TOUGH new rules that are supposed to protect consumers in their dealings with banks and other financial institutions have been condemned as fatally flawed even before they are finalised.

The consumer protection code, to be unveiled by the Financial Regulator next week, will introduce strict new procedures to prevent mis-selling of banking and insurance products from 1 August. But following intense pressure from banks, the new rules will not apply to the billions of euro sitting in bank deposits.

"Why does a person with 100,000 on deposit require less consumer protection than somebody else with a 10-a-month mortgage protection policy?" said Diarmuid Kelly, chief executive of the Professional Insurance Brokers Association. "It makes no sense."

Kelly said the banks would have a lot to lose if customers switched from deposits to higher-yielding investments that give better returns. He estimated that the 61bn sitting on deposit adds as much as 2.5bn to bank earnings every year.

"They've no incentive to shift customers into longerterm investments, " Kelly said. "If banks did fact-finds, they would have to identify the reasons why customers should shift out of deposits.

Now they don't have to give that advice."

Fact-finds are the cornerstone of the new rules to combat mis-selling. They require banks to leave a detailed paper trail setting out the reasons why the financial products they recommend are in customers' best interests.

However, many everyday banking products, including current accounts, overdrafts, deposit accounts and term deposits of less than one year, will be exempt.

A spokeswoman for the Financial Regulator said:

"These are generic products which are designed to have a general suitability and are not influenced by individual circumstances. Because of this, when providing these products, banks will not be required to engage in a full suitability process but will have to alert the consumer to any restrictions on the accounts, such as notice periods for withdrawals and or the availability of a lower cost alternative."

Detailed fact-finds for basic products such as deposits would be a waste of customers' time, according to a spokeswoman for the Irish Bankers' Federation.

"Suitability requirements should be proportionate to the risk and complexity of the products being sold, " she said.

Some of the most radical changes in the consumer code are aimed at protecting borrowers.

The code will ban banks from offering pre-approved loans to customers who did not ask for them. It will also stop credit card companies from unilaterally bumping up their customers' credit limits.