Colm’s columns

Colm Rapple
Irish Mail on Sunday, August 22, 2010

Ireland has one of the most expensive legal systems in the developed world. It’s almost twice as expensive to enforce a business contract through the Irish courts as it is in the US according to a World Bank survey conducted last year. The process is time consuming as well as costly. It takes 515 days on average to resolve a case here compared with 399 in Britain, 300 in the US and 462 on average in OECD countries.

Our poor showing is partly down to a continuing acceptance of a self-regulatory legal regime and partly due to the imposition of rules and regulations that inhibit competition.

There have been numerous reports outlining what needs to be done, the most comprehensive of which was published by the Competition Authority in 2006. There have been some minor changes since then but the Authority is still of the view that the legal profession needs a root and branch reform.

So, while attention is currently focused on financial regulation and energy regulation, let’s add regulation of the legal system into the mix. The reform is long overdue and while it is too late to stop the tribunal gravy train, there is time to ensure that the legal profession don’t enjoy another bonanza arising from the banking crisis, NAMA and the inevitable associated legal disputes.

The potential for overcharging was highlighted recently when the court appointed Taxing Master, Charles Moran, who adjudicates disputes over legal costs, ordered a reduction from €2.1 million to €393,000 in the fee charges in a judicial review case.  The instructing solicitors in the case, Patrick V Boland & Son of Newbridge, Co. Kildare had their claim for High Court instruction fees reduced from €975,000 to just €86,000. A claim of €10,000 for postage, copying and paper etc. was cut to €1,000.

Two barristers, Paul Gardiner SC and former attorney general, Harry Whelehan SC had their High Court brief fees reduced from a claimed €75,000 to €16,670.

Mr Morgan described the level of costs claimed as “revolting in the extreme” and expressed “disgust and bewilderment” at the claims.

There is no suggestion that the lawyers did anything wrong but the case does highlight the wide range of charges that legal professionals may see as justified.  In this case the claims were referred to the Taxing Master but in most cases they are not.  It’s obviously very easy for consumers to pay more than they need to.

But it is very difficult to shop around. The Competition Authority has made a few specific recommendations that could easily be enforced and would undoubtedly bring down costs.

Barristers are currently forbidden to give direct advice to personal or business consumers. They have to be approached through a solicitor. That ban should be lifted. They should also be allowed to form partnerships and businesses rather than having to operate as sole traders.

Those restrictions are imposed by the Bar Council and could be lifted by it. It doesn’t require any change in the law.

Solicitors claim a common law right to hold onto a clients files thereby making it difficult, if not impossible to switch to another solicitor. That right should be removed and easy switching procedures introduced as they have been with bank accounts. The Law Society could initiate that change although it would require a change in the law to abolish the right altogether.

Legal fees are still often charged as a percentage of whatever award is achieved. Yet the required workload may have little or nothing to do with the size of the claim or the award. Legal fees should be based on the work done. That a change could be encouraged by the Taxing Master.

You don’t need to be a fully trained solicitor to do conveyancing work on property transactions. Yet it tends to be the preserve of solicitors. The Competition Authority would like to see a new profession of conveyancers introduced to compete with solicitors.

But overall what’s needed is a new independent Legal Services Commission that would replace the self-regulatory role currently enjoyed by the Bar Council and the Law Society. The Competition Authority envisages that this body would have overall responsibility for regulating the profession putting the interests of consumers first.

The current regulators, as representatives of the legal professionals, face a clear conflict of interest. No other profession continues to enjoy such freedom from independent overview. It’s time for a change and there is no good reason to delay it any further. We can no longer afford to continue feeding the sacred cows.

Colm Rapple
Irish Mail on Sunday, August 8, 2010

Some of the substantial awards made by the Financial Services Ombudsman to investors who lost money as a result of bad advice from service providers are not being paid out as a result of flaws in the regulatory system. The Ombudsman has drawn attention to the problem but no-body seems in any hurry to do anything about it.  It’s yet another example of how little has changed, particularly at that level of financial regulation that impinges directly on consumers.

Many of the complaints upheld by the Ombudsman over the past year or so relate to bad or inadequate investment advice. Some of the awards made were substantial. We don’t have details but the advisers involved presumably range from employees of banks and insurance companies to small broker type operations.  Awards can be appealed to the High Court and there are individual cases involving as much as €700,000 waiting to be heard.

Some of the advisers involved have gone into liquidation. But others, including some of those with Court appeals outstanding, have indicated that they won’t be able to pay because their professional indemnity insurance won’t cover them. According to the Ombudsman some advisers are having difficulties in renewing their professional indemnity policies.

That has to be of concern to all financial advisers and all of their customers.  One easy answer would be to have Ombudsman awards covered by the Investor Compensation Scheme. But that will require legislation and that will take time. The EU Commission is preparing a directive on this area and the Department of Finance is waiting for it before amending the Irish law.

In the meanwhile, consumers have reason to be wary of all financial advisers but particularly smaller operations that might be more reliant than banks or insurance companies on their professional indemnity insurance to meet any liabilities arising from complaints to the Ombudsman.

That’s not how it should be, since there is no reason to believe that the advise given by small independent advisers is likely to be less good than that given by employees of financial institutions.

It sounds like a problem that should be of major concern to the Financial Regulator.  Unfortunately that doesn’t seem to be the case.

I e-mailed the Regulator’s press office

“Hello,

In his recent report the Financial Ombudsman refers to the failure and/or inability of some financial advisers to pay the compensation awarded and the refusal of some professional indemnity insurance companies to pay.

What has the Financial Regulator done about this?

Has any action been taken to prevent such advisers from continuing to trade?

Are any checks taking place on whether other advisers are effectively insured for professional misconduct? Are any major financial institutions involved?

Can I speak to someone about this please.

Regards”

The response wasn’t very illuminating. It simply repeated what had been in the Ombudsman’s report

“We are aware of the concerns raised by the Financial Services Ombudsman. However, we cannot comment in relation to supervisory matters involving individual firms. Any requirements in relation to establishing an investor compensation fund for paying unpaid compensation awards funded by the financial services sector would require legislative changes by government.”

Regards,

Five e-mails later, having asked again about possible inadequacies in indemnity insurance I got the following response:

“No - the regulator has not identified policies with inadequacies in this regard. During a review of PPI (professional indemnity insurance) providers, insurers were asked to confirm whether there are specific terms under which they will not make a payment on a claim further to an FSO (Ombudsman) award.   The results showed that there are no specific exclusions for FSO awards under PII cover.   A PII provider may refuse to indemnify policyholders in relation to an FSO award where the policyholder has breached one of the terms and conditions of the policy (obviously this would apply to any breach of terms and condition not just those which led to an FSO award).   In some cases the PII providers will not cover instances where a fine had been imposed against the policyholder.”

So, while the indemnity policies are considered adequate by the Regulator, there is still no guarantee that they will paid out when faced with sizeable awards made to investors by the Ombudsman. It’s a matter that should be of major concern to the Financial Regulator but it doesn’t seem to be.  Despite being specifically asked, the Regulator wouldn’t say if any advisers who have failed to pay awards are still operating as financial advisers. Understandably some with High Court appeals pending are still operating but what about the others?

The Financial Ombudsman scheme is aimed at protecting consumers against the worse excesses of the financial services sector and, a lot of the time, it does that very efficiently. But unfortunately there is no guarantee that the Ombudsman’s awards will be honoured, even with compulsory professional indemnity insurance. It is not a problem of the Ombudsman’s making .  Rather it’s a problem for the Regulator to solve but with a little more urgency than it seems to be applying at present.

Colm Rapple
Irish Mail on Sunday, 27th June 2010

Urging consumers to shop around is never going to create a fair and competitive market for financial products. That plain fact has been highlighted once again by the confusion created by the EU Consumer Credit Directive that came into effect on June 11. One of its requirements is that credit card issuers take account of the annual €30 stamp duty in the interest rates they quote. It adds to the cost of running up a credit card debt and, of course, it is important that consumers know the full cost of a loan.

But there are many other factors that can add significantly to the cost of credit card debt that are still not taken into account and which many consumers aren’t even aware of.  Many credit card companies charge far higher rates of interest on cash withdrawals, for instance. But marketing efforts will be based on the lower rate charged on debt run up as a result of purchases made with the card.

With some cardholders that higher interest rate, often more than 20%, can continue to be charged for months or years. This is because monthly repayments on the card are used first to reduce the debt due to purchases and it is only after they have all been cleared that any surplus is used to reduce the debt resulting from cash withdrawals.

That isn’t the case with all credit cards but it is with many of them although you’ll have to read the fine print in the terms and conditions to discover if it applies to your card. It isn’t part of the information given on the National Consumer Agency’s comparison website.

But back to the stamp-duty issue. The EU Directive lays down some rules on how it should be taken into account and if every card issuer does it in the same way, the results will be comparable. But instead of doing the doing the calculations themselves bot the Financial Regulator and the National Consumer Agency are currently leaving it up to the banks to sort it out among themselves.

To be fair, some of them already have, although not all, and even when they do, consumers will be no better off.  The annual stamp duty is charged on all cards at exactly the same rate so for comparison purposes it matters not a whit whether it is, or is not, included in the cost of credit. It simply adds to the confusion.

It might have some relevance in comparing the cost of credit card debt with a personal loan, or instance. But even there it is likely to add to the confusion unless all the calculation are done on the same basis and neither of our regulators are willing, it seems to dictate what that basis should be.  Maybe it’s because they are all too well aware that, whatever the basis, the result can be highly misleading.

The objective is to have the banks declare interest rates known as annual percentage rates (APRs) which include not only the interest charges on a loan but also all the other costs involved, set up costs or in the case of credit cards, the annual €30 stamp duty.

For a person with an average credit card debt of €5,000 over the course of a year, the stamp duty adds little to the overall percentage cost of the loan. But it does for someone with an average debt of only €100. So the calculation of a supposedly comparative APR depends on the size of the loan and on the speed of repayment.

AIB and Bank of Ireland have calculated the new APRs on the basis of a debt of €1,500 paid in equal instalments over 12 months. That’s the rather unrealistic assumption (as far as credit cards are concerned) laid down in the directive. Both offer cards with low interest rates on purchases. The rate on AIB’s “Click” card which was quoted as 9.5% before taking account of the stamp duty is now being quoted at 13.6%.  Bank of Ireland’s “Clear” card used to quote a rate of 10.9% but it now quoting 13.3%.

Both have done the sums on the same basis, it seems, so how they have reversed their pecking order is unclear.

In both cases the rate charged on cash advances is about twice that charged on purchases – over 20%. But both offer one concession over many other cards. No interest is charged on cash withdrawals if the balance is paid in full when due. Many banks charge interest on cash withdrawals from the date of the withdrawal and, as mentioned above Bank of Ireland card holders who make partial repayments can continue to pay interest at a high rate for a long time on a single cash withdrawal.

Consumer interests would be best served by outlawing this type of practice rather than trying to provide consumers with necessarily confusing information in the hope that they’ll be able to make their own best choices.  It is becoming increasingly clear that the old culture needs to be eradicated at all levels of financial regulation. Financial products are too complicated to rely on competition to force the inefficient and the downright extortionist out of the market.

 Colm Rapple
Irish Mail on Sunday, 13th June 2010

The Financial Regulator and his staff tended to treat bankers with both “deference” and “diffidence” according to the new Central Bank governor, Patrick Honohan. During the week he cited it as one of the prime causes of the regulatory failures that prepared the way for the collapse of our banking system.

“Deference” is the willingness to accept the judgement of others in preference to your own, while “diffidence” entails a lack of self-confidence and assertiveness. They are the very attributes that regulators should avoid and are certain to be eschewed in the new financial regulatory regime being put in place by Dr Honohan but what about the other State appointed regulators.  How well are they regulating their charges?

We seldom get anything other than cursory, minimalist reports.

At last count there were 213 regulatory bodies of which 205 were public sector regulators. That includes 114 local authorities. The way in which they exercise their regulatory powers can have a major impact on the economy and society, perhaps not on the same scale as the shortcomings in financial regulation, but sizeable non-the-less.

Many of the regulated groups expect to be treated with deference and diffidence, just as the financial institutions were. Unfortunately the evidence is that they all too often are so treated. They include many professionals particularly in the medical and legal spheres who have managed to defend their self-regulatory regimes that ensure that they are treated with a large degree of deference.

The elevated status that many of them aspire to, and often achieve, may have something to do with our colonial past. But as far back as 1842, in a book describing his journeys through Ireland, J. Stirling Coyne wrote that since the Act of Union in 1800, “physicians and the professors of law and medicine may be said to form the (Irish) aristocracy”. Old habits die hard.

The lessons to be learnt from this week’s reports on banking regulation have wide application far beyond the banking and financial services sector. The Government is committed to reforming the regulatory regime but the only firm policy statement on the issues involved, published as a White Paper, in 2004 was compiled when the concept of light touch regulation was very much in vogue. The stress was on reducing the burden of regulation in order to improve competitiveness.  In a foreword the then Taoiseach, Bertie Ahern warned that “bad or cumbersome regulation created barriers to efficient markets, thereby discouraging competition and innovation”.

But what some people view as bad or cumbersome, others see as absolutely necessary. The question is where to draw the line and it is clear from the now well documented experience of financial regulation, that it is not only the letter of the law that is important but also its application.

The Government is still very concerned about the cost of regulation on business. Earlier this year a report by the Economist Intelligence Unit was presented to a newly established Regulatory Forum that is to meet once a year. A Government statement issued at the time promised legislation to force energy, communications, and transport regulators to review their strategies and produce annual output statements. There was also a promise to make them more accountable to the Oireachtas.

In the light of the failures of the financial regulator to foresee the potential doomsday scenario, the other regulators were also told to ensure that their regulatory frameworks are sufficiently robust to be able to respond to major sectoral or economic shocks.

So we may be moving in the right direction. But the failures outlined in this week’s reports are unlikely to have been confined to one regulatory body. So who is overseeing the regulators? There is a lack of accountability according to the Economist Intelligence Unit report.

Oireachtas scrutiny is ineffective. Government departments don’t, in many cases, have the expertise to supervise the regulators and there is little accountability for wrong regulatory decisions. The report also criticised the appeals processes operated by some regulators.

More recently there has been criticism of the cumbersome procedures facing regulators who want to prosecute offenders. At a recent conference barrister Remy Farrell outlined how regulators could only prosecute in the District Court where penalties were low. Prosecutions on indictment can only be taken by the Director of Public Prosecutions.  Change was needed, he said, to promote more robust regulation.

It’s clear that, in addition to rooting out any tendency on the part of regulators to deference and diffidence, our whole regulatory framework needs an urgent review.  A good start would be to introduce much more transparency and accountability.

Colm Rapple
Irish Mail on Sunday, June 14, 2009

Consumer prices may have fallen by an average of 4.7% over the past year but that average covers a multitude. Far from falling, the price of some goods and services have soared and those price hikes can’t all be blamed on external factors. The fact is that some Irish suppliers, in both the public and private sectors, are still managing to buck the trend, protecting their profit margins or income levels while getting consumers to pick up the tab.

Not surprisingly, there has been no fall in the cost of medical services. Hospital services are currently costing 9.1% more than they were a year ago and, despite falling by 2.6% last month, doctors’ fees are still 2.2% higher than they were this time last year. Dentists are also tending to ignore the recession. The cost of their services has gone up by 2.3% over the past twelve months.

It’s little wonder that the cost of health insurance is up by a massive 21% on last year. The fact that that increase is well ahead of the increase in medical treatment costs is undoubtedly partly due to the fact that insurance companies have suffered sizeable losses on the investment funds into which they put their reserves.

But did we really get the benefit, through lower premiums, of the massive investments gains they made during the good years?

Can the insurers really justify the near 25% jump in household insurance premiums over the past year or the 12.5% increase in motor insurance costs? Is competition really working as well as the Financial Regulator would have us believe?

It’s equally difficult to understand the justification, if justification there be, for the 11% jump in bus fares over the past year and the 9% increase in rail transport costs. Wage costs have risen by little or nothing while diesel last month was selling at 24% less than it was a year ago. Petrol is down by 11.5% on May 2008.

It is hard to fathom how such massive price increases coupled with service cuts can gel with the Green agenda of promoting public transport.  The cost of air transport has fallen by 9.4% over the past year while the cost of sea transport is down 14.2%.

All of which is hard to reconcile with the reported 4.7% increase in the cost of packaged holidays. That’s not the message that’s coming across from the travel agents but it’s what the Central Statistics Office surveyors found. So your foreign holiday may cost more this year than it did last year.

It’s possible to see justification for some prices increases. For instance, while childcare costs are up 6.4% on last year that may be due to increased insurance costs and an inability to reduce wages below what may already be minimum rates. Canteen meals have gone up by an average of 6.7%. Could that be due to cut-backs in employer subsidies?

Primary and secondary education is free for most people but those who pay have experienced a 7% plus increase in fees over the past year. Private primary school fees are up 7.6% while secondary school fees are up 7.1%. That seems to be more than could be justified by any increase in teachers’ pay or, indeed, by any increases in other costs.

It’s obvious that our regulators and consumer protection agencies can’t afford to take their eyes off the ball simply because consumer prices are, on average, falling. The potential for rip-offs is as strong as ever.

The National Consumer Agency might start by looking not only at some of those price developments mentioned above but also at the trend in grocery prices in recent years. It’s only a few years since the Agency backed the case made by the supermarkets and others that the ban on below cost selling actually worked against consumers by keeping prices artificially high.

Remove the ban, they said, and the price of these items would fall. It hasn’t happened. These latest CSO figures show that the price of those grocery items that were subject to the ban have risen by a sharp 8.6% since December 2006 while the price of other grocery items have gone up by less than a half of one per cent.

Colm Rapple
Irish Mail on Sunday, January 11th, 2009

If you are 30 and starting to save for your retirement the Pensions Board estimates that you need to put aside about 18% of your pay each month to fund a pension of two-thirds final pay when you are 65. That two-thirds of final pay would include your social welfare pension.

That’s only an estimate, of course. There are no certainties. It’s based on an assumption that you’ll earn an average 5% annual return on your accumulating pension fund.

Of course, you might. But recent fund performance wouldn’t inspire you with any confidence. Irish pension funds fell by between 30% and 39% in value last year wiping out all of the gains made during the good tiger economy years. They are now valued at much the same levels as they were ten years ago. Fund values would need to have risen by 40% since 1998 just to maintain the purchasing power of the invested money so in real terms values have fallen by 40% over the ten years.

Of course past performance can not be taken as a guide to future performance, and it is possible that starting from their current low ebb, pension funds may achieve an average return of 5% over some future period, as they have over many past periods. There were individual years when returns of over 20% were achieved so over the long-term an average annual return of 5% is certainly achievable.

But it is by no means certain, and we now have ample evidence of the very real risk involved in pension fund investment which, of its nature, involves a fixed or almost fixed maturity date.

Tax relief can help to cushion that risk, particularly for top-rate taxpayers, but it is still a major risk which fewer and fewer people are going to be willing to take. And this at a time when the Government is planning pension initiatives aimed at encouraging people to save more for their retirement.

It’s little wonder that the long-awaited Government policy document on pensions, which was to be published last year, has still not being finalised. According to the Department of Social and Family Affairs, which is responsible for preparing the proposals that will go to Government, it is still being worked on. But the hope is that it will be published “early this year”.

The need for a radical change in pension policy has been obvious for years but all we’ve got has been a succession of study after study, report after report. The present system suited a range of influential interest groups ranging from the pension industry to the public sector mandarins. Decisions were long overdue even before the onslaught of the current financial crisis.

But if the lessons from the current financial turmoil are built into the long-term national pension strategy, the long delays may have served a useful purpose.

It’s now very clear that no amount of regulation can reduce to an acceptable level the risks inherent in current private pension schemes. Markets have proved to be too volatile, funding standards inadequate in the face of that volatility. Those risks are going to become increasingly obvious to those already in pension scheme and effectively scupper hopes of encouraging those currently outside the pensions net from ever joining.

Even the best defined benefit pension scheme operated by larger companies are not immune from risk as Waterford-Wedgwood workers in Ireland, Britain, Germany and Japan unfortunately realised this week.

The latest group accounts show that there was an estimated deficit of €148 million in the group’s pension funds on April 5 last. At that stage almost half of the €705 million assets of the funds were invested in equities which have suffered very sharp downturns since. Total fund liabilities amounted to an estimated €853 million.

There is a hope that new owners will take over the pension fund liabilities but no doubt they’ll look for other concessions in return. The extent of any Irish shortfall is not itemised in the accounts which combine all the pension scheme together. In Ireland, unlike Britain, we don’t have a compensation fund to cover such shortfalls. Any shortfall will be borne by those still in employment.

It’s too late to start shutting that particular stable door and the problem is not going to be solved by putting greater obligations on those companies with defined benefit scheme to meet their open-ended obligations. Such pressure would only result in pension schemes being closed off.

The only sensible solution is for the State to take over total responsibility for pensions. It might sound like a loony left solution but then only a few months ago so too did the nationalisation of banks.

Most of the submissions on the Government’s discussions paper issued a couple of years ago urged some degree of State involvement. There were calls for a new system of tax relief, improved social welfare pensions, guaranteed annuity rates,  compensation funds etc. etc.

It would be better to go the whole hog and simply nationalise the pensions industry. The State already takes responsibility for the pension entitlements of public servants so why not extend that to the private sector. Pension contributions should be made compulsory and collected through the existing and very efficient PRSI system. It would be far more cost effective than the current system and provide a far greater degree of certainty to all involved.

Colm Rapple
Irish Mail on Sunday, January 4th, 2009

We are going to be poorer this year than we were in 2008. That’s generally agreed. But it’s as well to remember that we are still one of the ten richest countries in the world in terms of income. The latest available figures from the World Bank rank Ireland in ninth place with an income just over $27,000 per head of population.

So we may be poorer than we were but we are still better off than most of humanity. According to that same World Bank report some 80% of the world’s population live on less than $10 a day — $3,650 a year. I’m not sure whether that fact should make you feel more or less cheerful but it should, at least, help you to feel relatively better off.

The world’s wealth is very inequitably distributed. Over three-quarters of the wealth produced each year is consumed by the top 20% of income earners while the bottom 20% get only 1.5% between them.

There are about 1,900 million children living in the developing world. A third of those go asleep each night without adequate shelter. One-in-five don’t have access to safe drinking water and one-in-seven have no access to health services.

According to UNICEF, poverty causes the deaths of up to 30,000 children each day and about 28% of all children in developing countries are underweight and under nourished.

Do you still think that you are badly off?

Perhaps you do, and you can hardly be blamed for that. Comparisons with the Third World are seldom taken into account when considering standards of living. Our general perception of poverty seems to have little to do with the absolute level of our living standards. It is related, instead, to our relative position vis-a-vis our neighbours — and we only take our near neighbours into account.

The cer-tainty that you are living like a king compared to a native in Bangladesh may be of less importance than the fact that your next-door neighbour has just taken delivery of a new 2009 reg. car and you cannot afford one.

But at least remember that there are millions of people worse off. If that doesn’t help to make you feel a little better off, then here are a few practical suggestions on boosting your budget over the coming year.

Switch your credit card

Halifax provides six months free credit on both the debt transferred and new purchases and is giving new customers €100 spending money after the first purchase on the new card.

Tesco gives six months free credit on the debt transferred.

Claim a tax rebate

You get some tax credits automatically but many have to be claimed. If you don’t claim them you don’t get them. Claims can be backdated for four years so you can still put in a claim for 2005. Each year is treated separately. Credits that you may have missed include:

Medical expenses – allowed at your top rate of tax.

Trade union subs – a credit of €40 in 2005 and now €70.

Rent – it was €300 per person in 2005 and for 2005 and 2006 it could be claimed by children living at home without imposing an extra tax burden on their parents. In those two years a parent renting a room to a child was exempt from tax on rental income of up to €8,000 a year.

Local charges – upper limit of €400 since 2006.

Shop around for the best phone and broadband deals

Comparing telecommunications packages is very difficult but the Communications Regulator runs a very good interactive web site “callcosts.ie”. You can input you own particular pattern of phone or internet usage and it will provide advice on the best deals for you. There are considerable savings to be made.

Cancel bad value mobile phone and credit card insurance

It’s all too easy to sign up to expansive insurance policies when buying a mobile phone or taking out a credit card and very often it represents very bad value. A phone doesn’t cost very much to replace and no policy covers the trauma of losing personal data. If you haven’t been careless with your credit card, the most you are likely to lose from its loss and fraudulent use is about €50. If you have been careless, then no policy is going to provide cover.

Policies that meet some of your credit card repayment obligations if you lose your job may be worthwhile but it depends on how safe your employment is.

Family income supplement

Most social welfare payments are made to those who are out of work for one reason or another. But Family Income Supplement is paid to families on low pay. The claimant must be working at least 19 hours a week and the family must include at least one child. The weekly payment is calculated as 60% of the difference between the actual income and a set threshold level which is currently €590 for a family with two children.

So a family with two children on say €490 a week qualify for Family Income Supplement of €60 a week – 60% of the difference between the actual pay of €490 and the set threshold of €590.

The threshold for a single child family is €500. For a family with three children it’s €685.

Colm Rapple
Irish Mail on Sunday November 9, 2008

The Irish consumer is being short-changed again. So what’s new? Nothing you might say. We have grown used to it. But this time the culprit is the Government, although that’s not particularly new either. Consumers have been ill served by successive governments in the past so we shouldn’t be surprised at another anti-consumer development, the proposed merger of the National Consumer Agency and the Competition Authority.

It’s not a new idea. It’s an option that was considered by at least three high-power expert groups in recent years. They all advised against it. Now it is being foisted on the consumer on the pretext of a cost saving exercise. But it’s unlikely to shave more than a couple of million off the Government’s budget and the potential cost to the consumer greatly exceeds the potential savings.

The National Consumer Agency was only formally established eighteen months ago although it existed in an embryo form for a year or so prior to that as it assumed the functions of the old Office of the Director of Consumer Affairs.

It was heralded by the Government as a major advance in consumer protection but the Agency has far fewer powers and less teeth than was originally recommended by the Government appointed Consumer Strategy Group. It’s recommendations were initially watered down by a committee of civil servants each representing the sectional interests of their own Departments and client businesses. Then they were further emasculated in the drafting of the legislation which brought the Agency into being and the strong recommendation that it remain a totally independent body, is now to be set to naught.

The Consumer Strategy Group examined the possibility of combining a consumer protection body with the Competition Authority but came down strongly against it. It recognised the “possible” cost savings that might arise (and it’s use of the word “possible” was no accident) but it foresaw major disadvantages.

Competition policy on its own, it said, is not the solution to all consumer problems. It needs to be complemented by a range of advocacy and promotional activities. It expressed a fear that consumer issues would receive lower priority in a combined organisation.

A similar view was expressed in an internal analysis compiled by the Department of Enterprise, Trade and Employment whose remit covers consumer protection. Merging a consumer agency with the Competition Authority would not be the best way of “achieving a dynamic and forceful consumer policy”, it concluded, stressing that the “new Agency must be independent with a core statutory mandate to raise the profile of consumer issues and to present a strong consumer voice”.

Mind you that didn’t stop the Department rowing back significantly on the original Strategy Group’s recommendations.

The Agency’s ability to impose on the spot fines for breaches of consumer law was limited to failures by pubs and filling stations etc. to comply with price display orders. It wasn’t given the power to seek closure orders against errant companies and rogue traders.

More importantly perhaps, in the light of the current proposals to yet again raise gas and electricity prices, the Agency wasn’t given the right to challenge decisions of other regulatory authorities such as those overseeing energy, transport and telecoms even in matters of major consumer interest.  The Strategy Group strongly recommended that the Agency be given such powers but all the existing regulators were represented on the civil service committee which decided against it.

Particularly interesting in the light of this latest merger proposal was the decision to stymie the Strategy Group’s proposal that the Consumer Agency be given the right to order the Competition Authority to carry out market studies if consumers were believed to be suffering from anti-competitive behaviour.

Who’s going to call the shots when the two organisations are merged? The likelihood is that the consumer agency will be the one to lose out.

The Consumer Strategy Group estimated that consumers are losing over €800 million a year or over €200 per person each year simply as a result of purchasing faulty goods and unsatisfactory services.   The actual cost per head is considerably higher when account is taken of the losses due to excessively high prices.

It’s obvious that an effective consumer protection strategy can yield a very high return.

It’s not as if the National Consumer Agency is costing a lot of money. This year it has a budget of €10 million. The Competition Authority with which it is to be merged is getting by on €6.8 million, presumably because of its narrower and far less public remit.

The Government hasn’t said how much it hopes to save from the merger. But it can hardly be more than a couple of million. Both bodies have separate budget allocations for next year with a combined cut of €1.8 million but it’s not clear if that assumes some merging of functions or simply a trimming of their existing separate operations.

Either way it is clear that the potential savings are minuscule while the proposed change flies in the face of all the expert advice. If anything there is a case for further strengthening the role of the National Consumer Agency, reasserting its independence and giving it some of the extra powers originally recommended by the Consumer Strategy Group.

Stronger laws combined with resources necessary to enforce them would yield returns more than sufficient to cover the additional costs. The Government is being cent wise and euro foolish.

Colm Rapple
Irish Mail on Sunday, August 31, 2008

The banks are to pick up the tab for the major breach of payment card security which hit Galway and the east coast in recent weeks. Over 10,000 credit and debit cards were illegally skimmed and cloned for fraudulent use abroad. While customers won’t be out of pocket as a result of the scam, they have every reason to be concerned. It should never have happened and it highlights the somewhat lackadaisical attitude adopted by the card issuers to fraud.

In this case they’ll have to bear the cost themselves but, all too often, it’s the customer who bears the cost. One of the less publicised consequences of the switch to chip-and-pin cards was a major transfer of liability from card issuer to customer.  That shift was built into the assumption that only the card holder should or could ever know the PIN number associated with a card.

Once case brought to the Financial Ombudsman involved an elderly cardholder who had €7,000 withdrawn from her account over the course of ten days at ATM machines. She was in a nursing home and had never before used the card to withdraw money. She was only awarded €1,500 compensation while no negligence was attributed to the bank.

The Financial Regulated did raise the matter with the Irish Banking Federation suggesting that the banks should have procedures in place for quickly identifying potential fraudulent withdrawals. But if there were any action taken or guidelines drawn up, the details have yet to be published.

If a fraudster does manage to get hold of both card and PIN, the assumption is that the card holder had been negligent. There may not be any negligence involved in losing a card. It’s admitted that it can be stolen. But, under the terms and conditions, the PIN number should be firmly locked inside the cardholder’s brain, never written down or divulged.

The loss of a PIN is automatically deemed to be the cardholder’s fault unless he or she can conclusively prove otherwise.

You’ll even be deemed negligent if you reveal your PIN to a mugger who demands not only your wallet but also those four magic figures that can turn your credit or debit card into cash.

There is a certain logic in that. If a mugger took your cash, you’d have to bear the cost yourself so it makes some sense for you to also bear the cost of losing your card and pin, at least up until the time that you report them lost.

Just be aware that the lost of your card and pin cost you substantially more than the amount of cash that you might normally carry about with you.

But the fact is that you don’t have to be blatantly negligent to lose both your card and pin. Even without the addition of skimming devices the pin input pads in use at retail checkouts and restaurants are not secure from prying eyes and a would-be fraudster can quickly become very skilled at reading the number being input, even at some distance.  He or she doesn’t even have to become skilled if working in a retail outlet which customers regularly frequent.

In some retail outlets security cameras are trained on cash points, a practice that can make it easy for in-store fraudsters to read PIN numbers.

Of course, along with the PIN, the fraudster needs the actual card if it is to be used in a country that has embraced the chip and pin technology. That’s why our recent fraudsters quickly used their skimmed cards in Italy and Canada. All they had to do was put the PINs onto old type, for us, magnetic strip cards.

But, in any case, getting both your card and PIN need not be too difficult. A person moving away from a checkout or cash point is particularly vulnerable to having a card stolen before they put it back into a wallet, pocket or purse. A well organised fraudster, having simply read the PIN over the card holders shoulder, could spent thousands of euros before the shocked victim had time to ring the bank.

You may be liable for that loss. To realise the extend of that exposure you need to read all the fine print of your credit or debit card agreement.

In Britain your liability is capped at £50 sterling unless the bank can show that you acted fraudulenty or without reasonable care. In Ireland, however, the onus is on you to prove that you didn’t act fraudulently.

The Bank of Ireland places particularly onerous conditions on its card holders. While it accepts liability for any transactions carried out after a loss has been reported, the onus is on the customers to prove fraud in other cases.

A clause in the terms and conditions states that “Use of the PIN, in conjunction with the credit card shall be regarded as conclusive evidence that the relevant transaction was carried out by the cardholder.”

That type of clause transfer liability very firmly onto the shoulders of the cardholder. It’s time that the balance was redressed. Since the banks have obviously failed to adequately tackle fraud, it’s time that the Financial Regulator took some firm and decisive action. Given it’s record, however, that may be asking too much.

Colm Rapple
Irish Mail on Sunday, 25th May 2008

Tánaiste Mary Coughlan has undoubtedly done as she was told by her boss in the Dáil, and has done a ring round of “those f***ers” to try and get a handle on the rip-off of Irish consumers. The message she’ll be taking back to the Taoiseach will be short and sweet. Blame the public. They simply can’t be bother to shop around.

If they did, then competition would send prices tumbling. Or so it is claimed. And competition is the only acceptable form of price control in Ireland today given EU regulations and the pervading free-trade liberal philosophy that dictates government policy.

But we badly need to give competition a boost and not by simply exhorting consumers to shop around. “Shop around “ are the most overused words on the website and in the publications of the National Consumer Agency (NCA). But consumers need help in shopping around and that’s where the NCA is falling down on the job.

Consumers need information. They need price comparisons and not on an occasional, basis, but up-to the-minute information on who’s charging what. It would, of course, require a bit of work and, no doubt, extra resources, but gathering and disseminating such information would provide the NCA with a meaningful role.

It could start by publishing weekly comparisons of supermarket prices for a range of basic food and household products, quickly followed by a full listing of motor and heating fuel prices. Once-off surveys are no good. Consumers need to have up-to-date information on actual prices when they are going out to shop.

There is no good reason why retailers should not be required to feed the information directly into the National Consumer Agency’s computers where relatively simple software could collate it and publish it on its website and, ideally, also prepare it for newspaper publications for those without internet access.

That way competition could be made to work a little better than it is at present.

The liberal economic ideal is free competition. But it is too often forgotten that perfect competition only works when there is perfect knowledge among both sellers and consumers. Of course, we can never have total perfection but with modern communications and information technology, it would be an easy enough task to gather and publish nation-wide price information.

Thirty years ago we had specific price control. In the 1970s practically every price increase had to be approved by a National Prices Commission which published monthly reports outlining its decisions. Each application was very specific and assessed in detail. For instance in April 1977 (I happen to have a copy of the May 1977 report) an increase of 101.34% was sought in the price of Irel coffee but only an increase of 48.54% was granted. Other applications that month covered hairdressing charges, paper bags, taxi fares and motor fuels. As a note for the nostalgic, the cheapest petrol at the time was selling for 94p a gallon equivalent to about 26c a litre.

We’re hardly going to return to such specific price controls. Free trade and competition are now the order of the day but, despite the amount of lip service given to the benefits of both, businesses tend to do their utmost to protect themselves from them. By promoting brand names or unique products, they try to create their own little monopoly. Every effort is made to ensure the consumers can’t compare products and prices on a like-with-like basis.

Maximising profit is the name of the game while the Government and its agencies have been very lax in preventing obstruction and distortion of competition.

There is no such thing as “over-charging”, not in a legal sense in any case. It is perfectly legal to rip-off consumers. Sellers can charge what they like although competition is supposed to keep greedy urges in check. Consumers are expected to shop around for the lowest prices, taking some account of other factors such as levels of service, convenience etc.

The trouble is that it hasn’t been working like that.

It is increasingly clear that in many areas of the Irish economy, competition just isn’t working as it is supposed to. At the extreme that may be due to an element of price fixing, a practice which is illegal but can easily escape detection. In some cases it arises from perfectly legal constraints on entry, such as exist in many of the professions. But in most cases it does come down to the unwillingness or inability of the consumer to shop around for the best deal.

We can complain all we like. The politicians of all shapes and hues can wring their hands and accuse the supermarkets, pubs, hotels, entertainment promoters and what have you, of greed. But with a few honourable exceptions, they all subscribe to the free market model which sees greed as the driver of economic fortunes.

Competition can help to hold that greed in check but it must be made to work by empowering consumers. That what the f***rs should be told to do.

By the way, the extent of the rip-off was highlighted this week in new CSO indices which revealed that wholesale prices FELL by 4% over the past year – that was up to April. Consumer prices ROSE by 4.3% over the same period. That’s according to the latest CSO indices. Those wholesale prices, admittedly, don’t include services, the price of which have been rising faster than goods, but neither do they include imports, the price of which have benefited greatly from the strengthening euro.