Bank switching pain to be eased but not removed

A new code of practice on switching bank accounts will provide "a very clear and simple road map" for consumers who wish to move from one bank to another, according to the Irish Bankers' Federation (IBF).

At the moment, the road consumers must travel down, if they want to switch their current accounts, is a bumpy one, littered with unexpected turns, roundabouts and confusing signposting.

But from February the banks will not only be required to give proper directions, they'll also be obliged to do their share of the driving.

The key change revolves around the traditionally tedious uphill struggle of transferring direct debits and standing orders from an old account to a new one.

Direct debits are a convenient way to automatically pay utility bills, credit card balances, insurance premiums and various subscriptions, without having to remember to do it.

The trouble is not that many people keep a list of their direct debits jotted down next to a list of the customer service phone numbers for each direct debit "originator" such as ESB, Eircom, Bord Gáis or NTL.

Most of us have to trawl through a whole year's worth of bank statements before we can identify the full range of agreements that are surreptitiously working to place massive dents in our disposable income and, in some cases, plunge our current account balances into unauthorised overdraft mode.

We then have to locate the relevant contact numbers for each direct debit originator and provide our new bank account details - while keeping sufficient money in our old accounts in case the companies fail to change our details before our next payment is due.

This slow, painful series of manoeuvres inevitably leads to missed payments, double payments and a massive phone bill.

Traditionally, banks have done little to oil the wheels of the transfer process, pointing out that direct debits are agreements made between the consumer and a third party and that they simply facilitate the transactions.

Under the new IBF code of practice, once consumers open an account at a new bank, they fill out and sign a transfer form.

The new bank sends this form to the old bank, authorising it to give the new bank a list of all direct debits and standing orders.

The old bank must also give each direct debit originator the customer's new account number and sort code. The new bank then sets up the altered mandates.

All of this sounds like good news for customers of AIB and Bank of Ireland, who are paying over the odds for the pleasure of banking at either one of the "big two".

The code is expected to prompt a new era of current account switching away from the two main banks to institutions such as National Irish Bank (NIB), Ulster Bank and Permanent TSB, which all offer free transaction banking.

But before anyone celebrates their imminent departure to a financial institution that offers a lower cost and/or better and/or more honest service, they should pause to consider a few likely potholes.

First of all, consumers will have to wait until January 31st of next year before the new system comes into effect. By contrast, in the UK, a code of practice on switching has been in place since 2001.

Secondly, switching current accounts will potentially still take around two weeks to complete.

The new bank is only obliged to have the consumer's new account up and running within 10 working days from the date that they have approved the application.

In the era of fully computerised banking systems, consumers could be forgiven for asking: "How long does it take a bank to make a fully approved current account operational?"

According to a spokesman for the IBF, Mr Felix O'Regan, the 10-day window exists in order to cover the ordering and posting out of ATM cards, laser cards and cheque books.

People opening bank accounts have been known to encounter a few road blocks in this area.

It's not hard to imagine the scenario: An ATM card, as promised, lands on the new customer's doormat a respectable two days after he or she first popped into the local branch of their chosen new bank.

The card's Personal Identification Number (PIN) is sent separately for security reasons. But it never arrives.

Once contacted, the bank says it will send out a second PIN. This duly appears in the customer's letterbox after another couple of days.

But when the customer tries to access his bank account using his ATM card and the new PIN, he discovers that it's not working.

The bank rep now informs the customer that the card was cancelled after the original PIN went astray. It eventually sends out a new card and a third PIN.

Several days later the frustrated customer is finally able to withdraw the money he had deposited in his new account.

At some point during the code's 10-day timeline - in theory, at the beginning - the new bank will get around to sending a signed account transfer form to its new customer's old bank.

From this point, the process of switching direct debits and standing orders and transferring any remaining money should be completed within seven working days.

Any further delays can easily be blamed on third parties, such as telecoms operators or insurance companies.

But despite the banks' new responsibilities, account-switching consumers can't take a backseat just yet.

The account holder is the only person who can inform his employer and other creditors of his new account details.

He will also have to fill out another form in order to transfer his internet and telephone banking details.

Under the code, banks must provide customers with a "switching pack". Each bank is to produce its own version of a sample step-by-step model published by the IBF.

The IBF guide makes no mention of the costs involved in switching current accounts.

Banks that offer free transaction banking services charge fees for setting up direct debits and standing orders.

Ulster Bank charges €3.17 for setting up a direct debit and €4 for setting up a standing order, while Permanent TSB charges €5 for both.

NIB charges set-up fees of €3.80 on its standard current account, which includes free transaction banking for accounts in credit.

It waives these charges on its Freebank account, but there is no overdraft facility available on this account.

So, for a customer with six direct debits, switching accounts could cost €19-€30.

And that's before the Government steps in and takes its swipe at our bank balances.

The Government imposes stamp duty of €10 on each ATM card and laser card. Cards that have a combined ATM/laser function attract a duty of €20.

Consumers who switch banks could therefore be charged a total of €40 for the year in which they move.

As Bank of Ireland pointed out last week, these taxes hamper the competitiveness of the current account market.

Nevertheless, the new streamlined switching system, once it comes in to effect, should persuade greater swathes of AIB and Bank of Ireland customers that they do not have to pay €60-€80 a year in bank charges if they don't want to.