Section 149 - a champion for Irish consumers

Allow me to introduce you to a friend of ours, who toils away unrecognised day after day to insure the banks are not taking too much money out of our pocket. I introduce you to our under-appreciated friend, our greatest defender against the financial services sector, to argue in favour of its promotion.

Our champion carries the very unsexy moniker ‘Section 149 of the Consumer Credit Act’, or just ‘Section 149’ to its friends. It is this section which requires banks to seek permission from the Director of Consumer Affairs and the Financial Regulator before increasing current account charges.

Carte blanche for standard-variable mortgages
You see, even before the banking meltdown we didn’t entirely trust the banks. Experience showed that even in a competitive market if you didn’t keep the banks on a leash they’d increase charges at their own discretion. We accept that principle. It’s part of our system of banking regulation. Sometimes banks need to seek permission before increasing charges.

So why don’t they have to get permission to increase the rate of variable rate mortgages? Regular readers of this column will be familiar with this subject. In short the current wave of increase in the standard-variable rates is an unfettered levy by the banks on the oldest and least financial astute members of the population.

We tend to think of mortgage holders as people who are borrowed up to their ears and largely in negative equity. The truth is that many mortgages are quite small in real terms and relative to the value of the property on which they are secured.

According to the Central Bank, there were 791,634 outstanding mortgages in September 2009 which between them owed €118.6bn or about €150,000 each. There is no accurate breakdown showing how many are on standard-variable rate but estimates suggest between 40pc and 50pc of all mortgages are SVRs.

Under our current systems banks can, have and will increase these rates repeatedly without reference to anybody.

A simple question for the regulator
So here’s my simple question to Matthew Elderfield (pictured), the new financial regulator, who last week said he was going to get tough on banks: “Why do Irish banks need your permission to charge more for issuing a cheque but not for increasing mortgage rates for their oldest and most vulnerable customers?”

Maybe it is my friend Section 149 who is out of step. Maybe we do trust the banks to not put its commercial interests ahead of the interests of its least astute customers when setting rates? But I don’t think so.

Given that the mortgage market is dysfunctional at present it is surely reasonable to put in protections which might not normally be needed.

This is not to say that banks should not be allowed increase variable rates. Of course they should. Only that there should be some restriction on their ability implement rate increases other than those related to increases in the ECB rate.

By the way, Mr Elderfield I understand some banks are doing everything they can to move customers on tracker rates over to SVR, even though such a switch could never be in their interests. Maybe this is one for Bill Prasifka, the new Financial Ombudsman.

It matters little who steps up. It only matters that whoever is responsible to keeping the banks in line step forward now. Come on Section 149, your time has arrived.

Tom McEnaney is associate editor at Business & Leadership.To receive Tom's weekly opinion column free to your inbox, subscribe to The Business Week ezine.