John McGuinness (Carlow-Kilkenny, Fianna Fail)
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We will now deal with the report, Options for Ireland's Mortgage Market. We are joined by Ms Isolde Goggin, chairperson of the Competition and Consumer Protection Commission, CCPC. We hope to conclude this session at 3 p.m. or after that time.

Before beginning, I wish to advise the witnesses that, by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. If they are directed by it to cease giving evidence on a particular matter and they continue to do so, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against a person, persons or entity by name or in such a way as to make him, her or it identifiable.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.

I invite Ms Goggin to make an opening statement.

Ms Isolde Goggin:

I thank the committee members for giving us the opportunity to appear before them to discuss our mortgages options paper, which was requested of us under A Programme for a Partnership Government. I am joined by Dr. Cormac Keating, who led the paper's development, Ms Áine Carroll, director with responsibility for financial education and consumer information, and Mr. Harry O'Rahilly, a case officer and economist who did much of the work on the report.

The report itself is the outcome of much consultation and research we did. We talked to many different stakeholder groups, including consumer representative groups and industry players, both here and internationally. We talked to those already in the market offering mortgages and those who are not but might potentially be at some stage. We did a public consultation and commissioned research to examine consumers' perceptions and experiences of the market through focus groups. We put together all this information to develop an evidence-based analysis, which then formed the basis of the 14 actions which we believe need to be considered by the Government and policy makers.

Due to time limitations, we cannot go through every one of the actions in detail today. However, they are all contained in our written submission. I will take the committee through some of them now but we are happy to make ourselves available to any committee member who would like a more in-depth briefing.

It will be no surprise to committee members that our analysis showed the market is quite dysfunctional, both from a competition and consumer perspective. That is the legacy of the past 15 years of boom and bust. It took us a long time to get to the stage at which we are today. I am afraid our analysis is that it will take some considerable time to get out of it again. The mortgage market is tightly connected with the economy and with society. We all know the effect both lenders and borrowers can have on the stability of the banking system as a whole. It is also heavily impacted by other policies, including housing strategies, the rental market, public housing policy and policies regarding insolvencies and repossession.

Having done this analysis, we did not find any silver bullet, any more than anybody else who has examined the market over the past ten years. We do not believe there are immediate remedies that will reduce mortgage rates and fix all the other aspects we found to be dysfunctional. However, we believe there are some short-term, medium-term and long-term measures, which if implemented, will enable us to start building a mortgage market which is more competitive, stable and fit for purpose. We see the options we set out not as the end of discussion but as a starting point.

Significant consideration needs to be given by policy makers as to the type of mortgage market Ireland wants in the long run. It will be no surprise we found the market is distorted with a high concentration of a small number of players which have a high market share. There is limited competition between those lenders and a low-level of entry by new players.

The mortgage market is one which will always have to be tightly regulated. It is not in anybody's interest that it should operate as a freely functioning market with credit being inappropriately thrown into it. We believe, however, an appropriate framework of prudential regulation can coexist alongside robust competition. One does not need to be sacrificed for the other; one can have both.

There are issues around the level of competition in the market but those are not the only ones. There is significant Government involvement which can act as a disincentive to new entrants coming in from outside. There are market distortions caused by the large scale of tracker mortgages. There is a mix-up between the market for primary dwelling houses and for the rental or investment market, namely, buy-to-let mortgages. In some cases, primary homes have been used as collateral for property investment. Consumers bought houses as an investment and used the primary home as security. When the crash happened, they were left with declining asset values, falling incomes and large outstanding debt.

Our analysis also indicated there is a lack of a predictable and consistent practice when dealing with mortgage loans which have fallen into arrears. This means that banks had to have more capital in order to write further mortgages. Capital is costly and that feeds into mortgage rates. We believe the prevailing mortgage rates are a reflection of all these market characteristics.

Through consumer research, we tried to find out what consumers wanted from the market. We are trying to propose options towards building a market that is fit for purpose and serves the need of consumers. One issue that came out strongly was a big level of mistrust between consumers and lenders, particularly considering new lenders and international financial institutions. There was a tendency for consumers to go back to the names they knew from a long time with a distrust of new ones. They have seen some institutions come and go in the past and are sceptical about their level of long-term commitment to Ireland.

Consumers also have a real sense of vulnerability, which manifests itself in a number of different ways. People are quite reluctant to switch mortgage providers, even when there is clear evidence they would benefit greatly from doing so. They are reluctant to lock into long-term mortgage rates, which makes Ireland quite different from the continental market where mortgages tend to be much more based on longer terms.

That distrust and reluctance to switch has an effect on the level of competition and how effective measures would be to introduce further competition. From all the issues we have talked to consumers about, such as mortgage regulation, housing policy, arrears and repossessions, when we distilled it down, what consumers want is to be able to get a mortgage, they want certainty about what they are paying for their mortgage and they want a clear and fair process if they find themselves in arrears. They do not necessarily want no process or for the process to drag on forever but they want to be clear on the process and want to have an end date in time.

The options we put forward then are how we believe policy makers, regulators like ourselves, financial institutions all working together can create a mortgage market which meets those needs that consumers have expressed. Some of those address issues we accept are sensitive in nature but we think they need to be considered and we do not put them forward lightly.

First and foremost in order to address this point about loans for investment purposes being mixed up with loans for family homes, we need to have a national vision as to what exactly we as a nation want from our mortgage market. Are those two types of loans the same thing? Do we want the mortgage market to be there to provide ordinary working people on ordinary incomes with the ability to have homes, to pay off the loan over a number of years and end up in possession of their homes or do we want the mortgage market to function also as a sort of investment vehicle? We think those are two quite different types of objectives. At present they are tangled up. It might be that we need to separate those two out and we have put forward some options as regards that.

We have some short-term proposals. We think that increasing competition is extremely important, that more new entrants would increase competition as would building trust among consumers as to their certainty and the degree of regulation that they are assured of in moving to those new entrants. We think there is a job to be done in rebuilding our international reputation. We think there is a perception out there among the international lenders that things are worse than they are, that they are back five or seven years ago when we were in the worst of the crash. We are saying that the Department of Finance and the Department of Enterprise and Innovation could get out there and talk to international lenders and do a road show and assure people that we are working through the problems and that we are an attractive option for new entrants.

We also think a number of actions could be taken by the Central Bank of Ireland and the Department of Finance to encourage new types of lending initiatives, new sorts of lenders coming in. It does not have to be the traditional standard bricks and mortar type banks. There are other types of lenders out there, they may be a niche market at present, but we are seeing this in other countries. We have some examples as to how those kinds of innovative lenders could be, how it is done in other jurisdictions and how we might try it here. There are procedures that we would like to get involved in as regards making switching easier - for instance, moving to a more electronic form of conveyancing because conveyancing is expensive, slow and is very heavily paper based, making the process for switching between banks or lenders easier and quicker for consumers.

In the longer term we have a question as to whether the way the mortgage market is currently funded is the correct way. What we have is long-term loans going out on one side and short-term funding coming in on the other. The mortgages are being funded by deposits. We know there are other models and we looked in particular in the paper at the Danish model where the banks issue a covered bond, which is specifically for mortgages. If there is a 20-year mortgage, it is covered by a 20-year bond on the other side, so there is a match and that seems to work very well for them and brings a lot of stability and certainty to the market.

We have seen a lack of a predictable and consistent approach to dealing with those in arrears and we strongly suggest that this needs to change. There seems to be what might be termed a postcode or Eircode lottery, where the speed with which issues are resolved depends on where one is living. Different District Courts do different things, the registrars do a lot of mediation in bringing banks and lenders together. There is a great deal of variation. That impacts on consumers but it also means it increases the risk for banks and that means they need more capital to write the loans and that means the loans are most costly.

This is a very significant and complex market. We need to think very carefully about any proposed interventions or structural changes and have a detailed assessment of their implications and consequences. This is big challenge for us all. It is a challenge for members as policy makers, for us as regulators in the areas in which we would like to get involved and for the lenders as well. We feel confident that the options we have set out will at least facilitate that consideration and if further progressed, could offer both consumers and financial institutions more choice and more certainty.

Chairman, we will be very happy to take any questions from the committee.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I thank Ms Goggin. I call Deputy Doherty.

Pearse Doherty (Donegal, Sinn Fein)
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I thank Ms Goggin for her presentation and I appreciate that she, as chairperson of the Competition and Consumer Protection Commission, CCPC, has come before the committee today. Will Ms Goggin inform the committee of the consumer protection her organisation provides to clients of banks or clients who purchase financial products?

Ms Isolde Goggin:

The Competition and Consumer Protection Commission has a statutory role in consumer protection across the economy. There is also a body responsible specifically for consumer protection in the financial services area and that is the Central Bank of Ireland. Where traders are operating outside consumer protection law, that should be addressed quickly and more appropriately but we think the Central Bank of Ireland as the specific sectoral agency has the legislation and tools to investigate and take enforcement action and it may be more appropriate for it to do so. I might ask Ms Áine Carroll who looks after that area in the CCPC to amplify that.

Ms Áine Carroll:

The CCPC has a specific statutory role in terms of personal finance information and education. That would be a very strong focus for the CCPC. We work very closely with others in the performance of our functions in that area. We share information with them. We have a co-operation agreement with them and we share information.

In terms of the consumer protection angle, the Central Bank of Ireland has its consumer protection code. It has regulations and it has the enforcement tools in respect of looking at any specific behaviour that goes outside of the regulations and outside of the provisions in the code. Our role is more in terms of information and education but also in terms of having that relationship with the Central Bank of Ireland where we ensure that information on issues that are brought to our attention regarding regulated entities is passed on to the Central Bank. We do that on a very regular basis.

Pearse Doherty (Donegal, Sinn Fein)
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I appreciate that. The reason I asked that question is that there is a bit of grey area in that the role, the responsibilities are basically passed on to the Central Bank of Ireland, which carries out those functions and has a statutory function to carry out those functions. In my view, the Central Bank of Ireland does not have the resources to carry out those functions and has done a terrible job on it in the past number of years. Given that the Central Bank of Ireland is 200 staff members below what its internal documents suggest should be its staff complement, then something is giving and it is probably the consumer protection role that suffers.

We have seen scandal after scandal over the years. Ms Goggin referred to confidence in banks but confidence has been shattered. We have seen 15,000 customers wrongly taken off tracker or not put on tracker mortgages. We have seen the payment protection insurance, PPI, scandal, which has seen tens of thousands of individuals, and a court case earlier this year, which was withdrawn from the Court of Appeal, which means that the case stands, namely, that a financial company mis-sold payment protection insurance, PPI, which was not detected by the Central Bank in its assessment, yet organisations such as the Competition and Consumer Protection Commission is saying nothing about it. Given the consumer protection role of the CCPC and bearing in mind the consumer protection role the Central Bank has, is there not a responsibility for the CCPC to make people aware that a major financial institution sold a product here which has been found by the High Court to constitute mis-selling and that all the products that was sold by it, a number which runs to thousands, were sold under the exact same contract and therefore the consumers should check their contract to see if they were conned by this institution? Is that not a role that the Competition and Consumer Protection Commission should play? Does the CCPC have a statutory role or remit to do that?

Ms Isolde Goggin:

I was conferring with my colleagues. I agree with the Deputy that it is a complicated landscape but I think that is an issue for the Financial Services Ombudsman. Again that is an issue that we try to raise with others. It can be very confusing for consumers to know who to go to. We are talking to the Office of the Financial Services Ombudsman. We meet its representatives regularly and we will meet them the week after next to ensure that we are directing consumers to the right place. I will ask Ms Carroll to respond on the ombudsman point.

Ms Áine Carroll:

Deputy Doherty referred to a number of scandals. Consumers contact our organisation, so we are one of a number of bodies that consumers would contact when there are specific issues in markets.

The tracker mortgage issue has really undermined consumers' trust in the system. It is not just about compensation or redress for affected consumers but also about the Central Bank needing to take robust enforcement action in order to try to rebuild that trust in consumers.

In the course of this exercise we have found that there are serious issues in terms of trust in the system, not only of new entrants but also with the established players. For the market to move on, those things really need to be addressed.

With regard to Ms Goggin's point on the Financial Services Ombudsman, I believe this is a fairly confused space for consumers. To where do they go if they have a problem? Do they contact the Financial Services Ombudsman? The ombudsman's office will only look at a complaint if the person has already been through the internal complaints mechanism within the institution in the first place. The person then has to go back to the institution. We provide information to consumers and the bulk of the calls we get from consumers on financial products are because they want to make a compliant and they need to know where to start. I believe that work is required in this area to make the whole landscape of personal finance clearer for consumers.

Pearse Doherty (Donegal, Sinn Fein)
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I appreciate those last comments because that is the problem here; the ombudsman's office, which will be merged, has its own role in dealing with complaints and in mediating complaints. Protection, however, is in making sure that people have not been stung in the first place. It is about trying to protect individuals. I believe there is nothing to prohibit the organisation that has "consumer protection" within its title from looking at the judgment, looking at the withdrawal of the Court of Appeal decision and looking at the fact that GE Money has issued contracts to thousands of individuals. One of those contracts was taken before the High Court in a test case and was found to be a mis-sold financial product. I believe that the Competition and Consumer Protection Commission should be highlighting this and making people aware that this is an issue they should look at, and if they feel it is necessary then they should bring a case to the Financial Service Ombudsman. It is not right.

We have had the situation around the tracker mortgages and that has rightly rattled the confidence in the banking system. It started with just a couple of individuals; people who slogged it out against all the odds. They kept going and persevering and all the rest. The next thing is the gates open and it transpires that approximately 15,000 individuals have been caught in this regard. I appeal to the CCPC to look at that role, bearing in mind that it is a bit of a mess. The witnesses understand that from working in the sector, and members may understand it from being on this committee, but were I sitting at home and googling for information, I would expect the Competition and Consumer Protection Commission to hold that role. However, it really does not as it is the Central Bank that has the powers. I would be interested to know if the commission would like more of a role in consumer protection. I remember engaging with the witnesses on what we called the insurance rip-off issue. Again, the commission had no real role in that matter because the powers and responsibilities lay with the Central Bank.

I have a question on the mortgage market. The witnesses have described the market as "dysfunctional". Would they classify, or state, that there is a market failure in the mortgage market at present?

Ms Isolde Goggin:

I would say that the market is failing consumers in different respects. With our competition hats on, market failure would have a very specific meaning. The problem is that there is a lot of different groups of consumers and the market is not working for them in different ways. The immediate issue, which is what prompted the commitment in the programme for Government and which got us looking at it in the first place, is the relatively high rates for standard variable rate mortgages. This is a cohort of people who have a mortgage and are repaying at an interest rate well above the ECB rate. It is well above what people are paying in other similar jurisdictions. There is another cohort of people who are in arrears and there are non-performing loans. There is also the issue of repossessions and so on, which is a huge problem because it is one of the most traumatic things that can ever happen to somebody. The idea of losing one's home is right up there with bereavement in the stress it causes for people. There is a third cohort, which is a bit invisible, comprising the people who cannot get a mortgage. They cannot get a mortgage because the market is perceived as risky and when a market is perceived as risky the banks will lend to the most secure borrowers. The banks will lend to the people who are looking for a fairly low loan-to-value ratio and they will lend to people on good incomes. They will not lend to people who are on lower incomes or to people who are looking for a higher loan-to-value ratio. This tends to be younger people and those on lower incomes or in more disadvantaged areas.

I will come back to the issue of market failure, but in Ms Goggin's analysis, has the Competition and Consumer Protection Commission seen evidence of individuals who were able to reach the loan-to-value and loan-to-income ratios but the banks still refused to lend to them?

Ms Isolde Goggin:

It was not individuals as such. It was more like what was happening around the volume of lending on the market and the way in which it can be exacerbated by issues such as the idea of a cap on mortgage rates. That was one aspect we looked at in the course of the-----

Pearse Doherty (Donegal, Sinn Fein)
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Yes, but Ms Goggin speaks about the third cohort of people who cannot get access to the market and she has commended the Central Bank on the prudential rules of the loan-to-income and the loan-to-value ratios. If those rules are commendable, is Ms Goggin suggesting that banks are still refusing to lend to people who are able to reach the two criteria, which is the core of how banks are lending at the moment?

Ms Isolde Goggin:

Yes. I am suggesting that credit is tight. When not everyone who wants a loan can get a loan, even when they meet those criteria, the banks will tend to lend to the individuals they perceive as safer.

Pearse Doherty (Donegal, Sinn Fein)
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Does Ms Goggin have any idea of how prevalent that is?

Ms Isolde Goggin:

I am not sure. I will ask Dr. Keating to come in on this. This is something that came up a lot in the focus groups when people were discussing it, and people were quite in favour of the prudential rules because they could see the reason for them. There was, however, a feeling that it would be difficult for people to get a loan if they did not have more than that.

Dr. Cormac Keating:

With regard to the focus groups we carried out with consumers in various locations throughout the State, people were generally supportive of the prudential rules that have been introduced and they understood the reasons for them. We did not do any specific analysis on the numbers of people who were not able to get a mortgage. We would point out that one of the things we are trying to do is encourage new entrants into the market to encourage additional lines of capital and more credit into the market from additional lenders. We believe that in this way we can then service more people and address those who are not addressed by current lenders.

Pearse Doherty (Donegal, Sinn Fein)
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I want to go back to the issue of whether there is a market failure. I am sure the representatives are familiar with the Central Bank (Variable Rate Mortgages) Bill in the context of a cap on interest rates. Under that proposed legislation, which is before this committee, the responsibility would be given to the Central Bank to determine if there was a market failure, and correct me if I am wrong. The Central Bank has informed this committee that it does not want that role because it is really the role of the Competition and Consumer Protection Commission. If the Bill were law today, and given the analysis the witnesses have just done on the mortgage market, do they believe there is a market failure as defined by that proposed legislation?

Ms Isolde Goggin:

No, not as defined by that legislation. One would have to go into quite a lot more detail about what exactly the market is and which bunch of consumers we are talking about. As I have said, there are all sorts of consumers in this regard: the people who are on tracker mortgage rates who are doing very well, the people who cannot get into the market at all, and the people who are in the market but are either paying more than they otherwise would or are not able to keep up repayments due to the rates they are on. We responded to the consultation on that and it is our view we would appreciate the feeling behind the desire to cap interest rates but we do not think it would work. It would discourage people from entering the market. We believe that the long-term solution is to get secure and reputable lenders in. If the rates are capped, it is a signal to banks that there is a lot of government interference in the market and they do not like that. This has come out very clearly from the interviews conducted by Dr. Keating and Mr. O'Rahilly.

Elsewhere, banks typically react to rate caps by saying to themselves, "If I am not making the margin I used to, then it makes the lending more risky." They will withdraw credit from the cheaper products that are typically designed to bring in new customers and they will try to get higher charges from their existing customers, not through the interest rate but through different fees and so on. Basically, banks start rationing credit towards people who are more able to pay.

Dr. Cormac Keating:

We made a submission on the Bill, and as Ms Goggin has said, we believe that if the Bill were enacted, it would limit competition for mortgage loans and it would be to the detriment of consumers.

What happens frequently in markets where price caps are placed is that the caps become a target. We think that is what would happen in this case, namely, that the cap would become a target. When speaking to international lenders - the people who provide the money to the retail lenders - about how they feel a legislative proposal like this would affect their decision to provide funding into the Irish market, they were all of the opinion that this would increase the level of risk for them. If some piece of legislation like that is introduced at this moment in time, then the question arises as to what is likely to be introduced at another moment in time and that creates a risk for them and they price the capital higher.

Pearse Doherty (Donegal, Sinn Fein)
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I have two final brief questions. Reference was made to the dysfunctional nature of and lack of competition in the market. One would imagine that if the banks are all offering the same products and if there is lack of competition, then there is an opening for a bank to come in and undercut them or make profits. However, that has obviously not happened and, as a result, the normal rules or hypotheses are not playing out. Perhaps the witnesses could explain the reason for that.

I am very concerned about and very opposed to the proposal put forward that there would be a review of section 149, which requires authorisation by the Central Bank before banks can increase their fees. I cannot for the life of me understand why an organisation that has consumer protection in its title would try to give banks a free hand to increase their fees because that is undoubtedly what they would do if they did not have to go through a more rigorous process in terms of seeking pre-authorisation from the Central Bank. Could the witnesses explain the reason for that proposal? Bank of Ireland made a profit of €167 million last year. AIB made a profit of nearly €1 billion last year. Those are pre-tax profits but because of the deal Fine Gael and Labour did, the banks are not paying any tax as a result of the fact that they are allowed to carry over losses from previous years. Why is there a desire to loosen their hands in respect of fees? Surely to God if that provision had not been there in the past, we would have seen additional fees for credit cards and transactions? The technology we are using in terms of contactless payments is great but it costs one more money every time one uses the bloody contactless card. People are not aware of that. I am not sure what the Competition and Consumer Protection Commission is doing to highlight the fact that every time one buys something for a euro and one uses one's card, one pays more than a euro because there is a cost for the use of the card. Why is the Competition and Consumer Protection Commission asking that section 149 would be reviewed to allow the banks a free hand in increasing their fees?

Ms Isolde Goggin:

I will start with the concern about why we are not seeing new entrants. First, I do not wish to paint too gloomy a picture. We have seen some entry. There are now nine different suppliers of mortgage products in the market. Some of those have very small customer bases, but the fact that they are there is one of the reasons we put a lot of emphasis on making switching easier, quicker and more electronic. If one is a foreign bank or lending institution and one is looking at coming into a market, we have a few hits against us. First, we are quite a small market. Second, there is the hangover from the crash and that is why we were suggesting that we need to get out there and paint the picture that Ireland Inc. is improving, that the economy is picking up and that unemployment has gone down so more people are in employment and can afford housing and other things. We think, rightly or wrongly, that banks do not like to see a lot of Government interference in the market so the Government ownership of AIB and the proposal to cap mortgage interest rates is a disincentive. I am sorry but-----

Pearse Doherty (Donegal, Sinn Fein)
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Governments own banks all over the world and the most prominent banks in some of the best countries in terms of competition, such as Germany, Switzerland and elsewhere, are government-owned. It is not a case of one size fits all regarding government-owned banks being bad and private sector banks being good. Indeed, the private sector made a fairly big mess in this country due to unbridled capitalism and all the rest of it. How come it does not interfere with competition in Germany where the Government owns KfW, for example, which is lending to the Irish State to lend to banks and small and medium enterprises, or in Switzerland where the fourth largest bank is state-owned or in France where one of the safest banks in the world is state-owned?

Somehow, the idea of having a State-owned bank here, namely, AIB, which makes €1 billion profit each year, or has started to do so, is considered bad for competition. Who told the Competition and Consumer Protection Commission? Was it the bankers? How did the CCPC come up with that analysis?

Ms Isolde Goggin:

Absolutely, it is the bankers who are telling us that. I will ask Dr. Keating to comment further.

Pearse Doherty (Donegal, Sinn Fein)
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We should remember that the bankers in AIB have a cap on their wages of €500,000, and as soon as AIB is privatised their wages can go up. There is an incentive for bankers to say that.

Ms Isolde Goggin:

Absolutely, there is an incentive for the incumbents, but I refer to the people we were talking to who are not in the market now but might possibly come in. I accept Deputy Doherty's point that there are all kinds of different structures to mortgage markets, and if one was designing a market from scratch, one would certainly not end up with the one we have now. However, what I think people are perceiving is that it used to be that the banks were private operators and the State stepped in. The issue is whether that step will be reversed or if it is a trend that will lead to increasing State involvement. The thing that worries potential entrants is whether the State would favour its own arm over them. I will ask Dr. Keating to comment because we talked a lot with the banks that are not in the market now but might be potential entrants. The issue did arise a lot.

Dr. Cormac Keating:

When we spoke to entrants and potential entrants, both domestically and from abroad, what concerned them more was not Government ownership of a bank, because they realise Government ownership of a bank had to happen after the situation that occurred, but legislative proposals to change the market for players once they have invested.

I will go back to the issue concerning net interest margins.

Pearse Doherty (Donegal, Sinn Fein)
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I will just clarify that because it is a very important point. The point that has been made here is that the difficulty is the legislative proposals we in the Houses of the Oireachtas could introduce for privately owned banks or State-owned banks, regardless of the ownership structure, as opposed to the fact the banks are owned by the State.

Dr. Cormac Keating:

Yes.

Pearse Doherty (Donegal, Sinn Fein)
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It is really the role that the State takes on the banking sector, regardless of whether the banks are private or public, that is the deterrent.

Dr. Cormac Keating:

Yes, one of many deterrents. I will put this in context. That was one of the barriers to entry, but the single biggest barrier to entry which we found all the commentators spoke to us about, particularly potential new entrants, was the non-performing loans issue and the need to develop a credible, robust process for dealing with that. Once that has been developed, they can price risk accordingly, but because there is no process, it is difficult to price risk, and as the lenders are conservative, they price it highly. That is what caused the issue. That was the single biggest issue we found.

Pearse Doherty (Donegal, Sinn Fein)
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I thank the witnesses. I know I picked up the bits that I wanted to challenge in terms of the report but it is a very comprehensive report and those involved obviously put a lot of work and effort into compiling it. I thank them for doing it as it helps us with our overall discussion of the mortgage market.

Kieran O'Donnell (Fine Gael)
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I welcome the witnesses and compliment them on the body of work they have produced. Their role is enforcement of competition and consumer protection legislation across the economy. In recent years the enforcement of legislation invariably comes via the Central Bank itself. Do the witnesses have any role in overseeing whether the Central Bank is enforcing legislation effectively and comprehensively? During the banking crisis, questions were asked in that regard. Do the witnesses regard the legislation we have at the moment as fit for purpose in terms of white-collar crime? Could the witnesses explain their role vis-à-viswho oversees enforcement in terms of the Central Bank?

Ms Isolde Goggin:

I personally would welcome a root and branch discussion about the way we enforce white-collar crime in this country. We have serious issues which are not down to any one individual agency. I accept there have been failures of process in some agencies, but the way in which we enforce our legislation is through the courts. The Oireachtas creates offences.

For an indictable offence, we take the case to the DPP, who decides on whether to bring it to court on indictment. That is an extremely long, difficult and expensive process. It can be done. We recently secured convictions in the Central Criminal Court for cartel offences. To be honest, however, the level of sentencing between an indictable offence and a summary offence is sometimes not that different. That issue could be examined.

More and more, regulators in other countries and Ireland have powers to impose fines on bodies that they regulate without necessarily having to go through the courts. There is always the option to appeal to the courts and courts must be there as a backstop, but the Central Bank, for instance, is able to impose fines on regulated entities whereas we do not have that power. We are told that it goes with a regulated industry. When one is authorised by the Central Bank, ComReg or the Broadcasting Authority of Ireland, one is joining a club of regulated industries and signs up to its rules, including subjecting oneself to the club's fining powers. Compared with regulatory offences, we find that having to take a criminal case on indictment for everything is-----

Kieran O'Donnell (Fine Gael)
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How does the CCPC's role in enforcing legislation differ from the Central Bank's?

Ms Isolde Goggin:

The Central Bank has many fining powers. The bank can tell a body that, because it committed an offence, the bank is now fining it X. It could be several million euro.

Kieran O'Donnell (Fine Gael)
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In what sort of situation would the CCPC take someone to court?

Ms Isolde Goggin:

In our recent case, which involved a flooring cartel, a whistleblower told us of that person's belief that there was a cartel in the industry. We carried out searches and dawn raids. An immunity applicant then came forward and was willing to give evidence in return for immunity. We produced a file that we sent to the DPP. It took us approximately two years to get to that point, but the whole process took about five years from start to finish. I am sorry, as I do not have the exact dates in my head, but I believe that it took us around two years to investigate and then we sent the file to the DPP.

Kieran O'Donnell (Fine Gael)
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What new legislation on white collar crime could be introduced?

Ms Isolde Goggin:

One of the measures that we would like to see is the ability to impose civil fines, those being, fines imposed based on the civil burden of proof, which is the balance of probability, rather than on the criminal burden of proof, which is beyond a reasonable doubt. The latter is very difficult to achieve as regards white collar crime. It is also an expensive way of operating. For example, it took us two years to investigate the flooring cartel, with 200 separate investigative actions in total and 41 witnesses lined up. That is a significant expense.

Kieran O'Donnell (Fine Gael)
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If someone approached the CCPC in the morning about a white collar crime, for example, embezzlement, could the CCPC bring a case under civil law?

Ms Isolde Goggin:

Absolutely not.

Kieran O'Donnell (Fine Gael)
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Why not?

Ms Isolde Goggin:

We do not have the power to impose any kind of civil fine. Our powers are criminal law only. We have been told that the ability to have civil law powers is confined to regulators in regulated industries where a sort of club is formed.

Kieran O'Donnell (Fine Gael)
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Hypothetically speaking, if a series of transactions in a bank were, to say the least, suspect, would the CCPC be able to get involved if civil law powers were available to it? Some people have more regard for the impact on their pockets than for possibly doing jail time. Many believe that, if they have enough resources behind them and a matter falls under civil law, they can take it to court and get off on a technicality. A civil fine would be based on the balance of probability rather than reasonable doubt.

Ms Isolde Goggin:

Yes.

Kieran O'Donnell (Fine Gael)
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In terms of white collar crime, is Ms Goggin saying that there is no legislation allowing for a fine to be imposed under civil law as opposed to criminal law?

Ms Isolde Goggin:

There is for regulators but not for us. If there was a breach of the Central Bank's consumer code of practice or the specific legislation that it enforces, it could impose a civil fine. ComReg could probably do it in the telecoms sector. So could the Commission for Energy Regulation, CER. As a general body with powers that cross the whole economy, however, we do not have those powers.

Kieran O'Donnell (Fine Gael)
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We should follow up on that, Chairman. It is a weakness.

My last question is on the Danish housing model and how Denmark developed its market. Is Ms Goggin saying that the model, under which long-term loans must be matched by long-term funding, applies across all of the home loan market?

Ms Isolde Goggin:

If the Senator does not mind, I will ask Mr. O'Rahilly, who is the expert, to answer.

Mr. Harry O'Rahilly:

I thank the Senator for his question. Mortgage banks in Denmark are responsible for mortgages, but there are also universal banks. One can get a mortgage from a universal bank, which is like our banks, or from a mortgage lender.

Kieran O'Donnell (Fine Gael)
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A building society effectively.

Mr. Harry O'Rahilly:

Not quite in terms of the ownership structure. In a building society, its members would own it.

Kieran O'Donnell (Fine Gael)
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The operating models would be similar. Anyway, continue.

Mr. Harry O'Rahilly:

The Senator is correct, in that there are identical maturities for bonds and loans. This induces considerable stability within the system. During stressed market times, many deposits could be withdrawn from a universal bank, which would create a liquidity problem for it. Since bonds are not callable, though, the investors cannot just take them out at will. As this provides a great deal of stability, there is reduced risk, which results in a lower cost of funding, and that lower cost can be passed on to the consumer.

Kieran O'Donnell (Fine Gael)
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Are they more competitive than the universal banks?

Mr. Harry O'Rahilly:

We asked that question. There is a level of competition between them, but we need to drill down further into the information.

Kieran O'Donnell (Fine Gael)
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Has Denmark had that model for many decades or is it new?

Mr. Harry O'Rahilly:

The model has evolved over many years. It emerged following the Great Fire of Copenhagen approximately 200 years ago when, over the period of a weekend, 6,000 people became homeless. It was decided that a system that was robust, would last into the future and would be able to provide mortgage finance and loans for all of the citizens of Copenhagen was needed. That is how the system started and it has evolved since.

Kieran O'Donnell (Fine Gael)
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Who owns these banks?

Mr. Harry O'Rahilly:

I am not 100% certain about the ownership of all of the mortgage banks, but some are private and some have government ownership.

Kieran O'Donnell (Fine Gael)
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Some are state owned.

Mr. Harry O'Rahilly:

I would have to revert to the Senator on the matter if I am to be certain.

Kieran O'Donnell (Fine Gael)
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In terms of rents and so forth, does the CCPC have concerns about funds' level of ownership of the rental property market, particularly in Dublin? Is this issue appearing on the CCPC's radar?

Ms Isolde Goggin:

The level of ownership-----

Kieran O'Donnell (Fine Gael)
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I refer to he level of ownership that many of the larger funds - dare I say it, vulture funds - have of the private rental market, particularly in Dublin. Has it appeared on the CCPC's radar?

Ms Isolde Goggin:

We would have concerns in the sense of ensuring that people have the same protections regardless of who owns the loans or from whom they are renting.

I meant to revert to the Senator regarding the Danish model. We are not proposing that the whole system be changed overnight. Rather, we are proposing that there be capacity within the system, particularly through the Central Bank and the Department of Finance, to undertake pilot schemes on these ideas and see how they work. For instance, the Financial Conduct Authority in the UK has a scheme that it calls a regulatory sandbox whereby someone can try something without contaminating the rest of the system. That was the context in which we were examining some of the other models.

The rental property issue has not appeared on our radar, but we would be interested in hearing from the Senator if it has appeared on his or if there are issues for consumers.

Kieran O'Donnell (Fine Gael)
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Okay.

Rose Conway Walsh (Sinn Fein)
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I thank the witnesses' for their report and presentation. I will pick up on a number of points. I have major concerns about the number of repossessions as well as the number of mortgages in arrears. The latter is more than 90,000. Following on from Senator O'Donnell's questions, what consumer protections are there for people who are in arrears and are petrified? People cannot be asked to trust a system when many of them do not even know who owns their mortgages.

They just wait for the letter to drop through the door to tell them and they have no certainty as to what the process is or what will happen, so there is a huge job of work to be done there. What protection can the Competition and Consumer Protection Commission offer them, in particular where mortgages are sold off to vulture funds?

Ms Áine Carroll:

I am happy to take the Senator's question. Regarding the issue of vulture funds and where loan books were sold, we have been very vocal that the consumer protections that applied to the consumers at the time they took out the contracts are retained, regardless of ownership. What has come across from the work that has been undertaken on repossession - Mr. Keating may want to comment on this as well - is that it is precisely that uncertainty the Senator spoke about that has emerged as the issue. In our introduction, our chairperson said it is like a postcode lottery. It also depends on who one's lender is. Those two issues need to be considered. For consumers who have sleepless nights and who fear their house might be repossessed, they have no clarity as to what the process is or how long it will take. This is why one of the options we have outlined is that the system be examined to give people more certainty in order that even for people who are in that horrible position of their financial situation not having changed and not being able to reach any kind of deal on repayments with the bank, at least there is a resolution to it. From a consumer perspective, that horrible spectre of potentially losing one's house has been hanging around some people for years, and it is not fair to consumers to leave them in that position. The system therefore needs to be much clearer for people, and State supports need to be in place to help them through that system as well.

Rose Conway Walsh (Sinn Fein)
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Where does Ms Carroll see the responsibility for this? Does it lie with the Central Bank or is it in-----

Ms Áine Carroll:

There are a number of different players in the matter, but the Central Bank's code of conduct on mortgage arrears has been largely successful in giving consumers certainty over the initial period of arrears. However, after that ends, they are into a very complex legal framework. I will bring Mr. Keating in to comment on some of the options we think could work to help to improve the situation for consumers.

Dr. Cormac Keating:

The Central Bank has done much work on the reasons there are so many people in so many different levels of arrears. There are people in arrears and then there are deep arrears. There are probably around 30,000 in arrears of more than 720 days. The key finding is that people get themselves into this terrible situation by effectively putting their heads in the sand and not engaging with their lenders or with other services that could provide help to them. We examined this and thought how we might be able to change it and incentivise people not to do it. One of the suggestions we make in the paper is to introduce this idea of a suspended repossession order so that when one goes to court and the case is kicked down the road repeatedly, the judge instead gives an order to issue a suspended repossession order. This focuses the mind very quickly and causes the consumer to get in touch with his or her lender and hammer out a deal, and deals are being hammered out. There have been probably 120,000 restructured mortgages in recent years. Banks are willing to engage. We need to get the lenders to engage as well.

Rose Conway Walsh (Sinn Fein)
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Banks are not always willing to engage. I have been to some of these courts and have seen no engagement whatsoever. I think the problem is that people are frozen with fear because of the uncertainty of what will happen next and the lack of clear process that was cited. Dr. Keating points out that the court-based system for repossession is not good and that a special court would be useful, but judging from Deputy Doherty's questions to the Minister about this, I am not convinced there is any intention that court will ever see the light of day. Will Dr. Keating point out why it would be beneficial and what cost would be forgone if such a special court did not come into play?

Dr. Cormac Keating:

I have no statics on the cost that would be forgone. What we have seen in other areas, on the commercial and competition side of things, are specialist courts set up to deal with cases within those remits, and what has happened in those cases is that the turnaround times, in terms of the efficiency with which the cases are dealt and the outcomes achieved, are much better given these specialist case management processes through specialist courts. We make that suggestion as we think it would help filter things through.

If one examines the statistics and the flow of repossession cases vis-à-visthose that are decided, there is a huge flow coming through and a big logjam, so it is just building up this stock and creating a huge problem. We suggest that we try to make the system more efficient.

Rose Conway Walsh (Sinn Fein)
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Does Dr. Keating think the number of repossessions will increase in the next 12 months?

Dr. Cormac Keating:

I cannot say whether or not it will increase. We say in the paper that there needs to be greater certainty surrounding the process for dealing with non-performing loans. A number of lenders and potential entrants have said they do not care if it will take three years or five years or whatever as long as they know a stable, robust, consistent process is put in place. Then they can price risk accordingly and see this is as a market they might enter.

Rose Conway Walsh (Sinn Fein)
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Does the Competition and Consumer Protection Commission talk to the vulture funds regularly about what they are doing? Does it communicate with them?

Dr. Cormac Keating:

No, we do not communicate with the vulture funds. Certainly, there has been no communication with the so-called vulture funds from the perspective of this piece of work we have done. We have engaged with potential new entrants, that is, people who will provide additional lines of credit into the mortgage market.

Rose Conway Walsh (Sinn Fein)
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Yes, but as more and more packages are sold off, even with AIB now and the direction in which that is going, and we have had representatives of various banks appear before us, the bigger share of the non-performing loans will be held by vulture funds and there will be a huge gap there if people such as the witnesses with a consumer protection role do not engage with the vulture funds, although they are outside much of the legislation as it is at present. Can the witnesses not see that as a big void?

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I ask the Senator to conclude.

Rose Conway Walsh (Sinn Fein)
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Perhaps the witnesses could briefly address that. Is there not going to be a big void-----

Ms Áine Carroll:

Regarding the vulture funds and whether we see a continuation of chunks of non-performing loans being sold off, it is even more important that certainty surrounding repossessions is put in place before that happens. Otherwise, one is closing the stable door after the horse has bolted because if that certainty is not there, vulture funds, by their very nature, will probably go for the quickest and least humane solution to repossessions, and this could lead to catastrophic outcomes for people. If a system can be agreed as a national policy on repossessions that addresses, in so far as it can, a balance between the rights of the borrowers and the rights of the lenders, doing that in advance of further sales of loan books would be a good place to start.

Rose Conway Walsh (Sinn Fein)
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Yes, that would create a real urgency on the matter. What is a non-compulsory purchase order?

Dr. Cormac Keating:

I do not know.

Rose Conway Walsh (Sinn Fein)
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Is a possession order the end of the road for a borrower as far as the witnesses are concerned?

Dr. Cormac Keating:

No, a possession order is not the end of the road. That is why we suggest the introduction of a suspended possession order. That would provide an opportunity to engage. One will find such orders in other jurisdictions. We referenced the provision in the UK. The UK introduced these suspended possession orders. The length of time given by the judge for the lender and the borrower to engage creates this momentum and leads to a positive outcome for all sides.

Rose Conway Walsh (Sinn Fein)
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I will make one very final comment. I would certainly agree that a suitable forum is required but, in that context, it is short-sighted to be selling a 25% chunk of AIB without first having a robust discussion on the matter.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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We will conclude our meeting now. I thank the witnesses for their presence and their contributions. Before we adjourn for the next session, I want to pick up a point that was made about some borrowers having their heads in the sand. In fact, I have come across a huge number of borrowers throughout the country who have their heads well out of the sand and are being treated outrageously by the banks. When they turned to consumer protection, they believe that the agencies responsible for consumer protection, be it the Competition and Consumer Protection Commission or the Central Bank, abandoned them. They turn up in these repossession courts and are confronted by the heavyweight lawyers etc. on the side of the banks and they are there representing themselves.

All the registrar is doing is being fair and kicking the can further down the road. I have come across many cases in which the individuals and families concerned have tried desperately to engage with the banks. The banks just ignore them. Every single bank would have a list of cases like that where people are being ignored. The consumers in this area and in respect of the tracker mortgages feel totally abandoned, as if nobody cared about them in the slightest. That is a frightening position for anybody in a republic to be in. It is just inconceivable that they would be left in this way. There have been so many deaths by suicide, families broken up and so on, yet the State is doing nothing.

David Norris (Independent)
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Hear, hear.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I would certainly like to see the consumer section, whoever is responsible, be it the Competition and Consumer Protection Commission or the Central Bank - if it is not clear where the responsibility lies, then we must clarify it. For God's sake, something must be done to extend protection to those who need it most and who are most vulnerable. They do not all have their heads in the sand. They are trying to fend for themselves and their families and feel outweighed by the State and the legal muscle of the banks.

Deputy Pearse Doherty addressed the issue of section 149 and the banks and their fees. I do not think the banks should be allowed to take one further cent in fees from anybody. They have enough. They are back now as hungry as ever for profits and money and somebody needs to put a stop to them. That is my personal view.

I thank the witnesses for their attendance and invite them to remain for the next session, where they may hear some solutions to this crisis. We will now suspend briefly to allow the new witnesses to take their seats.