Banks have failed to pass on the benefit from a long line of interest rate cuts to tens of thousands of their overdraft, loan and credit card customers, it has emerged.
The matter is to be investigated by the Irish Financial Services Regulatory Authority, which revealed yesterday it was initiating a detailed study into how banks have managed the cuts in the European Central Bank interest rates.
The base interest rate set by the ECB was reduced to a historic low of 2 per cent in June, from 4.75 per cent in 2001.
But figures shown to an Oireachtas committee yesterday reveal that large portions of the reductions have not been passed on to overdraft and credit card customers. The banks have already come in for criticism in recent weeks for their failure to fully pass on the ECB reductions to their mortgage customers.
The IFSRA told the Oireachtas committee that overdraft and credit card borrowers had received only a quarter of the value of any interest rate cut within a month of the decrease by the ECB.
IFSRA figures showed that the banks' interest fee, known as the spread above the the base ECB rate, had increased steadily since 2001.
The authority's consumer director, Ms Mary O'Dea, said: "While mortgage rate spreads have increased somewhat, the spreads on overdrafts, both personal and business, and on credit cards appear to have increased substantially." Ms O'Dea said she was worried about a trend that was "certainly not good for customers".
She added: "When interest rates are falling, one would expect the spread at least to hold steady. That is what we find most disturbing. The spread is widening."
The figures produced by Ms O'Dea showed that the spread over the ECB rate for personal overdrafts rose to 8.9 percentage points last June, from 7.69 in December 2000, while the spread on credit card loans rose to 16 percentage points from 13.45.
Ms O'Dea raised her concerns at a meeting where the committee questioned whether a cartel was operating in the Irish bank industry. She said that was for the Competition Authority to assess in a separate study it had undertaken.
Loan rates were defended at the meeting by AIB, the Bank of Ireland and Irish Life & Permanent.
AIB said its profit margin on interest had decreased in the low interest rate environment. Irish Life & Permanent said its net interest margin fell by almost 50 per cent between 1993 and 2002. The Bank of Ireland said the interest charge on its standard variable mortgages, standard credit cards, and on certain small business and farm loans had fallen by more than the ECB cuts since October 1998.
Ms O'Dea was unable to identify which banks were not passing on the decreases but hoped this would be determined in the IFSRA study.
But Fine Gael's finance spokesman, Mr Richard Bruton, said that the global figure appeared to show a problem everywhere in the industry. Noting that up to 95 per cent of the ECB reductions were not passed on in some instances, he said: "This seems to me like a direct rip-off of business and non-commercial borrowers."
The head of the Irish division of Bank of Scotland, Mr Mark Duffy, called for "self-reform" of the industry.
