Professor Patrick Honohan:

I see these as two separate issues. I will set aside the issue of consistency for the moment but speak about the credit union and other unsecured borrowers.

There are many routes for a distressed borrower in a multi-debt situation. There are routes that have been established in legislation, such as the personal insolvency arrangements. We have always thought that the bank and the borrower have an incentive to make a deal before getting into complex arrangements. We have been encouraging this from way back, but it did not happen much. To accelerate that in the case of multiple debts, we started down this route of a pilot programme, more or less facilitated or catalysed by the Central Bank. We tried to knock heads together. We tried to get the two representative bodies of the credit unions, some of the non-bank lenders, credit card companies and the banks to come in and discuss how to deal with a borrower who has multiple debts, how to allocate the secured and unsecured debt, and how it gets divided up. A lot of work was done on that. We drew from experience, in particular, that of StepChange, a British charity that deals with distressed debt in the United Kingdom, and it came along and operated this pilot.

We found a lot of resistance from some credit unions which were a little suspicious that the banks, with their secured debt, would get an advantage in such an arrangement. Some credit unions feel that by not going into such an arrangement, they will get repaid faster by multi-debt borrowers. They are not correct.

The pilot was instructive. It showed elements that work and elements that do not work, but at the end of the day there was no agreement round that table to go ahead and consolidate this into a formal arrangement between the credit unions and the banks. Only a few credit unions participated.