The Financial Regulator has urged lenders to upgrade their risk-management systems to take account of increasing household debt and interest rates.
Releasing his office's 2006 annual report yesterday, Financial Regulator chief executive Patrick Neary said financial institutions needed to lift their systems to take account of changes in the market and avoid the need for aggressive intervention with customers.
Given the high level of household debt, Mr Neary said people would come under pressure to meet their financial obligations and that it was essential banks had inbuilt alerts to address issues before they got out of hand.
"It is more important now than ever in a climate where interest rates have increased and where consumers hold more borrowings, savings and investments that the financial services industry maintains a clear focus on its commitment to consumers."
Rising household debt and interest rates present challenges to consumers in managing their finances, he added.
It also emerged the Regulator has asked the Government to change legislation so mortgage lenders who target people with poor credit histories can be regulated.
In recent years, a series of new home-loan companies have entered the Irish market targeting people who have defaulted on their home loans. Known as subprime lenders, they offer loans at higher than normal interest rate.
Financial Regulator consumer director Mary O'Dea said the Regulator was engaging with the Government looking for a legislative solution to regulate these lenders. She said that when compared with other lenders there was a disproportionate level of home repossessions
Mr Neary urged customers struggling to meet their financial obligations not to go into denial. "Contact your financial service provider if you're under pressure to see if there is some solution that can be reached."
What he did not want to hear was people finding themselves in difficulty and their bank having to engage aggressively, he said.
The Regulator also highlighted concerns about levels of competition in the credit card and motor insurance industries. Almost 80 per cent of the credit card market is controlled by AIB, Bank of Ireland & MBNA, with interest rates ranging from 9 per cent up to 18 per cent.
A survey found people are often unaware how often they use their credit cards or the interest rates they paid.