Joan Burton (Dublin West, Labour)

During the debate on Second Stage on 2 October I repeated a question I put to the Minister last year, namely, whether he proposed to introduce regulation of banks and financial institutions which do not take deposits but choose instead to concentrate on lending. Last year, he vigorously defended his decision to exclude these institutions from the regulatory framework. I welcome his change of heart on this matter following the crisis in the sub-prime market, the credit crunch and the collapse in the share price of Northern Rock. Through the amendments tabled today, his decision to seek to extend the scope of the Financial Regulator's supervisory regime to the considerable number of financial institutions currently operating outside the regulatory framework is an important step forward.

Every time one turns on the television a golden blonde 60 or 70 year old man or woman, speaking in quiet tones, invites viewers to re-finance by borrowing from the equity of their homes. Radio listeners are exhorted in the same way. These advertisements offer to sell couples aged in their 50s, 60s or 70s who have paid off the mortgage on their family home a loan based on a percentage of the value of their home. The technical term used by the Minister for this type of loan is a reversion product. Most members of the public do not know what is meant when they hear the term "home reversion loan".

We should discuss the experiences of members of the public in this regard. Given rising costs, medical bills, the chaos in the health service and other costs, many of those who hear nice people from a financial institution offering them a loan on the strength of the value of their home are tempted to use this facility to fund important costs. Alternatively, they may be tempted to give their children a dowry to help them into the property market.

The hidden side of this practice is that many of the financial products offered to older people are extraordinarily costly and extremely lucrative for the financial institutions selling them. Those who buy them do not see the small print in these types of deals, although, to give them their due, many solicitors will advise families and couples that particular products are expensive and ask whether they know what they are getting themselves into. Having decided to regulate this sector, as I repeatedly advocated in the committee on finance and the public service in the previous Dáil, will the Minister now call a spade a spade? Will the Financial Regulator also use soothing advertisements featuring mature people with lovely blonde hair to inform the public that the costs and conditionality attached to these types of loans can be very expensive and asking people to consult family, take advice and give the matter careful consideration before taking out such a loan? This is an important question. With the hiving off of agencies such as the Financial Services Regulator from full Oireachtas scrutiny, it is difficult for the Opposition and Government backbench Deputies to find out the position in this regard.

Will all sub-prime lenders be covered by the legislation? As has been noted, different types of sub-prime lenders operate in the Irish market. Some of them are based outside the country but have banking or other operations here. Their advertisements do not appear to be subject to any kind of code of practice or regulation. On Second Stage, I asked the Minister whether he had discussed with the Governor of the Central Bank the issue of employees of sub-prime lenders going from door to door offering loans in local authority estates and areas where affordable housing has been sold. People who have bought a local authority house or paid off the first four or five years of the loan for an affordable home will probably have seen the value of their properties rise. The leaflets constantly pushed through letter-boxes are like those from fast food outlets selling pizza. Sub-prime and other lenders offer easy, seductive financial products to people who want to borrow to maintain a certain lifestyle.

The original mortgage taken out via a local authority on an affordable house could be €180,000, whereas the property may be worth €250,000. Sub-prime lenders will step in to offer a fresh loans of perhaps €220,000, with which borrowers can wrap up other borrowings such as a car loan or credit card debts and may even include the legal fees associated with the financing package. The loan is offered at a premium rate of interest and the borrower must pay charges, particularly if he or she defaults, at the highest rates. This problem should be nipped in the bud.

As I have stated on other occasions, bankers act like the masters of the universe. While they may tell us how everything should be, irresponsible lending will have consequences for the economy and the reputation of the lending and financial services industry which provides many of the well-paid jobs we wish to retain. Is the Minister in discussions with the Governor of the Central Bank and Financial Regulator on the problem I describe? As he is aware, borrowing for domestic credit here is enormous compared to most European countries.

The legislation does not include provisions on financial institutions such as credit unions which have been sold financial derivatives, including CFDs, by financial firms, in particular, a number of stockbroking firms. What is the position in this regard?

Is the regulator keeping an eye on what credit unions and the Central Bank have been buying to ensure their purchases are taken into account if they are affected by the purchase of financial derivatives? Credit unions are a significant boon to people who otherwise would not have access to credit. A number of financial institutions, such as stockbrokers, make healthy profits through selling financial products for investment purposes to organisations like credit unions. What is the regulatory situation in that regard? Has the Tánaiste spoken to the Central Bank, the Irish Stock Exchange or brokers, some of whom do a great deal of business with the Government?

Last year, more than 50% of transactions on the Stock Exchange were in contracts for difference. The Tánaiste pulled back from putting 1% stamp duty on CFDs. Two years ago, he stated that, at the request of the financial services industry and stockbroking firms in particular, there was a considerable boom in the sale of CFDs, essentially a form of casino gambling for people who want to gamble on shares rising or falling. There is no regulation in this respect. Many individuals have lost more than €1 million through CFD-type gambling as a result of the change from a bear market to a bull market. Has the Tánaiste considered this matter since the previous debate on the Bill?

All parties in the House want the financial services industry to grow and strengthen because it is a source of good quality graduate jobs. Our ability to stay ahead of the curve is based on reputation and losing our reputation by allowing any of these schemes to operate here will produce incredible damage. Some American firms in the IFSC have reduced the volume of their CFD activities. In the previous debate, I quoted a leading banker at one of our largest banks as stating that the bank was no longer advising individuals to get involved in this area of gambling. The Tánaiste will recall how Mr. Nick Leeson was interviewed on a number of radio shows and television shows while fronting Paddy Power's spread betting. What is the difference between spread betting with Paddy Power and betting on CFDs? Contracts for difference conducted through the IFSC and brokers have the capacity to lose people significant amounts rapidly.

What inquiries has the Department of Finance made into what has been occurring? Some of the people playing these markets are high rollers. They have no problems because they are the type of people who invest in tax breaks. They have a great deal of cash because they do not seem to pay tax. I am not worried about them, but about those who are drawn in by the lure of easy money via the home computer screen and who find that the small print reads they may lose as well as win.

I welcome the Tánaiste's amendments, but they do not go far enough. On Committee Stage, perhaps we can draw out the type of regulatory environment being proposed. Does the Tánaiste propose to leave the additional regulation to the Financial Regulator or will his Department and the Central Bank offer guidance? A political decision was made to leave the regulation of this area with the Department and the Central Bank because the latter is meant to look after the prudential aspect to ensure that banks are not forced to close down and that there are no runs on them. Northern Rock, which operated in Ireland as an Internet bank effectively, was guaranteed by the Bank of England and the British Chancellor.

I have asked the Tánaiste a number of times about the situation in respect of compensation schemes for savers. Has he had time to collect his thoughts on how he sees those schemes developing? In the UK, the level of compensation offered is higher than here, where it is limited. What will happen if there is a run on a bank?

In the Tánaiste's pre-budget outlook tomorrow, will he vary the definition of GNP or will it be the definition contained in the national development plan? Are there implications for the outlook?

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