AIB failed to tell the State's consumer watchdog in 1998 that it had been overcharging customers for non-cash foreign exchange services for the previous four years, after the regulator had specifically asked the bank to ensure that it was applying the correct fees to all transactions. Barry O'Halloran reports.
The news emerged yesterday after AIB announced that former Comptroller and Auditor General (C&AG), Mr Laurie McDonnell, would lead the internal investigation into the overcharging that has left it with a potential €25 million liability.
The bank admitted last week that it had been levying 1 per cent on all non-cash foreign exchange transactions worth more than €635 (£500), when it should have been charging 0.5 per cent. This was a breach of consumer protection law. The Irish Financial Services Regulatory Authority (IFSRA) said on Wednesday that the bank had been overcharging customers since 1994.
The Director of Consumer Affairs, Ms Carmel Foley, who policed bank charges up to May 2003, yesterday issued a statement saying that AIB had assured her office in 1998 that it was charging customers the correct amount on their banking transactions.
Ms Foley pointed out that section 149 of the Consumer Credit Act obliged the banks to notify all their charges to the director in 1996. AIB said it was charging 0.5 per cent on the non-cash foreign exchange services, when in fact it was charging 1 per cent.
"In 1998, two years after the first notification, all the banks were given an opportunity by the then director (Mr Willie Fagan) to check their notified charges against those being applied to their customers," Ms Foley's statement said.
"In March of that year the director, in his regulatory role, wrote to AIB (and to all the other institutions) requiring a written undertaking that AIB was imposing only charges notified to the director under section 149. The director received written confirmation from AIB to this effect."
The Director of Consumer Affairs regulated bank charges between 1996 and May of last year, when it handed responsibility over to IFSRA, which has stronger powers of investigation. Before 1996, the Central Bank was responsible for regulating bank charges.
The bank originally estimated its liability at €14 million and said that the overcharging dated back to 1996. However, this week, IFSRA said that as the overcharging dated back two years earlier, AIB's total liability was €25 million. The authority calculated that it overcharged customers by €20 million and owed them a further €5 million in interest.
Following talks with the regulator earlier this week, AIB agreed to deposit €25 million with the Central Bank to cover consumers' claims. It has also suspended one senior official on full pay pending the outcome of Mr McDonnell's investigation.
Mr McDonnell will begin his investigation immediately and is due to be finished by mid-June. AIB could not say last night if it would publish the report, as both IFSRA and Mr McDonnell will also have a role in deciding this.
IFSRA this week told AIB that it should fund its own independent investigation into the scandal. The regulator approved Mr McDonnell's appointment.
Between 1981 and 1994, Mr McDonnell served as C&AG, a constitutional post. Mr McDonnell was born in Co Tipperary in 1932, and served as assistant C&AG before he took over the role in 1981.
Mr Larry Broderick, secretary general of the Irish Bank Officials' Organisation (IBOA), welcomed Mr McDonnell's appointment last night. "We look forward to him sharing his report with the IBOA and the AIB staff," he said.