Thursday, October 2, 2008

Consumers must not be short changed!

All I can say is wow...what an amazing week. Little did I know when I attended a meeting with Minister Brian Lenihan on Monday afternoon at 5pm about the Budget about what was going on behind the scenes and the astonishing announcement made early on Tuesday morning.

Most people agree that this was a bold move that appears to have restored some sense of stability in the Irish Banking system in the short term. However none of us know what the impact will be on the banking sector, the economy and most importantly from my perspective on the consumer. A lot has been written about it and of course we all acknowledge that the global credit crunch played a role. But the Government, regulators and banks have to face up to the reality that much of the problem was home grown as well. The Irish banks shovelled out huge loans to developers and builders in the past 5 years and it was the concerns of other banks about the exposure here that led to the crisis on Monday. Morgan Kelly from UCD had a very good article about this in the Irish Times on Thursday. With Charlie Weston in the Independent leading with a story telling us the banks could be owed €112bn by developers.

Despite the fact that not a cent has been paid by the state because of the guarantee, it is already or very soon going to cost the taxpayer and consumer. As the latest exchequer returns show the Government will have to borrow billions to balance the books, with the guarantee the cost of this credit will shoot up. The other suggestion coming from sections of the financial services sector is that charges and fees will have to increase. This would be totally unacceptable. It was the taxpayers who threw the banks a lifeline in their hour of need, not the shareholders or investors, so is our reward to be higher charges and fees, while those who created this mess, the fat cats at the top get off scot free?

No George Baileys here!!

The Government needs to do 3 things to protect consumers as a result of their decision to guarantee and bail out the banks. Firstly once the dust has settled they must conduct an independent investigation into why this emergency bailout was necessary. Is the current regulatory regime appropriate? Does the Central Bank and Financial Regulator have the necessary powers and did they act appropriately?

Secondly the Government must legislate or regulate to ensure there is no attempt to pass on the cost of this in the form of increased bank charges and fees. It would be all to easy for the banks to pass on the costs of this to the consumer, as we have seen with the airlines when the price of oil went up. Therefore any bank which signs up to the gaurantee scheme would forfeit the right to increase these costs. This can be easily done as all charge and fee increases are already regulated by section 149 of the consumer credit act.

Thirdly the Government must legislate to put the key provisions of the Consumer Protection Code on a statutory footing. The days of "principles based" and light handed regulation are over. We need strong regulatory action to protect consumers, who do not get bail outs or guarantees when they run into financial difficulties.

If the Government fail in this regard, it will be the taxpayers and consumers whi will feel short changed in this whole sorry saga.

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