Committee Reports > List of Committees > Joint > 1999 > Committee on European Affairs > EMU - Interim Report on Changeover Procedures

TITHE AN OIREACHTAIS

An Comhchoiste um Ghnóthaí Eorpacha

Aontas Eacnamaíoch agus Airgeadaíochta - Tuarascáil Eatramhach maidir le Nósanna Imeachta i leith Athrú

HOUSES OF THE OIREACHTAS

Joint Committee on European Affairs

EMU - Interim Report of Changeover Procedures

Bealtaine, 1999

May, 1999

TITHE AN OIREACHTAIS

An Comhchoiste um Ghnóthaí Eorpacha

Aontas Eacnamaíoch agus Airgeadaíochta - Tuarascáil Eatramhach maidir le Nósanna Imeachta i leith Athrú

HOUSES OF THE OIREACHTAS

Joint Committee on European Affairs

EMU - Interim Report of Changeover Procedures

Bealtaine, 1999

May, 1999

8/28

Foreword

As part of its 1999 work programme the Joint Committee on European Affairs, having completed its report on Economic and Monetary Union in December 1998, decided to continue its consideration of this question by monitoring the changeover procedures and reporting to the Dáil and Seanad.

In this context, the debates of the Committee of 16 February 1999 when it heard presentations from the Irish Bankers’ Federation and the Director of Consumer Affairs are appended to this report. The Joint Committee would like to thank the Federation and the Director for their presentations to the Joint Committee.

The Joint Committee request that this report be the subject of a debate in each of the Houses of the Oireachtas.

___________________

Bernard J. Durkan T.D.

Chairman

May 1999

Joint Committee on European Affairs

EMU - Interim Report of Changeover procedures

1.The Joint Committee on European Affairs reported to Dáil Éireann and Seanad Éireann in December 1998 on its consideration of Economic and Monetary Union.

2.The Joint Committee in continuing its consideration of this matter in the current year invited the Irish Bankers’ Federation and the Director of Consumer Affairs to make presentations to it on changes in Eurocurrency charges at its meeting on 16 February 1999.

3.The Joint Committee wishes to bring the transcript of evidence of its meetings and the documentation supplied by the Irish Bankers’ Federation and the Director of Consumer Affairs to the attention of the Houses of the Oireachtas.

4.The Joint Committee has sought responses to its first report on EMU from the various bodies concerned with its recommendations and intends to report to the Houses on these responses in due course.

Appendix 1

Proceedings of the Joint Committee

AN COMHCHOISTE UM GHNÓTHAÍ EORPACHA

JOINT COMMITTEE ON EUROPEAN AFFAIRS

Imeachtaí An Chomhchoiste

Proceedings of the Joint Committee

Dé Céadaoin, 12 Bealtaine, 1999

Wednesday, 12th May, 1999

1.The Committee met at 2.14 p.m.

2.MEMBERS PRESENT.

The following Members were present:

Deputies Séan Barrett, Pat Carey, Micheal Collins, Bernard J. Durkan (in the Chair), Tony Gregory and Senators John Cregan (in substitution for Senator Don Lydon) and Maurice Manning.

3.INTERIM REPORT ON ECONOMIC AND MONETARY UNION.

The Chairman brought forward an interim report on "Economic and Monetary Union" which was read and agreed.

Ordered: To report accordingly.

4.ADJOURNMENT.

The Committee adjourned at 2.43 p.m. until Wednesday, 26 May, 1999.

1.Chruinnigh an Coiste ar 2.14 p.m.

2.Comhaltaí i láthair.

Bhí na Comhaltaí seo a leanas i láthair:

Na Teachtaí Seán Ó Bairéad, Pádraig Ó Carú, Micheál Ó Coileáin, Brian Mac Dhurcáin (i gCeannas), Antóin Ó Greagóir agus na Seanadóirí Donncha Ó Criagáin (in ionad an tSeanadóra Domhnall S. Ó Loideáin) agus Muiris Ó Mainnín.

3.Tuarascáil EATRAMHACH ar an Aontas Eacnamaíoch agus Airgeadaíochta.

Chuir an Cathaoirleach tuarascáil eatramhach ar an "Aontas Eacnamaíoch agus Airgeadaíochta" faoi bhráid an Choiste a léadh agus a aontaíodh.

Ordaíodh: Tuairisciú dá réir sin.

4.Athlá.

Chuaigh an Coiste ar athló ar 2.43 p.m. go dtí Dé Céadaoin, 26 Bealtaine, 1999.

Appendix 2

Members of the Joint Committee

JOINT COMMITTEE ON EUROPEAN AFFAIRS

List of Members

Appendix 3

Orders of Reference of the Joint Committee

Joint Committee on European Affairs

Orders of Reference

(1) (a)That a Select Committee, which shall be called the Select Committee on European Affairs, consisting of 14 members of Dáil Éireann (of whom 4 shall constitute a quorum), be appointed to consider such Bills, the statute law in respect of which is dealt with by the Department of Foreign Affairs, as shall be referred to it by Dáil Éireann from time to time.

(b)For the purpose of its consideration of Bills under paragraph (1)(a), the Select Committee shall have the powers defined in Standing Order 78A(1), (2) and (3).

(c)For the avoidance of doubt, by virtue of his or her ex officio membership of the Select Committee in accordance with Standing Order 84(1), the Minister for Foreign Affairs (or a Minister or Minister of State nominated in his or her stead) shall be entitled to vote.

(2) (a)The Select Committee shall be joined with a Select Committee to be appointed by Seanad Éireann to form the Joint Committee on European Affairs to—

(i)consider such matters arising from Ireland’s membership of the European Communities and its adherence to the Treaty on European Union, as it may select,

(ii)consider such—

(I)programmes and guidelines prepared by the Commission of the European Communities as a basis for possible legislative action and such drafts of regulations, directives, decisions, recommendations and opinions of the Council of Ministers proposed by the Commission,

(II)acts of the institutions of those Communities,

(III)regulations under the European Communities Acts, 1972 to 1995,

(IV)other instruments made under statute and necessitated by the obligations of membership of those Communities,

as it may select,

(iii)consider such other matters as may be jointly referred to it from time to time by both Houses of the Oireachtas, and

(iv)represent the Houses of the Oireachtas at the Conference of European Affairs Committees (COSAC), and shall report thereon to both Houses of the Oireachtas.

(b)The quorum of the Joint Committee shall be 5, of whom at least 1 shall be a member of Dáil Éireann and 1 a member of Seanad Éireann.

(c)The Joint Committee shall have the powers defined in Standing Order 78A(1) to (9) inclusive.

(d)The following persons may attend meetings of the Joint Committee and of its sub-Committees and may take part in proceedings without having a right to vote or to move motions and amendments:

(i)members of the European Parliament elected from constituencies in Ireland (including Northern Ireland),

(ii)members of the Irish delegation to the Parliamentary Assembly of the Council of Europe, and

(iii)at the invitation of the Joint Committee or of a sub-Committee, as appropriate, other Members of the European Parliament.

(3)The Chairman of the Joint Committee, who shall be a member of Dáil Éireann, shall also be Chairman of the Select Committee.

(1) (a)That a Select Committee consisting of 5 members of Seanad Éireann shall be appointed to be joined with a Select Committee of Dáil Éireann to form the Joint Committee on European Affairs to—

(i)consider such matters arising from Ireland’s membership of the European Communities and its adherence to the Treaty on European Union, as it may select,

(ii)consider such—

(I)programmes and guidelines prepared by the Commission of the European Communities as a basis for possible legislative action and such drafts of regulations, directives, decisions, recommendations and opinions of the Council of Ministers proposed by the Commission,

(II)acts of the institutions of those Communities,

(III)regulations under the European Communities Acts, 1972 to 1995,

(IV)other instruments made under statute and necessitated by the obligations of membership of those Communi-ties, as it may select,

(iii)consider such other matters as may be jointly referred to it from time to time by both Houses of the Oireachtas, and

(iv)represent the Houses of the Oireachtas at the Conference of European Affairs Committees (COSAC),

and shall report thereon to both Houses of the Oireachtas.

(b)The quorum of the Joint Committee shall be 5, of whom at least 1 shall be a member of Dáil Éireann and 1 a member of Seanad Éireann.

(c)The Joint Committee shall have the powers defined in Standing Order 62A (1) to (9) inclusive.

(d)The following persons may attend meetings of the Joint Committee and of its sub-Committees and may take part in proceedings without having a right to vote or to move motions and amendments:

(i)members of the European Parliament elected from constituencies in Ireland (including Northern Ireland),

(ii)members of the Irish delegation to the Parliamentary Assembly of the Council of Europe, and

(iii)at the invitation of the Joint Committee or of a sub-Committee, as appropriate, other Members of the European Parliament.

(2)The Chairman of the Joint Committee shall be a member of Dáil Éireann.

Appendix 4

Documents submitted by the Irish Bankers’ Federation and the Director of Consumer Affairs

Appendix 5

Minutes of Evidence, 16 February, 1999

Committee on European Affairs

Dé Céadaoin, 16 Feabhra 1998.

Wednesday, 16 February 1998.

The Committee met at 2.05 p.m.

Members Present

Deputy Sean Barrett

Deputy Ulick Burke

Deputy Pat Carey

Deputy Tony Gregory

Deputy Phil Hogan

Deputy Gay Mitchell

Senator Helen Keogh

Senator John Creegan

Deputy Bernard Durkan (Chairman) in the chair

Chairman: Are the minutes of the meeting of 5 February 1999 agreed? Agreed. We received apologies from Senators R. Kiely, Manning and Ryan. We also received apologies from Brian Crowley, MEP, John Cushnahan, MEP and Alan Gillis, MEP. We received responses to requests for information from the Department of the Environment and Local Government on a proposal for a Council directive amending Directive 88/609/EEC on the limitation of emissions of certain pollutants in the air from large industrial plants - this relates to previous discussions held by the committee; a proposal for a Council regulation on substances that deplete the ozone layer and a proposal for Council directives amending Council Directive 92/106/EEC on the establishment of common rules for certain types of combined transport between member states and the amending Council Directive 96/53/EC laying down for certain road vehicles circulating within the Community the maximum authorised weights in international traffic. From the Department of Agriculture and Food we received correspondence on the proposal for a Council regulation establishing agri-monitoring arrangements for the euro. We could invite representatives of both Departments to our next meeting to present their positions. This arises from discussions at a previous meeting. Is that agreed? Agreed.

We have also received a number of press releases from the French Embassy and I have asked that they be circulated among Members. The reason for doing this is that among our EU partners there is a tendency to promulgate policy by way of press release. It is imperative that the committee is aware of what is happening in those areas.

The next item is the Turkish parliamentary delegation, led by its speaker.

The delegation was heralded at our last meeting. Unfortunately the delegation will not arrive in Ireland in time to address the regular meeting of the committee at 2 p.m. on 3 March so we will try to make a suitable alternative arrangement. It may well take place over refreshments in the small restaurant if a number of Members would be willing to attend. Possible that is the best way to do it. It would not necessarily be a sit-down meal. It is up to Members. I am not concerned about the modesty of it, I am concerned about doing the work that has to be done and the best way for doing that. I do not mind if it is a meal or if we stand around. Perhaps we can arrange it to meet our requirements in this area.

Our next item is the EMU presentation by the Irish Banker’s Federation and the Director of Consumer Affairs on changes in euro-zone currency charges. I propose we first have the presentation from the Irish Banker’s Federation followed by a question and answer session and then we take the presentation of the Director of Consumer Affairs followed by a question and answer session. Then Members may ask questions of both groups together. There will be no cross questioning. Is that agreed? Agreed. Both groups are with us now and we will proceed in that order.

The first group is the Irish Banker’s Federation. I ask Mr. James Bardon to introduce his colleagues.

Mr Bardon: We welcome the opportunity to discuss the issues in relation to the pricing of various financial services following the introduction of the euro on 1 January 1999. I would like to commence by introducing my colleagues - Mr. Frank Sexton, Deputy Director General of the Irish Banker’s Federation and member of our EMU steering committee; Mr. Pat McArdle, Head of EMU Planning in Ulster Bank and also a member of our EMU steering committee; Mr. Pat Ryan, Group Treasurer of AIB and chairman of the IBF and the building society EMU steering committee; Mr. Michael Watson, Head of EMU Planning and Development in Bank of Ireland and a member of the steering committee; Ms Eimear O’Rourke from the Irish Mortgage and Savings Association and a member of the steering committee; and Mr. Felix O’Regan from the Irish Banks’ Information Service and co-ordinator of the Irish banks’ and building societies’ euro information campaign.

Chairman: The delegation is very welcome. This meeting arises from some complaints, concerns and reservations we received from members of the public regarding this issue. Perhaps the Director of Consumer Affairs might also introduce her colleagues at this time.

Ms Foley: On my right is Mr. Paul O’Donovan of O’Donovan Associates. He is the main consultant to the Director of Consumer Affairs on the Consumer Credit Act, 1995 since we assumed responsibility for that legislation in 1996. On my left is Mr. Cathal O’Gorman, Assistant Director in the office. My name is Carmel Foley.

Chairman: Thank you both very much. I call on Mr. Bardon of the Irish Banker’s Federation to speak.

Mr Bardon: We are here today as representatives of the banking and building society sector rather than of any individual member institution. After our short formal presentation we will be happy to address any questions Members may have. However if Members wish to raise issues in relation to individual institutions we would be happy to refer them to those institutions and they can come back to Members directly.

When speaking to the committee last June we made the commitment to pass on to consumers all the savings accruing as a result of exchange rates being fixed under EMU and to provide in a transparent manner full details of any handling charges which might arise. These commitments have been honoured in full.

The new price structure for currency exchanges under the euro has resulted in significant price reductions for consumers in Ireland. The initial reductions on 1 January averaged between 20 and 30 per cent. Price reductions have actually exceeded the 5 to 20 per cent range anticipated in a study be the European Central Bank. The transparency and comparability stimulated by the notification and publication procedures followed in Ireland have introduced an additional competitive dynamic into the market for cross-border euro payments. This has resulted in further savings for Irish consumers over and above the initial 20 to 30 per cent.

One clear example of these further savings is the price reductions announced by the various institutions since 1 January. Another example is the suspension by banks of the commission charge where credit cards are used to pay for purchases in the euro zone.

The European Commission referred to Ireland as an example of transparency in its press release of 5 February. It stated the following:

"Banks should increase transparency by continuing to make publicly available information showing changes (before and after the introduction of the euro) in the total level of charges for exchanging euro zone banknotes and cross-border cheques, transfers and card payments. For example this has already been done successfully in Ireland for euro zone bank notes exchange, through notices by banks in the national press."

Irish banks and building societies have committed themselves to complying fully with the EU recommendation on banking charges for conversion of the euro. Banks and building societies here are not applying extra charges because of the need to convert between the Irish pound and the euro, whether the underlying transactions are domestic or cross-border within the euro zone.

The Irish Banker’s Federation and the Irish Mortgage and Savings Association jointly published in 1998 a Standard of Good Practice which incorporates this commitment. A copy is included in the information pack we are presenting to the committee today. This standard was welcomed by the Commission, approved for publication by the Director of Consumer Affairs and included in the Government’s national changeover plan.

I will now talk about the pricing of currency exchange services. Unfortunately there has been some misunderstanding about the new pricing structure for currency exchange services and the nature and extent of savings to consumers. We believe this misunderstanding arose on the following basis. The single commission which now applies to currency exchange transactions in the euro zone is being incorrectly compared with just one element of the price the consumer paid prior to the introduction on 1 January. That price had two elements, that is a commission and a spread between the buying and selling rate for foreign currency. Some people have assumed the spread was totally related to the risk in foreign exchange transactions and the commission was enough to cover the full cost of handling the foreign exchange. This was not the case. The exchange risk is only one factor.

It should be noted that the European Central Bank independently estimated that the elimination of the exchange rate risk between euro zone currencies would account for no more than between 5 and 20 per cent of the total costs involved in the provision of foreign exchange services prior to 1 January 1999. The exchange rate risk was only one cost factor to be eliminated with the introduction of the single currency. All other factors remain, including staff, premises, insurance, transport, security and fraud.

In developing the new pricing structure for new cross-border payment services between euro zone countries, each bank and building society has had to separately notify and obtain clearance from the Director of Consumer Affairs. This process requires each institution to separately and confidentially propose a new set of prices which would pass on to consumers the savings resulting from the elimination of exchange risk which would be fully transparent. Subsequent to this, each institution has published the following: notices of its new price for the exchange of euro zone currency notes in the national price; and similar information across a range of cross-border payment instruments in brochures available to consumers in branches. As far as we are aware, this level of information and transparency surpasses that made available anywhere else in the euro zone.

In the European context, our new approach to pricing for currency exchanges under the euro mirrors what is happening in other EMU countries.

Last month the Financial Services Commissioner, Mario Monti, stated that he would examine the new price structure on foot of European media reports that prices had increased under the euro. He has since received information to show that prices have been significantly lowered. His statement of 29 January goes on to state:

"Banks in most countries have recently introduced a new method of calculating charges for banknote exchanges. Indeed, they now show a specific and separate fee or commission for such exchanges, either by way of percentage or a fixed fee. It should be recognised, in this context, that such charges will be justified, at least in so far as they cover the costs involved in such transactions. Such costs will arise, for instance, from holding foreign banknotes and stock, for transporting notes to and from branches, for providing the necessary security and for manning the tellers at which these exchanges are made. Earlier information provided to the Commission suggests that such costs account for more than 80 per cent of the overall costs of such transactions, while the exchange rate risk accounts for only 10 to 20 per cent. As this risk has disappeared, one could expect that prices of cash exchange services in the euro area should decrease accordingly."

We wish to state again for the record that initial price reductions here average between 20 and 30 per cent and further significant reductions have since been introduced by various institutions.

I wish to draw the committee’s attention to the manner in which we are fulfilling another commitment we made last June, namely to assist in informing the retail trade, the school sector and consumers about the single currency. We have included in today’s information pack samples of various materials produced as part of the Irish banks and building societies euro information campaign. These initiatives complement those taken by institutions individually and, furthermore, they are the basis on which further initiatives are planned with a commencement in the coming weeks of the central part of a very extensive information campaign for schools.

In conclusion, we wish to assure the committee and the public that the benefits of fixed exchange rates under the euro have been and will continue to be passed on to consumers by Irish banks and building societies. We believe this presentation provides the basis for that assurance and we will be happy to elaborate on any point of content and to answer any questions you may have.

Chairman: The first round of questions will be to the bankers’ representative. The next round will follow the presentation by the Director of Consumer Affairs. A third round will follow to both groups together.

Deputy Barrett: I thank Mr. Bardon for his submission. If I requested £500 worth of pesetas from a bank how much would I have paid in charges, including commission, before the introduction of the euro and how much would I pay now? Is it reasonable that the consumer should have to pay for charges being imposed now because of the delay in introducing notes and coins on 1 January 2002? Following the passing on of reductions to the consumer arising from lower interest rates throughout Europe, what is the average overdraft rate now being applied by the banks to private individuals?

Deputy G. Mitchell: I join in welcoming the presentation from The Irish Bankers Federation. In her report, the Director of Consumer Affairs says it is cheaper for consumers to raise cash or make purchases by using plastic, such as credit cards or ATM cards, rather than using foreign currency or travellers’ cheques. When people seek to change currencies, are the banks happy that they are aware it is possible, indeed preferable for them to use credit cards or ATM cards? What are you doing to educate people about that?

What changes are taking place in the clearing system following the introduction of the euro? The European Commission has indicated that it will welcome the rapid development of the electronic card, the so-called electronic wallet. What steps are being taken to bring this about?

In my report on EMU I suggested that the proposed date for the introduction of notes and coins, 1 January 2002, might be brought forward as it appears to be a very long period. Has the federation a view on that? Are you satisfied that the various information gaps which the Director Consumer Affairs referred to are being addressed by the banks?

Deputy Collins: I also welcome the delegations. Last June you said that your information campaign would reach the retail trade, schools and consumers. Are you satisfied with what you have done in that regard? The majority of people do not appear to have any idea of what is happening, as was indicated on a recent national radio programme which interviewed people on the street.

Senator Keogh: I join with others in welcoming the delegations. In your presentation you outline the basis on which you believe the misunderstanding over charges arose. How might these charges been compiled before and how did the misunderstanding came about? I do not believe it is clear to people.

Chairman: I will return to Deputy Ulick Burke and others after the members of the delegation have replied to these questions.

Mr Watson: Taking Deputy Barrett’s question on the cost of purchasing 500 pesetas, I cannot answer on that aspect, but I can say that each bank has its own price structure.

Deputy Barrett: I asked about changing £500 into pesetas.

Mr Watson: The purchase of 700 French francs would have cost £2.91 in 1998 but will now cost £1.89, which is a reduction of 35 per cent. The 1998 calculation would have been on the basis of a spread which was approximately 2.2212 per cent plus a handling charge of 1 per cent. The present charge is 2.25 per cent.

The difference in cost to the consumer is between 2.91 per cent and 1.89 per cent, a 35 per cent reduction.

Mr McArdle: One can change £500 into any currency as long as it is one of the 11. To give an example of another bank, the previous charge would be £14.50, a new charge of £11.25, a saving of £3.25, 36 per cent on a typical transaction.

Chairman: What is the charge?

Mr. McArdle: It is £11.25 over £500.

Deputy Barrett: Why is there such a difference in Mr. Watson’s answer about francs; a low charge of £2.91. Mr. McArdle and Mr. Ryan gave the example of putting £500 into any of the other currencies and this works out at £11.

Mr. Ryan: May we have those figures again?

Mr Watson: The figures I have in front of me are the result of the transaction as opposed to the amount of money. If I were to take 3,500 French francs-----

Deputy Barrett: For example, If I go into the bank tomorrow and ask for 500 punts in pesetas or French francs what charges would be imposed upon me?

Mr. Watson: There would be a charge of 2.25 per cent. I have not calculated the figures, I have no calculator with me now to do that.

Deputy Barrett: What would be the difference if the euro notes were in circulation, in other words, I would not have to go into the bank? Why would I be charged £11 on £500 just because of the delay in producing euro notes? That is a lot of money to the ordinary punter. To a person on low income and struggling to save for a holiday, every punt matters. The advantage of having euro notes is that we would not have to go into the bank to get pesetas. The reason I must get pesetas now is due to the delay in the issuing of the euro notes. What is the justification of charging £2.25 per cent to get notes because Irish punts are not acceptable in Spain or France?

Chairman: I put it to you that one of the complaints we received was along the same lines. The person states: "The recently quoted statement by the competition monitor that no business could be expected to operate on a margin of 1 per cent is unbelievably, laughably naive. The banks are trying to take up to 3 per cent of turnover. American Express made a great fortune on the basis of issuing dollar travellers cheques for 1 per cent and supermarket chains have been able to survive on a margin of 1 per cent."

Mr Ryan: American Express advertise their own pricing structure in terms of dealing with foreign currency. It is not 1 per cent. From hearing the two bank examples and translating them myself one comes out at £11.125 and the other at £11.25 on £500. For all practical purposes, it is the same figure, approximately 2.25 per cent.

Deputy Barrett: Where is the competition?

Mr. Ryan: The competition has driven us down to that.

Deputy P. Carey: Is that a 2.25 per cent charge for all institutions?

Mr. Ryan: No.

Deputy P. Carey: Therefore there is some element of competition.

Mr Ryan: Quite a lot. What is happening, even since the first announcements in January, including my own organisation, is that we have had to reduce some of our prices. We have responded to competition and feel the heat of it. I wish to explain the economics of the very substantial question about the bank notes.

In terms of the cost of providing, say, pesetas to every branch throughout the country - which is what we have to do when providing French francs, Belgium francs and so on - we have to buy from the foreign banks to import those notes. It is not like IR £5 where we get them from one customer, hand them out and get the net difference from the central bank. We must import them from abroad, pay for them, pay the carriage and insurance, store them centrally in a secure location, break bulk to have them divided, transport them throughout the country in a secure way and carry the inventory of those various amounts. The real economics of carrying that are very different from the Irish bank notes which have certain costs. The underlying reality is that in terms of the banking system providing that service, costs us a great deal of money.

On the point about having the notes earlier than 1 January 2002,

we would like that to happen but it is not possible now for the national mints to manufacture the coinage much faster than the timescale between now and 1 January 2002. We would be delighted if it were possible to have it done quicker. Representations were made in that regard but we have been advised it is not humanly possible to speed it up very much.

From a planning and legislation point of view, the certainty about the start date is extremely important. Any change in that will cause difficulties. There is a long lead time on increasing the familiarity of all the people we will be helping on the notes and coins changeover. It is reasonable that the ordinary individual does not know as much about the euro as professionals but gradually they will get to know more about it as it goes into the hands of the public. Obviously there is a progressive campaign to provide them with information but the economic reality is that it is not possible to produce it much sooner than 1 January 2002. We would have liked to have had it earlier and also at a different date than 1 January.

Deputy Barrett: If I got 1,000 punts in pesetas for my holidays and returned with 500 pesetas, what charges would be imposed on me to have it changed to punts?

Mr. Ryan: It would be the same charge of 2.25 per cent.

Deputy Barrett: Surely that defeats the argument of carriage costs. Why is the same charge being made when changing pesetas into punts when all the costs have been carried in the cost of purchase in the first instance?

Mr Ryan: There is the cost of purchase and the fact that we cannot give them out until another customer wants them. We can give Irish bank notes out tomorrow to somebody who wants them but we still must carry the inventory.

Deputy Barrett: What justification is there in charging somebody on the double? First, a person has to pay to get the money and when he or she wants to change the money back into punts he or she has to pay again. That is a double charge with no justification. I am not having a go at anybody present here and appreciate you are representing a body, but from the consumers point of view these things are being faced every day of the week and we are asked to have them justified A person who has money in an ordinary deposit account in a bank receives 0.125 per cent yet all we hear is justification of a charge of 2.25 per cent. The gap is enormous. There is no justification for people having to pay to get back their punts. You said there have to be carriage and security charges. If people do not return their pesetas you have to import more. Why do you charge people if they give you the pesetas for nothing?

Mr Ryan: The reality of pricing over different bands is that it does not catch every fine point at every increment. It costs us as much to produce £490 instead £505 worth of pesetas. There are bands of pricing that try to capture that without making it unduly complex. It is difficult. The economic reality is that running the inventory of a supply of these notes is expensive.

Credit cards and ATM cards can be used throughout the euro zone and are a cost effective way of dealing with this. We encourage people to do that rather than take notes. We would not encourage a person to take £1000 in cash in the normal course of events when they can use a credit card to make any purchases throughout the euro zone without any transaction costs. They can use an ATM to withdraw cash within the euro zone to withdraw cash as they need it. We would not consider it wise for people to carry large amounts of cash. For spending in Europe, money is more cost effectively obtained through the use of credit and ATM cards. Advertising to that effect is being placed in the newspapers.

Deputy Barrett: If I use a credit card in a shop, the retailer is charged 5 per cent commission by the banks. That is built into the cost of the goods. If I produce a credit card and the retailer has to pay 5 per cent, that will be reflected in the price he charges. If I hand him cash, his will eyes open in delight. We are talking about fair play. I appreciate that banks are in the business to make profits and I do not begrudge them the right to do that. There are, however, many questions to be answered about charges which are very in convincing the public of the benefit of membership of the EU. They are being charged amounts such as £11.25 or £15. That is a lot of money on £500. Two banks charge £11.25 and one other charges £15 to get currency for a member state which is part of the Community. If you say that there is a 1 per cent charge for handling, I could argue with that, but 2.25 per cent to get £500 worth of pesetas is a lot of money.

That is made worse when, if I do not use the £500, and I bring it back to the same bank, I am charged again. The argument about delivery of foreign currency to branches and security costs goes out the window when that happens. If I go back in with the £500 and say that I took the bank’s advice and used my credit card the whole time and offer the money back, I am charged again to get punts back. My £500 became £488.75 and if you charge me again it is now £477.50. The amount has decreased by £22.50 and I have not spent any money. That is not acceptable.

Deputy Collins: I accept that Deputy Barrett finds the double charging difficult. If you go to the bank there is a double charge but, if you come back with surplus pesetas, you can go into the Central Bank and it will change it for free. Why do the banks charge when the Central Bank does not? It does not make sense.

Chairman: That point was made by our complainants. What about a person who enters the State with foreign currency from within the euro zone who wishes to convert to the local currency? You do not have to import the local currency and you are getting foreign currency for free. The answers to the previous questions do not deal with that scenario.

Mr Sexton: To come back to the letter about American Express, the charges it published recently are 3 per cent, not 1 per cent as was mentioned. Also, it is not double charging, it is charging for two transactions. They are separate and each has separate overheads attached. Why should there not be charges for both?

Chairman: What is the overhead attaching to the case of the gentleman from Spain who decides he wants punts when he arrives at Dublin airport? What are the importation or overhead costs in that case?

Mr Sexton: The overheads range from providing staff, premises, insurance, disposing of the currency and security. It is the full remit of charges whether you are buying or selling. The Central Bank exchanges foreign currency from within the 11 countries free of charge up to a limit of £800. That is the result of an agreement which was reached by all central banks in Europe to support the credibility of the changeover. That is purely an agreement on behalf of the Central Bank, which does it through one office in Dublin. When the banks provide this service they do it through 800 offices.

Mr McArdle: I want to return to Deputy Barrett’s point about double charging. His argument is superficially attractive but if you went to a hairdresser for a haircut today you would pay for it; if you went back tomorrow for another, you would not expect the hairdresser to do it for nothing. That is what you are saying the banks should do.

Deputy Barrett: If I am giving back the money the same money you gave me, I do not see why you should charge me. Your argument is totally different. I give you back the money you gave me and you charge me again. I do not accept that.

Mr McArdle: The reason you would pay the second day is the hairdresser would spend 30 minutes giving you a service.

Chairman: The concern which has been expressed to us is that it appears if you brought £10 worth of euro zone currency into a bank and changed it three or four times, at the rate of 2.25 per cent each time, eventually that money would diminish dramatically. It is not true that the overheads you have set out must be brought into play on each transaction. Some of those have counterbalancing measures within the banking system. Would you like to make a final comment on that matter?

Mr Watson: Deputy Barrett referred to the similarity of charges in the two banks and said that is where the competition lies. He subsequently demonstrated a significant difference. You say you have no problem with banks making profits. Before they make profits, they have to cover costs. There is a handling charge on each transaction whether it is selling or buying foreign currency. It is those costs that are reflected in the way we set out our pricing.

Deputy Collins: We recognise that banks are in business to make profit. Surely they are making exorbitant profits at present. What profits did each bank make last year?

Senator Connor: Banks are making enormous profits. The level of costs amounts to an inordinate sum given the interest paid to people who deposit money with the banks. They are your life blood and you must have that supply. How do your prices compare with banks in other countries in the European Union? I think you are very uncompetitive.

Deputy Barrett: There is a difference between the banks on this issue and other normal transactions where if I wish to borrow and am considered a high risk, the bank might add a couple of extra percentage points. The reality in is that the consumer cannot go abroad without foreign currency. We, as politicians, speak about encouraging the public to try a new way of thinking in relation to the euro. This is not like normal trading business. I do not expect banks to act as voluntary organisations propping up our entry into Europe but questions need to be answered. Our job is to ask those questions. I am sure you will appreciate that we ask these questions on behalf of the consumer. If the banks can justify these costs, so be it. I will leave it to others to decide if the answers are acceptable. What I think is irrelevant to this issue. The consumer must go to a bank to get foreign currency if they wish to travel outside Ireland. They can use credit cards if that facility is available to them.

I received a bank statement the other day which showed the overdraft rate on my account at 10.5 per cent - I am open to correction on this. The deposit interest rate is 0.125 per cent. There is a huge gap between those two figures. If one purchases foreign currency and is unable to travel due to illness and returns to the bank to reconvert the currency to punts you will find that you are £23 less well off. If the bank can justify their actions, so be it.

Deputy G. Mitchell: Some questions have not been answered.

Mr Bardon: The structure of the charges is based on the fact that we will get income from buying and selling currency. There is only one service that I am aware of - the Staten Island ferry - whereby if one travels one-way you pay but if you come back you do not. The structure of charges is such that you pay if you are buying or selling. That is how we recover costs. We do not say we will only charge for buying and not for selling. Unfortunately, it does not work that way. The consumer does have a choice; he can use a credit card or bring the Irish currency with him and exchange it abroad just as a visitor to this country with Deutsche Mark may change his currency in an Irish bank. That option is available to the consumer. Mr. O’Regan will give the committee some information on what charges are made by banks in other countries.

Mr. O’Regan: In response to Deputy Barrett, Commissioner Mario Monti is one of three people at Commission level who would be very concerned that nothing happens to undermine the introduction and success of the single currency. This is why we saw fit to quote him in our presentation today. He acknowledges the basis for this charging structure and the fact that the elimination of the exchange rate risk is only one small element of the total cost picture. We present that information not just as a justification for our charging structure but an independent EU Commission publicly claiming this is an acceptable basis for the charging structure for currencies.

How, therefore, do charges here compare with elsewhere in Europe? We believe they compare very favourably. We are waiting for the first concrete results to come from European comparisons which the Commission is seeking to undertake. It is not a straight forward issue, it is a fairly complex area. Preliminary indications, as advised by the Commission authorities, are that the charging structure here compares very favourably with those elsewhere in Europe. We believe that in due course, the information published by the Commission, will substantiate that claim.

Chairman: A number of other questions were asked. Before we move on to dealing with them, are there any other questions in relation to this issue?

Deputy U. Burke: Is there any legitimate reason one of our State banks, ACC, has such an exorbitant variation in charges as against other lending institutions? For instance, their charges post-euro from 1 January 1999 is listed here at £3.50 for a £50 exchange as against that charged by Bank of Ireland, £1.13. That is a huge variation. Is there a justifiable reason that our State bank should have the highest charges in that category?

It was quoted last week that the farming community were charged as high as 14 per cent for overdraft facilities on loans by certain lending institutions at a time when farming was at its lowest for decades. Farmers had to seek top-ups on loans etc. and were absolutely screwed into the ground by the lending institutions. They had no option but to borrow extra to survive the crisis. As Deputy Barrett said, charges of up to 14 per cent is highway robbery.

Mr Collins: Mr. Sexton said the case mentioned involved two separate transactions and did not amount to double charging. I can understand a justification for charges when purchasing foreign currency. What I cannot understand is why the bank applies the same charge when the consumer wishes to reconvert their money. Whatever money is returned is loaned again and there will be no justification for carriage charges. There should be a reduced rate charged on the money returned. Representations have been made to us on this.

Chairman: Perhaps Mr. Watson could deal with all the questions, including Deputy Mitchell’s as we have to move on to the Director of Consumer Affairs.

Mr Watson: Deputy Mitchell asked about how the clearing systems have changed as a result of the euro. Domestically we now operate paper and electronic clearings for both Irish pounds and euros, so that euros can circulate in non-cash form with Irish pounds. As regards cross-border payments, there has never been a link between the domestic clearing systems in the country participating in EMU. Cross-border payments have always gone through a separate process which takes longer and is more expensive than domestic clearings. This partially arises because the number of cross-border payments is less than one per cent of total payments so that the type of systems which have evolved domestically have had substantial investment in them over many years and have developed differently in each of the countries concerned. There are differences in the way cheques are recognised; the hieroglyphics one sees at the bottom of an Irish cheque are of a different standard to French, German and Italian cheques. For that reason, there never has been and in my view, is never likely to be, sufficient investment in paper clearings in the cross-border payments area to justify linking the cheque clearing systems within the countries participating in EMU, or in any other international sense.

As regards the processing of cross-border electronic payments within the euro area, one of the options available is similar to the process used before the euro was introduced. A number of new options are euro specific. One, known as the target system, links the central banks within the euro area and enables cross-border payments to be affected in a highly secure and fast way. Unfortunately, this is expensive and is likely to be used for urgent or high value transactions. The second euro specific area emerged from the previous clearing mechanism for the ECU and has now evolved into a euro clearing mechanism.

As regards euro cross-border payments, we now have three options available; the target system, the EBA system and the former corresponding banking mechanism which still exists. The charging structures which have been developed by the individual banks reflect these payment options which are now available to customers so they can choose which option and at which price they wish to make their cross-border payment.

Deputy Mitchell also asked about the electronic wallet and what steps are being taken in that regard. A pilot scheme is being operated by Telecom Eireann and the banks in Ennis, which is the first electronic purse scheme in Ireland. This has been operating for a number of months and will be evaluated in the coming years. In terms of its implications from the point of view of the euro and minimising the task we will face in 2002 when we exchange Irish pounds for euro, I anticipate the volume of transactions will be relatively low and it will take a considerable period of time before the electronic purse significantly impacts on the quantity of Irish pound notes and coins or euro notes and coins used in the Irish economy. In that sense we are little different from other countries in the euro area.

Deputy G. Mitchell: I asked a question about the Director of Consumer Affairs comments about sufficient information being available to bank customers.

Mr. Watson: That probably refers to the availability of brochures and price lists in our branches.

Deputy G. Mitchell: The Director said there were deficiencies, notably as regards information gaps for customers and that she wrote to the institutions she found wanting asking them to take necessary corrective measures. Have corrective measures been taken and is Mr. Watson happy that the information is there for customers?

Mr Watson: Yes. With 300 branches there are always some teething difficulties in introducing significant new changes, nor can one always 100 per cent guarantee that everyone in every branch will do exactly what one wants them to do at all times. However, we are satisfied we have addressed the issues raised and we have taken measures to try to ensure the information is available in future.

Chairman: Senator Keogh and Deputy Ulick Burke’s questions are still outstanding. I will call Senator Connor and Deputy Collins, so all questions can then be answered together.

Senator Connor: How important to the bank’s business is the operation of bureau de change facilities? Does Mr. Watson agree that if one transacts £10 million worth of foreign currency exchange, it is more profitable than an ordinary business account? A high profit is made on currency exchange transactions; more than is justified.

Mr McArdle: Senator Keogh asked about the misunderstanding and how it was arrived at, I presume she means the charge and the various components of it. Before January there were two components to the charge; the spread, the difference between the buy and sell rate for currencies, and the commission, which in some cases is a percentage while in others it is not. The spread was the bigger of the two components by far and it was effectively hidden from most ordinary people. The spread is the difference between the buy and sell rate of any currency in any market around the world. Reverting to Deputy Barrett’s question, if one buys a currency one minute and one sells it back the next, there are different prices; that is how markets are made. The size of the spread varies from country to country. For example, the more liquid markets such as the dollar probably have a smaller spread than a smaller market like the Irish pound.

The charge the customer paid, which was set out clearly in the notices specified by the Director of Consumer Affairs, showed those spreads. It showed how much came from the spread and from the commission for all banks.

Some people seem to have assumed there was only one element related to the risk which was the total spread. That was not the case, as was pointed out in the Director’s opening statement. The Director quoted statistics showing that the European Central Bank and its predecessor had calculated the amount as a small proportion of the total charge, somewhere between 5 and 20 per cent. It was impossible to be more precise. We have attempted to show that the reductions by Irish banks in the overall charge are a multiple of and, in some cases, many times the required minimum reduction to account for the elimination of risk.

The spread was there historically. However, the market in these currencies is now gone because the currencies are locked and a fixed rate is in place. The banks are compensating by putting in place a new charge - we should use a new term for it - which is seeking to recover the costs formerly in the two components.

Senator Keogh: One of the reasons bank charges are greeted with suspicion is that people are not made aware of them. We accept the fact that charges must be made, but if a person goes into a bank they expect to know from where the charges come and what they are. It is hardly surprising that people believe banks are operating as a cartel and that they are colluding in the prices they charge. We now know the genuine charge but that is no thanks to the banks.

Mr McArdle: How does the Senator expect people to know? Does she think it was the bank’s duty to repeat over the past 50 years that there are two components to the charge? There are many things in the world I do not know. The banks had no problem making it available once the change came and it was twice advertised in the newspapers. What was available before was the total charge for anyone who wanted to acquire it. I do not see any point in breaking it into two things which are difficult to explain even at this late stage. I wonder how the public would have reacted if we had attempted to brief them on that prior to January 1999 when it was not necessary. It has nothing to do with the banks hiding something, as seems to be implied in the first part of the Senator’s question. The banks were only interested in getting the total charge.

Mr Bardon: Deputy Ulick Burke asked two questions. The first was why ACC charged more than anyone else. The whole idea of the system is that individual banks set their own prices. They apply to the Director of Consumer Affairs and they all publish their new rates on the same day. Some were higher or lower than others. If one particular bank was at the top, that was the way it worked.

Deputy U. Burke: Did the fact it was a State bank have any significance?

Mr. Bardon: Not that I am aware of.

Deputy G. Mitchell: It would be easier for us to understand from where the banks are coming in relation to these charges if it was not for the fact that they were mercenary in closing their branches in areas where they relied on social welfare transactions and cashing social welfare cheques, in which there was little profit. We now know what was lucrative. However, banks are alienating people on social welfare who will go elsewhere with their grievances. If banks expect people to be sensitive to their policies, they should be sensitive to the issues confronting us, such as the fact that branches are being closed because they do not want the business of social welfare recipients.

Mr Bardon: I will come back to that point. Deputy Ulick Burke’s second question related to an issue which was raised at a different forum last week. A case was quoted where a 14 per cent interest rate was charged. It was said that this rate would have contained an element of surcharge probably because the customer had not contacted the institution. It was stated that any farmer who was in difficulty should go to their bank which undertook to give their case a sympathetic hearing. Banks are well aware of the situation in which the farming community finds itself at present and they are treating all their farming customers on a sympathetic basis. That was the message relayed at that meeting last week.

Deputy U. Burke: Is it true that if farmers with loans from lending institutions need an extension or a top up they are levied with charges additional to the standing charges?

Mr. Bardon: That is not correct.

Deputy U. Burke: I ask Mr. Bardon to investigate this matter because it has been reported that lending institutions are creaming off additional charges. Unfortunately, the present depression in agriculture means that farmers or loan applicants do not have the moral courage to question such actions in case their loans are cut off, as happened on many occasions in the past. I do not know if banks have contacted their clients to encourage them to come in rather than allowing things to get out of control. If a 14 per cent interest rate has been charged on an overdraft to a farmer, it is highway robbery at a time when interest rates are low.

Mr Bardon: We dealt with this issue at another committee last week, but I will be happy to speak to Deputy Ulick Burke after the meeting about what transpired.

Deputy Collins: A number of business people have told me that because of the high charges banks impose on them for lodging coins, notes and cheques, they are lodging their money with building societies and transferring one cheque to the bank. Perhaps Mr. Bardon could explain that.

Mr. Bardon: That sounds like competition.

Deputy Collins: Building societies do not charge for this service, yet they carry the same costs as the banks. They must employ staff and they have overheads and security costs to pay.

Mr. Bardon: If the building societies wish to provide that service on the basis they do, that is up to them.

Chairman: That is fair competition but not a great advertisement.

Senator Connor: I made the point that banks make an enormous amount of money from foreign exchange but no one seems to want to address that. Can it be ascertained from a bank’s accounts what it makes from currency exchange? Is it set out as a separate item? Why can I exchange my money in a small bureau de change on a street corner in Paris for at least 1 per cent less than in an Irish bank or in the bureau de change in Dublin Airport?

Mr Ryan: I do not know what the Senator was charged in Paris. On his first point that we were not willing to answer his question about high profit on foreign exchange relative to lending, the cost structure for foreign exchange and the unit size of transaction are very different. It is comparing different things. We are very conscious that we are subject to competitive pressure in the business and are happy to compete on that basis. The obligation of displaying the price structure at the request of the Director of Consumer Affairs has maximised competitive pressure on banks. In their eyes, there is a good deal of competition in that regard, and it is not fair to say that there is high profit in foreign exchange in comparison with lending. The reality is that the cost of handling foreign exchange is very high. It is comprised of small individual items, and we have suggested lower cost solutions for our customers. We are advertising the use of ATM and credit cards as a cost-effective solution for much of their spending requirements when they visit other countries in the euro zone. I do not know if that answers the Senator’s question.

Senator Connor: I do not understand why one obtains a better rate in a small bureau de change on a street corner or in Thomas Cook or similar. They sometimes offer better value.

Chairman: I want to bring in the Director of Consumer Affairs. We will have one last opportunity to ask questions at the end. Having listened to the concerns of committee Members and the responses of the banks, perhaps Ms Foley could give us her observations.

Ms Foley: Thank you, Chairman. I am honoured to be here. You last interviewed my predecessor, William Fagan, in connection with the report being prepared by Deputy Mitchell in July, and I hope I can be helpful to you on this occasion. I took careful note of the points raised and I hope some of them will be covered in my statement and in any questions Members may have afterwards.

The committee is probably aware that surveys have consistently shown that Irish people are among the most committed Europeans. Therefore, it is hardly surprising that political will and sustained efforts on many fronts in Ireland were put behind that most ambitious of projects undertaken by the European Union, the single currency. With Ireland now one of the 11 participating member states in the single currency since the beginning of this year, I count myself among those determined to do their utmost to bring the benefits of the euro to the people. I listed the euro as one of the priorities for my term of office which began last November.

I welcome the opportunity to share in some detail with this distinguished political forum on European affairs the first euro-specific action I have taken - my statutory responsibility for regulating charges by financial institutions in the first instance in the three year transitional period when the euro will be used only for cashless transactions. I have five points to make under the following headings: the statutory framework under which I operate at both national and EU level, the charges and the difference before and after the introduction of the euro, the regulatory process and enforcement, the main benefits for consumers and the next steps.

As Director of Consumer Affairs, I have a statutory framework on two levels. The provisions of the Consumer Credit Act, 1995, apply in general at national level to any new or increased charges proposed for services, including foreign exchange, by financial institutions. In the case of the euro, there has been an additional dimension at European level, where the most immediately relevant Act is the European Commission recommendation of 23 April last concerning banking charges for conversion to the euro.

Under the Consumer Credit Act banks, building societies, finance houses and bureaux de change are obliged to notify my office of any proposal to increase a charge which has been previously notified, or to impose a charge in respect of a service which was not previously notified. Every notification must include three elements: one, a statement of commercial justification, including a detailed statement of cost; two, details of the estimated amount of additional income accruing from their proposal; and three, where appropriate, a notification fee, such as the director may decide, but not being more than £25,000. In deciding on a direction, I must have regard to four elements: one, the statement of commercial justification submitted by the financial institution; two, the promotion of fair competition; three, the passing on of any cost incurred to customers; and four, the effect on customers of any proposal to impose or change any charge in relation to the provision of a service. Directions must be issued within a specific timeframe: within four months in the case of a proposed increase to any existing charge, and within three weeks in the case of a proposed charge for a new service. The directions may block the increased charges or the new charges from being imposed. The directions may also require the amended charges to be published in a manner specified by the director.

Regarding the European statutory framework, the 1998 European Commission recommendation considers that institutions providing foreign exchange facilities should implement a standard of good practice on conversion without charge by 1 January last at the latest. This should include the legal requirement to convert without charge incoming payments from the national currency to euro and vice versa during the transitional period, accounts from the national currency to the euro at the end of the transitional period, as well as the requirement to charge for services denominated in euro at fees no different from those for identical services denominated in the national currency.

In addition, inclusion of the following practices is recommended by the European Commission: conversion without charge of outgoing payments from the national currency to the euro and vice versa during the transitional period, conversion without charge of accounts from the national currency to the euro during the transitional period, and exchange without charge to customers or account holders of household amounts of the national bank notes and coins for euro bank notes and coins during the dual circulation period.

While the European Commission’s recommendation clearly does not in any way imply that the exchange of euro zone bank notes during the transitional period should be free of charge, it does require that full transparency and public information be provided for these exchanges. The transparency requirements mean that customers should be provided with information concerning conversion or exchange charges separately identified from the conversion rate and from other charges of any kind applied. Public information measures include informing customers about whether or to what extent the institution concerned will implement the standard of good practice and inclusion of its provisions in a national changeover plan.

On the subject of charges before and after the introduction of the euro, the committee has already emphasised in its discussion that charges for foreign exchange facilities were not transparent prior to the introduction of the euro. As this has probably been the greatest source of misunderstanding for the public to date, I consider it vital to take every opportunity I can to clarify the situation. Prior to 1 January this year, as already mentioned, customers engaging in a foreign exchange transaction saw from their receipt that they had been charged a commission or handling fee. That was clear, people understood it and accepted it as what they had to pay for the service. What people did not generally realise and which is now known from information supplied by the banks is that they were also being charged another fee known as a spread which was not shown separately in the receipt. Rather it was built into the calculation of the exchange rate which was applied to their transaction. The spread was, therefore, a second hidden fee.

The costs for institutions covered by the spread were real - the exchange rate risk between the price of buying and selling the currency in question. However, that was the smallest element. From information supplied to me, the spread also covered other and greater costs such as transport, storage, security, insurance, fraud risk and agency costs, representing by far the greater part of the total cost of providing a foreign exchange service and on which institutions were highly dependent in terms of their overall income from cross-border transactions. To put it in proportionate terms, the spread represented in excess of 80 per cent of the total income from such transactions whereas the commission accounted for less than 20 per cent.

Since 1 January, post euro the exchange rates have been irrevocably fixed for the 11 participating member states, including Ireland. When converting their national currencies, only the fixed rates can be used. Buying and selling rates can no longer be quoted. As cross-border transactions in respect of the euro zone currencies therefore no longer involve an exchange rate risk, that part of the spread is no longer justified. However, the other, and bigger, costs incorporated in the spread remain, and are likely to remain until the changeover to the euro is complete, which is until national notes and coins cease to be legal tender within the euro zone by 1 July 2002 at the latest and probably a good deal earlier.

Logically, the same situation obtains in relation to the commission or handling fee. The report of 23 April 1997 from the European Monetary Institute supports the case that the elimination of exchange rate risks for transacting in euro zone currencies would account for only 10 per cent to 20 per cent of the total cost of providing a foreign exchange service for these currencies. I will return to cross-border transactions when I outline the next steps.

Operating within the two-fold statutory framework, I set out to require institutions providing foreign exchange facilities to move from an opaque to a transparent charging structure for currency transactions within the euro zone. I believe I have achieved my objective. There is now one clearly identifiable charge only, representing the previous commission or handling fee and the non-exchange risk part of the previous hidden spread. Without knowing that in reality there was dual charging in the past, this single charge from now on could on the face of it appear to customers to be an increased charge due to introduction of the euro. However, the opposite is the case. The single charge represents overall price reductions for customers, averaging between 20 per cent and 30 per cent, and in some cases higher amounts, in the cost of transacting in euro zone currencies. To illustrate this concrete benefit of the introduction of the euro, I have circulated to members in annex I a comparison between the pre and post euro cost of three transactions involving £50, £100 and £500 in euro zone currencies.

To further underpin the benefits of transparency and reduced charges for customers arising from the euro, I sought and received assurances from the institutions concerned that they would not pass onto customers their own costs associated with introduction of the euro. They will, therefore, themselves bear the not insignificant costs of systems, information technology reconfiguration, branch equipment, staff training, marketing and promotion, etc.

Regarding regulation and enforcement, the regulatory process in which I engaged respected the statutory framework at national and European level. In view of the euro specific nature of the process, it is perhaps to be expected that the European dimension came first. Following consultations with my office, the Irish Banking Federation, IBF, and the Irish Mortgage and Savings Association, IMSA, drew up in November 1998 a standard of good practice designed to facilitate the smooth changeover to the euro.

All the members of these two representative bodies subscribed to the standard of good practice which committed them to observing the provisions of the European Commission recommendation concerning banking charges for conversion to the euro as well as to those of the European Commission recommendation concerning dual display of prices and other monetary amounts. The standard of good practice was included in the third edition of the national changeover plan published by the Euro Changeover Board of Ireland. I am sure the committee has a copy of this plan.

A total of 17 institutions, comprising banks, building societies and bureaux de change, submitted euro specific notifications under the Consumer Credit Act to my office in the latter part of 1998. I issued directions in relation to 16 of them before 1 January 1999 and the remaining one, which I received on 23 December last year, is still under consideration. There were significant variations among the institutions in relation to the charges and pricing structures proposed. The notifications were the subject of in-depth examination, including detailed inquiries and extensive consultation. My staff and I had the assistance of an external expert in all this work.

For the information of the committee, I have circulated in annex II details of the maximum charges which, in accordance with my directions, the 16 institutions are entitled to apply in respect of transactions in euro zone currencies for the various products or services they provide. While they may not exceed these charges, they may charge a lesser amount.

My directions to the institutions contained two requirements relating to the provision of information for customers. These were, first, publication in the three national daily newspapers of the cost of converting three cash amounts, £50, £100 and £500, in euro zone currencies, making a clear comparison between the conversion cost of each of these amounts pre and post introduction of the euro and indicating the reduction or increase arising in respect of each amount. In order to ensure that the advertisements were sufficiently large to attract the attention of as many consumers as possible, I stipulated that they be at least five inches by five inches in size.

The second information requirement was that the institutions should prepare information leaflets to be available in all branches of the institutions concerned as and from Monday, 4 January 1999, which would give details of the new charging structures. The leaflets, therefore, had to incorporate the £50, £100 and £500 pre and post euro examples of cash transactions that featured in the advertisements and they had to contain this comparative example in respect of the other products specified in the notifications, such as drafts and travellers cheques.

These moves were an attempt to demystify the purchase of financial products. One is buying a product in the same way as one would buy any other product. The availability of leaflets meant that people could take them home and compare the prices. For example, if people wanted £500 one day, one institution would give them a better deal than another. If they wanted a bank draft or travellers cheques another day, another institution would give them a better deal. People could collect the leaflets in the same way as they collect leaflets for many other products. The idea was to treat finance and foreign exchange the same as any other product one might buy.

Starting on Monday, 4 January last, my staff carried out initial spot checks on institutions in relation to their compliance with my directions. These spot checks showed up deficiencies, notably regarding information gaps for customers as Deputy Mitchell mentioned. I wrote to those institutions which had been found wanting to ask them to take the necessary corrective measures. I was disappointed that this was necessary. I have received formal assurances from the institutions concerned that the deficiencies have been remedied. However, I will not cease to be vigilant. Further and more extensive spot checks are already underway. In ensuring that my directions are enforced, I am assisted not only by my staff but also by customers who, thanks to the public information requirements I imposed, have been in a position of knowledge to bring to my attention instances of perceived infringements. The Chairman also received correspondence arising from the highlighting of this issue.

There are three main benefits for consumers. The first is the issue of pricing transparency. There is now a single transaction charge to assist consumers in making informed choices as to with which institution they should do business. Such choice empowers consumers. The second benefit is overall cost reduction. The single transaction charge now applied represents a real overall cost reduction of at least 20 per cent and up to 50 per cent in some cases. In addition, institutions have committed themselves not to pass onto customers their own internal costs associated with the introduction of the euro. The euro means significant cost savings for consumers. Third, Deputy Barrett mentioned competition. There is clearly greater competition among institutions now, thanks to my public information requirements. These information requirements have enabled consumers to shop around for value in foreign exchange products in the same way as for other products and services. Deputy Burke mentioned the Agricultural Credit Corporation. It is now a matter of public record that the ACC received many complaints from consumers concerning their higher charges and the bank has reduced its charges since 1 January as a result of their customers voting with their feet. I welcome that.

The competitive forces being brought to bear on institutions have, even at this early stage, caused three other institutions of the 16 concerned to bring down their charges below the maximum I approved. This is a further example of information empowering consumers. My advice to consumers is to shop around. In general, they will pay more for the convenience of buying and selling foreign exchange outside banking hours at transit locations such as airports and at bureaux de change. Invariably, the cost for consumers of obtaining cash or making foreign exchange purchases using credit cards or ATM cards is less than that of buying foreign currency or travellers’ cheques.

The Committee may be aware from media reports that Commissioner Mario Monti, who is responsible for financial services and the single market, asked the European Banking Federation last month to provide him with information on the situation regarding charges in the 11 member states following the introduction of the euro. I also wrote to Commissioner Monti at the end of last month to share with him the key aspects of my approach as Director of Consumer Affairs which is grounded in ensuring that consumers reap the benefit of the euro.

From the information available to me, I understand that the European Commission is encouraging institutions to develop efficient cross-border links between national retail payment systems as soon as possible. This would reduce costs for users and so contribute to developing the widespread use of the euro. In this connection. The Commission has recently welcomed the initiative taken by the Euro Banking Association to examine the possibility of extending its clearing system to cross-border retail payments. The European Commission intends to issue a communication later in the spring on the future of payments systems in the single market which will set out a framework for achieving the goal of a single payments area. The aim is to examine and reduce existing barriers in cross-border payments in the single market in order to make them as efficient as domestic payments - in other words, with the same level of speed and security as national operations and at a comparable cost.

The personal representatives of ECOFIN Ministers, at their first meeting of the financial services policy group chaired by Commissioner Monti last month, supported the urgency for action to develop a European electronic wallet, that is an electronic card which stores value and can be used to make low value retail purchases. The European Commission has indicated that it would welcome the rapid development of such a wallet. As Irish Director of Consumer Affairs, I would like to be associated with the welcome extended by the European Commission to these steps.

I would be very happy to discuss with the Committee any matters arising out of this statement which I have confined to the subject of charges, since that is what was on the agenda for this meeting. However, should it be of interest to the Committee, I will be happy to deal with other euro-specific actions such as the proposed national code of practice on the dual display of prices which Minister of State, Tom Kitt has initiated and the 1999 European young consumers competition with the euro as its project topic which is being run by my office in conjunction with the Consumers’ Association. I am happy that initiatives such as these, taken together with the efforts of the Euro Changeover Board, of which I am a member, and the work of other bodies such as Forfás as well as the various codes of practice either agreed or in the pipeline at national and sectoral levels will enhance both the concept and the reality of the euro for Irish consumers.

Deputy G. Mitchell: Could the Director of Consumer Affairs give a brief reply to my question as I am needed in the House at a quarter to four? The Director referred to the report I wrote, as rapporteur for the Committee, on EMU. One of the recommendations made in that report was that the Director of Consumer Affairs would appoint a yell-and-tell consumer representative for each European Parliament constituency on a small fee retainer basis. This representative would look at prices and consumer charges generally so that what some people believed happened in the changeover to decimalisation - although Mr. Garrett FitzGerald disputes this - would not occur or recur in the changeover to the euro. Has the Director considered this recommendation which will become very pertinent in January 2002 when the new currency will be in people’s pockets?

Ms Foley: It is very important that people be empowered to yell-and-tell. Since my recent appointment, in conjunction with my staff and with the Euro Changeover Board, I have been examining ways to provide that warning system. So far, our work has concentrated on the national code of practice for dual display of prices. That will go a long way towards reassuring people that the transfer from old to new prices is exact and fair. People, accurately or otherwise, recall the changeover to decimalisation and I know there are fears regarding the changeover to the euro. A study done in the University of Nottingham casts some doubt on the popular perception of the changeover to decimalisation, as does Mr. Garrett FitzGerald.

Inspectors attached to my office do countrywide inspections of all consumer legislation. That is our only countrywide activity at the moment, apart from our office in Cork. In our ongoing preparation I will certainly consider the recommendation of the report.

Deputy G. Mitchell: Can the Director write to the Committee, setting out the steps she intends to take in relation to the recommendations made in our report and can the clerk of the Committee write to each other Government agency asking them to let the Committee know what steps they intend to take in relation to the recommendations of the Committee’s report?

Senator Connor: I thank the Director of Consumer Affairs for her lengthy submission. Did the Director compare the service to the public of Irish banks with banks in other countries in the euro zone? Are Irish banks better or worse than banks in other countries in this regard?

I was interested that she agreed, by and large, with the submission of the banks in relation to the breakdown of their charges, a high proportion of which relate to insurance, storage and handling costs and so on. The banks also have those costs in handling Irish currency. Cash must be transported from the Central Bank and stored and insured in the same way as foreign currency. Do the banks pass on those costs too? If I go to a bank and cash my pay cheque do I have to pay the storage and insurance costs on the notes and coins I am given? Overseas transport costs may be greater for foreign currency but there is an equal risk of robbery, fraud or forgery in the transportation and handling of Irish currency and costs must accrue from that.

Has the risk of fraud or forgery been taken into account in regard to the bank’s justification for these charges?

Ms Foley: On the issue of whether we are worse or better than other countries, we have some information but the whole picture at European level has yet to be assembled. Our costs are lower than foreign exchange costs in Germany and France. Ireland is the only country in which banks are required to justify their charges. Similar legislation does not exist in other member states. In a recent statement, Commissioner Monti cited the fact that Irish financial institutions were obliged to place newspaper advertisements in December and January as an example of good practice which other member states could follow.

The Senator referred to costs arising from domestic financial transactions. The legal requirement for all banks to introduce the euro at the same time and alter their foreign exchange costs placed the spotlight on the manner in which charges are structured, something which was not clear to consumers. I am conscious that we must avoid cross subsidisation. This a huge question as there are many elements involved in any financial institution. I do not see why a person who cannot afford a foreign holiday should be required to subsidise those buying foreign currency through their bank accounts. When I see a commercial justification for the cost of providing foreign exchange, I believe the cost should be borne within the foreign exchange service rather than across the board through domestic accounts and so on. If one considers the overall level of customer business transacted in a one year period, foreign exchange would only account for a very small part of it. The euro initiative at European and national level has resulted in transparency and openness and will hopefully will lead to the separation of costs for different elements of business.

Senator Connor: I accept Ms Foley’s point. It came as something of a surprise to me that so much of the charges related to storage, transport and other costs. Those charges are common to domestic currency. I was not aware that when I changed a cheque in my bank, a charge was levelled for the cost of storing and insuring the money and protecting against the possibility of fraud and so on. I sincerely hope I am not obliged to carry that kind of charge. Ms Foley appears to believe that foreign exchange customers are getting good value.

Ms Foley: I feel customers are receiving better value now than they did previously. However, I am anxious that the process of competition would continue. In the run up to the holiday season, I hope we will see competition among financial institutions and that various institutions will advertise their foreign exchange services. Perhaps some institutions might waive handling charges when customers return unused foreign currency. For the first time, people will be able to shop around for the best deal.

Senator Keogh: I thank the Director for her comprehensive submission. She stated that money is a commodity. I believe there will be more competition among financial institutions and that customers will shop around for the most competitive rates.

On the issue of information, Ms Foley referred to spot checks. This links into Deputy Mitchell’s comments on ‘yell and tell’. Would Ms Foley consider that there was a degree of stonewalling on this issue? Is it fair to say that inexperience in providing information resulted in gaps being created, rather than a reluctance to provide it? Is she satisfied with the assurances she has received from institutions in regard to those gaps?

Ms Foley: I received formal assurances from the institutions concerned. The gaps which existed were not uniform throughout all branches. Some branches informed me that supplies of leaflets or new signage had not been delivered. Teething problems were experienced, especially given that it was necessary to get the euro up and running over a holiday period. However, people were aware that the euro would be launched on 1 January and I was somewhat disappointed that there was such a degree of flaw in the system in regard to communal rates not being displayed and so on. Granted, the actual exchange rate was only fixed at the last minute. Some staff did not appear to have been fully informed about the issue. However, we will continue to monitor the situation among providers - banks, bureaux de change and building societies - throughout the country.

Deputy Barrett: I welcome the Director and her staff and thank them for their attendance. I note that in the literature supplied, it is stated that institutions have committed themselves not to pass on to consumers the internal costs associated with the introduction of the euro. Would internal costs not include insurance costs and so on?

Did the Director not feel that having examined charges in advance of the introduction of the euro, she could have issued a guideline on what she considered would be a fair charge post-euro? She might, for example, have outlined what a fair charge would be on £500.

Rather than say you are satisfied that there are percentage reductions because if you look at the information that is supplied to us in relation to the various financial institutions - and I think it is unfair to pick out banks because people tend to associate our statements with the well known banks in this country of which there are three or four that spring to mind - it is quite startling if you look at building societies. For example the Irish Permanent pre euro charge on a £500 transaction was £13.96 and the post euro charge was £13.25. There is a difference of 71p on a £500 transaction. Thomas Cook Overseas Ltd.’s pre euro charge on a £500 transaction was £35 with a post euro charge of £25 giving a difference of £10. If you compare the Irish Permanent with 71p in the difference, Thomas Cook £10 difference but the charge is £25 as against for example Ulster Bank £11.25, National Irish £10, AIB £15, ACC Bank at that time was £17, EBS Building Society £20, TSB £15, Bank of Ireland £11.25 and all for £500 transaction.

I would like to know what the Director thinks is a fair charge on transactions of £50, £100 and £500 given the commitment he received from the financial institutions that they would not expect the consumer to carry their internal costs associated with introduction of the euro. That would be far more enlightening from the consumer’s point of view. If you break down the pre euro charge and how it was calculated there was a margin spread purely in relation to the variance in the currency which no longer exists within the eleven. Therefore it is fair to ask what commission was charged? In most cases, there was a common basic charge commission of £5 on £500 which was 1 per cent. Post euro, given that the rates are fixed and there is no fear of any spread, what are the other additional charges? From the consumer’s point of view, why for argument sake could the Director not issue a statement saying that Thomas Cook Overseas Ltd. charging £25 for a £500 is wrong. We are all confused by these percentage reductions because they are only relevant to what was charged pre euro. The pre euro situation is something that was unacceptable to most people. However consumers were told they would benefit from the post euro situation because there is a fixed rate between the Irish Punts and the various currencies involved. We know that fixed rate will not change and that any cost incurred after that is commission charged by financial institutions.

What I am saying is that most of the well known institutions were charging approximately £5 for a £500 transaction pre euro.

Ms Foley: Firstly, on the point about passing on the internal costs associated with the introduction of the Euro, perhaps I should have called it the internal once off cost in terms of staff training, and installing the IT system. What the banks and financial institutions have committed themselves to is the set up charges.

Secondly, I can understand the point you made about expressing the view that a certain amount of money is a fair charge for £500. Under current legislation I am obliged to foster competition between the institutions. This in fact was discussed in the office not only on this occasion but since 1996 when we had this responsibility in relation to banks introducing any new charge. If we introduced a standard fee, we feel everybody would move to that ceiling and there would be no competition. There would in effect be a cartel whereby everybody would charge the same and consumers would not benefit from competition. The Consumer Credit Act obliges me to take into consideration the commercial justification.

Deputy Barrett rightly makes the point of the wide variation in charges. Take for example the fact that building societies act as agents of the banks in getting their foreign exchange, they, in fact have an additional charge because they are sourcing the foreign exchange from the banks so that their cost structures is different.

In the case of the Bureaux de Change, they justify their prices based on the fact that they operate at hours outside of the bank opening hours and that they are providing a foreign exchange service only without any sharing of overall costs with other elements of their business. We had to take into account the fact that many of these outlets would close if not allowed to have the cost structure proposed because given they are operating in prime locations they incurred costs not comparable to those in the main banking institutions. We also felt that there would not be continuity of supply if some of those smaller providers had to charged lower fees as the bigger institutions can do. We also wanted the public including tourists to have outlets available to them in places like hotels and tourist shops in different parts of the country. We are obliged under legislation to take those different elements into account. Although there is this wide variation people have the choice of shopping around. Whereas previously this wide variation was not very clear as some institutions charged at different rates and it was not clear to the customer the difference in rate charges.

Deputy Barrett: Because of your position and when the public hear that the Director of Consumer Affairs feels that the changeover is reasonable given that there are percentage reductions of 20 and 30 per cent that sends out a message that everybody is operating a fair deal whereas that is not the case. That is not the case. With respect, it was perceived from press reports, rightly or wrongly, that the Director of Consumer Affairs was happy. Therefore, wherever one goes one is treated fairly because there is a reduction of between 20 and 30 per cent. However, that is not the case from the figures supplied. Although I may have some personal feelings on the post-euro charges, when one compares the banks to some of the other bodies who give the impression that they are operating in the open market like everyone else when that is not the case. The EBS charges £20 per £500 according to this, whereas the Bank of Ireland and Ulster Bank charge £11.25. The consumer does not realise he or she must purchase the money from banks. They are trading as financial institutions, and the consumer feels the reductions mentioned here - 20 to 30 per cent - by you, the guardians, mean everything is fine. However, some of these reductions are well below 20 per cent. We should be warning the consumer. Though I do not want to tell you your job as your organisation is totally independent, your office should point out more clearly that there is still a big difference, depending on where one goes. There is a feeling that there is fair play everywhere, which I do not think is the case.

Ms Foley: This was exactly the reason for obliging them to advertise in the newspapers on the same days so that people could compare. The figure of 20 to 30 per cent is an overall figure from across the institutions, but by shopping around I am confident people can get those reductions. The Deputy is right and I agree that people must shop around. There are examples to show that there is no 20 per cent reduction on a specific item, because with the overall package each institution put forward to the office we relied on competition to highlight those differences. That has been done, but the message to advise people to shop around and to bring their plastic with them when going abroad has brought down the cost. I constantly tell people to shop around and will continue to tell people to take the leaflets available in branches which were not available before.

Chairman: I thank the Bankers’ Federation and the Director of Consumer Affairs. The points raised by Members would be general consumer concerns, and the experience of decimalisation is still vivid in the minds of those who remember it, which was mentioned during the EMU debate. People felt that coincided with an increase in the general cost of living, whether through coincidence or not. There seems to be a general determination on the part of consumers, as illustrated by the committee, that they will be watching progression in this area with very beady eyes. It is probably in the interests of both those providing and seeking the service that everyone sing from the same hymn sheet. I hope that the consumer will get a vastly better deal, however. The witnesses’ contributions will be incorporated in a report to be laid before the Oireachtas, which is normal procedure.

Mr. Bardon: I thank the committee for giving us this opportunity and I thank Members for their questions.

Ms Foley: I bear Members’ remarks in mind. I will keep Members informed of developments and what our office is doing. Deputy Mitchell asked me to let you know what action we will be taking in mind regarding the EMU report’s recommendations. I will communicate with the committee on this matter, and I thank the committee for this opportunity.

The Joint Committee adjourned at 4.18 p.m.