Saturday, April 25, 2009

Sterling efforts are paying off!!

Ever since sterling started to weaken in early 2008, there have been lots of stories about the huge differences in the price of groceries, clothes, electronic goods etc between here and the UK, but especially Northern Ireland. Initially we were told by retailers that it would take 3-6 months before the currency fluctuations would reach the shop floor. Of course that didn't happen!

The laws of the market dictate that retailers will charge what they think the buyer will pay. Perhaps during the boom people were willing to flash the cash, of course that has changed now for many people. In particular what really cheeses off people is the fact that products had a sterling price displayed which when compared to the equivalent in euros was much cheaper.

The constant commentary and criticism won't go away and more importantly the flood of consumers across the border will cost retailers in the long run, both in terms of business and reputation. Tesco admitted as much this week. And the state coffers are suffering too, the Revenue Commissioners estimate it could be costing up to €700m. It has taken a while but I think retailers are beginning to respond, they have too. Tesco started the ball rolling last month, but we have a long way to go.

Fresh beef for sale in Ballinrobe...a very moooving story!

The focus has also shifted to other products and services, and in recent weeks I was contacted by a few people about the major difference between the sterling and euro prices of the same accommodation, at the resorts on and in France. When I checked earlier this week there was a significant difference in the prices available on the two sites. Aideen Sheehan did an excellent piece on it in the Independent during the week, hopefully the exposure of the price differential will lead to a review of the Irish prices! I also think that the continued attention on what is referred to as "the Paddy Tax" will force retailers and businesses throughout the economy to focus on delivering more value and drive down prices further.

Friday, April 17, 2009

Valueireland.....get your facts right!

The emergence of a number of consumer advocates and related websites and blogs has been great in recent years. The more information that people can access the better in my view and as a consumer advocate myself I am all in favour of competition. With their websites and blogs people like Brendan Burgess and Damien Mulley are providing a great service to consumers on financial and technology/communications issues respectively. Likewise Conor Pope (Irish Times) and Tina Leonard (Smart Consumer-Irish Indo and RTE) have emerged as really good contributors on issues affecting Irish consumers by putting information in the public domain. And Charlie Weston's War on the banks has done more for mortgage holders than the rest put together. And of course there are excellent websites such as Thrifty pages and Cheapeats which provide practical information to assist people to save money and get a better deal in these less affluent times. Into that mix I would have to add which was set up by Diarmuid McShane, which does provide information and advice as well as indulging in some "commentary".

Now anyone reading Diarmuid's blog would know that he is not a fan of the Consumers' Association which I chair. In fact he goes out of his way to criticise or to find fault with almost everything that the CAI does. He used to be a member of our Council, but lets say we had our differences and to make a long story boring he resigned. He has given his side of the story to the reasons why, in fact ad nauseum on his blog, but there are two sides to every story. I could give my views, however to be frank I think 99% of you would be saying cop yourself on and write about something that is of interest to me and consumers in general, and you would be right!

Its a free country so if he wants to lash CAI everyday, then so be it, nothing worse than being talked about than not being talked about as they say. Indeed some people have asked me what is his strange obsession with CAI, only he can answer that. I just think its a waste of time and energy to be so negative when he could be using the space to be of better use to consumers. There have been times when I have disagreed or found fault with aspects of what other consumer advocates have said, but I have refrained because I believe that it does not serve consumer interests for us to be bickering. That only serves the interests of those who want to see consumer rights undermined and diminished. For that reason, I haven't responded to his attacks.

Is Mortgage Interest Relief a bailout....I say...No, No, No.

However Diarmuid's latest salvo against me and CAI is not only incorrect, but would if unchallenged be very bad news for mortgage holders. He claims that I am advocating for a "bail out" for mortgage holders on a fixed rate. He says;

Referring to banks being bailed out and using that as a precedence for bailing out home owners, as advocated by Mr. Doorley, is an extremely dangerous suggestion and hints that we proceed down the road of two wrongs making a right when it comes to the dire financial affairs that we’re in at the moment.

Of course I never said that. This is the article where I was quoted. The context was the decision by Government in the Budget to abolish mortgage interest relief on mortgages of 7 years or more. This will have a major impact on the over 250,000 people who took out fixed rate mortgages between 1997 and 2002 for example. While some may have switched to a variable rate, many wouldn't have.

Fact number 1.
The Government stated that the reason for the abolition of Mortgage Interest Relief (MIR) for these mortgage holders was that interest rates and repayments had come down in the last 6 months. Yes that's true for people on tracker and some variable interest rates, but not true for people on fixed rate mortgages, they are paying the same as they were in October 2008!

Fact number 2
I stand over my view that by abolishing MIR for fixed rate mortgage holders that the Government are abandoning people lumbered with large repayments. MIR has been a long standing support which Governments gave to assist people who buy houses to live in! The vast majority of the people on fixed mortgages who have been in contact with me, don't expect that they can switch to a variable rate at will and with no cost. They know they are in a contract with upsides and downsides. However they rightly don't understand how a Government can find €7bn to re-capitalise banks, while cutting supports which cost less than 2% of that or €128m to homeowners who didn't cause this mess.

Fact number 3
I have never stated or even "hinted" that people in fixed rate mortgages should be "bailed out" as Mr. McShane refers to it and be able to switch to a variable rate at no cost. I do think there are huge question marks over the penalty fees being requested and being charged by banks for people who switch and I would like to see independent oversight of that.

Fact number 4
I have questioned the actions of some banks and will continue to do so who have been very slow to pass on ECB rate cuts to people on variable rate mortgages. I don't think that the financial services fraternity have quite understood that the rules of the game have changed. The taxpayer and consumer have bailed them out for their reckless and feckless behaviour, so when the ECB cuts interest rates to assist consumers and business and stimulate the economy, the idea that they can gobble up the benefit must be challenged.

The assertion that MIR is akin to a bailout is also dangerous, because the Government is considering its future and has asked the Commission on Taxation to examine it. We all know that the first few years of a mortgage are the hardest and many people on all types of mortgages have factored in the MIR. Over 235,000 people took out fixed rate mortgages between 2003 and the end of the third quarter last year. If the Government did abolish MIR for first time buyers, then many would be in severe difficulty. That must be prevented at all costs. That is why suggestions or assertions that MIR is some kind of bailout would be manna from heaven for those who would like to see it abolished.

So hopefully Mr. McShane will set the record straight.... and perhaps tell us where he stands on mortgage interest relief as well, which is the really important issue here which we all should be working together on to retain.

Wednesday, April 15, 2009

Going Dutch?

Here we go again. Despite talk of strong regulation and effective enforcement, last week saw the same old softly softly approach to regulation that got us into the current sorry mess. Davy Stockbrokers were found to have breached rules governing the sale of perpetual bonds to credit unions. The Irish Stock Exchange issued a carefully worded statement, which confirmed that Davys had breached stock market rules, but there was no mention of resignations or fines. This deal has been a disaster for the credit unions, it is estimated that they have lost about 100m euro. Davys have only offered 35m in compensation, so ultimately it will be the credit unions members who will suffer with higher loan repayments charges and reduced or no dividends on their shares to meet the massive losses.

These are the same Davys stockbrokers who in league with two other stockbroking firms called for a cut to social welfare. I would say that senior figures in Government must have been fuming because whatever hope there was of a rate cut before the stockbrokers intervened, there was no hope after this, as the credibility of these people is so low. They have projected deflation of 3% this year, so they say social welfare should be cut by 3%. I wouldn't put too much faith into their projections since they have been wrong so many times. I think Fintan O'Toole summed it up perfectly.

Beware the sweet talking Stockbrokers!!!

There has been a lot of talk about the need for radical reform of financial services regulation. A lot of the focus has been on the model. We have heard of the Canadian model of regulation and now the Dutch model is being mentioned. Yes we can learn from other countries, but focusing on models completely misses the main point. The key problem in Ireland was not the model of regulation, but the culture. The financial regulator was not willing to take strong decisive action against reckless and feckless behaviour by banks and bankers. They issued warnings about 100% mortgages, but did nothing to stop them being issued. They also had powers which it would appear they were reluctant to use. The light touch approach was more like the soft touch approach.

I met an official from the Australian regulator a few years ago. He told me how in Australia the regulator there regularly takes CEOs and senior officials to court for breaking the law and rules. When I spoke with him in 2006, they had jailed 17 people in the Financial Services sector. In doing so they sent a very strong message that they wouldn't tolerate any behaviour which puts consumer, the economy and their overall reputation at risk.

The Government does appear to be serious about a radical reform of financial services legislation. I am just concerned that they rushing into changes for the sake of change that may create more problems that they will solve. For example, I am worried about the proposal to separate the consumer protection function out from the new Central Banking Commission. They plan to create a Financial Services Consumer Agency by merging the existing consumer directorate of the Financial Regulator and the Office of the Financial Services Ombudsman. In my view prudential supervision and consumer protection are intertwined and having two agencies will just confuse the consumer and industry.

Apart from the structure, we need to recruit people of international standing with no connections with the industry here, who will take no prisoners and can withstand the financial lobby and act in the public and consumers interest. And while the focus has rightly been on the banks, I think it is also high time we had a shakeup of how the stockbroking companies are regulated.