Mr. Paul Joyce:

I thank the committee for the opportunity to address it. We made our original submission in August in response to the Department's consultation paper. Today we have an updated submission which has been circulated to members and I will summarise its points.
As we understand it, the purpose of the draft Bill is to do two things. First, it is to bring the buyers of debt or credit agreements into the realm of retail vetted firms so that the code of conduct on mortgage arrears and-or the consumer protection and Central Bank codes will apply to such entities. Second, it is to ensure that customers of these providers or entitles will have access to the complaints mechanism of the Financial Services Ombudsman.
There are two issues to consider. First, is the means chosen to achieve this in the Bill adequate? Second, the issue of much more concern to us, is this particular approach adequate in terms of consumer protection, in the first place, both for existing providers and any buyers of debt?
Let me deal with the first issue of whether the means chosen are adequate. We looked at the submission of Mars Capital and noted some concerns about the mechanisms chosen. There is an exemption in the Bill for so-called securitisation specified purpose vehicles. Mars Capital made the point that the acquirers of loan portfolios in this country are, by and large, almost all SSPVs as they are called. It suggests that if this approach were continued with, it would exclude most acquirers of debt portfolios from the ambit of the scheme.
Mars Capital also made a second observation, which it thinks is important, that the entity of a retail credit firm, as we were called, was first introduced back in 2008 to cover the sub-prime lenders that were involved in mortgage lending, by and large. Mars Capital made the point that retail credit firm, as a category, would not be relevant to the acquirers of credit agreements because they do not, by and large, tend to engage in further lending activities. Those are two important points that the Department needs to look at and they might be of interest to the committee in terms of the mechanics of the Bill, as announced in the consultation paper.
Assuming the Bill attains the objectives of applying the CCMA or consumer protection code and the FSO scheme to the acquirers of loan portfolios, we wondered whether this will be adequate protection for the customers of these institutions. As the committee will probably know, FLAC addressed that point in a report this year called Redressing the Imbalance. The report examined the inadequacy, as we would see it, of the code of conduct on mortgage arrears to protect borrowers in arrears under their mortgages, whether the mortgage is with the original creditor or the debt has been sold to an acquirer of loans.
We looked recently at 12 months of statistics on mortgage arrears on restructures and repossessions. We would be of the view that it was a worrying time in terms of the number of repossession applications that were made and the slow progress tackling proper reschedules.
Recently the Governor of the Central Bank addressed a MABS conference, as mentioned on page 2 of the submission. He suggested:

The process of tackling the unresolved arrears cases has been that lenders have not been allowed to neglect or long-finger the numerous cases of non-cooperating borrowers. This has had the undesirable side-effect of crystallising into legal proceedings cases of non-cooperation for which a negotiated cure could have been arrived at.

His comment could be interpreted as suggesting that non-co-operation is the principal reason for legal proceedings and if only borrowers had co-operated, a solution would have been found to their arrears difficulty. That is not our experience right now. There are some non-co-operating borrowers. We have seen a number of instances where borrowers have co-operated with the mortgage arrears resolution process for some years but have found since the revision of the code in 2013 that a demand for greater payment has been made. Equally, there are lenders who are not complying with the MARP. There are also lenders who adjudicate borrowers in arrears as non-co-operating on the flimsiest of grounds, in our view, and in some cases to short-circuit the MARP.
We understand from the Governor that the Central Bank is planning to undertake inspections of lenders in order to monitor compliance with the CCMA in the second half of the year.

However, this process does not appear to have started.

The Governor of the Central Bank, in his recent speech, stated the Central Bank could not to attempt to oversee each case, although the bank would, he said, shortly embark on a further probe and continue to hold regulated lenders to account for any deficiencies. However, in a reply to a parliamentary question from Deputy Michael McGrath in July last, the Minister for Finance confirmed that no sanctions had been imposed on any lender for failure to comply with the code of conduct on mortgage arrears, CCMA.

We are also seriously concerned that provision has not been made for any recognisable appeal to an external third party in the case of adverse decisions by lenders under the code of conduct on mortgage arrears. Such decisions could relate to declining to offer a borrower an alternative repayment arrangement, offering the borrower an unsuitable repayment arrangement or declaring that the borrower is not co-operating. There is a right of reference to the Financial Services Ombudsman but that office has made abundantly clear that, while it will consider complaints related to issues of process, it does not believe it is in a position to overturn the substantive decisions of lenders. It is clear that a number of lenders have come to understand this to mean that provided they comply with the processes and abide by the rules, they have little to fear. Many borrowers have been left facing repossession proceedings in the Circuit Court as a result. Some 10,000 new repossession cases have been taken in the past 12 months. We are awaiting Central Bank figures on the third quarter. The point we are making in this regard is that even if the Bill is introduced and the acquirers of loan portfolios become retail credit firms or equivalent and the CCMA and other codes apply to them, borrowers will still not be properly protected in the circumstances I have outlined.

On access to the Financial Services Ombudsman, FSO, which is the second object of the Bill, people will have a right to make a complaint to the FSO if they are unhappy with the conduct of a regulated financial service provider. This will clearly include the acquirers of loan portfolios. A significant number of the customers of the credit acquisition companies are fearful that, in time, the terms and conditions of their loan agreements may be varied to their detriment. Our submission refers to a recent decision of the Financial Services Ombudsman in the case of Millar and the Financial Services Ombudsman. Time does not permit me to discuss the case in detail, other than to note that it involved a couple with a number of mortgages, all of which were on a variable rate. The lender, Danske Bank, which had taken over the business of National Irish Bank, increased the variable rate of the mortgage loan. The couple argued that this increase was not tied to any change in European Central Bank interest rates and, therefore, was not justifiable. The FSO rejected the couple's complaint on the ground that a clause in the mortgage agreement allowed for alterations in the rate of interest in response to market conditions, rather than in line with general market interest rates. Interestingly, the High Court recently overturned this decision. We understand, however, that the FSO may appeal the High Court's decision.

Holders of variable rate mortgages are particularly vulnerable to future changes in their terms and conditions and the rates of interest applied to their loans. There is an obvious concern that loans which have been sold on to the acquirers of loan portfolios will be sold on again to other companies in a complex web of transactions that may in some way mirror what happened when sub-prime mortgages were packaged up as investments. This practice led in many instances to the deep personal debt arrears crisis we are experiencing. The further a loan travels down the road as a packaged entity, the greater the danger that the borrower or consumer will find the terms of the loan being varied to their detriment. What is required, therefore, is not only legally binding legislation about the status of credit acquisition companies, but also a regulatory regime and Financial Services Ombudsman service that will vigilantly monitor the companies in question and deal with complaints in a decisive fashion.

A further issue that is not mentioned in the Bill or consultation paper is that certain sections of the Consumer Credit Act are relevant to the rights of borrowers as against creditors who have sold on the debt to an acquiring company. Without discussing this issue in great detail, we have asked whether section 40 of the Consumer Credit Act and a parallel regulation - regulation 20 in the European (Consumer Credit Agreements) Regulations of 2010 - will apply to the acquirers of loan portfolios. Essentially, this section provides that where a credit owner's rights are assigned to a third person, the consumer is entitled to plead against that person any defence available against the original creditor. We suggest that this provision be pointed out to the acquirers of loan portfolios to ensure they are aware that there are existing consumer protection measures in place to which they should be obliged to adhere and that they simply cannot step into the original creditor's shoes and attempt to vary or manipulate the terms and conditions of an existing contract.

We are concerned as to what is the status of an alternative repayment arrangement put in place under the CCMA by a mortgage lender which subsequently sells the mortgage debt on to an acquirer of loan portfolios. Will the new entity be bound by the alternative repayment arrangement which the original lender has put in place? Again, this question is not addressed in the consultation paper.

The submission provides some detail on an issue that is particularly dear to our hearts, namely, the regulation of hire purchase. We have seen that the Central Bank can reasonably quickly draft a Bill that will correctly put regulatory status on the acquirers of credit agreements, both secured and unsecured. However, it remains the case that hire purchase companies are not regulated by the Central Bank. The agreements provided by these companies are regulated by the Consumer Credit Act, under which the borrower is entitled to a written agreement. The entities are not regulated, however, and an explanation is provided in the submission as to why we believe this is the case. This Bill, which accords retail credit status or equivalent to acquirers of loan portfolios, is a perfect opportunity to regulate hire purchase companies. After all, these companies provide credit to vulnerable borrowers, in many instances at high levels of credit and using hire purchase agreements that are technical, detailed and have certain features that would require particular levels of consumer protection.