IRELAND MAY NEED rules to ensure that mortgage holders are not at a disadvantage if they stay with the same bank after a fixed rate expires, according to the consumer watchdog.

Mortgage holders could save thousands of euro by deciding to change to a different product or bank but many find switching to be a difficult process.

The Competition and Consumer Protection Commission (CCPC) has told the Department of Finance that it is concerned by the “impending increase” in the concentration of Ireland’s retail banking sector as two banks prepare to withdraw from the country.

A public consultation on a review of the retail banking sector by the Department of Finance received a list of 14 recommendations from the CCPC on how to promote competition and consumers’ interests.

Its recommendations include that the Central Bank should examine the ‘loyalty costs’ of consumers being handed higher mortgage interest rates when a fixed rate expires.

A fixed mortgage involves an interest rate that is set at a pre-arranged level for either part or all of the lifetime of the loan.

The CCPC also suggested that the Central Bank should introduce a ‘guidance note’ for financial technology companies seeking authorisation in Ireland and that the government should develop a national strategy for financial education.

In an interview with The Journal, Commission member Brian McHugh said that consumers “leave a lot of money on the table in terms of their decisions, or more often non-decisions, on mortgages”.

“Even within the same bank – so there’s no switching costs – they can move to a different product and save thousands and sometimes tens of thousands of euro.”

McHugh outlined that many consumers view switching bank as a “long, expensive process” and said that they may not fully understand interest rates or the benefits of changing bank.

“Where you have switching that’s easy and fast, you have more competition, because the banks know they’ll want to keep their customers so they offer them a good product and new entrants know if they come in, they can get customers really fast,” he said.

“The other element of it is within a bank and this is around loyalty. When a consumer comes to the end of their term, how should the bank treat that consumer? And what should they default to?”

He said that in the insurance sector there has been “quite strong intervention” through legislation on how insurance companies can treat long-standing customers. 

“They can’t price walk whereby a loyal customer who stays with the insurance company for many, many years just gets higher and higher premiums because they don’t switch or they don’t demand a lower price. We welcome that intervention,” McHugh said.

“Mortgages are a bit different, it’s a different market, but we do think that there are concerns that are similar and we do think consideration should be given to an intervention to require banks when, for example, a consumer ends a fixed-term product, to ensure whatever rate they default to is a competitive rate.

“We’re not setting out exactly what the solution should be, but we think serious consideration should be given to it.”

Ulster Bank and KBC, two of Ireland’s five retail banks, are both preparing to leave the Irish market in the coming months, leaving only AIB, Bank of Ireland, and Permanent TSB.

The CCPC has approved the acquisition of certain assets of the departing banks by those remaining but repeatedly cautioned that a shrinking sector is not healthy for the industry.

In its submission to the Department of Finance, the CCPC pointed to a lack of new full-service providers – that is, banks offering a wide suite of services, as opposed to businesses that sell specific products such as mortgages or loans – and an absence of indication of any new ones being likely to enter the market in the near future.

The situation risks leaving certain consumers and businesses with little choice in a range of products, with only three full-service banks still in the Irish market for consumers and two for businesses.

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The CCPC told the department that Ireland will have a uniquely low level of choice and compare poorly to other countries in the European Union.

Therefore, it will be vital for public policy and regulation to facilitate new institutions entering the market and ensure that there is effective competition, it outlined.

Several financial technology companies, known as fintech, that operate in Ireland, such as Revolut, Paypal and Stripe, have quickly amassed large customer-bases while providing some financial services that consumers may have previously obtained through traditional retail banks.

The CCPC advised the department that the Central Bank should introduce a guidance note for fintechs seeking authorisation in Ireland to both promote new entry and facilitate firms aligning their business models with regulatory requirements.

“From a competition point of view, we welcome new entry into the market. We welcome people innovating and providing something consumers didn’t previously have,” McHugh said. “There’s a number of fintechs that have done that and they’ve been really successful.”

“One of the issues that we have is the lack of full-service banks in Ireland. What we would hope to see is that those new entrants and possibly other new entrants would come in to give consumers that wider, full set of services.

“We know there’s a significant group of consumers who want one-stop banking and we think it’s important that they have an alternative from the two or three full-service banks that we see for SMEs and for consumers.

“From a competition point of view, I think what those fintechs have done has been really good for consumers and we’d hope that they’ll be expanding their services in the years to come.”