Tuesday, December 30, 2008

Financial Reform-Shame to waste a crisis!

I have survived the Christmas, thanks to the good weather did not eat or drink as much and watch as much bad TV. The dry and fine weather meant I could get out on the farm down home in Borrisokane and do some long overdue work cutting some ditches and clearing scrub. Like every other sector farmers have been hit by the recession and I am expecting interesting negotiations with those renting my land in the coming weeks on prices for this year. On a positive note I got a letter from Tipperary GAA letting me know I had won €200 in the weekly lotto draw. Would be great now if the Premier followed that up with an All-Ireland in 2009 as well!

The fresh air gave me some time to reflect on 2008 and of course the 2 big stories of the year were the collapse of our banking system and big shift in consumer spending and habits. So in this blog and the next will look at those issues in depth. But as well as looking at the problem I will try and come up with some possible solutions.

We need a radical overhaul of the financial services sector, people talk of regulatory reform but the fundamental issue is that the system is sales and commission driven and shareholder value trumps everything else. Of course it makes sense to incentivise people, but there have to be some limits and safeguards in place. Unlike buying a pint of milk, consumer protection for consumers purchasing a mortgage needs to be strong and effective, because if things go wrong its very serious for the individual. And as we have seen in recent months, if things go wrong on a grand scale, its very serious for all of us. We have seen this at its worst in the US. Sub prime lenders employed people on a commission basis who went out and sold mortgages to people to buy houses they couldn't afford. The salespeople didn't care whether people could afford the mortgages or not, they got paid for selling them. The sub-prime lenders didn't really care either because they repackaged these mortgages and sold them onto respectable financial institutions who are now dealing with these toxic assets and the fallout. It says a lot about the sharp suits in these institutions with their MBAs that they paid good money for such lousy assets.

The only difference here is that the sub-prime market was only getting going when the bubble burst, things could have been a lot worse if the credit crunch started now instead of August 2007. But a lot of other things were going on here, banks were shovelling out money on personal loans, mortgages, credit cards. I know of cases where people got huge bonuses and holidays for selling products that were definitely not in the interests of the customer. The salesperson didn't care, they got the bonus and if there is a problem it's the customers problem. The Financial Ombudsman has done excellent work on exposing some of the worst cases, but I suspect these are just the tip of the iceberg. I accept that customers have responsibility too, but for many people financial products and services are mind boggling and they are quite literally at the mercy of the salesperson.

At another level banks as we have seen shovelled out money to property developers and builders as if they felt they could defy logic and the premise that what goes up must come down. Like sheep the banks cheered on by stockbrokers, economists and other "experts" lent billions. That policy came home to roost for all the banks, especially Anglo Irish which is most exposed and we are all suffering as a result. No one has taken responsibility for this, Sean Fitzpatrick and David Drumm in Anglo did resign, but their resignations were related to concealment of directors loans. I am sure their resignations will be temporary hiccup, they will take comfort from other high fliers such as Kryan McLoughlin who had to resign as a director of Davys a decade ago due to embarrassing personal tax issues, but is now more powerful than ever. Indeed as Deputy Chairman of Davys which is heavily involved in the Aer Lingus takeover bid on behalf of Ryanair and as a director of Ryanair itself, he will be playing a crucial behind the scenes role in 2009. (The Ryanair takeover of Aer Lingus would be a disaster for consumers in my view, this is something I plan to return to in early 2009)

An apology for only $59.95!

So what can be done? Well Barack Obama's new Chief of Staff Rahm Emanuel is on record as saying, "never waste a crisis" That idea that our current difficulties present opportunities to reform the system in a way that was unthinkable a year ago to prevent a repeat of what has happened.

It might have been necessary initially given the urgency of the situation for the Government to engage solely with the banks, but now there is no excuse. If we are to reform the financial services system, the Government needs to engage with all the stakeholders including consumer organisations, rather than just the banks. Secondly all need to accept that "principles based" or light touch regulation has failed (or as I would refer to it soft touch regulation) and we need a rules based system. Thirdly the Government needs to carry out the review of the effectiveness of the financial regulator in its consumer protection role as promised in the report of the Consumer Strategy Group. Fourthly we need to investigate the possibility of a free impartial financial advice for consumers along the lines being discussed in the UK and that's just for starters. This is one of the issues which the Carnegie Commission on Civil Society is looking at as part of our work and we plan to hold an event in London in February to look at reform of the financial services sector for the benefit of all. So after that I may even have more ideas.

Saturday, December 20, 2008

The heavy levy!

In November the Government announced a new package of measures in the private health insurance market. This was in response to the surprise decision of the Supreme Court in July to quash the existing risk equalisation scheme that was a key part of our private health insurance market. Up to then there were a number of basic principles underpinning the private health insurance system here, such as community rating, risk equalisation, open enrolment and lifetime cover, (explanation of these terms here). Once the risk equalisation scheme was declared illegal, one leg of the stool was gone and the Government had to come up with a solution.

The Government claimed that the abolition of the risk equalisation scheme would lead to a massive increase in premia for older people. Obviously no one would be in favour of that, but I don't really know how that could be the case. Most older people are insured by VHI, they have 99% of the over-80s, and 90% of the over-60s in the market. Also I know the Government was in turmoil following the medical card fiasco, but looked more like a manufactured crisis to me. Yes companies could design schemes that were more attractive to younger people, but they could not refuse to allow an older person to join and as far as I know all schemes have basic entitlements. So rather than coming up with a solution that would have ensured the viability of the market overall and protected the sector from the collapse of one company, the Government in my view has come up with a scheme designed to protect the state company VHI, allow it to maintain its dominant position, stifle competition and most importantly drive up costs for consumers and indeed force some people to give up on private health insurance.

Do you talk "Insurance Jive"?

The Government response was two-fold, the three companies VHI, Quinn Healthcare and Hibernian Health will have to pay a levy of €160 on all adults over 18 and €53 on all on children insured by them. It is being claimed that this levy will fund additional tax relief for the over 50s. Basically the three companies will receive money from the state for the tax relief (as this is given at source) and will have to pay the levy on all their customers. It has been claimed that because VHI has a higher number of older customers it will receive more than it has to pay in the levy, some claim up to €30m, while the other companies will pay more to the state that they will receive in tax relief payments. So in effect this is risk equalisation by the back door.

When she made the announcement the Minister for Health Mary Harney T.D. stated that she hoped the levy would not be passed on to the consumer. Some chance of that, we can see what has happened, VHI and Quinn have increased their premiums by 23% and 16% respectively and Hibernian yesterday also increased their premiums. The end result of all this is that younger people, many with families may have to cancel their policies and are less likely to take it out in the first place, because the prices are going up and they are getting no additional tax relief. This is especially so in the current economic environment. That is not good news because stated Government policy has been to encourage people to take out health insurance as early in life as possible. In 1999 the Government promised to introduce lifetime community rating, the idea that those joining later in life could be charged more and also I believe would have to include provisions for reductions for those who have been members for a long period. Nothing happened, although they are promising to introduce it now again ten years later. At the moment a person joining at 60 will pay the same premium as a person who joined at 30 and has been paying the premium for 30 years. The only difference is that as you get older the period you need to wait to be covered after joining increases from 6 months for those under 55, a year for those 55 to 64 and 2 years for those over 65.

The new scheme will apply retrospectively from January 1st 2009 once the legislation is published and passed in next legislative session. Hibernian Health has launched an "Axe the Levy" campaign and both they and Quinn have stated they are considering their legal options. Its unlikely the Government will change their mind now, although they may accept some adjustments to the promised legislation. They also say this is a temporary 3 year measure to allow time to come up with a comprehensive plan for the sector. Could we be going the route of universal health insurance as promised by Obama in the States?

We definitely need a well thought out plan for the future of the sector in Ireland, that meets our health needs and is competitive and affordable. If a universal plan can do that, I say yes. In the meantime we are stuck with a levy and a plan that appears designed to prop up a state company, where consumers and patients are the main losers.

Saturday, December 13, 2008

Look this gift horse (voucher) in the mouth!

Its that time of year again, where many of us drag ourselves around the shops to buy those presents for family and friends. I am not one of those organised people, who draft a list in September and has all the gifts bought and wrapped by November. I usually leave things until the last minute, indeed I can remember some years where I only started on Christmas eve, not to be recommended! For people like me, the gift voucher is the great saviour. If I know that a friend likes reading rather than spend half an hour thinking what book they would like and worrying I might buy a book they won't read. I get them a gift voucher which they can use at their leisure, or so you think! Not only can they be a convenient and safe option as a gift, many people also like getting them, including yours truly. A survey in the UK found that over 40% of people would prefer to receive a gift voucher rather than a traditional present.

Earlier this week on behalf of the Consumers’ Association of Ireland (CAI) I was advising consumers on Today with Pat Kenny among others to be careful when buying gift vouchers as presents for family and friends. I was pointing out that there are a number of pitfalls which consumers need to avoid when buying a gift voucher so that they don’t end up giving a present with a lot of strings attached. At the moment each retailer and business is free to determine the terms and conditions of the vouchers they sell.

One of the biggest issues with gift vouchers is the expiry date. Its important that consumers check this, ask the salesperson if the voucher has an expiry date and if so when will the voucher expire? Some businesses impose a short timeframe of only 6-12 months, so if the voucher is presented after that date there is no legal obligation on the issuer to accept it as payment. The Fine Gael spokesperson on Enterprise, Trade and Employment, Leo Varadkar highlighted this back in February, with one example where the voucher expired after 3 months. Ideally there should be a date on the voucher and there should be no time limit. If there is an expiry date, best to buy one where it will last for at least 2 years. In many cases retailers will accept a voucher after that date, but I have come across cases where they do not. The National Consumer Agency have a list of expiry dates from some of the larger businesses and retailers.

Its also important to know that if the retailer or business closes down, the voucher cannot be redeemed, likewise if the shop/business changes ownership there is no guarantee that they will accept vouchers issued by previous owners, so if you are giving a gift voucher for a large sum there is a risk involved. A relative of mine got a voucher for a travel agent for €400, but within a few months they closed down and she had no comeback.

In Prague for the weekend, but seeing more of the bars than the shops!

CAI would like the law changed to enhance consumer protection. In a number of states in the US, such as Illinois, New Hampshire and California there are specific laws on gift vouchers. In particular the law should include provisions that all gift vouchers would have a lifetime of 5 years, a requirement that the issuing date and all terms and conditions must be included on voucher and that no fees or charges can be applied. Also where there is a small balance left on the voucher, e.g. 5% of the value of original sum, the consumer has the right to seek a cash refund. And in case people think I am advocating that consumers hold unto their vouchers for 5 years, I am not. It makes sense to use the voucher as soon as possible as with inflation it loses value over time.

Wednesday, December 10, 2008

At Debts Door

The Minister for Social and Family Affairs answered a number of questions in the Dail on Tuesday in relation to number of people seeking assistance from the Money Advice and Budgeting Service (MABS). Its shows that the number of new clients going to MABS in the 11 months to the end of November has from 12,400 for the whole of last year to 15,600 up to the end of November. These figures show a 25% increase and that doesn't include the Decemeber figures. On top of that the numbers calling the advice line which was established in October 2007 is almost 11,500. MABS is an excellent service and I would encourage people who are under financial pressure to seek their assistance. I have heard stories that there are waiting times at some offices, not sure if this is true. If it is then the Government need to provide more resources to the MABS service, because the reality with increased demand, the pressure will grow on the hard working MABS staff who can only see so many people in a day.

Likewise we hear of the pressures on organisations such as St Vincent De Paul where demand for assistance and financial help have grown massively too. And in recent days the Irish Times have been running stories about areas (such as my own next of the woods in South Meath) where the recession is biting. I am old enough to remember the late 1970's and early 1980's when money was scarce and inflation from memory was in the 15-20% bracket. My father died suddenly in 1978 when I was 7 and since he was a farmer our whole livlihood was wiped away. There were no EU farm subsidies back then, you lived from what you produced from the farm. Apart from the emotional loss for my mother and my 3 siblings and I, financially times were very tough too. The memory of those difficult times have stayed with me and that is why I really believe the Government needs to do more to assist people whose are facing tough times. If we give people a hand up now they will be able to rebuild their lives and start contributing again when they are back on their feet.

In their pre-budget report the UK the Government have reduced VAT from 17.5% to 15%, have announced a package of measures to assist those in financial difficulty with mortgage debt such as a £200m mortgage rescue scheme, 3 month stay on repossession and increased resources for money and debt advice. Here apart from a slew of direct and indirect taxation the only positive step has been to increase mortgage interest relief marginally for first time buyers.

We have had the bail out for the banks, its time for the Government to come up with a strategy to support ordinary consumers who have lost their jobs, livlihood and income because of the recession along the lines of what the UK Government have done.

Friday, December 5, 2008

The Never Buy Insurance Policies!

I got a call this week from a sales rep at O2. You see back in July I bought an iPhone, or as one of my friends calls it, the Jesus phone. I am fairly happy with it, the GPS comes in handy when I am lost as I was last weekend...there are a few problems such as texting and I understand from a friend that integrating it with blue tooth in his car is a problem.

Anyhow the sales rep from O2 wanted me to buy insurance to cover my phone in case it was stolen, lost or broken. Basically for €9 a month I could insure my phone if I lost it, or if someone stole it and made loads of calls to Australia. My response was why? Insurance in basically there to cover substantial loss, i.e. if my house burned down, I wouldn't have a home and would still have a big mortgage, so it makes sense to pass the risk to my home insurance company in return for an annual premium. The same applies to motor insurance in that if you cause or are in a serious car collision, the costs could be exorbitant. Indeed motor insurance is unique in that we are required by law to have it if we have a car.

The "Never Pay Policy" sounds good!

But the idea that I should pay €108 a year to insure a phone which I could buy if it was stolen or lost for between €129 to €229 is mad. And even if someone steals my phone and makes calls I would like to think I will know soon enough to be able to cancel it with O2. A few years ago when I bought my mp3 player in Scotland for £50, I couldn't believe it when the assistant almost insisted I take out an insurance policy on it.

These policies are all the rage, because on one hand the providers whether they be telco companies, white goods retailers or airlines make a nice profit on these worthless policies and they also then of course try to fob people off if they have a problem by telling them to make an insurance claim even if they are responsible for dealing with the consumers problem. Thats bad news because the insurance industry is notorious for anti-consumer practices, as someone once put it they will insure you if you fall out a window, but not when you hit the ground.

Consumers should run a mile from these dubious policies, they are expensive and of little value in my humble opinion.

Thursday, December 4, 2008

Ad Attack

In recent days RTE highlighted a report which found that broadband customers rarely get the maximum connection speeds advertised by internet service providers. The study on broadband available in Dublin, Cork, Galway and Limerick found that on average consumers benefit from just 60% of advertised speeds. Now in the past telco companies covered themselves by stating in their ads that their offers provided speeds of "up to" so many megabytes. However I thought that had all been sorted out since Comreg and Advertising Standards Association of Ireland (ASAI) had agreed a new set of advertising rules for internet providers last March. Individual consumers can check their speeds, this is one company I have used to check the speed of my broadband at home, but I am sure there are more.

Of course the regulatory regime here for the advertising industry is weak. As in other areas we have "self regulation" or what could be called light touch regulation. I would call it soft touch regulation. Obviously advertising has a role to play in informing consumers about new products or services, it can also promote competition by letting consumers know about cheaper prices or better services. And lets be honest some ads are really good and on TV can be better than the programmes.

A Leonard Rossiter Classic!

However advertising can also be deceptive and misleading as outlined above re broadband. In that case consumers are not getting "what is says on the tin" and are being ripped off by being provided with a service which is poorer than what they are paying for. But the current regulatory regime doesn't promote good practise because if a consumer believes that an advert is misleading all they can do is complain to the ASAI and a number of months later they will either uphold or refuse the complaint. By that stage the advert has served its purpose and may no longer be in circulation. Even where the ASAI has found that an advert was in breach of their codes all they can do is direct that the advert not be run again and/or make recommendations for future ad campaigns. They have no power to impose fines or penalties on those found in breach of their advertising standards even though the misleading advert could have generated considerable revenue for the company. See here for a list of the most recent cases.

As I discussed in this blog last March there is also considerable global pressure for greater regulation of junk food advertising towards children, which many believe is contributing to child obesity. CAI linked up with the Childrens' Rights Alliance to call for greater restrictions on junk food advertising here and it is positive that Minister Eamon Ryan has included a provision for this in the Broadcasting Bill which is going through the Oireachtas now. Likewise there is growing pressure to restrict alcohol advertising which appears to be targeting young people, but so far the Government have caved into the drinks lobby and only introduced "voluntary codes" which are unenforceable, weak and ineffective.

What we need to protect consumers is an advertising code underpinned by law, policed by a powerful regulator where ads can be stopped or taken down immediately and where financial penalties can be applied to act as a disincentive.

Saturday, November 22, 2008

Buffetted in times of recession

I like many Irish people purchased shares in Telecom Eireann having fallen for all the hype and marketing about how wonderful an opportunity it was. It was my first foray into the world of stocks and shares and apart from those who sold their shares in the first few days we suffered big losses.

In recent times people have suggested that shares are now great value and the "sage of Omaha" Warren Buffett tells us (see video below) "Be greedy when others are fearful and be fearful when others are greedy" But can we trust the stockbrokers not to sell us duds as many have tried over the last decade.

The Sage of Omaha!

As Dave points out on his blog here at 6:30 on a Wednesday some "expert" over at Davys is ramping up Bank of Ireland shares and then at 8:20 the next morning they are revising down their price target and as he says some explanation and disclosure as to the drastic change would be helpful. Of course if an ordinary consumer bought €20,000 of shares based on this advice at the time, they would be sitting on shares worth now about €1500. But no fear Davys would still have their hefty fees.

Of course Shane Ross is the man the stockbrokers hate, because he was a stockbroker and he knows that the so called "experts" in stockbroking firms are just making it up as they go along. As he points out they have been wrong so many times and they are still listened to. His article is a fairly damning indictment of the situation and that was January 2008 and since then share prices have fallen much much further. He also makes a good point about a conflict of interest where a stockbroker personally or his/her company could well be the broker for the firm they are encouraging others to invest in. Is this always declared to the client? Its a serious issue when people's life savings can be lost or massively reduced by these recommendations.

This is an area which does require greater regulation, but will the stockbrokers who are powerful vested interests really want our politicians upsetting their applecart? Indeed there have been some minor changes and the Financial Regulator has now some oversight of the work and procedures of the Irish Stock Exchange, but I don't think it is enough a lot more needs to be done. Of course our stockbroking firms have always been very supportive of the democratic process and in return some politicians appear to have been very forgiving when of "errors" that have occured, so I wouldn't "bank on it" and the prospect of any serious and meaningful regulation of this area any time soon.

But that doesn't mean that we shouldn't try and this is an area I will be returning to in the coming months. And of course apart from the big regulation issues there are the individual cases where people find they are being charged hefty fees for a bad service, and unlike the price of a pint of milk, huge sums of money are involved.

Friday, November 21, 2008

Protective or Defective Directive?

I was out judging a schools public speaking competition last night for the National Forum on Europe, thankfully the subject was not Lisbon! All the speakers were really impressive, I remember the first time I spoke in public, the room spun around and I got my cards mixed up so I repeated about half the speech. Public speaking competitions are a good starter, but debating is much better for helping you frame an argument, think on your feet and of course the odd bit of heckling. Had some fun times in debating competitions in Tipperary, including one famous occasion where one of our team (now an esteemed member of the legal profession) managed to convince our opponents he was an adjudicator and asked them for their main arguments prior to the contest, you can imagine their surprise when he took his place on our team!

While we are still dealing with the fall out from the Lisbon Treaty defeat here in Ireland, the EU machinery in Brussels works away on a daily basis churning out reports, recommendations, opinions and directives. Many of these impact on our daily lives, but in most cases what is decided today may not affect us for many years. The EU "Community Method" is complex and slow, but it does work, having experienced it myself during my time with the EYF.

My friend Dominic encouraged me to join him in Croker on Wednesday night, it was more like Krakow or Warsaw than Dublin-the Polish fans far outnumbered the Irish and were great fun and in great voice....a nice side of EU integration even if Ireland lost 3-2

I was over in Brussels last week and got a briefing on the proposal by Commissioner Kuneva for a new consumer directive. As you can see here the Commission is saying that this directive is a great step forward. BEUC (European Consumers' Organisation) on the other hand is not so happy, raising concerns about a number of issues.

From my experience the big shift here is the move from minimum harmonisation to maximum harmonisation. This means that if passed that EU law in the areas covered by the directive will be the same in all member states. The benefits of course are that the law is consistent across the EU and where legal provisions are weak, consumers will be better protected. However where the law is stronger, maximum harmonisation could undermine hard won gains by consumers over many years. Do we really want to forgo rights just to enhance cross border trade?

Its unlikely that the directive will be passed before the European elections next June and the installation of a new Commission in the autumn of 2009, so the current proposal could fall. In any event it is a proposal to monitor because it could have a big impact on us all in the year ahead.

Thursday, November 20, 2008

Not a perfect storm!

Vodafone will soon be launching their Blackberry Storm in Ireland. However it seems they will be charging Irish consumers a lot more for the phone and the tariffs than in the UK and on the continent. Thanks to http://www.keith.gs/2008/11/vodafone-blackberry-storm-yet-another-paddy-tax/ for spotting this and the detailed analysis.

I am sure they will try and justify it on the basis of that costs are higher here, but of course all these companies forget to mention our very favourable corporate tax rate. Termination rates may be more expensive here, but definitely not six times more expensive. The data doesn't cost a cent more and we already know that the mobile companies here generate the second highest ARPU (average revenue per user) in Europe at €40.87 compared to an EU average of €25.99.

So as Keith says its another paddy tax on the Irish consumer. Obviosuly Vodafone believe that consumers here will pay more, only time will tell. The best way of course for consumers to apply pressure on Vodafone to reduce the price is to hold off on buying the product.

Tuesday, November 18, 2008

Cutting down on the overheads!!

Perhaps I will try this next time!

Well in these recessionary times we are all on the lookout to cut costs and for bargains. I pass through that boulevard of broken credit limits otherwise known as Grafton Street twice a day on the way to work, it always dangerous to stop there because you end up spending money! Anyhow to my surprise there was an offer of a free haircut there when I passed today. I noticed this before, but since I needed a cut and it generally costs me €13-€15 to get the job done thought it might be worth a try. So I thought practice what your preach Doorley!

Anyhow its a hairdressing training school and in return for the free haircut you are a guinea pig for a trainee hairdresser. Now my request is not too demanding, four on the back and side and trim the front and top. I am suffering a little from Androgenic Alopecia but not quite having to do the comb over just yet! My only request is that they don't take too much off otherwise my hair just stands up! I empathised with the trainee, she is only 3 weeks training and lacked the confidence to do all the job herself. It was fascinating listening to the interaction between tutor and student, he encouraging and challenging her at various times. She got a bit frustrated at times because she couldn't quite get the hang of some of the technics he was showing her. In the end he stepped in to finish off the job. It may have taken twice as long, but I am happy with the result. It may not be everyone's cup of tea but I got my hair cut for nothing and hopefully contributed something to the next generation of hairdressers. So folks there are savings and bargains to be got out there if you look!

Monday, November 17, 2008

Irish Consumers being "Pounded"

Got a call from Newstalk yesterday asking me to comment on their survey of the difference between the cost of clothes in euro on sale here and the price of the same items in sterling on sale in the North and in the rest of the UK. The results of their survey are as follows with the sterling price, the current euro price here and what the price should be based on the value of the euro against the sterling.


  • Black Skirt - £19.99 - e29.90 (Exchange Rate e23.27)


  • Knee Length Coat - £75 - e113 ( Exchange Rate e87.29)
  • Silver Knee Length Dress - £65 - e 94 (Exchange Rate e75.65)
  • Black T-shirt with frill - £25 - e38 (Exchange Rate e29.10)

Ted Baker

  • Multi coloured stripped shit £70 - e100 (Exchange Rate e81.47)
  • Washbag £35 - e50 (Exchange Rate e40.67)
  • Coat £85 - e120 (Exchange Rate e98.76)

I subsequently did a piece on their breakfast show this morning. This is not news to many of you I am sure, we are all sick and tired of seeing the sterling price and then the hugely inflated euro price. I pointed out that the euro prices are based on the 2007 value of the euro when the it was worth about 66p to 67p. The euro has strengthened considerably since the start of 2008 and is now worth about 85 pence sterling

When CAI raised this issue back in March we were told that there was a time lag and the currency fluctuations would be reflected in the prices after about 6 months, however almost a year later nothing has changed. There is nothing illegal about what these retailers are doing, but it is still galling. I suppose they are charging what they think we will pay. If consumers want to effect change, the best thing to do is to take your business to another shop or else go across the Border as many thousands are doing.

I know some people have said to me can I not pay in sterling to get around this, unfortunately this is a non-runner, there is no legal obligation on retailers to accept sterling. However both the media and consumer advocates can keep the pressure on by highlighting the difference and if consumers continue to vote with the feet the retailers will have to respond.

Monday, November 10, 2008

Fares Fair and the Audacity of Hope!

On November 1st new EU rules came into force which will require airlines and others advertising ticket prices for flights to include the full cost including fees, charges and taxes upfront. In addition passengers should get the breakdown of the different categories of costs making up the final price:tariff, taxes, airport charges and other fees. We all know the story, a flight is advertised as free or for a €1, but by the time we pay for it the price is €60. Now there are good deals out there and people can get cheap flights. But the problem with this sort of advertising is that it lures people with an initial misleading offer and having gone through the booking process most people just buy rather than start and search again. So instead of booking a flight with another airline for €50, we pay €60 because the initial cost quoted was a €5.

It would be like a supermarket saying we charge 10c for a loaf of bread, but you have to pay 20c for the car park, 10c for the trolley, 10c for using the check-out. Up to now many consumers didn't have the detailed price information they needed up front to make an informed choice and decision. Price transparency is a key component of any consumer contract, so these new rules are welcome. However there will still be wriggle room for the airlines, some have introduced a number of discretionary charges such as check in and baggage charges, so it will still be difficult in some cases to know the full cost until consumers gets to the point of purchase. Consumers will have to factor these extra costs into account.

The other positive measure being introduced is that airlines will not be able to impose charges on consumers without their express consent. Up to November 1st airlines such as Aer Lingus, Aer Arann and Ryanair have automatically included insurance on flights booked online, requiring the customer "to opt out" if they wanted to exclude an extra such as insurance from their purchase. I have come across cases where the consumer was not aware that they were paying for insurance or thought they were required to buy insurance. Obviously its a matter for each consumer to decide, but do you really need to pay insurance on a flight from Dublin to London? The merit of many of these insurance policies is questionable in my view. From now on the websites of all airlines should be designed so that consumers have "to opt in" to order and pay for insurance and or other extras if they want them.

The key thing now is to ensure that these new rules are enforced. In the first instance that's the responsibility of the Department of Transport and I assume the National Consumer Agency, but also us as consumers to report if we find the new rules are being breached.

I also see that the EU Commission has launched a website for consumers where they can get advice on and report what they consider are unfair commercial practices. Looks like a good initiative.

I cannot leave the blog this week without a mention of events in the US. Well as my friends know I am a bit of a political and election junkie. Watch and enjoy elections and politics from all over the world, and in keeping with habit since 1992 (then all I had was BBC Radio 4) stayed up for the elections. Apart from watching the historic election of Barack Obama, I was keeping an eye on the Senate and House races, would the Democrats get a filibuster proof majority in the Senate and would the 2006 Democrat surprises hold on? My friend Dominic tells me that there is a technical term for this affliction called Psephology not sure if there is any cure! I had been keeping an eye on North Carolina since the summer and was really pleased to see Kay Hagen win over Elizabeth Dole, who ran a nasty and negative campaign, especially in the end.

Inspiring stuff

The thing that inspired me most about Obama was the triumph of hope over fear and optimism over negativity. That got me thinking about consumer advocacy where there is a danger of always being negative, of always knocking, of always being the hurler on the ditch. Yes it is important to highlight deficiencies, but consumer organisations and advocates also need to be positive and put forward solutions and proposals. We are all too familiar with the naysayers, the hurlers on the ditch, the bores who come to meetings, never have a good thing to say, and just criticise and who stay talking when there is nothing left to say. These are the sort of people we all stop listening to after a while, so like people, organisations need to avoid falling into this nexus of negativity or else we won't be taken seriously after a while too.

Classic Naysayers, but at least they were funny unlike some I know!

Wednesday, October 29, 2008

Watchdog teeth and fake grass!!!

I have been critical of the Financial Regulator for being too timid in the past. However I am happy to acknowledge when they prove me wrong by their recent decision concerning Quinn Insurance. I don't know the full details of the case but from press reports it would appear that the Financial Regulator investigated and came to the conclusion that regulations were breached and issued quite a hefty fine. Leaving aside the particular case my view is that such action sends out a strong message to a very powerful sector of our society, i.e. the Financial Services Sector that they are not above the law.

The challenge of being involved in any consumer organisation is that the consumer generally thinks you are too soft on the vested interests, while the vested interests take a radically different view and use all opportunities, both directly and indirectly to undermine you and your organisation. And of course the indirect approach is more difficult to counter. In the United States there is a growing phenomenon where big corporations fund individuals or groups who establish organisations through various means (usually one person outfits) who portray themselves as advocates for a cause when in fact their primary goal is to undermine a campaign or cause by spreading misinformation and muddying the waters. Some examples are fake environmental groups funded by the oil industry that contradict the views of environmental organisations. All you need is one person and organisation with a plausible name and a website and hey presto you are in business. What these fake organisations do is called astroturfing, to distinguish them from real "grassroots" organisations. And it may not always be easy to flush them out, but I suppose key questions to determine their bone fides would be, who is running and behind the organisation, does it have a real "membership", do they have any conflicts of interest and are these declared and how is the operation being funded and by whom?

Astroturfing at play!

It came to mind when I was asked about CAI by a consumer who thought we were too soft on the banks and the financial services sector. I outlined what CAI had consistently called for and I also informed him that I didn't have any bank shares nor do I work in the financial services sector. But I understand his frustration as the banks, stockbrokers and insurance companies hold huge sway in our society and have huge influence on our political system. The most recent example was the bank guarantee scheme, which had the fingerprints of the banks all over it and as a result it was great for the banks but bad for the taxpayer and the consumer. That nexus of the political and economic world was exposed in the tribunals, where companies make donations to politicians and political parties "to support the democratic process". They may be acting within the law, but the perception (it may well be false) among the public is that they are paying for access and influence and also improving their chances of getting state contracts. On the other hand CAI and many other campaigning organisations have to work very hard on limited resources to get a meeting and a hearing. As we have seen time and time again those who make donations have easy access and sometimes informal means by which to influence decisions.

I admitted to my acquaintance that it is definitely not a level playing pitch, but things are better now. There is more independent regulation now of a number of sectors. I think Joe Meade in the Financial Ombudsman's office sets a good example, he is willing to take on the big boys on behalf of the ordinary consumer. Without him does anyone really think the average consumer would have a hope of taking on the AIBs, Davy Stockbrokers and Quinn Insurances and any other large financial company. I have no problem with actors in the broader consumer movement railing against the actions of individual regulators (as I have done), but what surprises me is that some appear to be opposed to the idea of strong, effective and independent regulation. That is playing into the hands of the vested interests who want to retain or return to self and weak regulation. I recently wrote on the need to revise the regulatory regime being proposed for the legal profession, because what is on offer is not much of an improvement on the unsatisfactory process we have at the present time. We have a long way to go and a hard fight ahead to get real and effective regulation for the consumer on all fronts, but it is a battle worth fighting for.

Sunday, October 19, 2008

A French Lesson for Irish Consumers?

I really wish I had paid more attention during french classes at school. I was over in Paris for two days this week attending a seminar and meeting with some old friends and like every time I am there my lack of french comes home to roost. OK I can order a beer or find out where the toilets are, but once it gets more complicated than that, like having to ask directions I have to revert to English.

Could we as consumers learn in the debris of the financial crisis here at home from the French as well. Yes some of their banks have come a cropper on the international markets, but primarily for investing in toxic assets from the US and of course there have been now three cases of rogue traders doing serious damage to the balance sheet. The most famous of course has been Jérôme Kerviel who it is alleged cost the Société Générale bank over €4bn. On Friday when I was there another scandal broke concerning Caisse d'Epargne when four traders cost the company €600m, which given the numbers being thrown around in recent weeks sounds like small change. I had never heard of the bank before, but happened to pass what looked like one of their older branches when I was walking home from dinner on Friday night and took a photo.

The French mortgage market from what I understand is radically different from ours and that in the UK and as a result French consumers are insulated from the worst excesses of the current turmoil, where individuals and families are under terrible financial pressure with rising debts and home repossession. Most home loans are given out on long term fixed interest rates, they don't have the plethora of variable and tracker mortgages that were so popular here. And by long term I don't mean 3-5 years, I mean 20-25 years. That means that French mortgages holders know how much the mortgage will cost them many years in advance. Unlike their Irish counterparts they do not hang on the words of Jean-Claude Trichet as to whether interest rates will go up or down.

When you think about for a while, it is a bit crazy to tie the cost of our debt on our most valuable physical asset, i.e. our home to the vagaries of the financial markets and the deliberations of the European Central Bank. A 1% rise in interest rates has the potential to cause real misery for many homeowners. I suppose its all very well in good times, but the weaknesses in the system are plain to see in the current climate. That's not to say that the French system is perfect, it is much more difficult to get a home loan there, so many people here would not have been able to buy a home if they lived in France.

And of course then there is the cost, would it cost more if people could only purchase a long term fixed rate mortgage compared to the option of a short term variable mortgage? Obviously each case is different, but while in the short term the French mortgage might cost more, in the long term it would appear to cost less and of course give much more security and peace of mind. That brings me to an interesting conclusion in a report on the UK Mortgage market (Miles report) that examined the issue of fixed long term mortgages. It found that consumers really only focused on the immediate short term cost of the mortgage. Can I make the repayments in the initial months? In the UK they rarely looked at the overall cost or the cost if interest rates were to rise when taking out a mortgage, in most cases it is the same here and I can understand why. People assumed that mortgage rates would remain stable and the prices would keep going up. The lenders are supposed to highlight potential pitfalls to borrowers, but I imagine in recent years when money was being thrown at people and most people thought the party would go on forever, this was largely overlooked. However necessity is the mother of invention and therefore it might be an opportune time for Government to examine the pros and cons of encouraging the take-up of long term fixed mortgages here.

PS: The Bank Guarantee Scheme was published on Wednesday, I was on The Breakfast Show on Newstalk on Thursday highlighting how this was a great deal for the banks, but a bad deal for taxpayers and consumers. Clause 44 says "A covered institution shall not pass on the costs of the guarantee to its customers in an unwarranted manner". This is vague, meaningless and unenforceable. Minister Lenihan says that the costs won't be passed on, but once the dust settles in a few months, I wouldn't be so sure.

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.

Saturday, September 13, 2008

Would a VAT tax holiday on electricity make cents!!!!

I see that EU Finance Ministers failed to agree measures to cut VAT on a range of services at a meeting today. Inflation and prices are rising across the EU and jobs and spending are under pressure, so obviously some members states see a VAT or sales tax cut as one way to cut prices and stimulate spending and job creation. As we know from the recent Lisbon Treaty debate any change would require unanimity.

VAT or Value Added Tax is a levy on goods and services, essentially a tax on consumer spending. The higher the net price of an item, and the higher the VAT rate, the greater the final purchase price. At almost €14.5 billion in 2007, VAT made up 31% of Exchequer tax revenue. Therefore VAT is an important source of Government revenue, which makes removing or reducing VAT much more difficult, particularly in the current economic environment. And of course changes to VAT rules may require EU approval further complicating any proposal to change rates. Before the last election the Greens proposed a cut in VAT instead of a cut in income tax, pointing out that in fact compared to income tax, VAT affects everyone. And as we know as electricity, gas and petrol prices increase so does the actual amount of VAT (and the amount the Government receives) we have to pay increase.
It's hard to know if an across the board cut in VAT rates would lead to lower prices. Charlie McCreevey cut the top VAT rate by 1% to 20% when Minister for Finance, but one year later reversed his decision on the basis that the savings had not been passed on. That's a big problem, how could the state and consumer know for sure that any cut is definitely passed onto the consumer. However there is one bill which the vast majority of households have to pay on which the VAT cost is clear and if it was cut or removed then there would be an immediate saving to all households. And that bill, the ESB bill of course, we all pay 13.5% VAT. Electricity prices have been soaring, rising by 18% just last August. This is going to affect many households over the coming months, people will have to forgo other essential items or cut back on lighting and heating. The Government did move to increase benefits for those in receipt of the Electricity Allowance which is good, but this only benefits those in receipt of this social welfare payment or about 358,000 households or 25% of the total. What about the many households who won't qualify but will really feel the strain of the higher cost of electricity? Those in employment don't qualify for this payment, so households where the main wage earner is on a low income get no support to meet these increased costs.

Fox News Analyst agrees with Gas Tax Proposal...must be good then!!

I think it would be worth exploring the possibility of a VAT tax holiday on electricity costs, basically a decision to reduce or abolish VAT for perhaps a year in the hope that electricity costs come down. This is akin to the gas tax holiday proposed in the US. The benefits of a VAT holiday is that it is a short term measure designed to ease the pain now, leaving the option open to Government to reintroduce VAT when hopefully the price of electricity comes down as global oil prices come down. This measure could save the average household about €100 annually. This is not as complicated as a general VAT reduction in that there is only one supplier (ESB) which is state owned and as I outlined the consumer would definitely see the benefit as the price of electricity is set and outlined clearly on every bill. What do you think?

Saturday, September 6, 2008

Putting calories on the menu and on the agenda!

Back from my holidays in the Middle East, missing the sun and lack of rain already! I like my food, but tend to stick to the tried and trusted, but was a little more adventurous than normal on my travels. I have eaten hummus before, but over there they serve it with everything, so I ate a lot of it. One thing I really liked probably because it is full of sugar and very sweet was Kanafeh. And not just any old kanafeh, but I got it from a food stall in Nablus, the home of kanafeh. It was only gorgeous although I am sure the calorie count would frighten me. Probably something that is perfect as a rare treat, but certainly not for consumption every day.

Earlier this year the authorities in New York brought in new regulations requiring restaurants and fast food outlets to put the calorie count of all meals on their menus. Unsurprisingly the restaurant owners are not too happy with these new regulations and have gone to court to have them struck down. I can understand their fears, but surely the consumer is entitled to this information. It seems the vast majority of consumers underestimate the quantity of calories that are contained in certain meals and dishes. We all know that fast food should not be consumed every day, but do people know that the calorie count of many meals can actually be equal to or more than our recommended daily calorie intake allowance....unless you are Michael Phelps of course.

Calorie Shock!

In fact it seems that some meals and dishes which we assume are healthy can in fact have a lot more calories than we think, such as meals called salads. And of course this does not only apply to fast food outlets, it applies to restaurants of all types. In general most people know the score on fast food, its quick, tasty and fills you up, but not something to eat regularly. However for other meals and dishes, we don't really know, we might think they are really healthy, but they may actually contain lots of calories. With obesity related conditions and diseases on the rise, giving consumers more information on the calorie content of the food they order has to be good. It doesn't mean that consumers will eat out or order less, consumers may just order smaller portions, different meals and dishes or cut down on their food intake for the rest of the day.

The Economist article (see link above) highlights how some restaurants have adapted in New York and are cutting portion sizes and calorie content, as well as cutting their own costs. And one company Le Pain Quotidien thinks it has profited by adapting quickly to the new rules and are planning to provide information on calories in cities where it is not required by law yet.

I have no doubt some people will call this another attack by the nanny state, in the same way that they attack any measure or proposal to better protect or assist the consumer. All these regulations are doing is assisting the consumer to make an informed choice. Personally I support these new regulations, I think it will be only a matter of time before they are introduced in Ireland.

Sunday, July 27, 2008

All hands to the pumps!

Motorists are finding the current increases in petrol/diesel prices a big drain on their income. I know to fill up my tank it is now costing well over €53 compared to €40 a year ago. The official statistics confirm this with diesel prices increasing a massive 65% in the last 4 years and petrol prices increasing by almost 40%.

Despite repeated calls from CAI and others to Government to do their bit by reducing either excise or VAT on petrol/diesel they have steadfastly refused to do so. The irony of course in all this is that high petrol/diesel prices are in the interests of Government because the higher the price the greater the amount of VAT revenue generated for the Exchequer.

However given the huge hole fuel costs are burning in all our incomes, it is not enough for Government to sit back and tell us to shop around, they have a duty to assist us in that regard. Therefore there are three things the should be doing (which I am calling Fuelwatch Ireland) to assist motorists with high fuel costs and to drive greater competition at the pumps! As a preface I want to say that I am in favour of measures to car journeys and oil dependency, but that cannot be achieved overnight and we all don't live within walking distance of public transport, so in the meantime something must be done.

It could consist of the following aspects.

A statutory fuel price database where all service stations in the state would be legally required to register their current prices so that consumers could check online where they could get the cheapest prices in their area. Fuelwatch Ireland would be based on the very successful fuelwatch database in Western Australia which is now being expanded across Australia. Legislation would be required to ensure all service stations comply with the scheme.

There are a number of websites already which provide information on petrol and diesel prices and those running these websites must be commended for the assistance and information they provide. However since there is no obligation on the stations to cooperate with these websites and they depend on information being sent in by motorists and in some cases the prices can be out of date. A statutory website would include all stations and would ensure that the information provided was up to date. Like the grocery price surveys, this would assist consumers to shop around and get the best price. It works very well in Australia, I cannot see any reason why it couldn't work here. It would be quick, easy and cheap to do.

I also think we need to investigate the price of fuel at the pump. I would really like to see the Government commission a study to investigate whether fuel prices in Ireland have increased in line with global prices or if price increases have surpassed global oil prices. Also would be useful to examine the extent to which price decreases have been passed onto the consumer at the pump as quickly as price increases appear to be. I have no evidence to indicate that price reductions are not being passed on, but given the significant fluctuations in price in the last year, it is important to make sure that the current volatile market situation is not being exploited further.

And finally I think we could assist motorists to maximize fuel efficiency when using their car which would be good not only for the pocket, but also kinder on the environment. I am not an expert on this, but the Government could develop and distribute practical information to all motorists on the national vehicle register on how they can reduce their fuel costs. All register vehicle owners could be sent a leaflet and this information could also be put online. While this leaflet would outline the options for reducing car use, it would also provide information on how motorists could reduce fuel use even while using their car. It would cover areas such as servicing, speed and driving patterns, tyre type etc where consumers could reduce their fuel use which we don't always think about in relation to reducing costs, well I don't anyhow. This could be easily done with the assistance of motoring experts.

Basically in my humble opinion it's time for the Government to do something to assist motorists given the high cost of fuel. They can't reduce the price of a barrel of oil, but they make a contribution and these proposals would go some way to allievate all our pain at the pumps!

Petrol protests Indonesian style!

Sunday, July 13, 2008

Stop the Lights another ESB price increase!

Friday was a bad day for consumers following the announcement that the Commission for Energy Regulation (CER) had sanctioned a 17.5% increase in electricity costs for domestic consumers. This is going to hit us all in the pockets as electricity is a cost most of us cannot do without, particularly as we face into the autumn and winter months. I know the increased cost may encourage some householders to cut back on unnecessary use of electricity, but in general we all need "the electric" to heat our homes and to use a range of modern conveniences. This increase will in particular hit those on low and fixed incomes, some will get support through the households benefits package but others will probably have to cut back and perhaps end up ill as the result of a lack of heating or will go into debt to meet these bills.

OK I acknowledge that utility prices were always likely to increase given the increase in oil and gas in recent months, but the manner and nature of the announcement were troubling from my perspective. It smacked of very co-ordinated news management between the regulator and regulated in my view and we were all softened up for the bad news well in advance. For months we have been "informed" that prices were going to increase massively, some figures of up to 30% were mentioned. A day before the announcement by CER, ESB held a news conference on their 2007 annual report were they pre-announced their decision to make a €300m rebate to relieve costs to consumers. Then a day later, CER comes out and says they are planning to sanction a 17.5% increase (although technically it the final decision will be made on July 18th) There was no consultation with CAI or other consumer bodies as far as I know and of course the timing of the decision on the day after the Oireachtas rose for the summer recess meant it would get less political scrutiny. Also the rationale and background available at present from CER for the price increase is paltry running to a page and a half.

One response to the price increase!

There is little we can do about this price increase now, however it does highlight a need to change the process so that the interests and voice of consumers is fully taken into account. More information is required as to how this price increase was sanctioned, a full public consultation process and a real examination of ESB costs to determine if they can achieve greater internal savings rather than just passing on costs to the consumer! The €300m once off rebate will do nothing to address the long term inefficiencies of ESB. We know that the wage bill in ESB is much higher than comparative providers in other European countries. And we need competition so that domestic consumers have the choice of switching providers for better value if want to, which domestic consumers cannot do now almost 10 years after supposed deregulation.

Of course like CIE the fact that the Government is both the owner and regulator (if indirectly) of ESB creates a conflict of interest. The Government got a significant rebate from ESB last year and given the current state of the public finances, it is unlikely that the Government would want to forego this. However the cost to individual households and to our competitveness should in my view take precedence over temporary funding streams....but don't hold your breath!

Friday, June 27, 2008

Capital Punishment!

I got a call from Newstalk 106 last week to discuss with Eamon Keane on their lunchtime show a survey they had done on different prices in Dublin, Cork, Limerick and Galway. Overall it shows that the cost of fuel, hairdressing, cinema, drink and take-aways work out a lot more expensive in Dublin than in the other cities. For example, a wash, cut and blow dry costs on average €64.2o in Dublin, while it only costs €41.40 in Galway. A cheeseburger and chips costs €4.96 in the capital, while it is only €3.96 in Limerick. An adult evening ticket is €9.50 in Dublin, while only €8 in the "real capital" of Cork. But just in case Dublin people feel they are always getting ripped off, the price of petrol and diesel was cheapest in Dublin compared to the other three. In fact Galway came out worse here, with the highest prices for petrol and diesel at 135.9 and 145.7 respectively, interestingly the research found that of the 5 petrol stations surveyed, 4 had the same price while a fifth was slightly dearer. This highlights the lack of competition down there and is mirrored across the economy where lack of competition leads to higher prices and costs for consumers.

This survey matches the analysis by the CSO which also found that average price levels were 4.9% higher in Dublin. Funnily enough though, some products like flour, milk and bread are on average cheaper in Dublin. So while the consumers in the capital take the biggest hit in the pocket overall, there are some areas where they save money. Overall though as the ESRI report
confirmed last week, the celtic tiger era is over and inevitably some prices will have to fall if retailers and providers want to do business, because at current costs people do not have the disposable income they had previously.

Anyhow I am glad to say that I have survived my eight day in recession!

Aah the Good Old Days!!

Wednesday, June 18, 2008

Money is too tight to mention

Consumers are really feeling the pinch, the cost of ordinary and essential items such as food, petrol/diesel, electricity and gas have soared in the last 12 months. Inflation has been at or near 5% since December 2006. Like the Trocaire ad about climate change, the surge in the cost of living is affecting everybody but not equally. People on low and fixed incomes are under huge pressure.

That was borne out by the recent initial report on financial capability by the Financial Regulator (FR). They define financial capability "as a broad measure of the knowledge, skills, attitudes and behaviours necessary to manage personal finances and to choose and make appropriate use of financial products"

Now I have been critical of the FR on some issues, but I want to praise them for this piece of work. Even though it is an initial report, it looks like being a very useful report. However it is vital that the findings are used to guide the work of the FR over the coming years.

Simply Red and Simply Sung...Money is too tight to mention!

The key findings of the report are;

  • 37% of consumers are having some degree of difficulty keeping up with bills and credit commitments.
  • 60% and 66.2% respectively of recently divorced and separated people have some degree of difficulty keeping up with bills and credit commitments.
  • 13% have found themselves in financial difficulty (3 or more months behind payments with regular commitments) in the last 5 years.
  • 27% of consumers have no idea how to make a complaint to a financial services firm and 26% say they only have some idea of how to complain.
  • 25% of respondents or their partners have experienced a large drop of income in the past three years.
  • 53% would strongly agree or tend to agree that they would trust the advice of financial advisers and accept what they recommend.
  • 63% would strongly agree or tend to agree that they have a clear idea of the what financial products they need without consulting a financial adviser.
  • Only 36% understood that the value of a tracker bond would be directly affected by stock market performance.

Interesting stuff, but what does it all mean or what can be done you might ask.

Well its clear that many people are finding it hard to make ends meet. It's important that they know there are excellent services out there that can help such as the Money Advice and Budgeting Service who can assist if people have debts and are struggling to make ends meet. They cannot give you money, but they can help you manage your income better and draw up a reasonable plan to pay off debts. I know some people may find it difficult to accept they have a problem but its a free and in my experience good service.

Perhaps the FR and MABS could link up and run a publicity campaign.

Also people still don't know how to complain or perhaps if they have a valid complaint. Thats a worry. One thing the FR could do is to publicise the consumer protection code and make sure lots of copies are available in all financial institutions. They already have a very good summary, called the little red book which should be circulated widely. Consumers should know that the code says that financial institutions have to act in the best interests of customers.

Despite all the publicity and contoversy over the last decade about wrongdoing and misselling (and even in the last few weeks concerning older people) by financial institutions and advisers, its clear many people (up to 53%) still find dealing with finance and financial institutions challenging and appear to be saying they trust what they tell them. That's disturbing, because recent evidence has suggested that front line staff are under pressure to sell you products which may not always be in the best interests of the consumer. Would you go into a garage and tell the salesman that you want to buy a car and let them decide what is good for you. No you wouldn't and the same should apply to financial products, consumers should always get some advice and/or a second opinion.

Tuesday, June 3, 2008

Stuff, stuff and more stuff!

I have just returned from Istanbul where I was attending the European Foundation Centre Annual General Assembly at the invitation of the Carnegie UK Trust where I am a trustee. It’s an amazing city, 16 million people, thousands of years old, known previously as Byzantium and Constantinople, the crossroads between Europe and Asia, Christianity and Islam and a major trading centre.

I spoke at one of the sessions, but the most interesting part of the conference for me was a workshop entitled “Slowing the treadmill of consumption”. Now you might think as Chair of a consumer organisation that I wouldn’t be entertaining such heresy! However I don’t promote or support rampant consumerism, the concept that people need to buy, buy, buy and shop till they drop. I am a consumerist,(consumer activist) essentially I want people to get value when they buy goods or services and if things go awry I want to ensure their rights are upheld and vindicated. I would also encourage people to be conscious consumers, taking into account the consequences of their spending on their personal finances and on our planet. Yes, people should be able to enjoy their disposal income and buy goods and services that will enhance their lives, but it is important to know the limits of consumerism as well.

Anyhow at this session Annie Leonard in person gave her amazing presentation on the impact of the rampant consumerism in the western world on natural resources. Its called “The Story of Stuff” and you can watch her here. Her work has had a big impact already, having been watched by over 2 million people. Some of the more sobering facts are that if the rest of the world consumed at the rate of American consumers, we would need 5 planets. Of course we only have one!

She also talked about how planned obsolescence, the way in which manufacturers deliberately produce goods that will break easily and will have to be replaced in a very short period. That struck me recently when I was doing a bit of spring cleaning, I came across an old electric kettle which hasn’t been used for years and must be 40 years old and it still works, whereas an electric kettle that can only be 2 years old won’t. I used to think that the buy it cheap and throw it away and buy another one was the modern and best solution and that the annoyance of my mother at the fact that goods didn’t last any time and couldn’t be repaired was a bit dated. But in fact she was right all along, our planet cannot sustain the throwaway culture. Of course this is not an attitude that has happened by accident, it has been driven by the corporations involved aided and abetted by the advertising industry, which bombards us with ads every day telling us that we need to buy, spend and consume in a certain way to be happy, cool and successful.

The other speaker at the session was Sam Thompson from the New Economics Foundation in London. His presentation was also very interesting, particularly their work on the Happy Planet Index. He outlined that conventional economic theory suggests that rising consumption is strongly related to individuals well-being, however that is not the full story. Yes studies show that people living in poverty are less happy than those on better incomes, makes a lot of sense. However he argued that their research also shows that once we achieve certain levels of income and consumption and that our basic needs are met that the happiness levels of the population reaches a plateau. For example the overall happiness and well being of people with incomes of €30-40,000 is not all that different than people on incomes of €200,000.

So that would suggest that the 3rd plasma TV won’t make us 50% happier than the neighbours who only have 2! Of course that runs counter to the constant barrage of marketing and advertising that tells us the more we buy and consume the happier we will be. And of course a lot of the economic growth of recent years has been built on consumer spending and the more recent discussion on the global economic downturn has focused on declining consumer confidence. I know a lot of jobs in our western economies depend on consumer spending, but as both presentations outlined our current consumption patterns are unsustainable. A lot of food for thought!!

The Grand Bazaar

After that session I felt very guilty for visiting the Grand Bazaar in Istanbul, which for centuries has been all about buying and spending….there are over 4,000 shops…but taking on board all I had heard I only bought stuff I really needed….I swear!

Monday, May 12, 2008

VRT and Motor Tax, Cowen will still be singing all the way to the bank!

Last December when Brian Cowen delivered his last Budget as Minister for Finance many people were watching to see what he would do on stamp duty, how much he would increase social welfare or how much in excise duty he would add to drink and cigarettes. However in the midst of all this stuff, Cowen also announced a major reform of Vehicle Registration Tax (VRT) and motor tax. VRT is a tax you pay for registering your car, but effectively it is a tax on a new car purchase, while motor tax is an annual tax which goes into the Local Government Fund, which is distributed to Local Authorities.

At present all cars are taxed on the basis of engine size. However from July 1st 2008 all cars purchased will be taxed based on their CO2 emissions ratings. Therefore cars that are cleaner and more environmentally friendly will be taxed at a lower rate and the gas guzzlers will face increased taxation. The change in price for some cars will not be much, but for others it could be quite a lot more. For example, a Toyota Avensis 2.2 D4D should based on my calculations (all prices quoted by me here need to be confirmed by Revenue Commissioners as I am going on the basis of information available to me on third party websites) would be liable to less VRT and therefore reduce in price from €35,105 to €31,896 a drop of over 3k. BMW assert that the price of some of their models will reduce by up to €8,000 as a result of the changes, although some of their models may also increase in price. Of course some models will increase in price, for example one of the most popular sellers in Ireland, the Ford Focus will increase by about €500. The gas guzzling Land Rover Discovery will increase by about €5,500.

New regime could be good for sale of some BMW models!

Likewise the motor tax charges on all newly registered car from July 1st 2008 be based on a CO2 emissions rating. There will be 8 bands and again the annual motor tax charge will change significantly for some models. The aforementioned Toyota Avensis will reduce from €791 pa to €431, a cut of €361. Others will increase, for example a Saab 9-5 2.0t petrol will increase from €591 pa to €1000. In general it seems diesel cars will become cheaper and the percentage of diesel car sales should increase from the current 20%. Cars registered bought between Jan 1st and June 30th 2008 can be taxed at the engine size rate or co2 emissions rate depending on which is lower.

Car sales are down over 9% on this time last year. Some blame the confusion over the new system, although many people may be holding out for their choice to reduce in price.

I have two main concerns. Firstly the lack of information on the changes available on the relevant Government website. The Department of Finance, Revenue Commissioners and Department of the Environment only have generic information on the new system. As a potential purchaser of a new car now or after July 1st, I wouldn't get any information on the impact of the new VRT and motor tax system on any of these websites. The only information available I am aware of is on third party websites. The Society of the Irish Motor Industry have a VRT and motor tax calculator on their website while motorcheck.ie also have a VRT price calculator. While this information is welcome and very useful, neither bodies have the final say on changes and cannot probably state 100% that all calculations they give will be the ones applied by State bodies.

The other issue I am concerned about is making sure that the reduction in VRT is passed onto the purchaser. If this measure was introduced to encourage motorists to buy greener cars, then the savings should be passed on fully to the consumer in the same way that I am sure the increases in VRT will be. This is something I plan to follow up on.

VRT brought in €1.4bn and motor tax about €1bn to the state coffers in 2007. I am sure whatever consumers do, the Brian Cowen and the Government will continue to sing all the way to the bank!

Our new Taoiseach Brian lashing out the verses in Clara!

Sunday, April 27, 2008

Charges of the Heavy Brigade!!

The news was dominated this week by misdeeds in the financial services sector. First we had the disclosure that Bank of Ireland had lost 4 laptops containing the personal, financial and health information of up to 10,000 customers. Bad and all as that was, the abject failure of BOI to inform the Data Protection Commissioner, the Financial Regulator and most importantly those affected immediately reflects very badly on the bank. CAI has called for BOI to pay compensation to all those affected, see our press release.

Then we had another damning report from the Financial Ombudsman in relation to the misselling of financial products to elderly people and the attempts by financial institutions to wriggle out of their commitments to people who had serious illness insurance cover. This is awful stuff, here we have vulnerable people, some in their 80's and 90's and then others whose lives have been turned upside down by serious illness and they are out through the wringer when they are least able to deal with it. Kathleen Barrington has an excellent piece on this in Sunday Business Post today.

There was also turbulence in the mortgage market, with some mortgage providers reducing their commissions to brokers, which could potentially lead some to direct business to where the best commission is rather than where the best deal is for the borrower, see more on that here.

Across the water in the UK the big story was the judgement in the High Court in favour of the Office of Fair Trading, and against all the high street banks.

ITN News report on the case.

The judgement gives the power to the OFT to examine the fairness of charges imposed on customers in relation to unarranged overdrafts, such as people going into overdraft. Thursday's decision was a great one for consumers, however its likely that the banks will appeal all the way to the House of Lords, so it is not over yet. In some cases consumers are charged £35 each time this happens, when independent analysis suggests that it costs the bank about £2. From 2005, thousands of customers have begun to reclaim charges. The charges here are not as high as in the UK, which is primarily in my view because of section 149 of the Consumer Credit Act which I wrote about here previously. And the current charges chaos in the UK is a timely reminder why we need to retain section 149.

However the judgment also points to the need here to review the existing charges imposed to determine their fairness on Irish consumers. In particular there are many people in the sub-prime market who are being charged exorbitant fees and charges which only serve to make it even more difficult for them to sort out their finances. CAI will be writing to the Department of Finance seeking such an independent review of charges.

Tonight is my last night playing Roger in "I do not like thee, Dr. Fell" with Dunshaughlin Players. Its been hard work over the last few months learning the lines and moves, but performing has been great fun so far, especially with such a great cast, director and backstage team. Looking forward to the finale tonight and a few beers afterwards perhaps!!