Oireachtas Joint and Select Committees
Thursday, 11 May 2017
Select Committee on Finance, Public Expenditure and Reform, and Taoiseach
Central Bank and Financial Services Authority of Ireland (Amendment) Bill 2014 [Private Members]: Committee Stage
Before us for consideration is the Central Bank and Financial Services Authority of Ireland (Amendment) Bill 2014 sponsored by Deputy Pearse Doherty. It is a Private Member's Bill that was referred to the select committee by order of the Dáil on 6 October 2016. The joint committee has reported to the Dáil on its detailed scrutiny of the Bill in accordance with Standing Order 141(2). I welcome the Minister for Finance, Deputy Michael Noonan. I understand Deputy Pearse Doherty and the Minister wish to make introductory remarks. I invite Deputy Pearse Doherty to make his opening remarks first, as sponsor of the Bill.
Gabhaim buíochas leis an Leas-Chathaoirleach agus cuirim fáilte roimh an Aire agus baill den Roinn fosta.
As we know, in March 2014 FLAC, Free Legal Advice Centres, published a report entitled, Redressing the Imbalance. It was a study of legal protections for consumers of credit and other financial services in Ireland. My office engaged with FLAC to produce the Bill based on its report. The Bill was introduced in the Dáil in September 2014. It is appropriate for me to thank FLAC for its engagement with me in the preparation of this legislation. I also thank the Financial Services Ombudsman for his ongoing engagement and that of his officials in discussing matters that arise in dealing with the legislation. I thank Members on all sides who supported the passage of the legislation on Second Stage and all members of the committee who unanimously agreed that the Bill should proceed to Committee Stage because of the sense of urgency attached to its core element, the six-year rule. In October 2016 the Bill was passed on Second Stage. That timeline tells us how long the issue has been ongoing. There are many important issues dealt with in the Bill, but the six-year rule for the making of complaints against financial institutions is the most pressing concern for me and many others.
It was a coincidence, I am told, that on the eve of the Bill being passed on Second Stage the Government published the heads of a Bill. Again, on the eve of the Bill being taken on Committee Stage the Government published its Bill. Having said that, I welcome publication of its Bill. It is very comprehensive legislation that will need scrutiny which we will give it when it reaches Second, Committee and Report Stages. I am glad that some of the core issues I presented in my Bill in 2014 are included in the Government's Bill. We can discuss them as the day passes.
The issue is one of timing. The question we have to ask ourselves is should we proceed with Committee Stage of this Bill or should we allow the Government's Bill to proceed to Second Stage? That question has been discussed and answered by the committee. Given the urgency of the matter and the recognition that there are countless people who cannot access redress and compensation through the Financial Services Ombudsman from their financial providers because of the six-year rule, the committee recommended that we proceed with this legislation and that its measures be incorporated into the Government's more comprehensive legislation which will provide for the merger of two public bodies. I hope that is the way we can proceed today.
I look forward to hearing from colleagues about their concerns. There was valued engagement during the pre-legislative scrutiny stage. I thank the officials of the committee for their work in preparing the report on behalf of the committee that scrutinised my legislation and the heads of the Government-sponsored Financial Services and Pensions Ombudsman Bill.
Subject to the agreement of the committee, if proceedings on Committee Stage are not concluded by 11.15 a.m., it is proposed that the sitting be suspended to facilitate members in attending the exchange of views with Mr. Barnier, chief negotiator of the task force for the preparation and conduct of negotiations with the United Kingdom, and resume at 1.30 p.m. and that we continue until the proceedings are concluded. Is that agreed? Agreed.
I call on the Minister to make his opening remarks.
On the proposed timeline and the recommencement of the sitting at 1.30 p.m., because of the day that is in it, I may not be able to come back at 1.30 p.m. However, I will try to provide the Minister of State at the Department of Finance to continue the proceedings, if it is in order to do so.
I thank Deputy Pearse Doherty and his team for the very hard work they have put into this legislation. In general terms, it is good and necessary legislation. There are, however, aspects of the Bill which, from the Government's point of view, require amendment. I thank the Chairman, committee members and staff for facilitating us this morning. The best way for me to be helpful is to read the speaking note with which the Department of Finance has provided me. We can then have a more informal conversation. The note outlines how we might proceed in dealing with the content of the Bill.
I fully understand the intention behind the Sinn Féin Private Members' Bill which seeks to provide for the strengthening of the functions of the Financial Services Ombudsman, the consumer complaints procedure and related matters. While, in overall terms, I support the intention behind the initiative, the provisions, as set out, do not fully achieve that aim. I did not oppose the Bill on Second Stage as I agreed in principle with what Deputy Pearse Doherty was trying to achieve - to improve the legislation in place for consumers. The Government's Bill to amalgamate the Financial Service Ombudsman and the Pensions Ombudsman was published yesterday. It is more comprehensive and provides for a number of improvements to the existing legislation. It will also amalgamate the offices of the Financial Services Ombudsman and the Pensions Ombudsman and consolidate and update the existing legislation, including the extension of the time limits for complaints, a singular concern of Deputy Pearse Doherty. With the agreement of the House, I hope to take Second Stage of the Bill in the Dáil by the end of the month. I have been told informally that the Business Committee will facilitate that request. I do not think we are setting up for a long delay. I am as interested as the Deputy in having the Bill enacted by the Dáil and the Seanad before the summer recess.
The Government's Bill has the potential to strengthen the functions of the Financial Services Ombudsman under the new body, the Office of the Financial Services and Pensions Ombudsman, and to improve the consumer complaints procedure for consumers of both pensions and financial services. I am requesting Sinn Féin to work with me and my officials in order that we can focus on the Bill I have proposed which is broadly in line with the principles underpinning Deputy Pearse Doherty’s Bill. I make that formal request, although I know that the Deputy has an alternative view on how we should proceed. I will not, however, enter a quarrel about it either. If the Deputy is not open to accepting this offer, I am agreeable, in the interests of achieving the best result for the consumer, to working with him and the committee on the draft Bill, bearing in mind that it will have a more limited impact. However, in doing so I point out that if the Government's Bill, published yesterday, is enacted, it will repeal Part VIIB of the Central Bank Act 1942, part of which will be amended by the Deputy’s Bill. Therefore, my Bill, if enacted as it stands, will render the Deputy’s Bill ineffective by repealing the provisions his Bill is proposing to amend. This is in accordance with the recommendations of the pre-legislative scrutiny committee. In working with the Deputy in incorporating his Bill into mine, the principles of his Bill will be retained in the Government's Bill. I am sure he will agree that there is a finite number of resources in the public service and that the taxpayer is entitled to their best use. It is for that reason I urge Deputies to enable us to concentrate fully on progressing the larger and more comprehensive Bill through the Oireachtas to benefit consumers.
For this reason I urge the Deputies to enable us to concentrate fully on progressing the larger, more comprehensive Bill through the Oireachtas, which will benefit consumers.
I note that Deputy McGrath has proposed amendments. As these are stand-alone amendments, they can be dealt with during the debate on their merits in the ordinary way.
If we are to proceed now, I must highlight that there are some sections in the Bill that I can broadly support: section 1, section 2, as amended, section 3, as amended, and perhaps, after discussion, section 6. However, there are other sections which I believe require amendment and in respect of which I expect to work with the committee, particularly with Deputy Doherty, to find a solution. I agree in principle to section 4, which concerns time limits, but I believe it requires amendment to bring it more into line with the proposals in the Government Bill. I also believe that the appeal from the Ombudsman should continue to lie to the High Court and that it is in the best interest of consumers that it should do so.
If the Bill proceeds to Report Stage, I will propose amendments on that Stage to the principles in section 4, which concerns time limits, and in sections 7 and 8, which concern appeals, while perhaps flagging that I might need to make some more minor amendments to section 5, which concerns mediation, and other sections.
I wish to turn my formal speaking note into a conversation. The programme for Government commits us to amalgamating the offices and functions of the Pensions Ombudsman and the Financial Services Ombudsman, and the more comprehensive Bill published yesterday does that. Deputy Doherty's Bill, which is very important legislation, amends, strengthens and makes more amenable to public concerns certain sections of the existing legislation. Apart from the normal differences of opinion one would have about sections in a Committee Stage or Report Stage debate, I do not have a problem with the principles of what Deputy Doherty is advancing.
One option is to proceed with the Government legislation and incorporate the principles of Deputy Doherty's Bill into that debate, and I can assure him that we will approach it on the basis that we would seek to incorporate the essentials of his legislation. The alternative is to run two Bills in tandem and have the Government Bill proceed to Second Stage and Deputy Doherty's Bill proceed through Committee Stage, taking into account the caveats I have expressed about some sections that would need to be amended. The principal difficulty that would arise from running the two Bills in tandem is that while in some areas of Deputy Doherty's Bill the destination he outlines is the same as that at which the Government wishes to arrive, his method of getting there is different. He bases his amending legislation on the Central Bank Act 1942, while the Government legislation is based on a different legal premise. If down the road the Government Bill were to replace Deputy Doherty's Bill, if enacted, his Bill would have to be annulled in its entirety because it is built on the Central Bank Act 1942, which we would annul to get to our new legal base for the more comprehensive legislation. I am prepared to proceed on either basis. I know it is not easy to produce Private Members' Bills, that an awful lot of time and effort is put into them and that they are one of the elements of being in opposition. The successful delivery of a Private Members' Bill is a fairly serious piece of work in any parliament, particularly the Dáil. If we are to go ahead today, I can facilitate Deputy Doherty very quickly with the sections I have outlined with which we do not have an issue. Then, if I can get a commitment of openness to amendment, either today or on Report Stage, to the sections with which I have difficulty, we can go along that way.
There is one other difficulty, of which I am sure Deputy Doherty is aware, but I will point it out anyway. If his Bill passes all Stages in the Dáil and the Seanad and becomes the law of the land on these issues, the complaints initiated by persons under Deputy Doherty's legislation would have to proceed to their legal conclusions. While the base legislation would be overtaken by the more comprehensive Government Bill, the particular complaint, as initiated, would have to proceed under the rules as outlined in Deputy Doherty's Bill. Therefore, one complainant might proceed on a particular legal basis under the Government legislation while another complainant in parallel proceeds under a different complaints procedure, as outlined in Deputy Doherty's Bill. It is hard to foresee whether this would have major or minor consequences but it is worth putting on the record. I will go whichever way Deputy Doherty wants to go.
I thank the Minister for his comments. I am familiar with the issues the Minister raises about some of the sections, and we can see from the legislation published yesterday the differences between the Bills. Some of the differences are minor and some are major and we can discuss them as we go through the sections of the Bill. I am very conscious of the Minister's comments to the effect that the passage into law of this legislation, if it passes both Houses of the Oireachtas, and when the Government's merger of both public bodies takes effect, would annul the previous legislation, that is, my legislation. That is what we talked about in our committee report. The principle here is that we need to make sure that the principles within this legislation mirror the same sections in the Government's legislation. This is only about a matter of timing. I am not precious about the fact that I sponsored this Bill. I already have another Bill in Committee Stage, which I have discussed with the Minister of State, Deputy Eoghan Murphy, regarding the timing of that legislation because of the pressures within the Department in dealing with other issues. I am not precious about this at all. I have left it until this Stage. The reason I believe it is important to proceed at this point is that there are people locked out of the system. I am not convinced the Government's legislation will be enacted in law before the summer recess. I wish to flag to the committee the intention, when we conclude this and if it passes Committee Stage, that it would go to Report and Final Stages in the House before the end of this month. We have secured space in the Seanad to proceed with this legislation at the start of June, so there is a pathway to allowing it to become law, which would allow for people who are locked out of the system at present. Yesterday I spoke to a woman who cannot get access to the Financial Services Ombudsman or seek redress from the financial institution because of this rule and is waiting impatiently for this legislation.
I welcome the Minister's comments. I believe the issue of how we proceed has already been discussed by the committee, and we had the benefit of a letter from the Minister stating he would publish the legislation. What we need to do now is make sure that the sections, particularly the likes of sections 4 and 6, are mirrored in the Government's legislation. For that purpose, I am very open to amendments and want to hear what the Government and indeed other Deputies here who have an opinion on this issue have to say to make sure we proceed.
Section 1 contains the definition of "the principal Act", which means the Central Bank Act 1942, and "the Act of 2004", which means the Central Bank and Financial Services Authority of Ireland Act 2004. It is just a standard definitions section.
I have an amendment on section 2. Following the pre-legislative scrutiny and discussions with stakeholders, I have decided to propose deleting the section. The original intention - one I still support - is to make sure that the Financial Services Ombudsman is about protecting the small consumer, individual customers and small businesses. It should not be swamped by large cases that are more suited to the commercial court. The issue in my proposal was that the interpretation of it could be to exclude sole traders in charities. That was raised during the pre-legislative scrutiny. Sole traders could be excluded from accessing the services of the Financial Services Ombudsman. That is something that would run counter to my intention. I am glad that we have started a discussion about possibly looking at a two-tier process at some point in the future. However, by deleting the section we would be reverting back to what exists in law at this point in time.
Currently, the definition of a consumer for the purpose of the ombudsman is:
(a) a natural person when not acting in the course of, or in connection with, carrying on a business, or
(b) a person, or group of persons, of a class prescribed by Council regulations;
When we look at the council regulations, we see that in 2005 the council used its powers to expand the definition of a consumer to include a person or group of persons but not an incorporate body with an annual turnover in excess of €3 million. For the avoidance of doubt, a group of persons includes partnerships and other unincorporated bodies, such as clubs, charities and trusts not consisting entirely of bodies corporate. The definition also includes incorporated bodies with an annual turnover of €3 million or less in the financial year prior to the year in which the complaint is made to the ombudsman, provided that such a body is not a member of a group of companies having a combined turnover greater than the said €3 million. There was a further clarification in 2014.
The original section in this Bill arose as a result of FLAC highlighting some court cases that judges suggested should have been directed towards the commercial court instead of the Financial Services Ombudsman. That said, given the pre-legislative scrutiny, I want to delete the section in the Bill, which would mean reverting back to the existing definition of a consumer as laid down in the original Act and as prescribed by the regulations of the ombudsman's council.
This issue arose at the pre-legislative scrutiny stage of the process. The Department of Finance's point of view was that it would have unintended consequences of narrowing the definition to exclude small businesses such as sole traders and holders such as charities. The Department has engaged extensively with the Office of the Parliamentary Counsel on the definition of "consumer". That definition is more comprehensive. In particular it defines the term "consumer" as meaning in general terms individuals, small businesses, charities, clubs and so on. On reflection, Deputy Doherty is moving an amendment to delete the section. I welcome that very much and can agree to it.
I move amendment No. 1:
In page 3, line 31, to delete all words from and including “deleting” and in page 4, to delete lines 1 and 2 and substitute “adding the word “undue” between the words “without” and “regard” ”.
This section seeks to strike a balance between the appropriate nature of the ombudsman's office and the legal realities of the world we live in. The original wording of the Bill sought a large change by deleting the words "in an informal manner" and "without regard to technicality and legal form". My amendment today attempts to refine this approach by simply adding the word "undue" in order that the Financial Services Ombudsman will act "without undue regard to technicality and legal form". The key here is that while the office must be approachable, it must be correct in its duties. I am confident that the amendment strikes the right balance. I note that this proposal is also to be found in the Government's newly-published Bill. We had quite an extensive discussion on this during the pre-legislative scrutiny. This amendment arises from that discussion.
I note that the Deputy has proposed an amendment to section 3. He has explained the impact and intent of the amendment in his contribution. I note the current amendment no longer seeks to delete the words "in an informal manner" from the original Act and introduces the word "undue" to read as "without undue regard to technicality and legal form". I very much welcome this amendment to section 3 of the Deputy's Bill as it resembles what is included in the Government legislation. The provisions outlining that the ombudsman needs not have regard to technicality or legal form is considered by the ombudsman to be a very valuable and fundamentally important provision upon which reliance can be placed, while the ombudsman nevertheless complies with the requirements of natural justice. I recognise that this text, which is also in the Government Bill, allows for informality while also acknowledging that such informality is to be bound by an appreciation for due process and fair procedures. Therefore, I support this amendment.
I move amendment No. 2:
In page 4, to delete lines 8 to 12 and substitute the following:
“ “(b) Occurred either—(i) 6 years from the date of the act or conduct giving rise to the complaint or reference, or
(ii) 3 years from the date on which the person making the complaint first became aware of the said act or conduct, but only where the complaint is against financial services providers of financial products of a duration of greater than 6 years,
whichever date is the latter, or”.”.
Again, I re-emphasise what I said earlier on. The Government has its own piece of legislation to merge the Financial Services Ombudsman and the Pensions Ombudsman and has accepted that this issue of the six-year rule will be part of that legislation. It is important to try to mirror what is in both pieces of legislation in order that there is a seamless provision of services from the Financial Services Ombudsman and a clarity to how that would operate. We have looked at the Government's heads of Bill and listened to what came out of the pre-legislative scrutiny. We have proposed an amendment based on that.
This is one of the most important sections of the Bill. It is the core area and the cause of the urgency to have this legislation enshrined into law. The original proposal based on the FLAC report was to move to a two-year rule, which is two years from the date on which a consumer becomes aware of the act or deed. As we speak, there are families across the State for whom this is a very real and pressing issue. As I mentioned, I published this Bill back in September 2014. We are two and a half years on since the publication of this Bill. Even now, I am personally engaged with the Central Bank of Ireland on what I believe is another payment protection insurance scandal that has taken place, with thousands of customers of certain different institutions having been mis-sold products who did not originally come under the scope of the Central Bank's investigation. There are potentially thousands of people who fall into this bracket. As I mentioned, I had a conversation about this just yesterday and we have had a number of individuals contacting us just this week on this key area.
I know that there is cross-party support with regard to dealing with this issue. I also want to note that Deputy McGrath has legislation on this issue that also proposes removing the block of the six-year rule. The amendment today changes it from two years to three years, which is in line with what was suggested by both Deputy McGrath and the Minister, Deputy Noonan. The three-year rule would apply to consumers who otherwise would be excluded by the six-year rule. I have also taken steps in this amendment to address concerns about other aspects of the section. I have inserted the term "products of duration of greater than 6 years" to make sure that renewable products that have a life but not necessarily a term of six years are eligible for the new time limits. I have also decided not to use the Government's wording of "ought to have known". We discussed this during the pre-legislative scrutiny. I feel that that terminology included in the legislation would only act in favour of the banks and to the detriment of the consumer.
I believe that this amendment is in line with what the Government's heads of Bill outlined. I note that the Government has adopted a different approach because it is coming from a different legal basis. There are some significant differences, particularly with regard to "ought to have known", but I see no reason why that needs to be included. I think that would provide a loophole for financial institutions to take cases against individuals and against the Financial Services Ombudsman by saying that an individual should have known that the tracker mortgage issue was in the public domain and so on, which would therefore continue to see people locked out of the system.
I thank Deputy Doherty for his explanation. I think I can go some of the road with him.
I note that the Deputy's Bill as published provides for an additional time limit to make complaints up to two years from the date of knowledge. The heads of the Bill published last September provided for a possible three-year discoverability period for complaints with regard to long-term service. This is now reflected in section 52 of the Government Bill that was published yesterday. In that respect, the extension from two to three years for long-term financial services included in Deputy Doherty's amendment is to be welcomed. The extension from two to three years is in line with what we have published now, and I thank Deputy Doherty for that part of the amendment. I still have some difficulties with the section and I will explain what those are now.
The Government Bill provides an extra discretion to the ombudsman to extend the time limit that would benefit consumers in cases where it is just and reasonable, similar to the provision that exists for pension complaints. Furthermore, the Private Members' Bill is silent as to whether the new time limit applies only prospectively - that is into the future and the conduct that occurs in the future - or retrospectively, to conduct that occurred in the past. It could be that it applies to conduct that occurred in the distant past and these claims may be difficult to defend.
Section 51 of the Government Bill published yesterday provides for all pension products and for long-term financial services where the duration of the service is five years and one month or more and not subject to annual renewal or cancellation unilaterally. Complaints can be made either six years from the date of the conduct giving rise to the complaint, or three years from the earlier of the following two dates. The first is the date on which the person making the complaint first becomes aware of the conduct and the second is the date on which that person ought reasonably to have become aware. The phrase is "ought reasonably to have become aware" of that conduct.
Section 51 also states that complaints can be made within "such longer period as the Ombudsman may allow where it appears to him or her that there are reasonable grounds for requiring a longer period and that it would be just and equitable, in all the circumstances, to so extend the period". The new time limit for long-term financial services will apply to complaints made to the ombudsman about conduct that occurred during or after 2002 if "the long-term financial service concerned has not expired or otherwise been terminated more than 6 years before the date of the complaint". Furthermore, it is a common feature of these discoverability tests and in other ombudsman's schemes that the date runs from "the earlier of the date on which the person making the complaint became aware, or ought reasonably to have become aware, of the conduct giving rise to the complaint". This is a standard objective test of knowledge and a necessary provision to prevent the possibility of an open-ended time limit. The respondents would have a right to a reasonable time limit in which they are expected to keep records and defend any complaints. I am happy to discuss this provision in more detail in the later stages of my Bill.
If this section proceeds to the next Stage, I wish to put the committee on notice that I will bring forward amendments on Report Stage covering the issues such as time limits and other technical drafting changes. There may be other technical or related issues that the Department of Finance needs to explore further on Report Stage with a view to bringing forward an amendment. Effectively, I agree the main thrust of the amendment is to extend from two years to three years and I welcome that, but there are other issues which need to be amended. Rather than trying to patch it up now, we should leave that to Report Stage. I also indicate that my officials will be available to Deputy Doherty and his support group to discuss Report Stage amendments in advance to see if we can reach agreement on them rather than bouncing them on the committee at Report Stage sight unseen. If we could proceed on that basis, we could get over this difficulty.
That is very helpful. I noted after reading the Government's published legislation some of the areas which the Government had included which I have no issue with, and which would give greater clarity. For example, the extra discretion for the ombudsman is something that should be included. The drafting of this would allow for it to be retrospective, but if that needed to be clarified as is in the Government's Bill, then that is not an issue. The issue of the distance passed is one of debates, but it is not something that I would die in the ditch over.
There are two other areas which are probably areas where there are significant differences and where we need to engage to try to find common ground. The method used by the Government in its legislation is the long-term financial product or service. A long-term financial service in the definitions has to not be subject to annual renewal. This is a core or very important issue on which I gave an example in pre-legislative scrutiny, where if somebody, for example, took out home insurance seven or eight years ago and renewed it every year under the definition, that would not be a long-term financial service, and therefore would not come under the subject of the section which deals with the six-year rules. There is an issue there that we can tease out with officials.
The other issue is one I have raised before. I am not convinced at all that "reasonably ought to have become aware" should be included in this. I am very conscious that financial institutions, with their firepower and resources, turn up to the ombudsman with junior and senior counsel for very minor issues. This creates an arguing point for them since it is very hard to define as to when somebody "reasonably ought to have become aware" and it can only work to the benefit of the financial institution. If there was wrongdoing by the financial institution and if that was noted or became known within the six years or three years, then the ombudsman should be able to hear that case and determine that. I have concern about that issue, but I welcome the Minister's suggestion that we sit down and discuss an amendment on that for Report Stage to make sure that the provisions in this section mirror what the Government intends to do in its Financial Services and Pensions Ombudsman Bill 2017.
The principles of natural justice would provide that the financial services firms should have a reasonable right to defend themselves. It follows from this that we cannot have an unlimited time limit. That would not be reasonable for the financial services firms which are putting a defence in place. The reason for the form of words that we have included in the Government legislation is that it is the form of words in the UK legislation. In Australia, which would be a similar common law country, the financial service ombudsman's records are kept for six years under the consumer protection code. It is hard to go back beyond the legal requirements to preserve records.
We can work on the basis that the amendment proposed by Deputy Doherty is acceptable to me, but there are outstanding issues. Part of the outstanding issues are matters that I do not think there will be difficulty in reaching agreement on, taking into account the comments made by Deputy Doherty, having read the Bill as published yesterday. I think we will be able to accommodate those. There is a real issue around the "might reasonably have known" point. We need some cut-off, whether it is this form of words or through a different legal form of words. I will commit to my officials being available to Deputy Doherty and his advisers to see if agreement can be reached. While we are proceeding very rapidly at this point, this is a potential sticking point. There are real issues here and we will see what comes from the engagement with officials.
Otherwise, I am happy to proceed.
This section deals with mediation and seeks to place a greater onus on financial institutions to engage in the Financial Services Ombudsman mediation process. Again, this legislation was published in 2014. Since then, we have seen a change in the way the Financial Services Ombudsman is operating. There are far more cases of mediation, which is to be welcomed. There are also far more positive results in the service in recent times. That process is voluntary at present and this section puts an onus on the financial institutions, where they refuse to mediate, to give a reason for their refusal to engage in the mediation process.
I note that section 5 of the Bill seeks to put greater pressure on the financial service provider to engage in the mediation process. The Government Bill published yesterday seeks to strengthen the role of the Financial Services Ombudsman in promoting engagement in the mediation process and continues to provide for mediation as a tool for the ombudsman in cases where he sees fit. In addition to this, I note that the Deputy’s Bill was published at a time when mediation in the Financial Services Ombudsman was at a low base. Deputy Doherty acknowledged that in his contribution and indicated that he is well aware of a change of practice in the ombudsman's office, where recourse to mediation is a more normal option than it was in the past.
As members are aware, the Financial Services Ombudsman last year introduced a dedicated dispute resolution service to resolve disputes through mediation at an early stage and with the minimum formality necessary. The recent annual report of the FSO highlights that mediation is now the first and preferred option for resolving complaints. A total of 2,378 complaints were resolved through mediation between 1 February 2016 and the end of 2016. There has been a very big change of practice since we considered this initially and since Deputy Doherty drafted his Bill. There is far greater recourse to mediation, and it is the norm rather than the exception to have recourse to mediation in the first instance. We have reflected that practice in the new legislation sponsored by the Government and it should be reflected in Deputy Doherty's Bill as well.
I wish to notify the committee that I will bring forward amendments covering the issues set out in my Bill and discussed here now, as well as other related matters including technical drafting changes, on Report Stage. However, that is not to subtract from anything proposed by Deputy Doherty in section 5. It is to add to it and to take account of current practice at the Office of the Financial Services Ombudsman.Again, we can engage in advance on the detail of the provision.
Section 6 relates to the findings of the Financial Services Ombudsman. The section broadens the range of findings the ombudsman can make. Currently, the Financial Services Ombudsman can only rule a complaint to be substantiated, partially substantiated or not substantiated. This section would extend the range of findings to upheld, substantially upheld, substantially rejected or rejected. It might appear minor but it is an important change as it would allow us to better assess the performance and the outcomes of the Office of the Financial Services Ombudsman. At present, a consumer could have their case effectively lost, but the ombudsman would have to declare it partially substantiated even if no award was made to the consumer. That is because on the basis of a technicality, a minor issue, the ombudsman felt the consumer was correct in that area but in the major charge that was levelled against the financial institution the ombudsman found against the consumer and it would be recorded as a partially substantiated case.
I am conscious that this change would cut across the name and shame provision which was introduced to allow the Financial Services Ombudsman to name in his report financial services providers who consistently have rulings against them. I intend to table an amendment on Report Stage to section 57BS of the Central Bank (Supervision and Enforcement) Act 2013 to ensure that the broadened range of findings by the Financial Services Ombudsman is reflected in respect of the provision for naming and shaming. I am happy to engage with officials on the drafting of that amendment. It was also suggested to me that the ombudsman could be empowered to go further and publish findings, edited to protect identities. The Minister has talked about looking at some of the provisions in Britain in terms of the drafting, but in Britain the findings are published in the format of Mr. or Mrs. C versus the Bank of England and so forth. If the committee considers this would be a worthwhile amendment, I would be happy to consider it too.
Section 6 aims to allow for a greater range of findings on completion of an investigation. Currently, the possible findings are limited to a finding that the complaint was substantiated, not substantiated or partially substantiated. The Bill allows for findings of upheld, substantially upheld, substantially rejected or rejected. The Government Bill goes further and proposes that decisions will be published, which is more transparent even though the names would be redacted. Transparency and better reporting are the objective of the Bill and I support the intention behind this provision. Any change to the determination categories would need to operate harmoniously with the name and shame provision, in order to be effective in increasing transparency. As currently drafted it could operate to limit the name and shame provisions, and I am aware that is not the Deputy's intention.
Other steps have been taken in the Government Bill published yesterday to improve transparency in reporting, including the introduction of preliminary determinations, more detail and publication of determinations for financial services complaints, and more transparent information in the annual report on all investigations, including those terminated and settled. If this section proceeds to the next stage I wish to put the committee on notice that I may bring forward amendments covering the issues mentioned, and other technical drafting changes, on Report Stage. We have a common interest and a common purpose to make the findings at adjudication level more transparent and to enable the provision of additional information to the public at large as well to both sides in the complaints procedure. The Bill published by the Government goes further and is more refined in the options given. I wish to amend this section to import many of the provisions in the new legislation published yesterday into this Bill. Again, it is a matter which the Deputy is amenable to consider. We can have a preliminary discussion at official level before the draft Report Stage amendments are provided to the committee, if that is agreeable to the Deputy.
I move amendment No. 3:
In page 4, between lines 34 and 35, to insert the following:“Amendment of section 57CI of PART VIIB of the Principal Act
7. Amendment of section 57CI of PART VIIB of the Principal Act (as inserted by section 16 of the Act of 2004), in subsection 1 of section 578CI of PART VIIB of the Principal Act (as inserted by section 16 of the Act of 2004) is amended by inserting the following after subsection 5:"(5A) The Financial Services Ombudsman Council shall review on an annual basis the maximum compensation ceiling prescribed by the regulations of the Financial Services Ombudsman Council, with particular regard for the number and scale of upheld or substantially upheld complaints where the loss incurred on the complainant exceeds the maximum compensation ceiling under the current regulation.".".
I commend Deputy Doherty on getting his Bill to this point and on helping to encourage the Government to publish its Bill. The Minister has referred a number of times to the Government Bill that was published yesterday.
However, our function today is to improve and assess Deputy Doherty's Bill. We will see where everything ends up ultimately in terms of his and the Government's Bills, but today's focus is on Deputy Doherty's Bill.
This is a straightforward amendment. The issue was raised by the Free Legal Advice Centres, FLAC, and relates to the maximum compensation ceiling. The amendment's provisions are designed to reflect the reality that, in some cases, the loss can exceed the maximum compensation ceiling. I am seeking to give the council the power to review it on an annual basis.
I welcome the Deputy's amendment. It is a sensible one. There are clear examples in the tracker mortgage issue where the upper limits might not be appropriate, particularly where people have lost their family homes through repossession. I have no problem with accepting this amendment.
I understand that the intention of this amendment is to provide that the ombudsman would review the maximum compensation payable and compare it with the losses suffered in the complaints received. This is unnecessary, as the Government's Bill allows for full rectification to be granted in addition to compensation for inconvenience.
The proposed amendment might be based upon a misunderstanding. The existing legislation allows for a number of redress tools, including rectification and compensation. Rectification makes good the loss to consumers and there is no ceiling. Compensation, which can be additional to the rectification, can be high or low depending on the specific facts of the case. I understand from the ombudsman that the ceiling of €250,000 has not caused problems in directing compensation.
Compensation can be high or low depending on the impact on the individual, for example, the inconvenience caused to consumers by the misconduct of the provider. This is usually determined by the specific facts of the case. The Financial Services Ombudsman's office has advised that, to date, it has not found that the ceiling of €250,000 causes problems in directing compensation.
Examples of where rectification could be in excess of €250,000 include a direction by the Financial Services Ombudsman that a financial service provider apply a lower rate of interest to a mortgage loan, pay an insurance claim, pay a life insurance claim and pay a critical illness claim. Other important directions might include amending credit history information and ordering an insurance company to reinstate cover and-or continue cover over the next number of years. For example, in the ombudsman's 2016 annual review, there was a direction to a provider to rectify the conduct complained of by immediately buying back an investment that had been mis-sold for the original amount of €250,000, together with a direction for payment of an additional sum of €7,000 in compensation.
At the pre-legislative scrutiny meeting on 27 October, the ombudsman drew the committee's attention to the fact that he could direct a financial service provider to pay compensation of up to €250,000 and that he could also direct rectification. He highlighted that such rectification could be significant, as it can involve putting a person back to the position in which he or she was before the complaint arose. In some instances, such as where a home or life insurance policy has been voided or an income continuance or life insurance claim denied, this is potentially more important for the complainant than compensation.
In terms of reviewing the maximum compensation ceiling that the Deputy refers to in his proposed amendment, there is provision to enable the increase in compensation amount in the Government Bill, which was published yesterday. This is a new power given to the Minister, one that is provided to the council under existing legislation, to adjust and update the maximum compensation amount if necessary. Under section 4 of that Bill, for example, the Minister for Finance may, whether on his or her own initiative or at the request of the ombudsman, make regulations. Section 4(2)(h) states that such regulation may "specify a maximum amount of compensation that the Ombudsman may award to a complainant under section 60", which relates to complaints and redress in respect of financial service providers.
Furthermore, in the existing legislation and in the Bill published yesterday, there are provisions to carry out reviews. Section 25(3) of my Bill on the publication of other reports states: "The Ombudsman may, from time to time, prepare and submit to the Minister such other reports in relation to the performance of the functions under this Act as he or she considers appropriate." Section 25(4) enables the Ombudsman to "publish reports on other matters if he or she considers that it would be in the public interest to do so". If this section in Deputy Doherty's Bill proceeds to the next Stage, I wish to put the committee on notice that I may propose Report Stage amendments covering the issues mentioned above and other technical drafting changes or other related issues.
My key point is that, if someone's complaint relates to serious financial loss and is upheld, it is not the compensation that makes good the loss, but the ombudsman's rectification power. It is only after making good the loss in full that the compensation issue arises. Without trying to rewrite law, it seems that the compensation piece is analogous to punitive damages in civil actions. The case is settled and the compensation due is paid, but because of the bad behaviour of the party against which the complaint is made, an additional sum of money should be paid to allow for the fact of such bad behaviour, which is a loose lay man's description of how punitive damages arise. It is the same in this context.
There is nothing in the existing legislation or Deputy Doherty's Bill that would prevent a full rectification to be made to a complainant. According to the ombudsman, the head room of €250,000 is sufficient for any further compensation provisions along the lines that I have described to be paid. The legislation published yesterday has gone further again in teasing out certain aspects of the compensation provisions that might be necessary and how they might be kept up to date. As such, I request that Deputy McGrath reflect on the matter between now and Report Stage. I will get my officials to dialogue with him on whether we can incorporate the essential request of his amendment in the Government's Report Stage amendments.
I thank the Minister for his response. I acknowledge his core point that the rectification can be 100% of the loss and that the compensation is in addition to that. The amendment does not require the council to increase the compensation limit. Rather, it provides that there would be an annual review. The Minister has stated that his Bill provides for a possible increase in the compensation limit. I make the point again that we are not examining the Government Bill. Rather, we are examining Deputy Doherty's and seeking to improve it as best we can. It is ahead of the Government Bill in the queue and where everything will end up is unknown.
I take the Minister's key point that the loss can be rectified in full and that the compensation is, in effect, additional to that. As such, I will withdraw the amendment, but I reserve the right to retable it on Report Stage.
I am not trying to have a discussion on the Government Bill, but it is a fact of life that the Bill was published yesterday. It deals with some of the issues that are now arising in this context. I am signalling that I will table Report Stage amendments along the lines of what is incorporated in the Government's Bill. Some of them will cover the ground that is a matter of concern for Deputy McGrath.
We will try to accommodate his approach in the Report Stage amendments. I will ask my officials to dialogue with him in advance of tabling any such amendments.
I think there will be disagreement between committee members in respect of section 7. As timing is an issue, we want to find as much common ground as possible before dealing with the issues again in the Government's legislation. The provisions contained here have started a debate on an independent appeals mechanism that is accessible to the consumer. Unfortunately, when the Financial Services Ombudsman finds in favour of a financial institution, an appeal to the High Court is beyond the reach of many people.
During the pre-legislative scrutiny stage, we heard about the drawbacks that could be associated with this section. However, we also heard that the existing mechanism is expensive and intimidating for ordinary customers. The instinct and motivation behind this section is to make access to the justice system affordable for the greatest possible number of people. I listened to the debate during pre-legislative scrutiny and recognise some of the arguments as to why, despite the best of intentions, this section could be considered a double-edged sword. I acknowledge the changes that are taking place within the Office of the Financial Services Ombudsman. It has been issuing preliminary findings since the start of the year. It is early days yet but at least it gives people a type of appeals mechanism, although it is not independent. We left the section in nonetheless.
There are two parts to the section. The first provides that people would have access to the Circuit Court instead of the High Court. The second pertains to the timelines that would be laid out for persons seeking to appeal a decision, which would increase to 60 days. We have included that provision because, if an ordinary consumer is preparing a case for the Circuit Court or High Court and finds that the ombudsman has ruled against him or her, a period of 21 days is very restrictive in terms of getting a legal opinion, lodging an appeal, securing a solicitor and securing junior or senior counsel. It is a very costly journey for ordinary consumers and families. That is why we provided for an extension of the period to 60 days.
I am conscious that there is very strong opposition to this provision from Government. I do not intend to push the provision on moving from the High Court to the Circuit Court. The debate was worth having and we should continue to discuss having a more accessible, independent appeals mechanism. Let us look at the changes being made within the ombudsman's office since the start of the year and how they can be strengthened. I would, however, emphasise that the extension of the period from 21 to 60 days is important. The courts set out their own timeframe but they are also obliged to respond to the legislation laid down by these Houses. I hope we can find an area of common ground in respect of this provision as there is serious merit in it.
Although there is disagreement on this section, Deputy Doherty's contribution just now has narrowed the ground considerably. I welcome that. The best way to proceed is by reading the formal speaking note. Then we can chat about it and see if we can narrow the ground further so that we can arrive at agreement on Report Stage.
The purpose of the ombudsman is to be a free alternative to the courts system for consumers. The intention of section 7 may have been to improve consumer protection by offering a de novoappeal in the Circuit Court to avoid the expense of the High Court for consumers. That was a worthy intention. However, I have some concerns.
A de novoappeal to the Circuit Court would involve the ombudsman as a notice party only, meaning that if the financial services provider appealed a decision which favoured the complainant, the complainant would have to defend the appeal in the Circuit Court, with all of the attendant expense. The provider is in a considerably stronger position both to go to the Circuit Court and to succeed, due to the lack of inquisitorial powers of the Circuit Court. In the existing statutory appeal to the High Court, the complainant is shielded by the high threshold which is applied to the statutory appeal and by the fact that the Financial Services Ombudsman can be a party to the complaint, and thus take the role of defending its own decision. Neither of these factors operates in a Circuit Court de novoappeal and so the real effect is not only that the provider is in a stronger position on a case-by-case basis, but that the existence of the threat of an appeal by the provider operates as a deterrent to consumers generally.
In addition, in a High Court appeal, the ombudsman can defend his decision as a party to the statutory appeal. This has the effect of protecting the consumer from the costs or threat of costs of a High Court appeal made by the provider. Furthermore, a re-hearing could allow for a situation whereby people use the ombudsman as the first step in litigation before inevitably going before the courts, and taking their case again to the courts if unsuccessful. This could result in a floodgate scenario for the office, which would have implications for staffing and the effectiveness of the office to process and determine complaints. Time limits for appeals are currently set within such limits as the relevant court allows.
Finally, while a Circuit Court appeals process may appear to benefit the consumer as it is cheaper, it should be borne in mind that the Circuit Court can only award in cases up to €75,000, where the ombudsman can award compensation up to €250,000. In addition, the Circuit Court will not hold an investigation, as the ombudsman can. Instead, the consumer will be obliged to prove his or her case de novoto the civil standard, without the benefit of the ombudsman who can look into all the codes of practice and regulatory standards in addition to the facts of the case. On balance, therefore, I do not believe that an appeal to the Circuit Court would provide greater consumer protection.
If this section proceeds to the next stage I wish to put the committee on notice that I may bring forward amendments covering the issues mentioned above and other technical drafting changes on Report Stage. I may also look again at the time limit for appeals to court. I welcome Deputy Doherty's latest intervention. In a movement towards further agreement between us, I could commit to looking again at the time limit of 21 days versus 60 days between now and Report Stage. I will examine the matter seriously and will get my officials to have a discussion with the Deputy. It might be feasible to have an advance on the 21 days while still being short of the 60 days.
I am conscious of the opposition of the Government and others in respect of the High Court appeal being moved to the Circuit Court. I am aware of how financial institutions try to use every possible mechanism to thwart the efforts of the Financial Services Ombudsman. We need to be very careful about any changes. This is evident even in respect of the tracker mortgages, where one financial institution is appealing right the way through the system.
I believe that this debate is worth having and that we need to continue to monitor an accessible and affordable independent appeals mechanism. I do not intend to push the issue of the Circuit Court and High Court as it would delay the legislation. I would welcome engagement with the officials on the issue of having a 21 day or 60 day interval. I understand that if we lay the provision down in legislation then the courts will be obliged to act on that basis. I have no problem with the section being opposed. If it were opposed then I reserve the right to bring forward an amendment on Report Stage to deal with the timeframe for the Circuit Court as opposed to the High Court. If the section were opposed it would also delete section 8, which is consequential on section 7.
In view of the intervention I can agree on engagement between the Department of Finance officials and the Deputy and his advisers on the 21-day interval as against a 60-day interval. I can agree it on the basis that the intent of the dialogue would be to move up from the 21 days. I can go that far.
I shall oppose the section. On my opposition to the section I understand that the Deputy will withdraw the section and the consequential section 8. Is that right?
I move amendment No. 4:
4. In page 5, between lines 25 and 26, to insert the following:“Requirement to hold oral hearings
9. Where a complainant has made a request to hold an oral hearing, and where there is a discrepancy in the account of events between the parties that is fundamental to arriving at a conclusion, the Financial Service Ombudsman shall be obliged to hold an oral hearing.”.
Again, this issue was raised by the Free Legal Advice Centres, FLAC, in its 2014 report entitled Redressing the Imbalance, which is a study of legal protections available for consumers of credit and other financial services in Ireland. The report dealt with the issue of an oral hearing.
I am conscious that my amendment may have resource implications for the Financial Services Officer, FSO. My amendment provides that where a complainant makes a request for an oral hearing to be held in respect of his or her case and where, in that circumstance, "there is a discrepancy in the account of events between the parties that is fundamental to arriving at a conclusion, the Financial Services Ombudsman should be obliged to hold an oral hearing". My amendment seeks a significant change as it removes, in certain circumstances, the ombudsman's discretion to hold an oral hearing. FLAC has made a strong case for the change to be made. I have come across cases where complainants wanted an oral hearing but it did not subsequently happen. My amendment is worth consideration.
The amendment is worth considering. The law states, indeed the High Court and Supreme Court rulings make it clear, that where an oral hearing is warranted then one must take place. The amendments give clarity and certainty about the issue. There may be concerns that this provision could be frustrated by financial service providers. The amendment used the phrase "fundamental to arriving at a conclusion," which somewhat leaves a discretion with the Financial Services Ombudsman to appoint. The amendment has been carefully worded and I have no problem accepting it.
I understand the intention of Deputy McGrath's amendment, which seeks to oblige the ombudsman to hold oral hearings in certain cases. Oral hearings are best left best to the discretion of the ombudsman, in my view. This is common practice in many public bodies. For examine, An Bord Pleanála has the discretion to hold a hearing in any case of an appeal, referral or an application for permission or approval of strategic infrastructural development. In the case of strategic infrastructural development, it will normally direct the holding of an oral hearing unless the application can be readily assessed by way of written submissions. In appeals and other cases, it will normally grant an oral hearing only where this will assist its understanding of a complex case or where significant national or local issues are involved.
The reason I referenced An Bord Pleanála is that many of us who have served on local authorities will be familiar with the oral hearing provisions where the board of Pleanála has discretion to grant an oral hearing. What I have put on record are the considerations they take into account.
To begin, I am advised that the Financial Services Ombudsman agrees that it is very important to hear complainants. For this reason the FSO introduced new procedures and entirely reoriented its processes so that complainants can discuss their case at length with a dispute resolution officer who is trained to use mediation techniques to deal with the case. The new dispute resolution process is considerably more consumer friendly than the earlier more formal adjudication systems.
Notwithstanding the above, the adjudication process is still available to the parties if the case is not resolved in dispute resolution. During the investigation process, the ombudsman may determine that an oral hearing is required based on the circumstances of the case. It is the experience of the FSO that providers are usually well represented at oral hearings and, therefore, it can be a difficult process for the complainant who must undergo cross-examination in an adversarial environment. As a result, these are exceptions rather than the rule. The courts have, on a number of occasions, endorsed the ombudsman's decision regarding whether to hold an oral hearing.
Additionally, it would seem contrary to fair procedures to allow the complainant only to dictate when an oral hearing was held. There is a risk that the proposed amendment would have to allow the provider to also demand an oral hearing. If this were the case, it is the FSO view that complainants would be put to a significant disadvantage and potentially discouraged from taking cases in the first place.
I am advised that there is relevant case law that ruled that “The calling of experts on each side is an undesirable feature of a proceeding which is designed by an Act of the Oireachtas to be informal and expeditious.” Another case found the following:
It cannot be the case that the FSO has an obligation to hold an Oral Hearing merely because there is a conflict of fact. The requirement to hold an Oral Hearing can only arise where the fact in issue cannot be resolved without such Hearing. It seems to me that the FSO has a significant discretion in considering this issue to decide whether in fact the holding of an Oral Hearing would be likely to be of any assistance.
One of the requirements behind the Financial Services Ombudsman legislation is to provide an out-of-court redress facility. This helps the consumer to have a low cost and informal forum to have a case heard.
Deputy McGrath's proposed amendment requires an oral hearingwhere a complainant has made a request to hold an oral hearing, and where there is a discrepancy in the account of events between the parties that is fundamental to arriving at a conclusion. I appreciate what he is trying to achieve but this may have a negative impact on the consumer as there are always discrepancies at an initial stage when a complaint is made. I am advised that this could inadvertently impose a requirement for oral hearings in all situations.
The premise of the Bill is to support informal redress procedures. I am sure that the Deputy will agree that the best way to achieve this is through mediation. As I referred to earlier, the statistics from the FSO's annual report shows that mediation is now the first and preferred option for resolving complaints and has contributed to successful outcomes in the office. My Bill, as published yesterday, strengthens the role of the ombudsman in promoting engagement in the mediation process. It continues to provide for mediation as a tool for the ombudsman in cases where he sees fit. This allows for the ombudsman to take a more proactive approach to encourage participation.
Additionally, the High Court and Supreme Court have noted on a number of occasions that the FSO must follow fair procedures, that oral hearings may form part of those fair procedures and that the FSO should determine whether an oral hearing is required, taking into account all the circumstances of the case.
The ombudsman does hold oral hearings where necessary and it is more suitable that the power is maintained in a discretionary manner. While I appreciate the Deputy's desire to achieve a solution in difficult cases, it is clear that mediation should be the primary route. For that reason I do not support this amendment. If this section proceeds to the next Stage, I wish to put the committee on notice that I may bring forward amendments covering the issues mentioned and other technical drafting changes.
The differences are narrow enough. I favour oral hearings but the power to have an oral hearing should be vested in the ombudsman and should be invoked at his discretion analogous to what the Planning Appeals Board does now. Oral hearings can serve a very useful purpose but I do not want to make it mandatory on the ombudsman to have oral hearings on every case for the reasons I have outlined. Also, in terms of where the amendment is silent, it seems to me that if the right to request an oral hearing is vested in the complainant, the company or person against which the complaint is made might be able to invoke analogous rights and also insist that they have the right to go for an oral hearing. That will then complicate what is intended to be an informal process. The Deputy might reflect on it, as I will do, between now and Report Stage and we will come back and talk about it again.
I thank the Minister. That is quite a comprehensive response. I will not press the amendment. I would make the point that the amendment is crafted in a way that it does not make it mandatory. Even where the complainant requests an oral hearing, there is discretion on the part of the ombudsman because it only applies where the difference or discrepancy in the evidence is fundamental to arriving at the conclusion. It is not in every case that a complainant would want to have an oral hearing but we should not take the human element out of proceedings. Some people like to have the opportunity to make their case in person, face to face with a human being, and I do not believe we should remove that. I accept that mediation is the preferred route and can be successful in many cases so I will withdraw the amendment and reserve the right to resubmit it for Report Stage.
I thank the Chairman and his staff. I thank all colleagues on the committee, and particularly the proposer of the Bill, Deputy Pearse Doherty. It is a very good piece of work and in different circumstances, if we did not have another Bill in parallel of a more comprehensive nature, we would be largely accepting what the Deputy is proposing.
I echo the thanks to the Chairman and the staff in regard to the process heretofore. I thank the Minister and the officials. I am sure we will engage in the coming days to agree amendments on Report Stage. I thank the other members for engaging and supporting the passage of this legislation.
My understanding is that the Business Committee is considering reports from committees and that Report Stages of Bills should also be selected in that. If that were the case, it might be possible that it would be the last week of this month. However, if it is to be taken as Private Members' business it would be the week of the 23 May.