Mr. Bernard Sheridan:

I thank the Chairman and members of the committee for their invitation to this meeting to discuss bank charges. I am joined here today by my colleagues Mick Stewart and Linda Murphy. I will commence by giving some background information on the legislation governing charges imposed by banks and other financial institutions.

The Central Bank acknowledges that increases in bank charges at any time are unwelcome for consumers, and particularly at a time when many households and small businesses are struggling to make ends meet, with decreasing income and increasing costs. The job of the Central Bank under section 149 of the Consumer Credit Act 1995 is to ensure that the right balance is struck by credit institutions in recovering the cost of providing services while ensuring the charges they impose on personal and small business account holders are reasonable and appropriate. I will provide an outline of the key elements of the Act and, importantly, how the Central Bank performs its duties under the Act.

Section 149 of the Consumer Credit Act 1995 came into effect in May 1996. All charges being imposed by credit institutions at that time "stood notified". The Central Bank assumed responsibility for section 149 in 2003. Under this section, credit institutions, prescribed credit institutions and bureaux de change must make a submission to the Central Bank of Ireland if they wish to introduce any new customer charges or increase any existing customer charges in respect of certain services, such as making and receiving payments, providing and granting credit and maintaining and administering transaction accounts. The Act requires the Central Bank, when assessing such submissions, to have regard to the promotion of fair competition, the effect on customers, the statement of commercial justification provided by the institutions and the passing on of costs to its customers. We either reject the proposal, accept the proposal but at lower levels than requested by the firm, or approve the proposal in full. While the term charge includes penalty or surcharge interest, the Act specifically excludes rates of interest and any charge, cost or expense levied by a third party and passed on by a credit institution to customers.

This framework for approval of charges requires the Central Bank to take into account the impact on customers as well as the commercial justification for imposing such charges. Clearly, all firms aim to recover the cost of providing financial services either directly or indirectly from their customers. The extent and nature of those charges will reflect the individual strategy of each firm. Our role is to strike the right balance between the interests of the firms and their customers.

Each submission received by the Central Bank is subject to rigorous consideration according to the criteria set out in legislation and the contents of that particular submission. Each submission includes information such as historic and forecasted profit and loss data and projected changes to customer usage. The extent of the proposed charges or increases is considered and a peer analysis of charges is carried out to help ensure that the promotion of fair competition in the market is taken into account. When looking at proposed charges, analysis of the impact of the proposition on customers and groups of customers is carried out. Section 149 extends to both personal and business customers, so the potential impact on groups of customers, such as small businesses, is considered as part of our process. As part of the assessment process for personal current accounts, the effect on the customer is assessed using, amongst other analyses, our customer profiles. We have developed four customer profiles, each representing different usage patterns in terms of volumes and types of transaction - for example, electronic versus manual - and differing occurrences of out-of-order charges. The Central Bank then decides whether to approve, partially approve or reject the proposed charges. It sets out the maximum level of each charge in a letter of direction.

It is worth noting that a bank may choose, for commercial or competitive reasons, not to apply charges for which it already has approval or which "stood approved" for a period of time, and subsequently apply such charges at a time of its own discretion. In this regard, these concessions are not subject to a section 149 submission - that is, a bank may choose to apply waivers or discounts of charges or may impose charges at lower than approved levels and subsequently increase these charges. The Central Bank has no power to approve or reject such revisions. Any proposed changes to charges or qualifying criteria must be published in advance.

The European Communities (Payment Services) Regulations 2009 and the consumer protection code 2012 contain certain requirements relating to the information to be provided on charges to ensure that the customer is aware in advance of the amount of a charge for the provision of certain services.

Submissions received from a number of banks in the latter half of 2012 and in 2013 reflect the first general increase in current account charges since the Central Bank took responsibility for section 149. Prior to that, the main providers of current accounts were using the approvals as "stood notified" in 1996. Recent trends have also shown that banks are moving away from the provision of traditional banking channels towards electronic, online and contact-less services. As part of this, banks have been seeking to create price differentials between manual and automated transactions. According to the information we have received, there is a significant cost difference to the banks in providing manual and automated transactions and this cost difference has led banks to seek to impose different charges depending on transaction types.

Regarding mortgage arrears charges, section 149 also covers charges relating to the provision of credit. As part of the Central Bank’s overall response to the growing mortgage arrears problem, in 2010 we carried out a review of charges imposed by mortgage lenders on borrowers in arrears. At the end of 2010, the Central Bank issued letters of direction to all lenders directing them to refrain from imposing any surcharge interest or any charge arising on a mortgage account in arrears covered by the code of conduct on mortgage arrears.

The Central Bank has an almost unique role with regard to bank charges. We believe we have a robust process in place, including the use of customer profiles, to determine the appropriate levels of increase in charges. The Central Bank will continue to perform its role under section 149 of the Act in such a way as to ensure an appropriate balance is struck between the need to ensure such charges are reasonable for the consumer and the need for firms to recover their costs for providing such services.