Regulator bars banks from hiking credit limits

Financial companies will no longer be allowed offer unsolicited pre-approved loans under new guidelines drawn up by the Financial Regulator to improve standards in the sector.

The rules will also stop banks from increasing a consumer's credit card limit without a specific request to do so from the customer.

The new Consumer Protection Code was developed following extensive consultation with the industry and sets out explicitly how the Financial Regulator expects financial institutions to operate when dealing with consumers.

Patrick Neary, chief executive of the Regulator said new competency requirements would also come into effect from January 2007 for those who provide advice on or sell retail financial products.

These will establish minimum standards for financial services providers, with an emphasis on financial institutions dealing with customers, he said.

"Building consumer confidence is an ongoing task, while much of the groundwork has taken place in 2005 and into this year, we have now set out our expectations and standards to the financial services."

Next year the Regulator would start a campaign to educate consumers about their rights and strengthen their hand when it comes to dealing with regulated firms, he added.

Over the next few months, as the code is put in place, firms will have to make significant and necessary changes to systems, procedures and documents and conduct staff training in line with provisions of the new code.

However the new proposals have been criticised by the Professional Insurance Brokers Association (PIAB), which said the Code exempts a range of basic banking products or services from the rules.

Current accounts, overdrafts, ordinary deposit accounts and term deposits of less than one year will not be subject to factfinding, suitability and reason why requirements. Diarmuid Kelly, PIBA chief executive, said big banks will not be forced to explain offers.

"This means there will be no obligation on the banks to check the requirements of the customer, to recommend a suitable product to meet that requirement or explain in writing the reasons for that recommendation," he said.

"This marks a very raw deal for consumers. Consumers will continue to be overexposed to what are effectively, limited and low yielding products."

Irish banks are among the most profitable in Europe with AIB and Bank of Ireland posting profits of €779 million and €550 million respectively in 2004.

But Mr Kelly said accounts with significant interest-rate risks were not going to be monitored.

Pat O'Sullivan, financial services director at the Irish Brokers Association, welcomed the principles of the code but said the Regulator had not gone far enough.

"The IBA is very disappointed that the Regulator has included wide ranging exemptions for retail banks in relation to so called basic banking products," Mr O'Sullivan said.