Opening Statement by Director of Consumer Protection, Bernard Sheridan, to Joint Oireachtas Committee on Finance, Public Expenditure and Reform

17 April 2013 Speech

Good Afternoon. Thank you Chairman and Members of the Committee for your invitation to appear here today to discuss bank charges. I am joined here today by my colleagues Mick Stewart and Linda Murphy. I will commence by giving some background information on the legislation governing charges imposed by banks.


The Central Bank acknowledges that increases in bank charges at any time are unwelcome for consumers, and particularly at a time when many households and small businesses are struggling to make ends meet with reducing income and increasing costs. The job of the Central Bank under Section 149 of the Consumer Credit Act 1995 (as amended), is to ensure that the right balance is struck between credit institutions recovering costs of providing services and the charges they are imposing on personal and small business account holders are reasonable and appropriate. I will provide an outline of the key elements of the Act and, importantly, how the Central Bank performs its duties under the Act.

Section 149 of the Consumer Credit Act 1995 (as amended) (‘the Act’) came into effect in May 1996. All charges being imposed by credit institutions at that time “stood notified”. The Central Bank assumed responsibility for Section 149 in 2003. Under Section 149, credit institutions, prescribed credit institutions and bureaux de change must make a submission to the Central Bank of Ireland (‘Central Bank’) if they wish to introduce any new customer charges or increase any existing customer charges in respect of certain services such as making and receiving payments, providing and granting credit and maintaining and administrating transaction accounts. The Act requires the Central Bank, when assessing such submissions, to have regard to the promotion of fair competition, effect on customers, the statement of commercial justification and the passing on of costs to its customers. We either reject the proposal, accept the proposal but at lower levels than requested by the firm or approve the proposal in full. While the term ‘charge’ includes penalty or surcharge interest, the Act specifically excludes rates of interest and any charge, cost or expense levied by a third party and passed on by a credit institution to customers.

This framework for approval of charges requires the Central Bank to take into account both the impact on customers as well as the commercial justification for imposing such charges. Clearly all firms aim to recover the cost of providing financial services either directly or indirectly from their customers. The extent and nature of those charges will reflect the individual strategy of each firm. Our role is to strike the right balance between the interests of the firms and their customers.

Internal Process

Each submission received by the Central Bank is subject to rigorous consideration according to the criteria set out in legislation and the contents of that particular submission. Each submission includes information such as historic and forecasted Profit and Loss data and projected changes to customer usage. The extent of the proposed charges or increases is considered; and a peer analysis of charges is carried out to help ensure that the promotion of fair competition in the market is considered. When looking at proposed charges, analysis of the impact of the proposition on customers and groups of customers is carried out. Section 149 extends to both personal and business customers so the potential impact on groups of customers, such as SMEs is considered as part of our process.

As part of the assessment process for personal current accounts the effect on the customer is assessed using, amongst other analysis, our customer profiles. We have developed four customer profiles, each representing different usage patterns, in terms of volumes and types of transactions (for example electronic versus manual) and differing occurrences of out of order charges.

The Central Bank then decides whether to approve, partially approve or reject the proposed charges. The Central Bank sets out the maximum level of each charge contained in a Letter of Direction

It is worth noting that a bank may choose, for commercial or competitive reasons, not to apply charges for which it already has approval or which “stood approved”, for a period of time and then subsequently apply such charges, at a time of its own discretion. In this regard these concessions are not subject to a Section 149 submission, i.e. a bank may choose to apply waivers or discounts of charges or may impose charges at lower than approved levels and subsequently increase these charges. The Central Bank has no power to approve/reject such revisions. Any proposed changes to charges or qualifying criteria must be published in advance.

The European Communities (Payment Services) Regulations 2009 and the Consumer Protection Code 2012 contain certain requirements in relation to the information to be provided in relation to charges to ensure that the customer is aware in advance of the amount of a charge for the provision of certain services.

Recent developments

Submissions received from a number of banks in 2012/2013 reflect the first general increase in current account charges since the Central Bank took responsibility for Section 149, prior to that the main providers of current accounts were using the approvals as ‘stood notified’ in 1996. The recent trend has also shown that banks are moving away from the provision of traditional banking channels towards electronic, online and contactless services. As part of this banks have been looking to create price differentials between manual and automated transactions. According to the information we have received, there is a significant cost difference to the banks in providing manual and automated transactions, and this cost difference has led banks to seek to impose different charges depending on transaction types.

Mortgage arrears charges

As referred to above S.149 also covers charges in relation to the provision of credit. As part of the Central Bank’s overall response to the growing mortgage arrears problem in 2010 we carried out a review of charges imposed by mortgage lenders on borrowers in arrears. At the end of 2010 the Central Bank issued Letters of Direction to all lenders directing them to refrain from imposing any surcharge interest or any charge arising on a mortgage account in arrears covered by the Code of Conduct on Mortgage Arrears.


The Central Bank has an almost unique role in relation to bank charges. We believe we have a robust process in place, including the use of customer profiles, to determine the appropriate levels of increases in charges. The Central Bank will continue to perform its role under S.149 of the Act in such a way to try to ensure that the appropriate balance is struck between the need to ensure that such charges are reasonable for the consumer as well as reflecting the need for firms to recover their costs for providing such services.