Michael Noonan (Limerick City, Fine Gael)

I thank Deputy Catherine Murphy for raising this important issue.

I am concerned that customers are not being treated in an even-handed and fair manner by financial institutions. To that end, the Central Bank has introduced three codes of conduct designed to protect customers, both personal and business, in their dealings with such institutions. These are the consumer protection code, the code of conduct on mortgage arrears, and the code of conduct for businesses lending to small and medium-sized businesses.

The consumer protection code is binding on financial institutions authorised, registered or licensed by the Central Bank. It also applies to the provision by financial institutions of services in the State, which are authorised by an equivalent financial regulator in another EU or EEA member state.

The code contains a number of general principles that financial institutions must adhere to in their dealings with all their customers. The requirements imposed on financial institutions under these general principles include: acting honestly fairly and professionally in the best interests of customers; acting with due skill, care and diligence in the best interests of customers; employing effectively the resources and procedures, systems and control checks that are necessary for compliance with the code; seeking information from the customer relevant to the product or services requested; and making full disclosure of all relevant material information, including all charges in a way that seeks to inform the customer.

The code places more detailed requirements on financial institutions when they are dealing with private consumers. These include limiting the number of times a lending institution may contact a consumer, by phone or otherwise, who is in arrears with his or her payments. For the purposes of the code a "consumer" is defined as: a natural person acting outside his or her business, trade or profession; unincorporated bodies such as partnerships, clubs and trusts; incorporated bodies with an annual turnover of €3 million or less in the previous financial year; or a member of a credit union.

The code was recently revised by the Central Bank following detailed consultation with interested parties. The revised code will come into effect next January. The Central Bank considers that the provisions in the code strike the right balance between requiring lenders to engage with customers to encourage them to deal with arrears and with protecting customers who are already stressed from dealing with financial difficulties.

The next code is the code of conduct on mortgage arrears. This code applies to mortgage lending activities with borrowers in respect of their principal private residence in the State. Compliance with the code is mandatory on all mortgage lenders registered with the Central Bank. Lenders must have in place the required systems and trained staff necessary to support the implementation of the code. The code sets out the framework that lenders must adhere to when dealing with borrowers who are in arrears or are in pre-arrears. For the purposes of the code a "pre-arrears" case arises when the borrower contacts the lender stating that he or she is in danger of getting into financial difficulties and/or is concerned about getting into mortgage arrears.

The third code I have mentioned is the code of conduct for business lending to small and medium enterprises. On 4 November last, the Central Bank published a revised version of the code setting out new requirements for lenders when dealing with SMEs in or facing financial difficulties. The SME code revisions build on the Central Bank's ongoing programme of work for protecting the interests of borrowers in or facing arrears. The introduction of the new provisions in the SME code follows a review of the financial difficulties requirements in the existing SME code as part of the Central Bank's commitments under the EU-IMF work programme.

The revised SME code will come into effect from 1 January 2012. A full review of the SME code will be undertaken in 2012. It will provide key stakeholders, including SMEs and their representatives, with an opportunity to engage further in the operation and effectiveness of the code, including the new requirements relating to the treatment of financial difficulties cases.

The House will be aware of the large number of initiatives taken to ensure SMEs are able to get the credit they need. There is a need to ensure credit is only extended to viable businesses that can meet repayment schedules, and it is normal that some businesses are not able to obtain credit, even in good times.

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