, social welfare recipients should have the right to opt for any form of payment convenient to them.

Chairman

Yes. That reflects what was discussed at the last meeting. It is agreed.

Mr. Dorgan

Paragraph 5.12 is slightly problematic. The cost of making payments abroad was raised. The paragraph notes that the issue was raised. It was noted that electronic transfers and bank drafts were not always acceptable or practicable. In these circumstances, cheques are often the only alternative. I understood that to be the point. However, the charges levied by banks for handling cheques abroad are very high. The joint committee recommends that the financial regulator require banks to reduce charges on cheques for payment abroad to no more than the charge for, for example, a foreign bank draft which I understand to be €4 or €5. I do not know if this actually meets the point being made and I am unsure if it is a practical suggestion.

Chairman

This cannot be done unilaterally in Ireland.

Mr. Dorgan

No, that is another point.

Chairman

Perhaps the report could simply state the joint committee recommended that the financial regulator negotiate with regulators at EU level. That would meet the point.

Mr. Dorgan

Unfortunately, Deputy Burton is not here. I was unsure as to what her problem was about making payments abroad having discussed ways and means of doing so.

Chairman

The problem was the bank charges levied to send a cheque from Ireland to Spain to book an apartment for a month's holiday.

Mr. Dorgan

They are very high.

Chairman

When such a cheque comes back, it is very expensive.

Mr. Dorgan

I cannot understand why a bank draft or an electronic transfer cannot be used.

Chairman

Because when one is sitting at home at night, one can write a cheque and put it in the post whereas to do the other one must go to the bank. I believe that was the reason.

Mr. Dorgan

As represented to the joint committee many times, cheques are disappearing all over Europe. I have been told there are some countries where bankers do not know what a cheque is. They have never actually seen one. I daresay Spain is one of the countries that does not have much to do with cheques. France, the United Kingdom and Ireland are still major practitioners. Hence, the chances that the regulator in Ireland will get the Spaniards to accept a low charge to handle a document with which they do not normally deal are not good.

Chairman

Mr. Dorgan is correct. Perhaps the joint committee should ask the financial regulator to raise the issue and report back to it as we know reduced charges for cheques will not be accepted by many other European countries, some of which are not familiar with them.

Mr. Dorgan

The decision is to raise the issue with the regulator in other countries and report back on progress.

Chairman

Realistically, that is as far as we can go. To suggest we can do any more here on our own——

Deputy Bruton

My impression is that the banks do not often inform people what the choices are. They have a relatively low-cost transfer system if one fills out a form and has the exact account reference of the receiving bank. I assume this is the 20c charge to which Mr. Dorgan refers in his note on paragraph 5.12?

Mr. Dorgan

Yes.

Deputy Bruton

However, the banks do not often give that information. One must ferret it out, or am I mistaken?

Mr. Dorgan

I do not know. There is a degree of novelty involved. Not everyone is perfectly familiar with the various options available to make payments. The joint committee has only discussed one or two; there are others. There are methods to transfer money outside the banking system. It is possible that some junior staff are not as familiar with all the options as they should be at this stage. Will the recommendation be left as it is?

Chairman

Yes, the joint committee is happy with it as it stands after that discussion.

Mr. Dorgan

I believe the joint committee agreed to delete paragraph 5.15 on page 26 on predatory pricing because there was no recommendation.

Chairman

That is agreed. There were complications.

Mr. Dorgan

Paragraph 5.24 on page 28 has been redrafted. Previously, the proposal was that entry to the clearing system would be completely free to all-comers. However, this is a modified proposal to the effect that costs should be minimised as much as possible.

Chairman

Members are happy with this.

Mr. Dorgan

In paragraph 5.29 on page 29 I had drafted the recommendation on the basis that the regulator would prepare a code of practice but on the proposal of Deputy Burton it was agreed that it should not be a code of practice, that it should be given full statutory recognition. Otherwise, the text is unchanged.

Chairman

The text now reads,"It therefore proposes that the internal audit should receive statutory recognition for standards for: determining which financial institutions should have internal audit; protecting the independence of internal auditors by requiring them to report to an audit committee; ensuring that membership of the audit committee is independent of management and specifying the qualifications, numbers and procedures of internal auditors to ensure a satisfactory standard of internal audit".

Deputy Bruton

I am conscious that it is Government policy that regulatory impact statements should accompany new provisions. I do not know if there are potential problems associated with this but if the joint committee is to make this recommendation, I presume it should at least acknowledge that a regulatory impact statement ought to be prepared in conjunction with this legal modification. I do not know whether Mr. Dorgan knows whether there would be any significant compliance cost attached to this.

Mr. Dorgan

Yes, I imagine there would be. There would be some cost and there may be some knock-on effect on the regular external audit. I originally thought, that to some extent, the external audit would give way to the internal auditor. However, external auditors whom I spoke to said that it would increase the amount of work required of the external auditor. I assume that there would be some impact but we can do that.

Chairman

Should we add in the phrase recommended by Deputy Bruton about preparing regulatory impact statements?

Deputy Bruton

We could say that in accordance with the general policy of the committee, we believe that any new compliance requirement of this nature should have a regulatory impact statement prepared to accompany it.

Mr. Dorgan

There are a number of other recommendations in this report which, in effect, increase the regulatory structures. Is it invidious that this particular one should be singled out as one to be subject to regulatory impact statements?

Chairman

This is one of the few ones where we recommend a statutory change. We are talking specifically about statutory change.

Mr. Dorgan

I will take a note of that.

Chairman

I think the committee is satisfied about that.

Mr. Dorgan

The statement will be along the lines that internal auditors should receive statutory recognition and perhaps the last line might be that in accordance with established practice or Government policy, the framing of the statute should be accompanied by a regulatory impact statement.

Chairman

Yes. The next item is paragraph 5.31.

Mr. Dorgan

This is a proposal from the Chair that a daily fine be levied in the event of continuing infringements. This proposal was not in place before. I do not think there is any argument among members of the committee about it.

Chairman

The next item is paragraph 5.34.

Mr. Dorgan

This addition pertains to financial institutions located in the UK which advertise and provide services in Ireland. Some of the products concerned are reported to have oppressive features. It is recommended that the financial regulator examine the activities of these institutions and report on the desirability and possibility of controlling their activities in Ireland. This is a change to the original text but I do not think it is a matter of controversy.

Page 31 of the report deals with over-indebtedness. The recommendation in paragraph 5.36 is that banks' lending criteria should be reviewed by the financial regulator to ensure they can identify applicants with a high risk of over-indebtedness. The only change to the recommendation, which was proposed by Deputy Ó Caoláin, was the addition of "while at the same time protecting right of access to financial institutions by low-income groups" in the last line. I think we were agreed about that.

Deputy Bruton

This is the suspicion that the banks are encouraging people to get into debt that they cannot cope with. A recent report on the borrowing experiences of a group composed predominantly of single-parent families revealed that the banks were effectively opting out of this business and that people were being forced into the arms of moneylenders where they paid much higher interest rates. The emphasis in that report was much more on poor access to financial services and barriers that prevent people on low incomes from getting access to financial services through conventional banks. I think the report also singled out the ESB as being slightly below the moneylenders' reporting rate of 29%.

Mr. Dorgan

The rate was 23%.

Deputy Bruton

There is a dual issue here. On one hand, people are walking into debt that they cannot sustain and, on the other hand, people who are in a poor debt position appear to be forced into the most precarious type of borrowing where they pay 200% interest rates. Unlicensed moneylenders would charge these rates. This paragraph does not quite capture the issue that seems to exist according to the evidence of that report, which is much more to do with access to financial services and which shows that people who get into over-indebtedness often do so as a result of paying very high interest rates on unconventional sources of credit.

Mr. Dorgan

I do not know; I am at the committee's disposal. Throughout the report, we use the word "banks" but perhaps we should refer to the lending criteria of credit institutions and make it clear that we are not just referring to banks. We face a dilemma in this area. On the one hand, we can say we do not want credit institutions giving credit to people who cannot pay it back and become over-indebted. On the other hand, we have the issue, which is what Deputy Ó Caoláin's suggestion is supposed to cover, of people on low incomes who would be the first to be winnowed out of the process. Deputy Ó Caoláin proposes that by adding this line at the bottom of the paragraph, we make it clear that just because someone is on a low income does not mean that he or she should be precluded from approaching a credit institution.

Deputy Bruton

My impression of the financial institutions is that they will be happy to pull the ladder up behind them in terms of low-income borrowers who are at risk of going into high debt. The banks have no great interest in that business because there is not much profit in it and they would be quite happy to opt out of it and leave it to the credit unions and moneylenders. The case being made in this recent study was that it should be made easier for people on low incomes to access conventional financial institutions where charges and rates are lower. Some of the issues that were raised concerned credit institutions' money laundering requirements where applicants must produce passports and other documentation that some people on low incomes do not have. There were a range of issues concerning how these people were being cut off from becoming involved with these institutions.

What we seem to be saying is that we would encourage the banks to be even less interested in doing business with people from the bottom of the pile, so to speak. I do not think this is what Deputy Ó Caoláin would want as an outcome. The balance of this recommendation appears to be slightly wrong.

Mr. Dorgan

If Deputy Bruton proposes a form of words that will resolve the particular dilemma he has, we would all be very grateful to him.

Deputy Bruton

I do not recall what Deputy Ó Caoláin's concern was.

Mr. Dorgan

His concern was exactly what Deputy Bruton said. If we say that credit institutions should ensure that they identify applicants who have a high risk of over-indebtedness, the first criterion they will apply will be an income one. This will then eliminate all these people on low incomes who will then be forced into a less attractive market. Deputy Ó Caoláin proposed a change in the last sentence which recognises that a person should not be automatically precluded from approaching a credit institution because he or she is on a low income.

Deputy Bruton

I see but we should reverse the order and say that the committee is not happy that low-income groups have sufficient access to financial institutions. We should also say that the committee believes that there are obstacles to people on low incomes getting access to these financial institutions and that the Irish Financial Services Regulatory Authority should examine this issue which has been highlighted by the report. We should then state that the banks must be conscious not to push people into over-indebtedness situations. I am sure that they are fairly conscious. Reversing the order might fulfil it and amplify the second part slightly.

Chairman

Does the Deputy mean at the beginning?

Deputy Bruton

Yes.

Mr. Dorgan

If one were to read the whole paragraph, one would see it concerns the problem of over-indebtedness, which naturally leads on to the first part of the recommendations.

Deputy Bruton

It would be remiss of us, given that a major group dealing with low income families has raised this issue, were we not to put our shoulders to the wheel to keep matters moving along and to bring attention to the issue. Moneylenders' rates are not competitive in any way. We are speaking about people who are trying to get money for a first communion or confirmation who must pay exorbitant costs. We should remove this rather than encourage it.

Chairman

Does Mr. Dorgan understand what we are saying about reversing the emphasis?

Mr. Dorgan

I do.

Chairman

The next paragraph is 5.38.

Mr. Dorgan

This was inserted after the last meeting in accordance with expressed concerns about some aspects of the operations of the money advice and budgeting service in that some branches were not considered to be fully up to standard. Any further extension should be on the basis of properly performing MABS systems throughout the country.

Chairman

We are all happy with that.

Mr. Dorgan

Concerning paragraphs 5.39 and 5.40, there was discussion about the difficulties some people have in getting on the property ladder. It was suggested that I might draft a recommendation, perhaps by borrowing from Part V of the Planning and Development Act 2000 under which developers pass on a section of their lands to local authorities for affordable housing. I have endeavoured in paragraph 5.40 to frame a recommendation along those lines, namely, that all mortgage lenders should be required to assign funds of a certain percentage of the mortgages they advance each year to borrowers under the affordable housing scheme. The rate of the mortgages should be at cost and the details are to be worked out by the Department of the Environment, Heritage and Local Government.

I added a note at the bottom saying that I was merely trying to interpret the wishes of some of the previous meeting's speakers but that I was not sure I fully understood what was being said. Members did not make a detailed recommendation and I have doubts about the practicality of this suggestion. Could we postpone it until the next interim report or the next report on banking and finance, which I understand the Chairman proposes to launch, when deeper consideration can be given to the proposal?

Deputy Bruton

That is the correct approach. The main agent meant to be subsidising the mortgage cost on affordable houses is the State but it has chosen not to increase the income thresholds index or its level of support for many years. If we are to deal with this issue, the State should first examine its stewardship regarding these families before it says anything. The difficulty with this is that the mortgage companies will see to it that 80% of people will carry premium costs to ensure the 20% of people favoured here get lower costs. The banks will not take this money out of their profit streams and will use this as a mechanism that they will say in a few years' time was an extraordinarily complicated compliance requirement. If the State wants to subsidise access for certain people, it has the power to do so but is choosing to use that power in a miserly way at present. This needs more thought but there is a germ of an idea in terms of getting lower cost access, which is an issue for people in a certain income band who are not receiving adequate support to access affordable housing. This proposal is not the answer.

Chairman

We will have paragraphs 5.39 and 5.40 with the commentaries but without any recommendations.

Deputy Bruton

Paragraph 5.39 is all right.

Chairman

The joint committee recommends that the Department should negotiate the affordable housing scheme with all other mortgage providers.

Mr. Dorgan

It is doing that but it is always a safe recommendation to encourage it to do what it does already.

Chairman

Paragraph 5.39 is fine so we are addressing paragraph 5.40.

Deputy Bruton

I do not know who is looking for this but if we are to deal with it, we could say that the joint committee recognises there are families for which the affordable housing scheme as it operates at present is coming up short and that it believes this matter must be assessed by the Department, which would not have anything to do with our committee in this case. If we need to go beyond that, we could say that among the options available are the enhancement of the State subsidy or negotiation with mortgage lenders of some form of scheme of lower cost mortgages for target families. We could leave it at that and recognise more work needs to be done before the scheme is a credible policy.

Chairman

They are getting the houses at affordable prices. The other 80% will feel that they are being asked to subsidise the mortgages of the 20% of people who are getting houses at reduced prices. We are asking the 80% to carry a double whammy, so to speak.

Deputy Bruton

That is what it would end up as.

Mr. Dorgan

Can we refrain from introducing the topic at all? Once one does so, others assume one has a solution.

Chairman

Using Part V to interfere with the property market is a minefield and we cannot glibly make recommendations without having seriously considered the topic. If we did consider it, we would have more views than there are members present in the room.

Mr. Dorgan

Is the committee proposing that we drop paragraph 5.40?

Chairman

Yes.

Deputy Bruton

It is a housing policy issue.

Chairman

It does not fall specifically within our remit.

Mr. Dorgan

Is that all?

Chairman

Deputy Ned O'Keeffe has a question.

Deputy N. O’Keeffe

I have been following the newspapers recently and have read about many judgments by credit unions against clients. This spells trouble in the long term. The issue is discussed in one newspaper in which I have noted four judgments against people who borrowed. If people have difficulties making their repayments while we have a buoyant economy, what lies ahead? We should examine the topic of credit unions if this is the trend.

Chairman

Does the Deputy mean judgments from the credit unions?

Deputy N. O’Keeffe

Against clients.

Chairman

I believe that credit unions will be dealt with in future legislation owing to the scale of their activities. The financial regulator has concerns about them as well.

Deputy Bruton

I presume from the nature of the clients they are dealing with that there is a higher percentage of bad debts.

Deputy N. O’Keeffe

They were substantial figures.

Chairman

This is an issue we can come back to separately.

Deputy N. O’Keeffe

One was €100,000 and another €60,000.

Chairman

Credit unions will arise as an issue again. I want to examine the table of contents and to have the committee formally agree each section. We have gone through the entire report and there is now the formality of agreeing it section by section as we do with legislation. Is the foreword agreed? Agreed. Are the list of abbreviations, summary, introduction, financial services sector, role of banking system, structure of the financial sector and regulation of the financial sector headings agreed? Agreed.

Are the section 3 -background issues - DIRT and tax evasion, National Irish Bank, the Rusnak affair, foreign exchange overcharging, Faldor, Bank of Ireland payment protection policies and the Competition Authority's report headings agreed? Agreed.

In section 4, the examination of witnesses, are the Central Bank and Financial Services Authority of Ireland, the Irish Financial Services Regulatory Authority, AIB, Bank of Scotland (Ireland), Irish Payments Service Board, National Irish Bank and correspondence from Cork County Council headings agreed? Agreed.

In conclusions and recommendations, are the competition issues, interest rate margins, interest on current accounts, bank charges, stamp duties, cheques, switching, clearing, compliance, other issues, over-indebtedness, housing finance, bank levy and future work of the committee headings agreed? Agreed. Are the appendices headings, orders of reference and membership of the committee, agreed? Agreed.

At this stage we will clear the report subject to textual changes and proofreading. I wish to get the committee's agreement on a formal launch of the report at 2.30 p.m. on Wednesday, 15 June 2005 in the audiovisual room in Leinster House. The clerk will make the necessary arrangements for the launch and will arrange for the report to be laid before both Houses. Copies will also be sent to the Competition Authority, the financial regulator and the Department of Finance. An electronic version of the report will be placed on the Oireachtas website.

I wish to get the committee's agreement on the following matters. Does the committee wish that Members of both Houses receive a copy as well as a copy being placed in the Library?

Deputy N. O’Keeffe

I propose.

Chairman

That is agreed. On that basis I propose that 300 copies of the report be printed. I will make an opening statement on behalf of the committee at the launch and will invite questions from journalists. As many members of the committee as possible, as well as individual Members, can comment during the course of the press launch. Journalists will, no doubt, direct questions to individual members of the committee. All questions will not go to me as Chairman. Mr. Dorgan will be unable to join us at the launch of the report and I thank him on behalf of the committee for the report to date.

I inform members that Ms Breda Burke, clerk to the committee, is leaving the committee. We have been notified of this in recent days and I thank her for her excellent work. She will be replaced by Mr. Pat Timmins who will take over in the near future. Also, Ms Breda Kennedy is transferring to the Committee on Transport having worked on this committee for four years with great dedication. As Chairman, and I speak on behalf of the members, we got on very well. These staff members were very efficient and easy to work with. I wish them well in their new posts.

Deputy Bruton

Regarding the schedule, are these routine meetings?

Chairman

We have the schedule and we will consider it. Next week there is the launch of the report and the following week we will meet the National Lottery Company. This is one company of public significance that comes within the remit of the committee and we have never seen it in the Oireachtas. Although there is no agenda, people may have many things to say to its representatives. The committee agreed to deal with the disabled drivers passenger scheme before the summer recess. In July we are meeting the Ombudsman and the strategy statements of the Departments of the Taoiseach and Finance will be dealt with.

There is one item for the select committee, the National Economic and Social Development Office Bill 2002. It has been awaiting consideration for two years and the Government wants it cleared before the summer recess. It is a not contentious and I expect no major difficulties on Committee Stage. That will take place at 3 p.m. on 27 July 2005.

After the break, in September, we will consider tax reliefs and the review the Government is undertaking. For the benefit of members we have asked for copies of submissions and we have received some that have been made. When we assemble further information we will give everyone a full dossier in advance of the meeting so that people can see what has been submitted. During the next few weeks we can decide how to approach this topic.

The joint committee adjourned at 2.55 p.m. until 22 June 2005.