Eamon Gilmore (Dún Laoghaire, Labour)

I am deeply unhappy at the way in which this Bill is being handled by the Government. It has been preparing this Building Societies (Amendment) Bill for at least three years. The world and his mother knew this Bill would facilitate the demutualisation of the Irish Nationwide Building Society.

I have no objection to the demutualisation of the Irish Nationwide Building Society, and I wish the members of the society well. The legislation which provides for it and which provides for other matters relating to building societies requires more scrutiny than is being allowed for in the House tonight.

The Government has been preparing this legislation for three years. I have a copy of the legislative programme of the Government for the spring session of 2004. It tells us that the Building Societies (Amendment) Bill would be published by Easter 2004. The Bill was not published until three weeks ago. The Government has deliberately chosen to have the Bill put through all Stages in this House in two hours, late at night on the penultimate sitting day of the session. It is no way to make law.

A Bill, particularly one of this complexity and in which there are issues of public interest arising, requires the kind of question and answer consideration and line by line examination that can only be given on a proper Committee Stage that we will not be afforded in tonight's debate.

Moreover, I believe this to be a hybrid Bill. Standing Orders provide for different rules for the treatment of public Bills and private Bills. A private Bill is defined in Standing Orders on private business as follows: "Every Bill promoted for the particular interest or benefit of any person or locality as distinguished from a measure of public policy shall be treated as a Private Bill". As the Minister of State, Deputy Noel Ahern stated, there are issues in this Bill which are matters of public policy but there are also issues in the Bill which are clearly matters of private interest.

A set of rules is being established in the Bill specifically for one building society. For example, there is a rule which confirms a status on a rule already made by the Irish Nationwide Building Society on the deposit of €10,000 for the period of two years. That is something that does not apply generally to the population. It is not a matter of public policy. It is a private matter which applies only to the members of that society. Second, a separate set of rules is being established in this Bill in respect of members of the other building society which is also a private matter. Third, distinctions are being made in the legislation as between the rights of individual members of building societies and their board of directors which ultimately may have implications in terms of beneficial interest and how it applies to directors as distinct from members. For example, it is known that in the case of the Irish Nationwide Building Society it is proposed that 15% of the so-called windfall will be reserved for the staff and directors of the building society. That involves significant financial implications, for the directors and staff of the building society and for the individual members. These are matters of private interest.

Matters of private interest being legislated for, I submit, are required to be dealt with by an entirely different procedure in this House than the normal procedure for a public Bill. Where there is a Bill which has both the private interest dimension and the public interest dimension, the Bill is regarded as a hybrid Bill.

I appreciate this is a matter for the Ceann Comhairle. The point I am making is not in any way a reflection on the Chair because the Chair has been put in a difficult position by the way in which the Government is rushing this legislation. The Chair of this House has a function in deciding whether a hybrid Bill is referred to the examiner, which is an office of this House established for the purpose of examining private Bills and determining how they are to be addressed. Let me explain what I mean by this, and its implications.

The first occasion on which a hybrid Bill appeared in these Houses was on 3 July 1924. It was the State Harbours Bill 1924 and there was a motion in the Seanad which referred that Bill to a joint committee for examination, in particular for its private aspects. I refer to what Senator Douglas, the then Leader of the Seanad, in explaining why that Bill was being dealt with as a hybrid Bill and why it was being referred to the joint committee, stated because it has relevance to this Bill. He stated:

This is the first case of what is known as a hybrid Bill, and a hybrid Bill is one which, having been introduced as a Public Bill, is, in the opinion of the Chairman of the Dáil in which it was introduced, one that should, nevertheless, as private interests were affected, comply with the Standing Orders relative to Private Business. Consequently the Ceann Comhairle referred this Bill on his own authority, as provided in the Order, to the Examiner, and the Examiner has sent a message that this Bill has complied with the Standing Orders relative to Private Business. When the Bill is a hybrid Bill it is treated, as far as the Committee's examination is concerned, the same as a Private Bill, but in all other stages it is treated as a Public Bill. The object of that is that private interests may petition during the Committee Stage, which is proposed to be by Joint Committee, exactly the same as a Private Bill, and their interests can be heard.

In other words, the procedure which is laid down in the Standing Orders of this House for the treatment of either a private Bill or a hybrid Bill allows for a procedure, through a joint committee, whereby private interests who are aggrieved by their private interests being in some way compromised or affected by what are the private aspects of the Bill may petition that committee and may have it teased out.

I have received, during the course of the past couple of weeks since publication of this Bill, a number of submissions or pieces of correspondence from which it appears there are private interests which require to be heard in so far as the private issues in this Bill are concerned. Unfortunately, the way in which the Government is dealing with this Bill denies that right, which is provided for in the Standing Orders of this House and for which there is precedent going back as far as the early and dangerous days of the foundation of the State. In other words, in 1924, in those early the days when the Civil War was still a reality, the parliamentary practice and democratic practice upheld democratic rights of the individual citizen whose private interests were being affected by legislation which was going through the House and the ordinary citizen who was affected by that legislation could petition a joint committee, have his or her case heard etc. That right is being set aside by this Government.

Instead, we get this Bill, from which substantial amounts of money will accrue to individual pockets and by which other pockets may be deprived of part of that windfall, depending on the way in which it is distributed. Those people are being denied the right to have their case heard. The way in which the Government is dealing with this legislation is fundamentally undemocratic. It is in my view in breach of the Standing Orders of the House. It is, for whatever reason, literally rushing this Bill through the Oireachtas in the dead of night.

Reading the Long Title one would think that this Bill is designed to merely tidy up and perhaps update a little of the existing legislation governing building societies. The Bill is not designed to be one law; it is designed to be two laws, one for each of the existing building societies operating in Ireland. It is designed, not specifically as a matter of public policy but as a Bill to facilitate the demutualisation of one building society.

There are many questions to be asked about it, which, unfortunately, the time allowed for its debate will not permit. Why, for example, have we been presented with a Bill which deliberately and artificially creates different sets of rules for the two current mutual building societies? Why does the Bill facilitate the speedy demutualisation and sale of one building society, while effectively blocking the other building society from demutualisation? Why has the Minister of State not seen fit to prescribe, in even the broadest terms, some guidance on how this fast-track demutualisation and sale process should progress rather than give free rein to some interested parties? Why is the Minister of State proposing legislation which purports something as undemocratic as disallowing the membership of a building society to decide on demutualisation? I appreciate the Minister of State is making an amendment in that regard but it is still an issue that must be addressed. Why does the Minister of State appear unconcerned that the management of a building society, which until recently used practices described by an Ombudsman ruling as being invalid and unlawful, may substantially be rewarded as a result of the demutualisation process? Why has no attempt been made to address the corporate governance issues associated with this financial sector within the legislation?

The origin of building societies lies in the struggle of working people to put a roof over their heads in the early 19th century. It is a struggle with which many in Celtic tiger Ireland can identify. Building societies first emerged in 19th century Britain as self-terminating savings co-operatives. Members, usually working men, could pool together to build their houses and when the last house was built, the society was disbanded. Later they became permanent societies that continued to admit new members. The essence of a building society is mutuality, that is, it is jointly owned by those borrowing and saving.

Ireland has only two remaining building societies, the Irish Nationwide Building Society, INBS, and the EBS. It has been well publicised that the board of the EBS wishes to retain its mutual status while the board of the INBS wishes to demutualise and then sell as soon as possible. Demutualising a building society turns it into a bank and, therefore, one of the questions the House must address is whether more banks are needed and whether building societies still have a role in the housing and mortgage market. The concept of mutuality has worked well for many people who could not have borrowed from other institutions. At a time when many families find it difficult to purchase a home, we should re-examine the concept of mutuality and question whether this is the time to engage in demutualisation as house prices escalate and more people are priced out of the market. The demutualisation of building societies in Britain is being re-examined.

Sections 19, 21 and 22 work together to facilitate the desires of the respective boards governing the two existing building societies, the INBS and the EBS and, in doing so, two sets of rules are created. According to the membership rules for the INBS, a customer must have at least €10,000 in his or her share account for five years to be deemed a member. Strangely, section 21 stipulates that a building society that wishes to avoid the five-year rule set down in the Building Societies Act 1989 needs to restrict membership to those who lodge that amount with the society for five years.

Who drafted the section? What input had the board of the INBS? The section is tailored to allow the speedy demutualisation and sale of the INBS and, in the process, to enrich the corporate management at the expense of the membership. As well as identifying the INBS as an ideal candidate for fast-track demutualisation and sale, the section also prevents the EBS from doing likewise. Currently, the amount one must have in an account to be deemed a member of the EBS is €127. This means that to demutualise and sell while avoiding the five-year rule, the EBS would have to increase this sum almost by a factor of 100. Section 21 purports to protect building societies from carpetbaggers but it does much more because it protects the respective aspirations of the boards of the INBS and the EBS with scant regard for their customers or for the public.

Section 22 provides for a building society fulfilling the €10,000 provision under section 21 to avoid the five-year rule laid down in the Building Society Act 1989. The rule imposes a five-year waiting period between demutualisation and sale. Section 21 waives this condition for the INBS. Is it in the country's interest or in the long-term interest of INBS customers that the five-year rule is not adhered to following demutualisation? The INBS and its management have been the subject of years of accusations — some substantiated — of bad business practices, lack of accountability and failing to pass on interest rate cuts. Late last year, the Ombudsman ruled against the INBS for its practice of charging early repayment penalties that were higher than a fair measure of the loss of the account to the building society. The ruling described the practice as "a penalty and amounted to a clog or fetter on the equity of redemption and, accordingly, was invalid and unlawful". Other issues that borrowers were unhappy about were the very high penalties charged to borrowers in arrears, the failure to pass on interest rates cuts to non-home loan borrowers and the general lack of information provided by the society. It is incumbent on the society to iron out such problems and to remedy them prior to a sale taking place, and surely it is incumbent on the Minister, the Government and the Financial Regulator to ensure that happens in the public interest.

If section 21 is the "Nationwide" section, then section 19 is the "EBS" section or the section that seems to have been drafted by the EBS board. Under the Building Societies Acts 1989 and 1992, only the board of a building society could initiate demutualisation and the members of a society could not put forward a conversion resolution at a general meeting. Section 19 extends this stipulation by preventing a resolution from the membership to discuss conversion. I appreciate the Minister of State has indicated a willingness to amend and it is a great pity we will not have time for a fuller examination of his amendment on Committee Stage.

No provision in the Bill prevents the directors of a building society from taking a large slice of the value of the society after demutualisation. The directors of the society can name their price. Recent press reports suggest 15% of the proceeds of the sale of the INBS could be earmarked for directors and employees. If this happens, it will mean the windfall each member receives will be approximately €2,000 less than the amount they would have received if the total amount had been distributed equally among members, employees and directors. If the directors and employees of the society receive 15% of the sale price, the legislation makes no provision to control how it is distributed within that group. It could very well be decided in proportion to salary and a director might receive a windfall up to €10 million. This means that, according to this legislation, on the one hand, members of one building society are being restricted from discussing demutualisation while, on the other, it is perfectly legal for the board of another building society to decide that individual directors can gain a large sum from the demutualisation process at the expense of society members and, ultimately, its borrowers. As a result of these shortfalls and the way in which the Bill is being progressed through the House, the Labour Party cannot support it.

See this speech in context