Banks investigated for advertising incorrect interest rates

A number of the State’s best-known financial institutions are being investigated for advertising incorrect interest rates on credit card accounts between 2010 and 2013.

The Central Bank of Ireland is looking into AIB, Bank of Ireland, KBC Bank Ireland and Permanent TSB as part of a review of the practice, The Irish Times has learned.

The issue revolves around how annual percentage rates (APRs) that apply to credit cards were advertised by the lenders. The rates published were slightly lower than those actually being charged.

The lenders have argued that the rates applied to the accounts were actually the correct ones, a position that the Central Bank appears to have accepted.

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However, the APRs that were advertised at the time were not correct. Informed banking sources said this revolved around an incorrect interpretation of the EU’s credit directive.

Clarification on this was provided in 2013 at which point the banks accepted that they had been using the wrong rates in their ads and moved to correct them.

No standard approach

The banks have argued that there was no standard approach to the calculation of APRs, which are an illustrative rate used in advertising. The APR rate is an annual calculation while banks apply fees or interest on a monthly basis to outstanding sums on credit cards.

In a statement, the Central Bank said it was “engaging with a small number of lenders regarding the incorrect disclosure of Annual Percentage Rates (APRs) to customers on certain credit products”.

“While no overcharging of interest rates occurred, it is important that regulated firms treat their customers in a fair and transparent way. In this regard, lenders have already taken steps to correct the APR on relevant documentation,” it said.

The Central Bank is pushing for some form of restitution by the banks. Some lenders have suggested making a donation to an agreed charity but agreement could not be reached by all of the banks.

AIB, KBC and PTSB confirmed that they were in discussions with the Central Bank on the issue while Bank of Ireland declined to comment. Ulster Bank said it was not part of the review.

Latest data shows there are 1.54 million active credit cards in circulation in the State.