Noel Ahern (Dublin North West, Fianna Fail)

As the Deputy will be aware, the Government took steps in October 2007, under section 19 of the Markets in Financial Instruments and Miscellaneous Provisions Act, to provide for an appropriate system of authorisation and supervision, by the Financial Regulator, of retail credit firms engaged in specialist or so-called sub-prime lending and home reversion providers not previously subject to financial regulation in respect of lending activities. The primary purpose of this amendment was to extend to the customers of these firms the benefit of the consumer protections provided for in the Financial Regulator's consumer protection code. This regulatory regime has been in place since 1 February 2008 and is being implemented by the Financial Regulator. Consumer credit, including sub-prime lending, is also regulated in Ireland under the Consumer Credit Act 1995, which makes detailed provision for the form and content of loan agreements and for the advertising of consumer credit.

The consumer protection code requires all mortgage lenders to undertake suitability assessments before offering a product or service to consumers. In addition, the consumer protection code sets out the requirements that a regulated entity must contact the consumer as soon as it becomes aware that a mortgage account is in arrears and that it must have in place a procedure for handling accounts in arrears. The Financial Regulator's CEO pointed out that the regulator considers this to include a requirement that lenders agree a remedial action plan with borrowers where it detects arrears starting to emerge and to try to assist such borrowers in managing their financial commitments and not allow the situation to worsen.

It is a particular priority of the Government to ensure that, as much as possible, difficulties in respect of mortgage arrears do not result in legal proceedings relating to home repossessions. Home repossession should be, and generally is, the last resort for the lender. The preferred method of dealing with arrears cases should be early intervention.

The finalised recapitalisation scheme announced on 11 February last includes a new code of conduct for mortgage arrears, which has been issued by the Financial Regulator and which came into force on 27 February. The new code applies to mortgage lending activities to consumers in respect of their principal private residences in the State and is mandatory for all mortgage lenders — including so-called sub-prime lenders — registered with the Financial Regulator. Under the mortgage arrears code, where a borrower is in difficulty the lender will make every reasonable effort to agree an alternative repayment schedule and will not commence legal action for repossession until after six months from the time arrears first arise.

The two banks participating in the recapitalisation programme have each committed to delay commencing court proceedings for repossessions of principal private residences until after 12 months of arrears appearing where customers continue to co-operate reasonably and honestly with them. In addition, the recapitalised banks have assured the Government that, in the normal course of events, they will make every effort to avoid repossessions.

The Minister for Finance understands that other IBF members also make strenuous efforts to ensure that repossession is not attempted until every reasonable effort has been made to find an alternative. These include the use of flexible procedures for the handling of arrears cases, which are aimed at assisting the borrower as far as possible and which recognise the provisions of the Consumer Credit Act 1995 in full.

Following a 2008 examination of procedures in place within financial institutions to deal with arrears and repossessions, the Financial Regulator wrote to all regulated mortgage lenders on 16 December last with feedback. Its letter sets out best practices for dealing with arrears that were identified during the examination. The Financial Regulator is currently carrying out a further examination of mortgage lenders to ensure that they are in compliance with the specific provisions of the consumer protection code and the Consumer Credit Act 1995. The examination will also review the application of the residential mortgage arrears and repossession procedures and practices in place in mortgage lenders, as advised to the Financial Regulator in 2008, to ensure that consumers are being treated fairly. In addition, an update will be sought regarding the implementation of the best practices outlined in the Financial Regulator's letter of December last.

If a consumer has a complaint about his or her mortgage, that complaint must first be made directly to the lender. If the consumer is dissatisfied with the outcome of his or her complaint, he or she can then refer the matter for further investigation to the Financial Services Ombudsman. All Members have met people who are affected by difficulties in this regard. One of the difficulties is that people do not seek help early enough and instead try to hide from the problem. All we can do is encourage them to come forward.

The Minister for Finance has consistently highlighted the need for responsible behaviour on the part of both borrowers and lenders and, in particular, the need to factor into their financial decision-making the effects of potential future changes in economic and financial conditions. Unfortunately, a small minority of borrowers develop debt problems.

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