Mary Upton (Dublin South Central, Labour)
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Question 74: To ask the Minister for Finance if it is correct for a bank or lending institution to change the interest rate charged on an account without clearly and adequately informing their customer as in the case of a person (details supplied) in Dublin 12; and if he will make a statement on the matter. [8084/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The Financial Regulator's Consumer Protection Code (Chapter 3: Banking Products & Services) specifies the following requirements with respect to changes in interest rates:

A credit institution must ensure that when it announces a change in interest rates, the notification states clearly the date from which the changes will apply.

Where a credit institution changes the interest rate on accounts, it must update the information on information services, including telephone helplines and websites as soon as the change comes into effect.

In addition, the Deputy may wish to note that changes to, and notification of, interest rates on loan accounts are governed principally by the loan agreement between the lender and the borrower.

Richard Bruton (Dublin North Central, Fine Gael)
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Question 75: To ask the Minister for Finance if he will introduce requirements on the banks covered by guarantee in order that people would not face stiff penalties on something with variable rates unless the bank could show that it had entered contractual commitments with other institutions which would impose commensurate penalties on it, if it permitted the switch. [8107/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I understand that the Deputy is referring to the situation whereby penalties are imposed on customers with loans repayable at a fixed rate of interest who switch to variable rates. The choice of mortgage product ultimately rests with the consumer in light of the terms and conditions that their lending institution offers. The decision of borrowers is influenced by factors such as their personal preferences and their own assessment of the relative merits of fixed and variable rate mortgages. Generally mortgages are for long periods. To some consumers a fixed interest rate on a mortgage offers peace of mind in that the borrower benefits from certainty regarding the cost of their mortgage, does not need to be concerned with changes in mortgage interest rates and accordingly he or she can budget more confidently.

As the Deputy will be aware, interest rates charged by banks generally vary in line with the base rate fixed by the European Central Bank (ECB) from time to time. Where a bank offers a fixed rate over a certain period it incurs additional costs in obtaining fixed or other funding in respect of the loan over the period. The additional costs will reflect both the market view in relation to future trends in interest rates for the period and the fact that longer term deposits generally attract higher interest rates than short term. In addition, where a consumer changes from a fixed interest rate contract to a variable rate contract before the end of the term for which the interest rate was fixed, there is an associated cost to the lender.

In circumstances that lenders were prohibited from passing on this cost to borrowers switching to variable rates, this cost could increase the price and reduce the availability of fixed rate mortgages. The Minister has no function in setting interest rates for banks covered by the guarantee scheme and I do not propose to introduce additional requirements as suggested.