Banks face spot checks on fees and interest charges

A number of branches of the major banks are due to be visited this morning for "spot checks" by accountants engaged by the Director of Consumer Affairs, Mr William Fagan, to look for improper fees or interest rate charges.

The accountants, from BDO Simpson Xavier, have been appointed authorised officers under the Consumer Credit Act 1995 and will be accompanied by staff from Mr Fagan's office who have been similarly empowered. Under the Act, the authorised officers can enter premises, view and copy documentation, and interview bank staff.

Mr Fagan said the officers would be visiting branches of the major banks at random and without notice. They will have access to bank audits, will examine the procedures in place for the allocation of fees and interest charges, and will "sample" a number of individual accounts. NIB will not be among the banks visited initially.

"There appear to be enough people reviewing NIB," Mr Fagan said.

More than 20 of 26 financial institutions, written to by Mr Fagan, responded to his close of business deadline yesterday to confirm that they were not imposing any charges above those notified to his office. The institutions also said they would co-operate fully with his inquiry. Mr Fagan expects to receive letters from the remaining institutions by early today.

Most of the financial institutions, including NIB, will be visited by officers from Mr Fagan's office over the coming weeks. The director said he had received legal advice that he may review all transaction charges imposed on business and ordinary customers, and interest charged on overdrawn personal accounts.

"I don't wish to name any of the branches we will visit but if they become known there should be no inference that they are under any suspicion," Mr Fagan said. "These are spot checks".

He will report back to the Minister of State for Enterprise, Trade and Employment, Mr Tom Kitt, tomorrow week. However, the whole exercise may take a number of weeks.

Meanwhile, the Central Bank would not comment last night on details of internal NIB correspondence broadcast by RTE and referring to the Central Bank.

In one letter to other senior bank executives, Mr Frank Brennan, general manager - retail banking, refers to the Central Bank as having a "rather simplistic view of competition" and being "naive" if it believed that what it was proposing would be accepted by the public. The letter, dated January 1989, deals with communications NIB was having with the Central Bank in relation to interest rates. Mr Brennan outlines how the bank delayed for three months in responding to proposals from the Central Bank in relation to changes in the interest rate matrix for associated banks.

In another, May 1989 letter, again from Mr Brennan to senior NIB executives, the general manager addresses a schedule of bank charges which are to be submitted to the Central Bank for approval. "I doubt if they will agree the new charges without raising questions of the effects on profitability; however, I will, in all innocence, simply send the attached initially." A spokesman for NIB said the bank had no comment to make at this time.

The issue of the regulation of the banking sector by the Central Bank will be among the issues raised at a meeting today of the Oireachtas Joint Committee on Finance and the Public Service. The Secretary of the Department of Finance, Mr Paddy Mullarkey, the chairman of the Revenue Commissioners, Mr Cathal Mac Domhnaill, and the governor of Central Bank, Mr Maurice O'Connell are to attend the meeting, which will consider the NIB controversy.

The Cabinet yesterday approved the establishment of a working group to investigate the law and practice governing the provision of financial services. The group is to meet as a matter of urgency and to report back to the Minister for Finance, Mr McCreevy, within weeks.

The Fine Gael front bench has put down a Dail private members motion calling for the strengthening of the powers of the Central Bank. The motion will seek increased protection for consumers by establishing an independent banking inspectorate answerable to the Central Bank. The motion would also require the Central Bank to make available to the Oireachtas reports on any incidences of fraud discovered in the course of its inspections or inspections by the independent banking inspector.

The party is also to call for the amendment of consumer protection legislation so that banking customers would have the legal right to an itemised bill setting out the exact basis for all charges imposed.