Ms Eilis Barry:

Free Legal Advice Centres, FLAC welcomes the opportunity to contribute to today’s discussion alongside MABS, with whom we have a very long association.

We recently published a series of four papers on matters relating to a wide range of consumer debt issues called Pillar to Post, PtP, compiled by my colleague Mr. Paul Joyce, who is with us here today. The fourth paper is a blueprint for reform, and we draw on some of the recommendations today. I am happy to forward the contents of the report to this committee.

The No Consent, No Sale Bill 2019 broadly sought to reverse the position that the original lender could sell on his or her loan to an entity of its choosing without consultation or consent, explanation or justification. We made a submission on the Bill and attended a sitting of this committee back in March 2019, but the Bill did not progress. In an opening statement supplied to the committee, the former Governor of the Central Bank, Philip Lane, suggested that:

Given that the consumer protection framework is identical whether a loan is held by a bank or a nonbank, the Bill would not add any extra degree of regulatory protection for consumers. At the same time, it would severely damage resilience, since the transferability of loans is a central feature in a modern financial system.

We do not agree with this. Brendan Burgess of AskAboutMoney.com recently pointed out that some 113,000 mortgage loans have been sold by the main banks to vulture funds in recent years, with a reassurance that such customers would not lose out by having their loans sold. He cited an example of the significant disparity between the variable interest rate currently charged by one fund and the far lower rate currently provided by the bank that sold a significant portfolio of loans to that fund. We agree with Mr. Burgess's suggestion that the existing variable rate should travel with the loan.

Such failure is indicative of a standard of consumer protection that is subservient to servicing the needs of the economy, the financial system and the institutions that serve it. The sale of loans, whether impaired or not, is now endemic in the financial system. Over the past decade, we have had three separate items of legislation further facilitating the growth of a loan sale and loan servicing infrastructure. These are the Consumer Protection (Regulation of Credit Servicing Firms) Acts 2015 and 2018, and the Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Act 2022. Each of these statutes, ironically, leads with the words "Consumer Protection", when its primary purpose is to facilitate the development of a loan sale industry, while maintaining minimum standards of protections for borrowers through regulation.

The 2022 Act is a prime example, in our view, of our concerns. After years of allowing nonbanking entities to provide sub-prime, hire purchase finance agreements without any requirement to be authorised, these providers must now become authorised as retail credit firms regulated by the Central Bank. The legislation, however, allows that a hire purchase agreement offered by a retail credit firm may charge up to an astonishingly high rate of 23% annual percentage rate, APR, for what are car finance agreements.

The principal area of concern in the context of the migration of housing loans to funds remains the fate of family home mortgages that have been in arrears for lengthy periods. Many of these are now owned by funds. The most recent figures available from the Central Bank are set out in our submission. I do not propose to read them. What is clear from the figures is that the number of accounts in arrears has been decreasing, but only slowly. There was no significant reduction in arrears cases during Covid. The number in arrears at the end of quarter 3 of 2021 was 47,681, compared with 45,746 at the end of quarter 3 of 2022. The proportion of loans owned by funds grows with each quarter. It was close to 56% at the last count. At the end of 2021, 21,234 accounts, 45% of the total in arrears, were deemed to be co-operating with their lenders but had no restructures in place, which is an indication of financial incapacity rather than an unwillingness to pay. Spikes in the cost of living and interest rates threaten an increase in new arrears cases. In From Pillar to Post, we recommended that the Central Bank publish two separate figures, one for accounts that go into arrears in a given quarter and one for accounts that exit arrears in that quarter. However, the Central Bank continues to publish a net figure only.

The next table relates to loans in legal proceedings and the time since the first hearing. These figures show us that funds now own close to seven in every ten accounts that are in the repossession process. A substantial number of these cases have been in the legal process for a lengthy period of time. Of the 435 sets of repossession proceedings said to have been resolved, that is, concluded, in 2021, 80% did not result in possession orders being granted. The attrition, distress, cost and economic loss that results from lengthy repossession cases is both regrettable and unnecessary.

In From Pillar to Post Paper Four, we propose that a mortgage arrears review office be established to review long-term legacy mortgage arrears cases outside the court. We believe that the proposal we made may possibly circumvent perceived constitutional difficulties and act as a carefully balanced and strictly proportionate intervention that takes full account of the respective rights and obligations of both lender and borrower. Thus, we propose that the review office could act as an avenue of appeal or review for borrowers who are unhappy with their lender's handling of their case under the mortgage arrears resolution process, MARP, of the Central Bank's code of conduct on mortgage arrears. The review office could oversee efforts to resolve long-term arrears cases, working in conjunction with the borrower’s advisers and the lender’s staff and representatives, by modelling the application of resolution options to specific accounts in arrears. It could also have the power to grant leave to a lender to bring repossession proceedings in the courts against a borrower in arrears, but equally could refuse to grant such leave on the basis that the lender had made insufficient efforts to resolve the case and avoid legal proceedings. An appeal would be available to the Circuit Court for the lender in that event. Where a personal insolvency arrangement, PIA, proposal is made on behalf of the borrower in arrears and is rejected by the lender, the current right to seek a review in the Circuit Court under the Personal Insolvency Act 2012 could continue to apply. Thus, the integrity of the personal insolvency regime would remain unaffected.

On the other recommendations, in the final paper the From Pillar to Post series, we are critical of the slow progress being made with the Department of Justice review of the Personal Insolvency Act 2012. We pinpoint that a significant number of older borrowers are in long-term arrears but that their properties are also in positive equity. This makes it very difficult for them to obtain PIAs without creditor consent. We also express concerns about the limitations of the Abhaile scheme. The final paper also contains a section on the mortgage-to-rent scheme, which is a valuable option in some cases but which is still delivering quite low numbers.

Loan sales are not entirely confined to buy-to-let and family home mortgages. Hire purchase agreements and credit card balances in particular have also been sold over the past decade. It is conceivable that the number of sales of impaired loans in the unsecured debt space will increase, with the consequences that may have for households in difficult financial circumstances. There is also a significant data deficit here. There is no data published on unsecured credit agreements in arrears. Without data, it is impossible to gauge the potential extent of the problem. My colleague, Mr. Joyce is here to answer questions.