What should IFSRA be looking at?

Brendan Burgess

Brendan Burgess

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We will shortly have a Financial Regulator in Ireland with its own Consumer Director. What issues should it be looking at?

Here are some to start with:

Irish Nationwide's lending policies
Failure to inform borrowers of the interest rate they are paying
The allegation that they systematically widen the margin so that their rates are far above the market rates
The very aggressive treatment of people in arrears

Hibernian's Celebration Bond's high first year bonuses
These have been banned in the UK and should also be banned here.

The way Credit Cards charge interest
Most consumers don't understand that the interest free credit period only applies if they settle their account in full and on time. I don't object to high credit card interest rates, just the complex way the interest is calculated.
 
The IFSRA could do worse than have an style "plain English" (like, who the hell is going to read [broken link removed] for example? :rolleyes ) website and an [broken link removed] style advertising/awareness campaign to educate people about their rights in the area of consumer finance. Knowledge is power! The IFSRA will only work if people are aware of what it is, it has an "approachable/friendly" public image and people can relate it to their day to day business. Otherwise it's just another technical regulatory body remote from the plebs and only of interest to industry insiders.
 
I'd like to see IFSRA ensuring that it's relatively easy for individuals to change banks. Their UK counterparts have introduced regulations requiring banks to produce lists of standing orders/direct debits etc in a standard format within a specified timescale (e.g. a few days) when a consumer wants to leave one bank for another.

The hassle of setting up DD's & SO's is a major deterrent to switching banks, and allows the banks to cream off substantial transaction charges, even though there are some cheaper alternatives on the market.
 
Tracker Bonds - the next great misselling scandal!

Lack of transparency of fees/charges, lack of understanding of consumers re. participation rates, expected outcry in 3-5 years time when negligible returns arise etc.
 
Non conforming Mortgage Lenders

Non conforming mortgage lenders

People like Weisz and Chesterton Finance have been covered in the newspapers. They are not doing anything illegal but they are giving out mortgages, secured on property, to people who would not otherwise get mortgages. They can charge up to 2% a month!

Robbie
 
Re: Non conforming Mortgage Lenders

GE Finance giving out mortgages based on accountants 'letters' rather than audited accounts, to allow tax-fiddling self-employed to get higher mortgages.
 
Re: Non conforming Mortgage Lenders

I don't have any problem with tracker bonds as such, just the way in which they are advertised.

No mention of the fact that the institution keeps the dividends
The final year smoothing is really shortening the period by 12 months

The new BCP Quadruple Growth Bond "guarantees the investor four times whatever the market grows by subject to a maximum return of 17 per cent per annum". I haven't seen the brochure yet, but I know that the Bond does nothing of the sort.

Other combination bonds make the products so complex that they are very difficult to understand. So ban all combination products unless the combination is necessary.

Brendan
 
Re: Non conforming Mortgage Lenders

Address the marketing/advertising of remortgaging products, such as Linda Martin's great promises on behalf of Moneypenny (I think) to reduce your payments by combining your loans (while conveniently forgetting to mention that you greatly increase your total interest over the lifetime of the loan).
 
Mortgage Protection

I have issues with the type of products and indeed the products themselves which are sold by lenders as mortgage protection to their customers.

S
 
Consumers need to be able to compare financial products. For savings we have C.A.R. For loans we have A.P.R. I think for loan penalty and interest charges there should be a defined calculation. This could be based on a pre-defined amount of Loan Arrears. Equal in importance to the Statutory Warning "Your home may be at risk if you do not keep up repayments" is a warning explaining "You can be Fleeced if you go into arrears at all."
 
Endowment mortgages

What about endowment mortgages? Apparently, IIB has written to their mortgage holders telling them that it looks as if their endowment policy is not going to be sufficient to pay off their mortgage.

In the UK, they suggest increasing the monthly premium which is the very wrong advice. IFSRA should review the procedures for people who will get a big shock when they will not fully own their house when they thought that they would.

Sudan
 
Re: points to mention

Force the banks to operate under exactly the same rules as others in the life/general insurance business.
forcedirect sales only insurance companies make their quotations available to brokers so the customer can be given true and accurate best advise.
 
IFSRA

2 things for our new Regulator to do:

1. What's wrong with making it the clear and measurable priority of the regulator to make pricing comparable: commodities (and let's face it, almost all retail banking products are highly commoditised) be they service or product offerings should be comparable across the industry. Consumers can tell the difference between an expensive or cheap plumber, or hamburger. So, creating a clear set of reference points that apply stringently to all financial institutions would be a start.

2.And of course highlighting the lack of competitivity between local market conditions, and those in European markets (where the core raw material for the industry, EUROS (€s) is costs the same across member states.
Perhaps a detailed Porters 5 Forces comparative study across the EU member states might be useful.
 
IFSRA

Some thoughts:

IFSRA should take wide soundings on priorities, particularly from broad organisations.

AAM is a great site but unrepresentative of what's really going down on the ground. Half our contributors are already highly informed industry players, and the other half are the on line, and usually already highly informed consumers. These are hugely unrepresentative of most Irish consumers.

The total is still very tiny, representing a very narrow range. Most AAM people come on to get answers, and not to tell their stories about being ripped off. This isn't a criticism, just a statement of fact. All AAM ideas are worthwhile for IFSRA, but represent added value for informed consumers. Because of his campaigning background,Brendan should be a must on the Consumer Panel.

But IFSRA will be more fully informed by talking to the ODCA, Ombudsman Schemes, MABS, CAI, reading Tyson, Brady, Kerby, Power, Williams, and listening to interviews with people ringing Marion, Joe, Pat etc. The notion that financial planning can be simplified, streamlined, or compressed into a supermarket basket process is a failed dogma, that has cost the on line industry billions , and that has confounded Stakeholders Pensions, CAT standards, Kitemarks, SaverMarks, and will confound the PRSA initiative. That doesn't make the effort worthwhile, but the idea of educating Joe and Josephine Soap to a point where they can become DIY financial consumers is just not workable.

Any attempt by IFSRA to outshout the combined marketing and sales voice of the veritable army of financial sales people isn't going to happen either. The Revenue vs Tax Advisors, a generation old war is a similar example. Few Irish people bother reading personal finance articles. The hits are fashion, sport, politics, and gossip. Finance comes way way way down.

The hard facts are that most people are too busy coping with their lives already without wanting to get a degree in finance, or even a competence test. IFSRA should focus on a Consumer Charter in BIG BOLD Print in every sales area, ad, and illustration. It should work with industry in improving ethics, education, and standards using a carrot and big stick. It should equalise codes of conduct across all channels, especially banks and DSF's.

It should listen very very carefully to advice from its consumer panel, and it should be seen quickly to openly tackle festering sores like the INBS, Refinance Advertising, and Misleading Historical Performance Data etc. It should encourage new forces like competition, and especially like a Social Lending programme to rescue people from money lenders that the Credit Unions can't yet help. It should have a MABS person on the board representing the most vunerable.
 
IFSRA

..........and it should recognise, sooner rather than later, that consumers must take responsibility for their own financial decisions as well as advocating better selling practices.
 
Re: IFSRA

Elimination of five-year takeover rule for Building Societies

The IFSRA should pressure the government to remove section 102 of the Building Societies Act.

This clause means that a Building Society cannot be sold to another financial institution for five years after demutualisation. First Active, which used to be First National Building Society, is approaching the end of its five-year protection period. This means, for First Active shareholders, that another player in the market can shortly enter and buy out their stake.

Such consolidation would be highly beneficial to First Active, as it currently lacks the critical mass to be a major player in the market, but it could be very attractive to a foreign financial institution to give it a foothold in the Irish marketplace.

Irish consumers, and particularly mortgage holders, benefited greatly by the market pressure that a new entrant like BOS caused. If the five-year rule were removed, it would greatly ease the way for building societies to demutualise, and allow new players to enter the market to bring more competition into the Irish banking cartel, whilst freeing up the value held within building societies by giving the owners and members a substantial windfall.

Removal of the obligation to take out life assurance for residential mortgages

The IFSRA should further pressure the government to remove this obligation on people trying to purchase a house with a residential mortgage.

While the intentions of this legal requirement are laudable, in that it ensures that families will not lose their home, it should not be mandatory, certainly for persons who have no dependants. The main party benefiting from such an arrangement, in that case, would be the banks themselves. Considering that few banks will lend more than 92% of the home value, in any case, it seems that even the risk of negative equity for the banks is minimal.

It is just an additional cost for homeowners, already stretched to pay their mortgage and other bills. Such insurance should be optional for some, if not all, mortgage holders.

Thorough examination of personal banking charges

Few banks in the UK charge for personal banking, irrespective of whether an account is in credit or not, yet it is the norm here in this country. Only NIB offers some limited form of fee free banking

With AIB having reported record profits in recent times, the IFSRA should examine if this has been at the expense of ordinary decent folk who have been saving hard with banks all their lives.

Thorough examination of mortgage interest rates

Why is it that the interest rates for all financial institutions in this country all far within a half percent band or so ? In other parts of Europe there is a far wider range of more heavily discounted options open to mortgage holders.

Mortgages and Legal costs

I don’t know if this is in the remit of the IFSRA, but one area worth further scrutiny is the conveyancing costs in this country, and the close relationship that many lawyers have with certain institutions.

I understand that the Competition Authority has already launched an investigation into the legal profession in any case.

One specific area of concern that I have is, however, if all lawyers are qualified to the same high level in Ireland, why is it that some financial institutions will only allow mortgage applicants to use lawyers from their own designated panel ? And why is it, from personal experience, that such lawyers are substantially more expensive than many others in the marketplace ? This relationship surely merits further investigation.
 
Re: IFSRA

Such consolidation would be highly beneficial to First Active, as it currently lacks the critical mass to be a major player in the market,

Well, they'll never be big enough if they keep ! :lol
 
The nub

Here is a story from today.

Jack is a University Staffer. He's 55 married, and just about to inherit €130k. He has a five year to ten year investment horizon. His words. A big bank just advised him to put the lot into a managed fund. There was no fact find, and no questions about his existing position. The "Manager" of the specialist division left him a page of handwritten notes, explicitly creating an expectation of 12% pa, or slightly less, stapled with his business card. Then the post followed with a statutory illustration which was explained to him contained lower growth assumptions, triggering nervousness and leading to alternative advice. This was attempted execution selling of the worse kind, and the bank markets itself as an independent brokerage.

Consider the difference. Following a fact find the following jumped out:

1. About €50,000 of the inheritance, held under trust as shares should transfer to his name, and should not be liquidated, especially now. These were UK International large bank stocks. No CAT arises.

2. That the Superannuation dept of his employer should be contacted for details of buy back years into the DB scheme, with the tax relief fully investigated as this was likely to provide the highest IRR% compared to any other investment, and without direct investment risk. The State is the scheme guarantor.

3. That the intended short term top up mortage of €40k currently under negotiation with his bank, ( the same one), on top of a tiny residual balance, should be redirected to First Actives Current A/C Mortgage, saving about 1/5th time and interest, since the fact find revealed a healthy €2000 surplus each month. This could be done via a fee based intermediary or directly. He was directed to the FA website calculator.

4. That another €40k should be used for miscellaneous items the couple want, to avoid borrowing.

5. If anything is left over they could consider a mix of collective funds, but that's a big if, and then perhaps something uncorrelated to the equity funds they already have, that the fact find also revealed, like UK Property with a currency hedge, or a heavily bond based fund.

Question - today how many Jacks were snaffled up by unpoliced banks, and driven into their Managed Funds as the solution to everything? Who is responsible?
 
IFSRA things to look at....

The provision of so called Personal Loan Protection Insurance or Payment Protection Insurance is one of the areas involving consumer fincance that few brave souls have attempted to investigate yet the level of overcharging and profit-taking makes personal loan margins pale into insignificance.................
 
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