I welcome Mr. Eamon Timmins and Mr. Gerry Scully from Age Action Ireland. The purpose of this session is to discuss the necessity for financial institutions to comply with the consumer protection code when selling financial products to older customers, particularly in light of the report of the Financial Services Ombudsman, which highlighted a number of serious cases of inappropriate sales of products to older persons. I now call on Mr. Timmins to make an opening statement to be followed by a question and answer session. As we already have a copy of Mr. Timmins's statement, he may read it either in full or just the most relevant points. I draw attention to the fact that while members of the committee have absolute privilege the same privilege does not apply to witnesses appearing before it.
Consumer Protection Code: Discussion with Age Action Ireland.
Mr. Eamon Timmins
On behalf of Age Action and my colleague, Mr. Scully, I thank the committee for the invitation. The issue of mis-selling of financial products is one of continuing concern for Age Action and older people in Ireland. We are a national charity and we campaign to improve policies and services for older people. Within that context, the mis-selling of financial products is an important issue. Such mis-selling to any section of society is an issue of concern but it has a greater impact on older people. If a person is sold an inappropriate product at the age of 40, he or she has some chance of recovering from the damage done, but if he or she is sold the same product at 80 there is little chance of recovery. In addition, investments carry greater importance for older people because in many cases they are no longer earning and they need the money.
Older people are also more vulnerable to flouting by sales people of the existing consumer protection code in order to close a sale. Many are at a point in life at which they have major financial decisions to make but little knowledge of financial products. They are also extremely trusting of the professions across the board. At the age of 65 or 70 they may have a lump sum to invest for the first time in their lives, whether it is from a pension or the proceeds from the sale of a house or business if they are downsizing, and they need sound financial advice which will see them through the following 20 to 30 years, including big financial decisions such as nursing homes. Thus, within the customer base of financial services they need protection, and we need to make sure the existing protections are functioning for everybody.
The invitation today follows concerns we expressed in the wake of the last report by the Financial Services Ombudsman, Joe Meade, in July. The sale of inappropriate financial products to older people has been a recurring theme raised by the ombudsman almost since the office was opened in 2005. We are not financial experts and we understand there are at least two sides in most disputes, possibly three or four. We are considering cases that have exhausted the internal complaints procedures of the banks to get to the ombudsman, and on which Mr. Meade's staff, who do have expertise in this area, have ruled.
We are concentrating on three cases studies today. I will not take up too much time because we want to get to the key point. One case is that of a bachelor, aged 86, who had sold his farm for €1.3 million. He was advised by his bank, which was acting as an independent intermediary, to invest €850,000 in a four-year and six-year insurance bond. He died seven months later and the surrender value on the bond was €50,000 less than he had invested. The ombudsman awarded the shortfall on the initial capital invested. That man died without ever knowing he had been mis-sold a product.
The second case also concerns a person who died. Many of the people we are talking about were never aware they had been mis-sold an inappropriate product; it was the people who survived them who discovered this and brought the cases to the ombudsman. In this case, the estate of a woman who had died aged 82 discovered that 13 months before her death, she was sold a bond that would not mature for five years. She had invested €30,000. The ombudsman ruled that there was no evidence the bank had explained the difference between derivatives and equities, and directed that the bank should purchase the bond back for €38,500. Again, it was a product that was completely inappropriate for an 82 year old.
The third case study involves other more complex issues. A brother aged 78 and a sister aged 85 had invested €106,000 in a joint deposit account. He was deaf and she was in hospital. A neighbour approached a bank official requesting that the brother's name be taken off the account and a draft of €55,000 be given to him, leaving the account in his sister's name. The neighbour was provided with documentation that would need to be signed by both and advised on what needed to be done. On the death of the woman, the brother stated that the documents had been signed under duress. The ombudsman believed the bank had a duty of care, considering the age of the customers, and should have contacted them directly rather than leaving it to a third party. Mr. Meade made the point that the official concerned had been naive to the point of negligence. The bank had also discussed the siblings' business with a third party. The ombudsman's office ordered that the bank reinstate the joint account and lodge a €55,000 bank draft, and awarded the brother €1,200 in compensation. We, as an organisation representing older people, are shocked by this. I do not understand how a brother and sister in any other age group would be treated that way and why someone, on the advice of a third party, would divulge their business and take such steps.
We have been approached by a number of banks over the last year or two, after such issues were raised, asking what special protections need to be put in place. We have addressed the Irish Banking Federation on this matter. We already have special protection in the form of the consumer protection code. In short, what we are looking for is for that to be enforced. If it is enforced, older people will be protected on many of the issues we are talking about. We do not need special protection for most older people; in fact, we argue that in almost all cases special protection is not required for older people. The consumer protection code must be enforced. The code states that the financial institution must deal with customers professionally and fairly and act in customers' best interests. If we think of the three cases I mentioned, we cannot say any of those institutions acted in the best interests of those older people. They must try to find out as much as they can about a customer in order to provide a product or service that is right for him or her. They must make sure a product or service they recommend or offer is suitable for the customer, and they need to be able to show why they feel it is suitable. In addition, they must deal with the customer openly and fairly. For each of the three cases examined by the ombudsman, we could not say any of those things were done.
What needs to be done? The financial institutions need to make sure their staff are trained and understand the consumer protection code. They then need to be supervised to make sure they are actually doing what they were trained and what they are required to do. The Financial Regulator has a role to play in protecting people by enforcing the consumer protection code. In May 2008, "Prime Time" did a hidden camera or mystery shopper exercise which clearly showed, in the judgment of financial experts in the studio, that the advice being given to a 70-year-old woman with €100,000 to invest was unsuitable. The same three products were offered in three different branches of the same bank. Nobody went into the details of her needs; nobody suggested she might put some money aside for a nursing home.
We need the Financial Regulator to do what it is supposed to and enforce the consumer protection code. We need to go beyond paper trails. We know the regulator conducts paper audits in which it checks banks, but we also need mystery shopper exercises. As a starting point, the Financial Regulator could take some of the cases that have been investigated by the ombudsman and go back and see what those institutions are doing. We do not know which institutions are involved in these cases, as the ombudsman does not report their names. Our position is that although the consumer protection code is there, it is not working and it is not protecting people as it needs to. If the committee can do anything to help us in this regard we would be grateful. We would be delighted to take any questions members may have.
I thank Mr. Timmins for his presentation, which tells us exactly what the problem is with regard to some people in these institutions. I will allow the other members of the committee to come in with questions. I know Deputy Barrett is in a hurry.
I thank the Chairman and the other members of the committee for facilitating my request to invite these two gentlemen in to put on the record what is happening out in the field. I thank the representatives for coming here.
I feel strongly about this issue. The three cases mentioned have one thing in common, namely, they all apply to banks. There is a serious question as to why bank officials, who have knowledge of people's wealth or circumstances, can put pressure on people with the aim of selling only their own product. That has not been mentioned here. Investment brokers and insurance brokers are regulated, and rightly so, and there are requirements that one must practise in a certain way in accordance with the law. That does not apply to banks. Bank officials are becoming investment advisers. They are not suitable for this as they are not selling a wide range of products but only their own product. They are also coming under so much pressure from head office to increase productivity in all areas that they will sell anything.
I have come across numerous cases in which people complained to me that they wished to do business with a particular broker — perhaps their own broker — but pressure was applied from the bank as they were told it would be in their interest to do business with the bank. This is completely improper. I was anxious to ask Mr. Timmins and Mr. Scully to appear before the committee, but we should also invite representatives of the Department of Enterprise, Trade and Employment, which is responsible for regulation of investment and insurance brokers, to appear before the committee. We should seek to put in place not only a code of practice but its provisions should be written into the law, namely, that certain extra requirements should be asked of people selling products. In particular, extra requirements should be asked of people selling products to people aged over 60 or 65 to ensure they adhere to the provisions specified in law and, if they are not adhered to, such a person should be found to be in breach of the law. It is all very well to have in place a code of practice and it is easy to pinpoint an investment broker or company, but in the case of a bank the official concerned could have left the bank by the time such a breach of the law comes to light. Therefore, the current position is not satisfactory. We should have not only have a code of practice in place but its provisions should be stated in the law. It would not be necessary to go into the exact detail on this but a broad legal requirement should apply to those selling products to people in general and, in particular, to people in a certain age group.
The cases that the representative highlighted are scandalous. They illustrate how advantage has been taken of people who were perhaps not sufficiently educated in the area of investment and depended on advice from well-meaning, professional people, acting in their professional capacity. A banker who sold such products was not mindful of the needs of the client, regardless of his or her age, and did not specify the ins and outs of the investment concerned.
It is not sufficient that the committee has listened to the contributions of the representatives, it should follow up on this matter by inviting the Department to appear before it. We should also examine how to strengthen this code of practice and if an amendment to legislation is required. That would be a good day's work and a measure that would give people legal protection into the future. I thank the representatives for their input. I apologise for having to leave the meeting now but, as I explained, I have to attend an important funeral.
I endorse Deputy Barrett's proposal. It is probably the Department of Finance that would have responsibility for this area, having regard to the reallocation of some of the responsibilities for financial oversight to IFSRA. It is important that not only the regulator but the Department would be invited to come before the committee, as Deputy Barrett said. Part of the problem is weaknesses in the legislation. The Financial Services Ombudsman cannot make a general ruling in respect of a class of cases, rather he has to hear each case individually. That mitigates against a class change in the way people think about doing their business.
I would like our guests to comment on why there was no enforcement when these cases arose and why the bank was able to state it acted in good faith. If an official acting on its behalf had been naive to the point of negligence, surely the bank had contributory culpable negligence in not providing that official with instruction, equipment and the questions he or she is required to ask. Have the representatives any insight into why that happened?
I note Mr. Timmins's point concerning the mystery shopper exercise and the failure of the ombudsman to report the names of those concerned. I did not know that the ombudsman could not report the names of those concerned, but it appears to require a legislative change to provide for that. There is little point in having a service such as this if it is not possible to at least name and shame, whatever about prosecuting. I note from reports in today's newspapers that Europeans have commented on our banks to the effect that they have been giving bad advice, that they have opaque and hidden charges and that complaints made to them are not heeded. Where such complaints are pursued with the ombudsman, 75% of them are successful. If that number of cases is slipping through the system, it indicates the in-house complaint mechanism is not adequate. It seems the legislative framework may be defective, that these breaches are not being followed up with exemplary cases being taken against the institutions involved.
I thank the visitors for appearing before the committee. Mr. Timmins might indicate the number of complaints his organisation receives, on average, on a weekly or monthly basis from customers? Are such complaints made to his organisation or directly to the ombudsman? This is another area where the Financial Regulator has adopted a passive rather than a hands-on approach and has allowed this situation to continue. Is proper and adequate training taking place in some banks and have some banks got a good record in this respect? Is the problem related to specific banks or is it an industry-wide issue? Is there any reference on the documentation required to be completed by an applicant advising that he or she can contact the Financial Services Ombudsman in the event of a problem arising or in the event of the mis-selling of a product?
I thank the representatives for attending. Will this proposal apply to financial products? Some time ago, I received a complaint concerning an insurance product. A similar argument could be applied to people aged in their mid-60s who were sold a product, the premium attaching to which seemed to increase each year. Benefit would have been gained on the death of the insured person and that person was effectively being penalised for staying alive. Will insurance product complaints be included in this measure or is there a zoning in on financial products given the remit of this committee?
I will conclude by relaying a story of what happened to me some 30 years ago. When I went to an institution to transfer money from a building society to the bank, I met a new teller. He told me that I would get the same rate of interest in that institution. At that stage the interest accruing to deposits in the buildings societies was tax free. The teller continued in that vein until I told him I happened to be an accountant and I knew about such matters. He said, "Sure it was worth trying anyhow". People who do not know the difference in terms of products are being codded. As Deputies Bruton and Barrett and other members have said, there is a need to guard against that.
With regard to financial products, is it possible to age proof the selling of such products either by way of the ombudsman or the Financial Regulator? I refer to a mechanism such as that which applies to gender balancing. Have the representatives heard of such an idea? I now invite the representatives to reply to all the questions that have been raised.
Mr. Eamon Timmins
I will deal with the last point first. A number of institutions have introduced age related protections. For example, one requirement is that a person aged 65 must bring a person under the age of 65 with him or her. That creates a scenario where, say, a bank manager on retiring at 65 and having been given a gold watch on that day must bring a younger person with him the day after to open an account to invest the lump sum he or she took in his or her pension. We have an issue with such a requirement. We might offer people the option to bring a younger person with them but they may sign off saying they do not want to bring a person with them as they do not feel the need to do so. Age is not reason for incapacity. If one does not have the mental capacity to start with, perhaps one should not make such legal decisions.
Certain types of products should not be sold to people of certain ages.
Mr. Eamon Timmins
It is important that people understand the risk. The financial institutions tell us that people want a high return on their investment and the only way they will get that is if they lock in their investment for a certain number of years and they have to sign off on that. The people who have come before the ombudsman were sold these products and there was a good return on them.
On Deputy Bruton's question, up to the day the ombudsman issued his report, these complaints had gone all the way through the financial institutions internal complaints procedure. They cannot come before the ombudsman without first going through that procedure. The banks and financial institutions fought this all the way, including with the ombudsman. At no stage did they say they had breached the consumer protection code. We do not know if the ombudsman hands over those files to the regulator. We would like to know if this practice is systemic. We do not even know which financial institutions are involved. If bank A appears before the Financial Services Ombudsman should not the ombudsman hand over those papers to the regulator to see if an issue has arisen within that bank in terms of whether procedure was followed or whether one official decided to break ranks and make a killing on a vulnerable customer.
We take calls — I am not sure of the percentage — in regard to financial complaints. We are not a professional body and we do not give financial advice. We recommend to people that they seek financial advice. Complaints tend to come in waves when issues arise in the media. People who were sold a similar product ring to inquire if they too might have been sold an inappropriate product. When stories break people become concerned. Less than 5% of calls we receive each year are complaints. I would not ring Age Action Ireland with a financial, banking or investment query. Our information office is not trained to deal with such matters and would forward people to the financial regulator for advice. While there is a cost involved in seeking financial advice, it is money well spent. We would advise people with big investments to seek independent financial advice before signing up.
Today's presentation relates specifically to financial matters and the consumer protection code. During the past two years, we have come across serious cases of inappropriate treatment of people by auctioneers and solicitors, some of which are being investigated by the relevant disciplinary bodies. Some of these cases have come through that process and the professionals involved have been sanctioned. This practice is not unique to financial institutions. Some professions — we hope a small number — have been taking advantage of people.
Another issue that arises is that we do not know the scale of this problem. Even in the case studies mentioned, two of the three people did not know the scale of the problem; it had been identified by their estate. We do not know how many people will complain and follow that complaint through the internal complaints procedure to the ombudsman. From the cases we have seen, many of which are clear-cut, it is hard to believe that these are unique.
Mr. Gerry Scully
We have received a number of calls from people whose premiums on long-term policies have increased. The small print on these policies states that the premiums are open to review. However, elderly people whose premiums have increased do not understand why as their circumstances have not changed. As far as they are concerned there is no justification for the increase in premiums. We have received calls from a number of people who are concerned about this.
Recently, we received a complaint in regard to cold calling by telephone. In this particular case, the telephone number, which was in the complainant's parent's names was delisted. However, a person's telecommunications service provider is permitted to telephone him or her and to sell products in this way even though his or her telephone may be delisted. In this case, the person opted not to purchase the product but because he did so outside the 14 days cooling off period, he is faced with a €294 penalty. There are other issues besides matters relating to the banks that are causing concern.
What type of penalties are imposed on an institution found to have mis-sold a product? Are large fines imposed?
Mr. Eamon Timmins
Ideally, we would like them to be named and shamed. It is the ultimate penalty because a person who is aware a particular bank has breached a code will not open an account or buy a product from it. I would like to know the state of play in any bank with whom I might be considering to do business. We have in place regulations and should know who is breaking them. They should be named. Mr. Meade stated that were this to happen he would be in the High Court for every case and as such we would never get any cases through the system. In July, he questioned whether there is a need for legislation to enable him to name and shame institutions.
To answer the Deputy's question I am not sure what the penalties are for breach of the code.
Has an investigation in this regard ever been undertaken?
Mr. Eamon Timmins
We have been told by the regulator's office that it undertakes paper audits of banks several times a year to ensure they have the paperwork to show they have been complying with the consumer protection code. We need more than that. Mystery shopping is an ideal way to find out if people are doing what they are supposed to be doing. With this type of code we are seeking to protect vulnerable people. One would need to set up vulnerable situations to find out if the system works. We do not have any evidence that that is being done. However, we presume they have commenced mystery shopping.
On mystery shopping, how many cases per institution would Mr. Timmins recommend?
Mr. Eamon Timmins
One would need to take examples across the board. It is a little like the nursing home inspections in that if one finds places that are breaching the code one focuses on them. There is nothing to stop a team of investigators hitting all the high street banks and financial institutions that are selling these products. One could visit three branches of one particular institution and they might all come up clear. However, if problems arise in four branches of another institution one must question whether this practice is systemic or if it is a case of badly trained individuals who are not being supervised. We do not know the answer to that. However, we do know that people are being mis-sold products.
I thank the delegation for attending today's meeting and for giving us information on what is happening in this area, in particular in respect of vulnerable elderly people. It is an issue I have previously heard Mr. Meade speak about on television. The joint committee will take the information on board and will contact the relevant Departments and offices to see what can be done to safeguard the people concerned.
I thank the delegation for giving of their time and coming here to put their case before us to help us to understand a little better what is happening in this area.