The Director of Consumer Affairs has called for a full and "urgent" inquiry into the banks' new policy on clearing cheques and their "virtual monopoly" on retail payments.

At an Oireachtas committee meeting during which the banks came in for sustained criticism, Ms Carmel Foley also said she has written to the Competition Authority raising her concerns about the banks' decision in relation to refusing to cash cheques.

"It is interesting that so many institutions seem to have amended their cheque encashment procedures at the same time," Ms Foley told the Oireachtas Committee on Finance and the Public Service.

"I understand that these amendments may have arisen from a decision taken by the Irish Payment Services Organisation (IPSO), which effectively controls entry into the clearing systems for cheque settlement, credit settlements and electronic settlements."

The IPSO is "owned and operated by private sector entities established by the credit institutions", Ms Foley said. Competition "is being kept out" by way of the clearing house system.

During a forceful address to the meeting Ms Foley said the banks were closing branches but were failing to invest in other infrastructure, such as ATMs. "Although Irish consumers are among the highest users of ATMs in Europe, Ireland has among the lowest number of ATM machines per capita in Europe."

She said non-credit institutions which would not be accountable to her office were considering exploiting the Irish market in co-operation with the banks through providing ATMs where customers would be charged up to £2 (€2.54) per transaction.

Responding to Mr Seβn Fleming TD, Fianna Fβil, Mr Jim Bardon, the director general of the Irish Bankers' Federation, said the organisation had wanted to include in its code of practice on branch restructuring a promise that an ATM would be installed in any locality which suffered a branch closure. However some of its members were not willing to agree on such a commitment, he said.

Mr Louis Belton TD, Fine Gael, asked Ms Foley if it was "safe to say the Irish banking system is a cartel". Ms Foley said the Competition Authority deals with cartels "but what I have noticed is that there is not enough competition."

Mr Bardon said he "totally and utterly" rejected any suggestion there was a cartel in the banking sector.

On the reason for branch closures Mr Bardon said he would find it "difficult to understand why any bank would close down an outlet that was profitable". However a number of Deputies said they believed the banks were closing profitable branches because they believed they could make larger profits by doing so. "My clear understanding is that all branches are profitable and I am concerned at your earlier comment," Mr Fleming said to Mr Bardon.

Mr Bardon said it was not the case that the banks made profits on money held in cheques awaiting clearance. Ms Foley said a study in the UK had found banks were profiting from investing this money in the overnight markets.

Mr Larry Broderick, Irish Bank Officials' Association, said the banks should make clear exactly what criteria they used when deciding to close branches.