Written Answers. - Banking Sector.
Nora Owen
Ceist:
72
Mrs. Owen
asked the
Tánaiste and Minister for Enterprise, Trade and Employment
if her attention has been drawn to the fact that banks are charging for the purchasing of bank drafts in foreign currencies (details supplied) to compensate for their loss on the lack of exchange revenue; and if she will make a statement on the matter.
[4000/00]
The Consumer Credit Act, 1995, which commenced on 13 May 1996 allocated responsibility for the regulation of non-interest related charges imposed by credit institutions to the Director of Consumer Affairs. The Act obliged credit institutions to formally notify the director of all their charges within three months of the commencement of the Act and to further notify any proposals to increase their existing charges or to introduce charges for services not previously notified. The director may issue a direction to an institution to refrain from imposing a proposed increase or new charges.
The Deputy's question relates to the charges imposed by credit institutions for foreign exchange transactions, particularly foreign bank drafts, after the introduction of the euro for cashless transactions on 1 January 1999 when compared with the charges imposed pre euro.
The pre euro charging structures imposed by credit institutions and bureaux de changes for foreign exchange transactions in respect of Eurozone currencies were based on a commission and a margin or spread, the difference between the rate at which a currency is bought and the rate at which it is sold. With the fixing of exchange rates for Eurozone currencies from 1 January 1999 the spread no longer applied.
I have been informed by the director that credit institutions notified her that as the majority of their income, approximately 80%, derived from the spread rather than the commission element of their foreign exchange charges, they were seeking to amend their pricing structures for Eurozone transactions. I understand that, in submitting their notifications, the director required that the institutions provide her with a commercial justification for their proposals. In that context, while the exchange rate element of risk in respect of Eurozone currencies no longer existed, the costs involved in providing a foreign exchange service, including staff, premises, transport and security costs still remained. The director has informed me that she was concerned that the savings accruing from the elimination of the exchange rate risk and the benefits of the single currency should be passed on to consumers and that the directions which she issued to credit institutions were framed in that light. I understand from the director that, overall, reductions averaging between 20% to 30% in the cost of transacting in euro currencies, when compared with the cost of such transactions prior to the introduction of the euro, have resulted since 1 January 1999.
In relation to the charges imposed for foreign bank drafts and, in particular, the instance detailed in the Deputy's question, while it is not possible from the details supplied to know the value of the transaction referred to or which institution was involved in the transaction, I understand from the director that it is not correct to say that the only charge imposed prior to the introduction of the euro for a transaction was a straightforward £3.50. A spread would also have pertained. The spread or margin was not transparent to customers as it was included in the rate upon which the transaction was calculated and was not, therefore, readily identified as a charge.
The director has informed me that as part of her directions to credit institutions regarding their euro charges she obliged them to conduct a number of positive customer communication exercises, including advertising their charges in the national newspapers and providing information leaflets outlining their charges, with pre-post euro comparisons of their pricing structures. The purpose of these exercises was to ensure that the new euro pricing arrangements would be as transparent as possible thereby enabling customers to shop around for value. A consequence of this has been that a significant number of insti tutions have reduced their charges, including charges relating to the cost of foreign bank drafts, below those approved by the director.
