BANKS ARE imposing higher mortgage lending rates on consumers in an effort to recover from the financial crisis, a new report has warned.
Consumers who took out mortgages at the peak of the market will suffer particularly badly as banks widen their margins on mortgage products, according to the report by the consumer consultative panel of the financial regulator.
The panel says it accepts the need for banks to rebuild their balance sheets, but says the regulator has not done enough to protect hard-pressed consumers from being lumbered with higher mortgage lending rates as a result.
It also faults the regulator for not indicating whether it investigated Permanent TSB’s decision to increase mortgage interest rates, and for not analysing the extent and speed with which cuts in European Central Bank interest rates are passed on to the consumer.
The report expresses doubt about the regulator’s efforts to ensure a supply of credit to small businesses. The fact that the two main banks have loaned only 7.5 per cent of the €350 million facility from the European Investment Bank shows that despite the rhetoric from the banks that they are open for business, this is not the general experience of small business customers.
The regulator is faulted for not showing more interest in the potential of long-term fixed mortgages (up to 30 years) in protecting consumers from fluctuations in interest rates during market turmoil.
Also criticised is the lack of progress on proposals for a “basic bank account” for all citizens and other measure to tackle the exclusion of poor people from the financial world, as well as the delay in introducing new rules to protect credit union customers.
The report praises the regulator for its work in a number of areas, including a more “hands-on” attitude to regulation of institutions under the bank guarantee scheme, new rules on the operation of licensed moneylenders and the information it provides for consumers. Responsibility for the provision of financial information is being transferred to the National Consumer Agency but virtually none of the staff is moving; the panel says their expertise may be lost in the change.
Overall, the submission is sharply critical of the regulator for its failure to fulfil its primary purpose of helping consumers “make informed financial decisions in a safe and fair market, and to foster sound dynamic financial institutions in Ireland”.
The report says the regulator has also failed in its role to ensure robust prudential supervision of the financial services sector since it was set up in 2003.
“This has resulted in long-term economic, social and reputational damage to Ireland, and significant losses and long-term costs for exchequer, taxpayer and consumer.”
Noting that the regulator has not produced any report accounting for it failures over the past year, it says an explanation of what went wrong and what needs to change is now required.
The regulator “facilitated an environment to evolve where there was a collapse in corporate governance at many levels” and it was unacceptable that “very little” had been done to enhance governance since the financial crisis.
“Many of the executive and non-executive directors who were in place and who oversaw the banks when they were pursuing reckless and unsustainable policies are still in place.”
The report also queries the regulator’s “strict interpretation of confidentiality” in refusing to provide more information about its investigations and inspections of banks and other financial providers.
THE CONSUMER CONSULTATIVE PANEL
THE MINISTER for Finance appoints consumer and industry panels to oversee the operation of the Financial Regulator. The Consumer Consultative Panel is tasked with monitoring the performance of the regulator and making suggestions for improvements. The regulator is required to consult both panels before issuing new policies or regulations. The 11- member panel is chaired by consumer lawyer Raymond O'Rourke (below) and includes representatives of the Consumers Association of Ireland, the Money Advice and Budgeting Service (Mabs), the St Vincent de Paul Society and the Immigrant Council of Ireland. Other members include former senator Prof Noel Mulcahy, freelance business journalist Kathleen Barrington and chartered accountant and lecturer John Maher.
