Foley says banks `justified' foreign exchange charges
The Director of Consumer Affairs, Ms Carmel Foley, has rejected an accusation that she allowed the financial institutions to significantly increase their foreign exchange charges with the advent of the euro.
She said the banks had been able to "commercially justify" the new level of charges during negotiations with her office.
Ms Foley also disclosed that spot checks carried out by her inspectors at branches yesterday highlighted a series of shortcomings in the way some financial institutions are dealing with the new currency.
She said many of the branches checked did not display the new euro conversion rates, did not have information leaflets available for the public and most seriously, many members of staff were "unfamiliar" with the new currency and the ways it can be used.
Ms Foley said she would be writing to all financial institutions today to ask them to improve their euro service or face "action", including court injunction.
A directive issued by Ms Foley before Christmas obliged financial institutions to display euro conversion rates and provide information leaflets to the public.
On the charges issue Ms Foley said with the advent of the euro the public will pay less when buying foreign currency and that was "the bottom line".
The Fine Gael spokesman on Finance, Mr Noonan and others have criticised the new level of charges, with Mr Noonan claiming that some banks have increased their charges by to 600 per cent on the back of the euro.
Before the euro, foreign exchange charges were made up of commission and a foreign exchange spread - the difference between the rate at which banks bought foreign currencies and the rate at which they sold them.
With the euro in place this spread no longer applied. This means the only remaining charge is commission. However, all banks have increased this commission since the euro came into existence.
For example, Bank of Ireland when selling £500 of foreign currency before the euro charged £5 in commission, its overall charge now is £11.25. AIB also charged £5 when selling £500 of foreign currency before the euro, its overall charge now is £15. Ulster Bank charged a commission of £2 when selling £500, but its overall charge now will be £11.25. Other financial institutions have done the same.
Banks contacted by The Irish Times in recent weeks defended the new charging system by claiming that the old spread charge included costs associated with transporting, storing and sourcing currency. They also claimed that staff costs associated with foreign currency services were included in the spread charge.
In other words when the spread charge was eliminated the commission had to be increased to cover items which used to be included in the spread charge.
Ms Foley told The Irish Times this argument was made to her during discussions with the bank and she accepted it. She rejected Mr Noonan's suggestion that a one per cent flat commission be charged by all financial institutions. "What business could survive with a 1 per cent commission, it just would not be viable," she said. She stated that forcing all financial institutions to charge a one per cent flat rate would mean creating a "cartel".
She added that because the financial institutions had been forced to publish their charges meant competition would take place and charges would drop. "At least the consumer can compare the rates now and shop around," she stated.
She said the financial institutions had been looking for higher charges than those sanctioned. "There was a lot of contacts between us and them and they finally were able to justify these figures, but I would point out that this is as high as they can get, they are not allowed increase any further," she said.
She added that the financial institutions has also agreed not to pass on the costs of their euro changeover programmes to the customer.