Law on bank fee increases to be maintained

The Department of Finance has decided against repealing a section of the Consumer Credit Act 1995, which requires financial institutions to seek approval for increases in new and existing fees and charges

The decision has been warmly welcomed by the business community, which had actively lobbied against amending the act.

The department today published its review of the regulation of bank charges in Ireland, which was one of the commitments given to the troika as part of the bailout programme.

The review examined the existing regulatory framework for bank fees and charges and looked at competition in the banking sector.

It found that banks have been able to raise charges since 2009 despite the restrictions imposed by section 149, which requires financial institutions to seek approval from the Central Bank for possible increases. It also said fee and commission are lower in Irish banks than in their European peers relative to net interest income.

Following its review, the department concluded it would not be appropriate to repeal Section 149 currently.

“The lack of competition in the banking sector means that the removal of section 149 would give unfettered price setting power to the incumbent banks. This issue should be revisited when competition in the banking sector has improved significantly,” the department said.

The decision was welcomed by Isme, the Irish Small and Medium Enterprise Association, which has warned that repealing the section could lead to crippling bank increases for businesses.

"Section 149 is an important protection for SMEs against the bailed out Irish banks tendency to increase charges to buttress their profits on the backs of vulnerable SMEs. The Act requires approval from the Central Bank Financial Services Regulator for increased prices but even this has not stopped bank charges from spiralling out of control in recent years," said Mark Fielding, chief executive, Isme.The department's review also recommended that the process used by the Central Bank of Ireland for assessing applications under the Section 149 process should be examined further to take account of Government policy, changing customer behaviour and product developments.

In addition, it urged that application of Section 149 to merchant services providers should all face the same regulatory regime, whether they are credit institutions or not.