IFSRA Personal Loan Survey

[podgerodge]

The editorial in today's Irish Times Business Section states that surveys appear to have become a central element of the consumer services provided by the IFSRA. They also state that they don't enable consumers to make direct comparisons on how providers have fared since the last survey. They believe that the regulator relies on the co-operation of the institutions for the timely supply of information for the surveys.

I personally find that these surveys, which include the proviso that none of the results should constitute advice, are of not much more use than just publishing a document containing their usual mantra "Shop Around".

Can they not do something more useful?

In 2001 I got a Bank of Ireland Fixed Rate Motor Loan at an APR of 7.5%. At the time I think ECB base rate was approx 4%.

Now, in 2005 the ECB base rate is 2%. Bank of Ireland's fixed Motor Loan rate is 9.1%.

Logically one would assume (or like to think) that the current rate would be approximately 5.5% if the bank was maintaining the same margins. Is this simply the Banks increasing their margins because they can?

Can IFSRA pursue this? Or if they have no power to do so, surely publishing data such as this would put pressure on the banks to explain?

 

[CCOVICH]

The editorial in today's Irish Times Business Section states that surveys appear to have become a central element of the consumer services provided by the IFSRA. They also state that they don't enable consumers to make direct comparisons on how providers have fared since the last survey. They believe that the regulator relies on the co-operation of the institutions for the timely supply of information for the surveys.

I personally find that these surveys, which include the proviso that none of the results should constitute advice, are of not much more use than just publishing a document containing their usual mantra "Shop Around".

Can they not do something more useful?

In 2001 I got a Bank of Ireland Fixed Rate Motor Loan at an APR of 7.5%. At the time I think ECB base rate was approx 4%.

Now, in 2005 the ECB base rate is 2%. Bank of Ireland's fixed Motor Loan rate is 9.1%.

Logically one would assume (or like to think) that the current rate would be approximately 5.5% if the bank was maintaining the same margins. Is this simply the Banks increasing their margins because they can?

Can IFSRA pursue this? Or if they have no power to do so, surely publishing data such as this would put pressure on the banks to explain?

I'm pretty sure that banks can charge what they want as long as they follow certain procedures and are transparent about it.

 

[podgerodge]

I'm pretty sure that banks can charge what they want as long as they follow certain procedures and are transparent about it.

I'm sure they can. But if the role of IFSRA, as it would appear to be from their surveys, is to make customers more savvy and to shop around, I would have thought that publishing data that shows the banks increasing their margins would be beneficial.

 

[Brendan Burgess]

Hi Podge

Logically one would assume (or like to think) that the current rate would be approximately 5.5% if the bank was maintaining the same margins. Is this simply the Banks increasing their margins because they can?

The rate charged on a fixed term loan is not determined by the ECB base rate today. It is based on the expectation of how interest rates will move over the period of the loan. In 2001, the bank was probably expecting rates to fall, whereas now they are expecting rates to rise.

IFSRA did do a study of interest rates pass-through which is published on its website. From memory, they found that interest rates cuts were passed on in full on mortgages but that car loans and credit cards were not very responsive to interest rate cuts.

I would guess that a big part of the cost of providing car loans and credit card finance is the level of bad debts, so it probably would not be right to expect a point for point drop in rates. The market is getting more competitive, but most consumers do not shop around, so expensive providers can get away with charging higher rates.

Brendan

 

[CCOVICH]

I would have thought that publishing data that shows the banks increasing their margins would be beneficial.

Why? What does it really matter? What matters is the cost of credit now. If I want to buy a car tomorrow, the only thing I care about is what best deal I can get now is, not what the rate was 3 years ago.

It might make for interesting reading, but I don't think the type of anlaysis that you're suggesting is more beneficial to the consumer than what IFSRA currently publishes. Most consumers already believe that they are ripped off by banks anyway, so what would that add?

As Brendan said, it's not just the ECB rate that determines the cost of credit, especially with regard to personal loans. It also depends on the bank's cost base.

 

[podgerodge]

What does it really matter? What matters is the cost of credit now. If I want to buy a car tomorrow, the only thing I care about is what best deal I can get now is, not what the rate was 3 years ago.

I find that attitude amazing! I still believe that if IFSRA, as the Consumer Association has already attempted to do, highlighted this issue, there would be stronger pressure on the banks to justify margins and potentially reduce rates. This would be beneficial to consumers.

While Brendan refers to the determination of fixed rates I might add that variable rates on personal loans have moved in the exact same fashion over the same period i.e up.

I don't fully accept the reference to the cost base either. I'm sure they are not much different to Britain though correct me if I'm wrong.

According to an article in the SB Post a few months back "The cheapest published rate on a sample survey is 7.75 per cent, while a comparable published rate in Britain is 5.9 per cent - when you compare the respective base rates of 2 per cent in the Eurozone and 4.75 per cent in Britain, you can see there is a significant anomaly in the profit margins being sought by the respective lenders."