Sunday, March 9, 2008

Section 149, we need you!!!

I do a bit of amateur drama in my spare time, currently practicing with Dunshaughlin players for "I Do Not Like Thee, Dr. Fell" by Bernard Farrell. You don't have to be mad to do drama, but it helps, just like being a consumer advocate in fact.

Anyhow, we did a play last autumn and part of the dialogue involved one character who kept repeating the line "Car 149...where are you?" So much so, it has been imprinted on my mind. Anyhow as a result late last week when I received some documentation from the Department of Finance last week indicating that they were to consider a review of section 149 of the 1995 Consumer Credit Act my first reaction was...."Section 149, we need you"

Well it might sound a bit anoraky...but Section 149 is quite important, this is the section of the legislation which requires banks and financial institutions to seek approval and justify why their fees and charges should be increased. As a result its abolition is top of the bankers wish list. That's no surprise to me, but what I am surprised is that the Government appear to be considering this seriously too. One would have thought with all our problems with increased debt and problems in the housing market, they would have more important things to consider.

The reason this is on the agenda is because the EU institutions have just agreed a new consumer credit directive and the Government here are committed to transposing this new legislation by 2010 and will review the issue later this year. Well I welcome the review of consumer credit legislation, repeal of section 149 is far from welcome.

Those in favour of appealing this say that the new protections such as the Financial Regulator's consumer protection code make this unnecessary. Some also claim it hinders competition. I disagree on both counts.

Competition is not being hindered by section 149, it's the cosy arrangement that banks had here before the arrival of Halifax that hindered competition.

Ten reasons why Section 149 should not be repealed:

1. No evidence to suggest that section 149 has impeded competition, what has impeded competition has been the cosy environment where established banks maintained high costs and charges, which allowed them to be among the most profitable in the developed world. When banks say this is about competition, what they really mean is that there bottom line is suffering, credit is harder to obtain and raising fees and charges is a solution to both these problems.

2. I welcome the entrance of new providers such as Halifax in recent years who have shaken up the market and given consumers a better deal on current accounts, but there is still room for improvement as many of the offers for example of interest on current accounts are time limited.(Halifax being an exception to this)

3. Charges and Fees set out in section 149 are maximum charges, many of the financial institutions are applying much lower charges than those agreed, so again banks don’t have to seek approval to lower charges and fees, only to increase them! Section 149 cannot be characterised as a price control measure, banks and financial institutions are completely free to set interest rates etc, regulators in other sectors of the economy have control and oversight of charges and fees, so financial services is no different from other sectors.

4. Suggestions that Financial Regulator's Consumer Protection Code overrides the need for section 149 is misguided, code has only just been introduced, way to early to judge if it will provide the protection that consumers need.

5. Given the current credit crunch, removal of section 149 would lead in my view to a major increase in charges and fees by banks under pressure to maintain profit margins, removal of section 149 would in fact be a charter for increased charges and fees.

6. Its only a few years since we had major problems with unauthorised over charging by banks, in total the FR has indicated that €168 million was or is owed to Irish consumers by the banks, not all those issues have been sorted out yet, only 80% has been repaid to date, so removing section 149 would send all the wrong signals.

7. It is vital that section 149 is not reviewed in isolation, commitment in Consumer Strategy Group report in 2005 to undertake review of consumer protection performance and role of Financial Regulator in 2008, for me that has to happen first before Section 149 can even be looked at. We cannot remove important provisions of consumer protection legislation in isolation from other matters.

8. I agree with the view of the Consumer Director of the Financial Regulator, Mary O’Dea when she said in 2005 that “We believe that before Section 149 could be removed a number of conditions would need to be met, one of which is that full consideration should be given to the development of a standardised low-cost basic bank account. There appears to be an opportunity here where everyone can gain – low cost, no frills bank accounts would help all consumers, and particularly those on low incomes, and would lead to an environment where legislators could decide that control of these charges might not be warranted. Of course, we’re not at that stage yet, but it is something worth thinking a bit more about.” Mary O’Dea 16th May 2005 at OPEN Conference. Since there is no sign of action by banks to address issue of financial exclusion, would be unwise to abolish section 149.

9. Given the push by the State to encourage people to open bank accounts for social welfare payments, it is important to have oversight and control of charges and fees to protect low income consumers.

10. Sub-prime lenders have just come under remit of FR, major issues there in relation to the exorbitant charges and fees which apply when consumers get into difficulty, I would welcome an urgent review and analysis of these charges and fees and in my view greater oversight rather than less is required.