Some Comments on Switching
– A Regulator’s Perspective
Brussels
28 November 2008
Mary O’Dea
Consumer Director
Who we are and what we do:
 We are a statutory regulator, responsible for the
supervision and regulation banks, insurance companies
(life and general), investment managers, stockbrokers,
retail intermediaries and credit unions.
 Our role is to help consumers make informed decisions
on their financial affairs in a safe and fair market, and
to foster sound and solvent financial institutions.
Role of Consumer Director:
Includes:
 Setting and Enforcing Standards: Issuing consumer
protection rules/ requirements;
 Informing: Providing information to consumers on the
costs, risks and benefits of financial products and
services;
 Advocating: Promoting greater transparency, access
and competition in retail financial markets.
Link to Competition Policy:
The Financial Regulator and the Irish Competition
Authority are required, by statute, to pursue consistent
policies.
Personal Current Account Switching:
 The Financial Regulator plugged switching as important;
 We were an observer on an industry group that
developed a switching code;
 September 2005 - Irish Competition Authority
recommended that Financial Regulator monitor the
(then) newly introduced industry current account
switching code.
Operation of the Switching Code:
Features of the Code:
 All participating banks must open new accounts, set up
payment instructions and provide cards, etc., to
customers within 10 working days.
 They also must close old accounts, transfer balances,
and notify the new bank and third parties such as
utilities paid by direct debit, within 7 working days.
Business Current Account Switching Code
 Introduced in July 2006;
 Fundamentally similar to the personal current account
switching code.
We monitor the Code by:
 Analysing Statistics submitted by the industry;
 Conducting Mystery Shopping exercises;
 Attendance at the meetings of an industry technical
group dealing with switching issues; and
 Monitoring queries received via our consumer helpline.
Current view:
 Still too early to say;
 Switching levels look low compared to other EU
jurisdictions – however caution must be exercised in
relation to comparing data;
 EU-wide statistics (with a harmonised methodology)
might be helpful?
We also promote price transparency:
 In order to help consumers compare financial products
and services we publish cost comparisons on our
personal finance website: www.itsyourmoney.ie.
 Most popular views:
 Lump-sum deposits;
 Credit Cards;
 Regular savings products;
 Current accounts;
 Personal loans;
 Motor insurance;
 Home insurance;
 Life insurance.
 We promote these surveys through the media, via press
releases and articles
Recent data on shopping around:
Product:
Percentage that had
shopped around in the
last 5 years:
Mortgage
65%
General Insurance (e.g.
motor, home etc.)
53%
Investment Product
39%
Life Assurance
39%
Credit Card
29%
Savings Account
24%
Loan
18%
Current Account
17%
Study of Credit Cards in Ireland
(2007)
Some facts about the Irish market:
 13 card issuers active in the market;
 99.7 % of all credit cards issued are either branded Visa
(59.3%) or Mastercard (40.4%)
 Interest rates range from 9.5 % to 18.9 %;
 The three largest card issuers enjoying a market share
of 78.6 per cent;
 These three issuers are at the upper end of the range of
rates charged in the market.
Question:
How can such a high price differential be sustained in
the market, i.e. why don’t consumers cancel their highinterest cards and take out low-interest cards instead?
Our suggested answers:
 Many consumers are not aware of the interest rate
applied to credit card balances (and consequently are
not aware that better value may be had in the market);
 The credit card issuers do not compete strongly on the
ongoing interest rate charged. They offer “balancetransfer” deals instead;
 Consumers may have an irrationally optimistic view of
the likelihood that they will incur interest rate charges;
 Consumers may overestimate the degree of difficulty
involved in switching from one credit card provider to
another;
 Some consumers only use their credit cards as a
convenient payment method and not to borrow. For
these consumers the interest rate charged is irrelevant.
Some regulatory initiatives in
Ireland (1):
 Our Consumer Protection Code prohibits unsolicited pre-
approved credit facilities.
Rationale:
Some consumers will always spend up to the limit on
their credit card or overdraft facility.
(Seems consistent with the idea of “asymmetrical
paternalism” – i.e. helps boundedly rational consumers
to avoid costly mistakes but imposes little costs on
rational consumers.)
Some regulatory initiatives in
Ireland (2):
Renewal notices for home and motor insurance:
Insurance companies are required to send a reminder
notice to consumers 3 weeks ahead of the renewal date.
The notice must give the consumers the information
they need to shop around.
We considered requiring a longer notice period, (say 6
weeks) however, we believed that a longer notice
period would be less effective, because when a deadline
is distant the need for action is less urgent.
Endowment Effect and Consumer
Protection and Education
Question 1
 Can an understanding of the endowment effect help
regulators to better understand switching behaviour?
Endowment Effect and Consumer
Protection and Education
Question 2
 Can we use our understanding of the Endowment Effect
to develop better consumer information and education
policies?
Limiting Consumer Choice !!!
 Are consumers overwhelmed by the choices they face
when contemplating switching?
 E.g. Are there too many credit cards to chose from?
(Does not necessarily equate to too many providers)
 Is the pricing of credit cards too complex?
 Does the fact that we can switch anytime mean that
switching is never urgent?
 Do consumers intend to take action but do not because
of these factors?
Thank you