Seán Fleming (Laois-Offaly, Fianna Fail)

I welcome the opportunity to introduce this Bill on behalf of the Fianna Fáil Party. My party colleague, Deputy Michael McGrath, was due to introduce it but he is attending a public meeting in County Louth at which he is promoting a "Yes" vote in the referendum to be held on 31 May next. The Deputy will obviously be studying the transcripts of this evening's proceedings, particularly in the context of the response from the Government side. He will bring the debate to a close tomorrow evening, at which point he will reply to the various points raised.

I wish to pay special tribute to my friend and colleague, Senator Thomas Byrne, who did most of the work in terms of drafting the legislation. The Senator put a great deal of effort into putting the Bill together last year following the collapse of a number of businesses to which I will refer in greater detail later. I thank Senator Thomas Byrne for his outstanding work on this comprehensive 11-page legislation, which deals with all the relevant issues and which relates to a vast variety of areas that have remained unregulated up to now. There is general agreement in society that the overall area of debt management requires regulation.

I take this opportunity to acknowledge what I believe to be the Government's general acceptance of the Bill. I understand the Government will allow it to proceed to Committee Stage for a detailed debate. I appreciate that the Government is not taking the usual knee-jerk reaction of opposing something because it is coming from this side of the House. This is a good and detailed proposal and it has attracted the support of a large number of people. The Government is wisely allowing the Bill to proceed. I look forward to ample time being allocated for a detailed debate on Committee Stage. I am not stating that the first draft of the Bill is perfect and, like all legislation, I am of the view that it can be improved and amended. Fianna Fáil will take on board all the points made during the Second Stage debate in the context of evaluating what amendments might be tabled on Committee Stage. It would be good if the Bill could be passed into law before the House rises for the summer recess. With the Government's support, this will hopefully be achieved.

The Title to the legislation states this is a "Bill entitled an Act to make provision in relation to debt management advisors and for the authorisation and supervision of debt management advisors by the Central Bank of Ireland and the Minister for Finance and to provide for related matters." The details of what the Bill involves are spelled out in full in the text. However, its key provisions are that debt management advisers will be subject to regulation by the Central Bank and will be required to have an authorisation therefrom - the definition of such a debt management adviser includes individuals offering advice on people's credit or debt; a debt management adviser will be required to set out all fees at the point of engagement; and a debt management company will inform all potential clients of the services offered by the Money Advice and Budgeting Service, MABS.

The latter is an important aspect because MABS provides advice to people but does not manage their cash. MABS provides an excellent service and there has been an increasing level of demand for this in recent times. An obvious alternative to what is proposed in the legislation would be to increase the number of MABS companies. However, there are already 53 independent MABS companies which have voluntary boards of management, which employ 277 money advice staff and which operate on a nationwide basis. The Bill will ensure that debt management companies will be obliged to inform all potential clients of the services offered by MABS in order to given them the option to approach the latter in the first instance if they so desire. In order for what is envisaged to be successful, it is important that people should be aware of their options. If everyone were to seek the advice of MABS, it is obvious that there would be serious additional resource requirements.

Under the Bill, debt management advisers would be prohibited from handling clients' moneys. MABS would, however, be excluded from this prohibition. The Bill stipulates that the Central Bank should publish a code of practice concerning debt management advice within six months of its coming into force. It also sets out the penalties that will apply to persons found guilty of an offence under its provisions. Those are the key points which arise in respect of the legislation.

A great deal of comprehensive analysis, discussion and consultation took place during the drafting process relating to the Bill. Fianna Fáil has brought this legislation forward in order to place the spotlight on a sector which has expanded dramatically in recent times but which remains unregulated. This lack of regulation has resulted in consumers' money being put at unnecessary risk. Vulnerable consumers are being taken advantage of by some unscrupulous, cowboy operators. The Bill will bring debt management advisers and household budgeting services under Central Bank regulation, provide for transparency in respect of the setting of fees and protect customers by prohibiting debt management advisers from handling client funds.

We are not seeking to outlaw the debt advice industry or to make it impossible for those within it to operate. There are, however, growing levels of concern with regard to these companies, particularly in respect of the fees they charge and in the context of transparency. There is a legitimate role for professional advisers in this area but the sector is urgently in need of regulation to ensure that consumers are protected. Many distressed borrowers signed up to seemingly attractive offerings of some providers in this area and subsequently found themselves in further financial trouble and in a less secure position. Up-front fees of as much as €750 are common and ongoing monthly fees of 15% of the customer's payment go to the advisory firm in some cases. In other words, there is an immediate payment and then the companies or entities involved charge up to a further 15% to manage people's credit card debts and payments relating to hire-purchase agreements, energy bills, the household charge etc. In some instances, the first three months' worth of payments may go to the adviser and the customer may not be aware that it has not gone to the company or entity to which it is due. During this period, additional interest and penalties may accrue. The Bill will require that advisers set out all fees clearly at the beginning of the process. As already stated, the sector will be governed by a code of practice to be published by the Central Bank within six months of the legislation being enacted.

There have been a number of high profile cases in this area, such as that relating to the collapse of Home Payments Limited in August 2011. Many people will remember the latter being the subject of many television news reports at the time. Home Payments Limited owed its customers €6.17 million when it ceased trading, a fact that highlights the disastrous consequences for ordinary people when something goes wrong in a sector that is entirely unregulated.

At present, people who offer advice on debt are considered to be offering a customer rather than a financial service. This means that they are not subject to regulation by the Central Bank and the Financial Regulator, although they can be prosecuted under consumer protection laws, including the legislation relating to misleading advertising. The real reason we have brought forward the Bill is as a result of the fact that offering advice on debt is considered a customer service. As a result, consumer law applies and, in some cases, such law is not the strongest in the context of enforcement before the courts. It would be to the benefit of consumers if the service to which I refer was recategorised as a financial service because it would then come under the remit of the Central Bank and the Financial Regulator.

It is difficult to ascertain the prevalence of these companies although an Internet search shows dozens of providers purporting to offer debt advice. One industry source suggested individuals who were previously operating as mortgage brokers have moved into the area of debt advice. It is ironic that those responsible for brokering deals with some of the more expensive mortgage companies, for which they received commission while getting people in large debt, are now coming back as the cavalry to rescue these very people while charging them for managing their debts.

While there is general agreement at political level for the need to introduce this legislation, it has also been raised in other arenas. The Law Reform Commission published a consultation paper on personal debt management and debt enforcement in September 2009 which made provisional recommendations for reform. It concluded a strong case existed for the introduction of a regulatory system for debt management companies as vulnerable clients and the potential for predatory practices raised concerns. As stated earlier, some of these advisers are cowboy operators with only an Internet presence and no face-to-face meetings. The commission also recommended standards should be established with regard to the quality of advice given by requiring a minimum level of training and skills following consultation with the industry.

The Free Legal Advice Centres also commented on commercial debt advice companies:

Whilst responsibility for ensuring that inappropriate cases do not come to court must rest with the creditor, the State must ensure that proper money and indeed legal advice are available to enable early resolution of debt cases to take place. Whilst we have been unfortunate in this country to have outdated debt enforcement and bankruptcy procedures, money advice has been consistently funded. However, that service [MABS] and its hard-pressed staff is now severely stretched to cope with increased demand and must distinguish itself and even compete with some debt management companies offering services in return for fees. The existence of State funded money advice and a for-profit sector is not necessarily mutually exclusive but unless such companies are properly regulated and monitored, there is a significant danger that already vulnerable clients desperate for solutions to their financial problems will grasp at expensive straws.

In the Dáil recently, the Minister for Finance noted "consumers can confirm whether or not a financial service provider is authorised by checking the register of financial service providers on the Central Bank's website". However, in practical terms few will actually do this. It is actually difficult to navigate that part of the regulator's website and find out under which category an adviser falls.

There are legitimate providers in the industry and there is a role for debt advice. We are not seeking to outlaw the industry but want it regulated. The Debt Management Association of Ireland stated any new regulation must cover areas including training, marketing, advertising and publicity, information to be provided to customers, dealing with vulnerable customers, their contract terms and their accounts.

The segregation of clients' money from commission fees is another important issue. We examined bonding these debt management companies to ensure customers would be protected. However, having considered it in detail, we do not believe this would be a sufficiently robust way of dealing with this issue. Instead, we believe regulation by the Central Bank is the best way.

There has been a positive response from the industry to our proposals. A broad consensus exists that this sector needs to be regulated. The Central Bank, the National Consumer Agency, Free Legal Advice Centres, the Law Reform Commission and Deputies on all sides of the House agree on this. If the Minister is not opposing the Bill, I hope he will make time available in order that it can be swiftly progressed. We all want to see a situation where potentially vulnerable customers are not subject to unnecessary and unjustified financial risk. This Bill provides the means to ensure this is the case.

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