Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

The motion is three-pronged. We want the Government to engage directly with the banks, particularly the State-owned banks, to emphasise to them the seriousness of the situation. It is simply not acceptable that the much-vaunted Economic Management Council has not met directly with the banks since June 2012 to discuss this issue, or other serious economic issues such as mortgage arrears. It is really quite incredible. In the past, the Government claimed success in persuading the banks to reduce their variable rates. The Minister, Deputy Noonan, made much of persuading AIB to reduce its standard variable rate by 0.25% in November 2011 following the ECB rate cut. However, little or nothing has been done since then. The Government's early enthusiasm for taking on the banks on issues like this has sadly waned away at the expense of the customers of the banks. If the Minister for Finance was persuasive in 2011, he can try being persuasive again. He should immediately call the banks before the Economic Management Council, or use some other appropriate mechanism, to make clear to them that the current situation cannot be allowed to continue. The amendment that the Government will move later in this debate notes that "the Statement of Government Priorities 2014 to 2016 recognised that promoting and encouraging competition and new entrants in the banking sector was required to put downward pressure on interest rates for variable rate mortgage customers, both new and existing". This is little more than wishful thinking.

What we need is action now to deal with the situation. The Government also needs to play an active role in defining what a competitive banking landscape would look like by publishing a White Paper on the subject. Seven years on from the onset of the crisis, our banks may have stabilised but we are a long way from a normal banking system.

The second aspect of our motion calls on the Central Bank to step up to the plate to take a much more hands-on role in consumer protection. Last year, the Central Bank Governor implicitly accepted mortgage rates for existing variable rate customers were going in the wrong direction in the context of record low European Central Bank, ECB, rates when he stated: "It is reasonable to ask whether, having under-priced lending so badly in the early years of the millennium, they could end up over-pricing it now."That is exactly what has been allowed to happen. We must all accept the Central Bank does a good job in its macroprudential role of protecting the stability of the banking sector. A peer review of the Central Bank published this week indicated the bank needed to do more to protect the interests of consumers. Action in respect of existing variable rate customers would be a good point from which to start.

The third key issue is that the banks must consider the long-term damage they are doing to their own brand. Mortgage interest rate reductions by Permanent TSB and Bank of Ireland for new borrowers announced in January are deeply unfair, as they will do absolutely nothing to address the continuing unfair treatment of their existing variable rate customers. A new pattern is emerging of discrimination against existing standard variable rate customers. The banks got much positive PR when they announced a rate cut. When one looked at it in detail, however, the rate cuts were for new customers but not existing customers who are the among the most hard-pressed. The fact that reductions will only be enjoyed by new customers further highlights the unfair way in which existing customers are treated by the main banks. When AIB reduced its variable rate by 0.25%, it did so for new and existing borrowers. The decision by Bank of Ireland and Permanent TSB to restrict the lower rates to new customers means the benefit felt is actually minimal. In essence, this can be seen as little more than a panicked reaction by these providers to the negative publicity associated with the continuing excessive rates they charge to their existing customers. Bank of Ireland and Permanent TSB should follow the lead of AIB and ensure fair treatment for all customers.

The switcher market is largely a mirage. In the first six months of last year, fewer than 200 switches were completed, as was confirmed in responses given to the Oireachtas Committee on Finance, Public Expenditure and Reform last November. This underlines the weak competitive nature of the mortgage market. Why is it the case that in the rest of the eurozone the average cost of a new mortgage for home purchase is 2.3% versus an average in Ireland of 4%? The banks here are benefiting like their counterparts in Europe from the low ECB base rate and the subsequent low level of interest paid to depositors. However, the banks in Ireland have not been willing to pass on the rate reductions to their customers. This is simply not acceptable.

This cohort of mortgage customers is being exploited and ripped off under the watch of the Government and the Central Bank. We believe the Government needs to step up to the mark. I accept the Government does not set interest rates but it is entitled to have a view on this issue. Again, however, it is afraid to express a view on this issue for the past four years. It, along with the Central Bank, needs to fulfil its role as an advocate for borrowers rather than merely standing over the banks’ best interests.

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