Joan Burton (Dublin West, Labour)

Following on from Deputy Bruton's questions I wish to raise a number of issues with the Minister. I do not understand how the Minister is minded to approach the issue of regulation. He refers to these firms being non-deposit taking institutions as the reason they were not included in regulation when the law was first introduced. The Minister, from what I detected in his speech, appears to believe they are a different type of financial institution because they are non-deposit takers. I do not know, from what the Minister said, whether this view is based on advice he has received from the regulator or on the Central Bank's view of non-deposit taking institutions. We, on the Opposition side, are trying to point out to the Minister that although they may be non-deposit taking institutions and, therefore, not a traditional bank, the consequences for the people who use their products are the same — perhaps more severe — as would apply if they defaulted a loan, mortgage or some other financial product obtained from any of the high street banks.

A person who does not have regular dealings with other financial institutions or a person with a bad credit record — traditionally the type of person these institutions attack — will not know the bank with which they are dealing is a non-deposit taking institution that is not subject to the collective regulation to which other banks are traditionally subjected.

I want to come back to a point I made last night as it relates to a number of cases with which I have dealt as a constituency Deputy. An enormous barrage of advertising in respect of home reversion products is directed at older people in particular and encourages them to borrow on the strength of equity in their home based on the loan not having to be repaid until some time later or following their death. An issue arises in respect of solicitors advising older people buying into these products which involves their family homes. The Minister did not make clear in the advice he gave yesterday whether the concept of family home extends to the inclusion of a family business and, in particular, a family farm. What people need is a good solicitor, in terms of advice, more than a good accountant. These products are constantly advertised on radio and television as being tremendously attractive.

The chairman of the US Federal Reserve, Mr. Ben Bernanke, when speaking about these institutions referred to the dubious practice of loans being granted to people who are unable to pay them. As I said yesterday, it is not the Minister's role to save people from themselves. However, financial products which are so risky that the chance of substantial numbers of people defaulting on mortgage repayments is high can result in many sad stories. The Minister and the Governor of the Central Bank referred to loan applications being stress-tested. In other words, checks are made to ensure the information given by applicants is honest, reasonable and fairly reliable. People laugh when they hear this as it has become the custom and practice in some banking circles — this is particularly true in respect of some of the newer lenders — to take the most optimistic view, to put it charitably, of what people can repay. A person who owns a local authority house or recently purchased an affordable house can remortgage that property when its value increases.

Will the Minister expand on his definition in this regard? He stated that the Financial Regulator told him this is all the power he requires. Is this correct? Has the Financial Regulator sent submissions on this to the Minister? This new form of banking, which is the cause of the current turmoil in the financial markets, was warned about for three years in the United States. It has suffered enormously as a result, including a potential economic recession. The consequences of this for individuals and the economy are fairly startling.

Why can the Minister not be more specific in terms of how he describes these products? Also, why does he hold the view that as non-deposit taking institutions they are somehow or other not a bank? The Minister should remember that these products when sold are bundled together at the end of the week or month and sold on to other financial institutions which are deposit takers. These people make their money by selling a product, obtaining the fees on the sale and then bundling them and selling them on. Ormond Quay ended up with a great deal of worthless paper rather than solid investments because it bought bundles of such products. The Minister's approach to this is critical to the Irish market and the IFSC. I hope he can clarify this issue.

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