Denis Naughten (Longford-Roscommon, Fine Gael)
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Question 48: To ask the Minister for Finance the actions he has taken or which he plans to take in response to the report of the Competition Authority on banking. [13287/05]

Brian Cowen (Laois-Offaly, Fianna Fail)
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I should perhaps clarify the context in which the recent report was published and the views of interested parties sought thereon. The report published by the Competition Authority last December was one which had been prepared for it by a firm of consultants. While endorsing the analysis in the report, the authority has not yet taken a position on how best to remedy the issues it raises. Instead, it invited interested parties to give the authority their responses. It is only after it has considered these responses that the authority will issue its own report and recommendations — probably around the middle of this year. Given these circumstances, the response which I sent to the authority was a preliminary one and this will be reviewed in the light of the finalisation of the authority's position on the issues raised in the report.

The report which was published contained 40 recommendations, ten of which were directly addressed to my Department. A particular focus for my Department related to stamp duty on plastic cards. The recommendations on this topic dealt with the issue of the double stamp duty burden on persons in a year in which they switched card providers or upgraded or downgraded the status of the card provided by their existing supplier.

I had already indicated in my budget speech last December that I would take steps to eliminate this double charge and section 128 of the Finance Act 2005 provides accordingly. It amends Part 9 of the Stamp Duties Consolidation Act 1999 to provide for an exemption from a second or subsequent charge to stamp duty for financial cards such as credit cards, charge cards, ATM cards, Laser cards and combined cards arising from the switching of accounts within a financial institution or from one financial institution to another in the same year of charge. The change for credit cards and charge cards took effect from 2 April 2005 while the change for ATM cards, Laser cards and combined cards will take effect from 1 January 2006. These measures will have an important impact in addressing the issues raised in the Competition Authority's report relating to facilitating account switching.

A second area of particular interest to my Department concerned the recommendation that the regulation of non-interest bank charges be phased out. As pointed out in the response which I forwarded to the Competition Authority, the regulation of non-interest charges and fees is aimed at consumer protection. It facilitates the Irish Financial Services Regulatory Authority both to verify that notified charges are being applied to customer transactions and to require restitution in the event of overcharging. A reconsideration of the present arrangements would be warranted only in the context of a compelling case being made that these provisions significantly deter new entrants to the markets for these banking products or that the effectiveness of competition in the sector had increased considerably.

There were some other issues in the report for my Department to which I have also responded. The full text of the response is on my Department's website at www.finance.gov.ie. As to my views on the matter, I welcomed the report when it was published. It deserves careful consideration by all those concerned. The report's overall conclusion that there are competitive issues to be addressed in the banking sector leading to higher costs for customers must be taken seriously. My Department will pay particular attention to any recommendations relating to the legislative framework governing financial regulation.

Richard Bruton (Dublin North Central, Fine Gael)
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Does the Minister share my view that there are serious issues in respect of competition in the banking sector which are highlighted by the fact that profit-taking in the sector is three times as high per customer in Ireland than elsewhere and the cost of banking is 73% higher here than elsewhere?

Against that background, is the Minister happy that the Competition Authority's report is adequate in addressing the change that needs to occur in this sector? Does he consider there is enough in the recommendations emerging from its report? Would he consider changes such as requiring the charging on current accounts, which is fairly standard practice in the UK? Is he satisfied with the captive sale by banks to their customers sometimes of products they do not need, as we have seen in recent cases? Does he consider there is a need for more far-reaching change to promote genuine competition in the banking sector? What sorts of changes would he consider initiating to promote greater entry into the banking sector and greater value for money to customers of the banking sector, particularly small business and personal borrowers, not forgetting that when the bank ECB rates came down only half of those cuts were passed on to personal and small business borrowers?

Brian Cowen (Laois-Offaly, Fianna Fail)
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As I said in my initial response, the authority has to take positions in this regard. It issued its report for consultation or comment. Upon that process being completed in the next few months, as I understand, we will be in a position to be aware of the final views of the Competition Authority on this matter and how we might respond to it. I made the point generally that the report deserves careful consideration.

The issue of how we improve competition in banking for the benefit of consumers is important. We have the new regulatory framework through IFSRA, which has a strong consumer focus in terms of the committees in place to ensure that the consumer is protected. Where there are practices, to which the Deputy referred, that seek to cajole people into providing products that go beyond practical ethical marketing, that is an issue IFSRA is in place to deal with in the normal regulatory course.

As to the legislative response we will give governing financial regulation to assist in competition, that would be best considered by us when we know the final position of the authority on these matters.

Joan Burton (Dublin West, Labour)
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The Competition Authority took a long time, and presumably that was costly, in producing this report. Many of the people involved in preparing it seem to be American PhDs. I am not sure how much they know about the detail of Irish banking.

Is the Minister concerned about the suggestion in the report of the letting go of procedures for notifying charges, limited and all as they are, in the context of Irish banking, given the scandals we have endured from Irish banking in recent times? It is difficult to understand why these procedures should be arbitrarily dropped? The report pulls its punches in giving information to customers on charges, which is key information in allowing customers to make informed decisions about shopping around. Is the Minister disappointed that the Competition Authority has laboured mightily and really only produced a mouse?

Brian Cowen (Laois-Offaly, Fianna Fail)
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In fairness to the Competition Authority, its main findings are that competition does not function well in certain parts of the Irish banking sector and that the market is highly concentrated with two large banks accounting for more than 70% of retail banking market.

Joan Burton (Dublin West, Labour)
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With due respect, is that not something we and the Committee on Finance and the Public Service know from our personal observations?

Brian Cowen (Laois-Offaly, Fianna Fail)
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The Deputy may have a few personal observations, but the point I am making is in regard to some of the recommendations. I made the point about IFSRA having a strong statutory consumer mandate under the 2003 Act. The existing legislative provisions relating to fees and non-interest bank charges were introduced in the context of concern about the effectiveness of competition between banks and are aimed at consumer protection. They facilitate IFSRA to verify that notified charges are being applied to customer transactions and to require restitution in the event of overcharging. The requirement to seek approval for such bank charges does not pose any substantive barrier to competition.

There is also a suggestion to amend the Bills of Exchange Act to allow for electronic presentation of cheques and initiating legislation to support cheque truncation. We are always open to legislative adjustments to facilitate adoption of new technology or more efficient processes. Before endorsing that recommendation I would need to be satisfied the measures being proposed would bring about an overall improvement in the efficiency of the payment system.

The authority also invited the Department to bring forward a position paper setting out the implementation for a national payment strategy. That recommendation relates presumably to the report by Accenture Consultants entitled National e-Payments Strategy that the Information Society published in 2003. It raised complex issues for a range of stakeholders, both the State sector and private sector, and requires a more considered evaluation than this recommendation by the consultants would suggest.

A significant issue in responding to the suggestion of a national strategy and to what extent the State should take a role in it revolves around the very exercise the Competition Authority is undertaking, in that, any consideration of the strategy would have to take account of the outcome and impact of that exercise. We look forward to the report of the authority in respect of that.

The recommendation to bring forward legislation to facilitate mortgage switching has implications outside my Department's role in regard to the financial services sector. It would seem to raise issues in regard to conveyancing, contract law and possibly bankruptcy and insolvency law. The outcome of the current consultative process being conducted by the authority may clarify those issues and when its specific proposals for reform in this area are put to my Department they will be seriously considered.

Our reaction to the recommendation that the money laundering steering committee should consider amending its guidance notes to allow for accounts to be opened and funds to be deposited but not withdrawn prior to customer identification is that this is primarily a criminal law enforcement matter. It is not clear how this suggested change would increase competition while at the same time it would seem to interfere with the clear requirement for a bank to know its customers. We will review the position in the light of the authority's final report later this year.

There are a number of recommendations that clearly have been put forward. This process of response will allow the authority, in the first instance, to make its final recommendations. They are more likely to be amenable to ultimate implementation on the basis that all these complex issues will have been considered before final recommendations are made.

Dan Boyle (Cork South Central, Green Party)
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Does the Minister agree the response of the main Irish banks to competition issues has not been about improving the quality of their services, having failed to inform their customers or having taken them for granted, but about examining their cost base in infrastructural terms, diminishing staff numbers and closing facilities, sub-branches, which are considered less cost effective and less profitable in isolated locations? Customers in rural areas have to travel longer distances to conduct face to face banking. Does the Minister accept this is a negative trend that he should address?

Brian Cowen (Laois-Offaly, Fianna Fail)
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In the private banking sector there are commercial considerations that management and boards from to time to time consider. The most recent one related to the Bank of Ireland. I have made my position known, namely, that in the context of social partnership, I hope the legitimate interests of staff are taken into account in regard to these matters. I have no doubt but that the bank's staff unions and associations will more than adequately represent staff interests and that there will be agreed procedures to determine the overall repositioning of the bank in competitive terms that will meet an agreed outcome between all the stakeholders in the bank, including the staff.

There is also another issue. We are talking about the need for competition and competitiveness for banking and ensuring lowest possible costs to the customer, with which I agree. However, if it emerges that achieving that changes the traditional branch system to some extent, although I do not believe that is envisaged in the Bank of Ireland where such a change would be major, it would provide an opportunity for organisations like An Post to do that sort of business for a bank in loco or instead of the bank. An Post would make sure there is a face to face banking facility even in our smaller towns and villages where there may be pressures due to the level of activity in bank branches where the services they provide may be considered for relocation. Instead of viewing such changes as threats, they may present opportunities. Certainly in the context of An Post's position, such outside the box thinking may be required as part of the resolution of the problems that exist there.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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The service ethos and the customer friendly approach that most in this House would have remembered as part of the commercial main street-high street banking sector of years ago is all history. The service ethos and customer friendly approach has long been subsumed by the drive towards greater profitability, better returns and better performances. For a large swathe of ordinary citizens, it is a case of take it or leave it. They have little or no means to lever and no representation in regard to the banking sector. One is on one's own. It would almost invite a customer service user's representative body.

The Minister referred to opportunity and other thinking by way of opening up opportunities to the post office and other service sectors. Given that citizens need a safety net, what about having a State bank, providing all the crucial services in which the commercial profit-driven banks currently dominate and hold sway? Is that not the answer in a time of opportunity? Should we seriously consider this, given that the current providers have no interest in customer service and the service ethos that once applied?

Brian Cowen (Laois-Offaly, Fianna Fail)
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The issue that will drive better value for money in the banking sector is more competition. We have already seen this in the new entrants coming into the market. On face to face banking and the demise of what the Deputy regards as the friendly atmosphere when one goes into a bank to borrow money, and being given it willingly at very benign rates, is not a vision I have from my first visit to a bank. The fact is that technology has overtaken events. The lessons of the last bank strike were that people did not need to go into the bank to do business. The ATM machine took away the basic leverage people understood existed in terms of industrial relations in the banking sector. This is why it differed so much from the previous bank strikes in the 1960s and 1970s. People just want to get their money. They do not necessarily need to have a cup of tea or coffee. Technology has taken over in the banking sector and financial services generally.

I do not share the Deputy's view on providing a State bank. I have too many priorities at the moment. A State bank that would not have profit as a motive would not last very long.