February 17, 2011
By Staff Reporter
In an interview with the Echo, Labor Party finance spokeswoman Joan Burton said that regulation of the Irish banking industry was still “in its infancy” and that it could be much improved if official bodies had more wide-ranging powers.
“I think the situation would change for the better if, rather like taking a leaf out of the U.S.’s book, regulators here could punish people,” Burton said.
She singled out New York State Attorney General Eliot Spitzer for praise. Spitzer has won renown for the way he has fought against corporate malfeasance during his time in office. He has already announced that he will contest New York’s 2006 gubernatorial election.
“If someone like Mr. Spitzer was available in Ireland, it would really make people play by the rules,” Burton said.
The Labor TD’s comments were precipitated by revelations of an overcharging case involving Bank of Ireland. The bank admitted last week that it had overcharged 65,000 customers since 1989. The customers were billed excessively for insurance on personal loans. The Bank of Ireland has said that it will refund the customers for the error. The total bill could reach $19.3 million.
The error came to light as part of an investigation across the banking sector led by the Irish Financial Services Regulatory Authority.
The customers affected were those who took out personal loans and then paid them off ahead of time. Many of these customers initially took out insurance along with their loans in order to guard against unemployment or unexpected illness.
But many of those who opted to pay off the loan early were charged insurance for the entire agreed repayment period. In effect, therefore, they were billed for insurance that was manifestly unnecessary.
Across the Irish banking industry, about half the people who take out loans also take out insurance. Bank of Ireland’s take-up rate is somewhat lower. Since 1989, it has provided 1.5 million personal loans, selling 470,000 insurance policies alongside them.
A total of 170,000 Bank of Ireland loans were repaid early, and 65,000 of those were affected by the overcharging.
In a statement, the bank said: “Bank of Ireland regrets that its procedures were not implemented consistently in all cases in relation to this product. Given the bank’s commitment to the highest standards of customer service, such a lapse is clearly unacceptable. The bank will ensure all customers affected will be refunded the outstanding portion of their premium together with interest on the refunded amount.”
The bank will reportedly include an interest rate of 5 percent in its refunds.
The latest farrago follows on the heels of several other banking scandals. Last year, it emerged that Ireland’s biggest bank, Allied Irish, had overcharged customers of its foreign exchange business for almost a decade. It refunded about $34.1 million to the people affected.
Allied Irish had also been hit in 2002 by a scandal at its American subsidiary, Allfirst. A trader at Allfirst, John Rusnak, concealed losses of approximately $700 million.
A number of other cases in recent years have also put the Irish banking industry’s practices in the spotlight. Most infamously, Mayo T.D. Beverly Cooper-Flynn took a libel case following claims that she had encouraged customers to evade tax while an employee of National Irish Bank. Cooper-Flynn lost the libel case, effectively ruining her political career.
Joan Burton is among those who believe that the cumulative effect of these events has been to lower the reputation of the banking industry as a whole:
“Banks used to be very much looked up to in the community, but, like other pillars of the establishment in Ireland, they have been shown to have feet of clay,” she said.