Some questions on the AIB forex issue

As a shareholder in AIB and as a business customer, I have some questions which I have not heard answered in the RTE reports.

Was the error intentional?
It has been described as fraud and as a scandal and as a rip-off. If someone in AIB intentionally input the wrong number to increase profits, then it is fraud, a rip-off and a scandal.

This is what happened in National Irish Bank. People were intentionally charged more than the agreed rate.

How much have individual customers lost?
€18m over 8 years is insignificant in terms of AIB's overall business. But increased payments of €1000 could be a lot to any one customer.

When was the problem and the extent of the problem discovered?
There are errors made all the time. However, this was a systematic error, so when was the extent of it known?

Was it rectified immediately for ongoing business?
I can understand that it might be very difficult to sort out a backlog problem. But was the problem rectified immediately for ongoing customers? It appears to have been first noticed at "departmental level" two years ago. But what is most worrying is that they still overcharged customers by €3m last year - after discovering that there was a problem.


Was there an attempt to cover up the problem?
After intentional fraud, this is the most serious allegation.

What was the role of the Office of the Director of Consumer Affairs?
The AIB spokesman on Morning Ireland seemed to suggest that the main problem was that they had notified the ODCA that their maxium rate was .5%, but that they charged customers 1%. This is a problem, but not a huge problem.

Why did the customers not notice it?
I must check my forex transactions. Did they quote .5% but calculate it at 1%? Or did they quote 1% and charge 1%?

Brendan

I have just read the AIB statement in the Irish Times. And it seems to be completely different from what RTE were suggesting.

A customer bought foreign currencies from AIB and was charged 1% commission. This was calculated properly. This was properly disclosed on the transaction documents. The customer was charged as quoted.

The mistake was in what they told the ODCA that they would charge customers. It appears that they charged 1% as intended, but that their notification to the ODCA was wrong.

I would read this that customers didn't lose out at all?

Brendan

Hi Brendan - Isn't that the 'glass half full' view? You could look at the same facts and concluded that they overcharged customers by 0.5% - the fact that they quoted the accurate 1% charge on the transaction documents doesn't make it OK.

The questions I'd like to ask the CEO are;

- What steps did you take to educate your staff/management on the role of the ODCA when that legislation was introduced?
- At exactly what level was this issue known about two years ago - saying it was at 'departmental level' tells us nothing. That could have the head of the 'cutting the grass at Ballsbridge' dept. Who knew? In what dept?
- Is there a culture of 'shoot the messenger' at AIB, whereby the poor divil who highlights the bad news is seen as the one to blame? What steps are being taken to rectify this culture?

Hi rainyday

It's a stupid mistake which should have been detected and fixed earlier. But based on the information in today's Irish Times, and pending answers to your questions and my questions - it doesn't appear to be a fraud or a scandal. It may be both, but based on the current information, it is neither.

If I go into a pub and the price of a pint is advertised as €4 and they charge me €5, that is overcharging. If the advertised price is €5, then it's not overcharging. If there is price control, and the maximum they are allowed charge is €4.50 then it is somewhere in between.

Brendan

> If there is price control, and the maximum they are allowed charge is €4.50 then it is somewhere in between.

I disagree. I would consider this overcharging too regardless of the fact that the excessive price is advertised clearly.

How much?

How much were individual customers overcharged?

In today's Irish Independent on Page 15 it says:

On a €1000 transaction, the difference between the approved charge of €50 and the actual charge of €100 should be repaid to customers.

Surely, 15 of €1000 is €10, so the overcharge is €5 per €1000?

When I heard about this yesterday my first thoughts were that they had told the CB (or whoever it is) that their charging structure was 0.5%, but that they operated a different regime at the counter. This appears to be what is emerging.

The customer (if they enquired) was told they were charged 1%, and the bank charged them 1%. Customer reckons everything is legit.

However, AIB tells CB that their rate is 0.5%. This presumably is for some statutory reporting reason and not just because the bank likes keeping everyone updated. If this is the case then AIB should be in trouble with the relevant regulator.

I am very surprised that this didn't show up anywhere along the line during any sort of audit or compliance check.

The way I see it - strategic decision is made in the upper echelons to charge 0.5% on these transactions. I presume charging structures aren't just decided on willy-nilly, so it has to be reasonably high up. CB is informed of the rate. You would imagine that somebody somewhere within the organisation is charged with passing this information down the line so it can be implemented. It's not as if the branch people just made up the rate - this 1% rate was presumably passed on through training and documentation. If it was just blindly processed (and accepted) because "that's what the machine says the rate is" then this raises huge questions about how reliable any of the rates and charges are. Does nobody within AIB (or the other banks) check these things ?

I think AIB have dug a very big hole for themselves and the other banks here and it is going to be very hard for them to get out of this - it took 8 years for a systematic error affecting routine day to day branch transactions to be noticed. This is not good from their point of view.

z

AIB Forex overcharge.

Can I ask which are AIB saying is the mistake?
Is it the fact that they quoted the 0.5% to Central Bank or whoever, or the fact that they charged 1% to the customers? I notice that their website page still quotes 1%.

"Currency Notes and Cheques:

All AIB branches carry most major currencies. If you need notes that we don t have on hand, we can order them for you. At AIB, for both purchases and sales of currency notes, we charge a commission of 1%, minimum EUR1.27 maximum EUR6.35 For purchases of cheques, we charge a commission of 1%, minimum EUR1.27, maximum EUR6.35."


[broken link removed]

Also, how are they going to repay the overcharge. Does every customer have to root out transaction slips and go into their branch? I must have exchanged a good few thousands over the 8 years but identifying them all would be a hard job, though most of the large ones would have been wires.

BTW. I just bought a few hundred sterling and saved 1% in the Permanent TSB versus AIB (BoI was way off the mark)

Pierce

Banks need to get approval from the Office of Director for Consumer Affairs for any changes in bank charges under the Consumer Credit Act.

I understand that AIB decided to charge 1% on forex charges. This was what everyone else was charging. However, they incorrectly input .5% on their application to the ODCS. so they had approval to charge only .5% and not 1%.

if they had put down 1% and got approval of it, there would have been no issue. I presume that they would have got approval as this is what everyone else charged.

There is no control over interest rates - banks can charge whatever they like. But bizarrely, there is regulation of charges.



Brendan

Missing the Point

1. How come several hundered bank professionals failed to notice that a group of customers were being charge twice the rate as everyone else for SIX years 1996 to 2002? Is this credible?

2. Why did AIB continue to overcharge for a further TWO years? This is deliberate illegal pricing, knowingly undertaken by Irelands largest bank - what does it tell us?

3. If the whistleblower didn't blow TWO WEEKS ago how long were they prepared to continue 2. above? Is there any evidence that AIB was going to do anything at all BEFORE GETTING CAUGHT?

These are the real hard questions and I just can't figure out how this can be pigeon-holed as a "mistake" when you consider them. So far AIB has failed to deal with these. IFRSA must be DEEPLY concerned by what appears to be an attempted cover up. Forget the money, the apparent cover up is the real issue, because if a cover up took place it destroys confidence in banking - thats the issue.

I'm a four star general. Another brandy please....

As usual senior management are stating that they only recently found out but that divisional/middle management have known for some time about this. As per usual blame the soldiers. With all the scandals going on in the AIB and the huge salaries/pensions/cars/etc that senior managemenr are paying themselves they should have known about this. Stop blaming the soldiers!!

Re: Missing the Point

Hi Mith

I agree with most of what you say. As I asked in my first post on the subject:

Was it rectified immediately for ongoing business?
I can understand that it might be very difficult to sort out a backlog problem. But was the problem rectified immediately for ongoing customers? It appears to have been first noticed at "departmental level" two years ago. But what is most worrying is that they still overcharged customers by €3m last year - after discovering that there was a problem.


Was there an attempt to cover up the problem?
After intentional fraud, this is the most serious allegation.

Click to expand...

It would be a very difficult mistake to pick up. The mistake was not in what was charged to customers. It was in what they sought approval for. Everyone assumed that they had approval for a 1% charge.

I think that the ODCA and IFSRA have questions to answer as well. Do they not check that the charges actually being charged are in accordance with their schedule? The ODCA never noticed it either in 8 years. I think IFSRA can be excused as they are only in action for one year and I am not sure if they have any responsibility in this area.

Brendan

Don't financial institutions have compliance department whose job it is to ensure that the authorisation/regulation rules are adhered to and that day to day business practices comply with these rules? Not to mention senior management who are tasked with making sure that such departments do their jobs properly and with whom the buck stops if they don't?

aib

Thieft is thieft even if you did not mean to do it.Surely somebody in AIB has to go to jail because of this??





gg

Hi unregistered user

That's a valid point. The compliance department should have picked up this error.

Now it appears that it took them or someone else 6 years to discover the error. Do we all agree that the compliance department should all be fired? Or maybe the person who made the initial faulty submission to the ODCA should be fired?

If we agree that, then we are creating a culture of cover-up. If I discovered something which I should have discovered 6 years ago and the media were going to make a mountain of it, then I would be sorely tempted to cover it up.

Brendan

Can we all agree that the departmental manager who know about this two years ago and didn't escalate the matter appropriately should be fired?

Hi rainyday

I will agree if you will agree to have the Unfair Dismissals Act repealed, so that an employer has the right to fire anyone who makes a mistake. The reality is that it is virtually impossible to fire anyone who has been in employment for more than 12 months.

If this departmental manager has an excellent service record and has made one, admittedly big, mistake, he should not be fired. He should get a verbal or written warning and his decisions in any similar matters should be reviewed.

Brendan

When this came to light, this was the scenario that came to me:
If this is some sort of system error/blip that has been sitting there for the last 2 years, my initution is that when this came to light then, via local dept manager/compliance selk assestment etc. it was probably highlighted, a manual process was put in place to fix the blip & a systems fix requested. Systems fix never came on-line, dept. people moved on, manual process forgot by subsequent staff turnover, while compliance always had it ticked as something that was being addressed. The usual 'it's being looked after by someone else, only they don't know what they're looking after' in large org's. IMO there will be no direct fall guy, I don't think it was intentional(not saying thats an excuse), I'm just curious how they will pay it back.

As an aside, and I'm not sure if this should fall under ODCA or IFSRA, but do you ever notice that IFSRA never really come out with the medium/big news annoucements/end results, it always seems to be politicans(mainly Mary Harney). It's like IFSRA can't move/take a position on anything without political direction or maybe they're on a leash & are only let loose when their masters see something worth a couple of minutes airplay in the furore/findings?

aib

"As an aside, and I'm not sure if this should fall under ODCA or IFSRA,"


It should fall under the fraud squad. They should be brought on board. it would not take aib long to act then.



gg

HI monk

IFSRA are in a very difficult position here. They realise that it's a storm in a teacup, but they cannot say that or we would accuse them of defending the system. So they must announce an investigation.

The politicians can jump on the bandwagon because we all love attacking the big bad banks. Unfortunately, there are much bigger consumer issues which the politicians are ignoring.

Brendan