John Perry (Sligo-North Leitrim, Fine Gael)

Protection of the consumer is paramount. The Government is committed to ensuring that a robust system of regulation is in place for debt advice, debt budgeting and debt management firms. Following the failure of Home Payments Limited last summer, the Central Bank inspected the bill payment and debt management sector to assess whether firms providing these services are carrying out any activity that falls to be regulated by it and to ascertain whether consumer funds were at risk. Following identification of 12 companies providing these services, the first phase of the Central Bank's review concluded with the bank writing to several firms notifying them that their activities are subject to regulation by the Central Bank and requiring that immediate steps be taken to provide additional protection for client funds.

Some debt management firms which process payments on behalf of clients are subject to regulation under the EU payment services directive. The directive was transposed into domestic legislation by the European Communities (Payment Services) Regulations 2009 and came into effect in November 2009. Any firm that provides payment services, as defined by the legislation, requires authorisation to trade from the Central Bank. Payment services covered include credit transfers, direct debits, standing orders, money remittance, debit and credit card transactions and certain services provided by mobile phones and other digital and information technology devices. The companies subject to regulation by the Central Bank must determine whether they wish to apply for authorisation from the Central Bank or, alternatively, whether they wish to change business model. The payment services regulations set out the respective rights and obligations for the users and providers of payment services. The regulations provided, however, for the granting of certain exemptions which may have caused some confusion in the sector.

I wish to provide the House with some background to the issue highlighted by Deputy Michael McGrath's Bill. Deputies will be aware that the Law Reform Commission's consultation paper, Personal Debt Management and Debt Enforcement, was launched in September 2009. The Law Reform Commission's interim report in May 2010 concluded that money advice undertakings should be subject to a regulatory regime. While the risks associated with debt advice and debt budgeting management firms have come to public attention in the wake of the failure of Home Payments Limited last year, it appears a small number of private firms have been providing these services for some years. Clients of these firms are often more vulnerable than consumers generally and many are struggling and in difficulty. Thus, they need to rely more on third parties to assist them in managing their financial affairs. The Central Bank has conducted research into this sector and has identified three categories of firms.

The first category, debt advice firms, provide advice on legal rights and bankruptcy. They also advise on the best options available to consumers based on their individual circumstances. They do not take payments from consumers although it must be assumed that consumers pay for the advice. The Central Bank has advised that the majority of these firms do not appear to charge for debt advice provided but charge if the individual undertakes a debt management or settlement plan. In such circumstances, these firms would be deemed to be operating as debt advice or debt management firms. Fees and charges appear to generally consist of a lump sum fee of €800 and a monthly fee of €30 or 15% based on the percentage of overall debt. In the case of firms providing debt advice only, the consumer continues to pay the creditors directly. The Central Bank has estimated that there may be in the region of 30 to 40 such firms operating in the State.

The second category covers budgeting firms. These firms provide advice and money management services to consumers. They may also take money from consumers on a monthly basis, sufficient not only to pay bills due but also to cover bills arising in the coming months. Therefore, the amounts of money at risk can be greater than one month's payments. This activity raises concerns since it could be viewed as deposit-taking, as per the definition of banking business in the Central Bank Act 1971. It appears there is a small number, possibly two or three, of such firms operating in the State.

The third category covers debt management firms. These firms provide advice, money management services and debt management services to clients. They assist consumers who are struggling with debt and try to negotiate a more favourable repayment schedule with lenders and creditors etc. These firms take payments from consumers and use the money to pay off the debt owed to various creditors. This activity raises concerns since it could be viewed as deposit taking as per the definition of banking business in the Central Bank Act 1971. The amount paid over by the consumer is the total monthly repayment due to creditors and, therefore, this is the amount at risk to the consumer until the bill is paid. If the monthly amount is not paid, the creditor will be aware of it and will seek the payment from the consumer. It appears there may be approximately 20 such firms operating in the State in this area.

As I stated at the outset, I support the objectives of the Private Members' Bill, which amount to the effective regulation of this sector and the protection of vulnerable consumers. Deputies will be aware that the Central Bank (Supervision and Enforcement) Bill 2011 is currently before the House. Last month, the Government approved the inclusion of provisions for the regulation of debt advice, debt budgeting and debt management firms on Committee Stage. To this end a consultation document was published on the Department of Finance website at the end of April. The document outlines the proposed regulation of the sector and requests observations on the proposals to be submitted by Friday, 25 May. The window for receipt of observations will close on that date. Discussion on the matter is ongoing between the Department and the Central Bank. The Minister for Finance will examine the proposals in the Private Members' Bill and he will ensure its objectives are taken into account in the finalisation of Committee Stage amendments.

The Government has published proposals for legislation to regulate this sector. Part V of the Central Bank Act 1997 will be amended to provide for a regulatory regime for the services of debt management firms and bill payment firms which currently fall outside existing regulatory regimes. This will be achieved by incorporating a new category of regulated business into the existing regulatory framework in Part V, thereby extending the application of provisions of Irish financial services law which apply to regulated financial service providers to debt management and debt advisory firms. This means that existing provisions in Part V of the Central Bank Act 1997 relating to the imposition of conditions and the revocation of authorisations, etc. will apply to the firms in question.

These firms will be subject to the range of Central Bank powers. They will be subject to fitness and probity powers under the Central Bank Reform Act 2010 and to administrative sanctions powers under the Central Bank Act 1942. They will be subject to direction-making powers under the Central Bank (Supervision and Enforcement) Bill 2011 once it is enacted. It is proposed to amend the existing definition of money transmission services in Part V of the Central Bank Act 1997 to cover money transmission services provided by such debt management firms where such money transmission is not covered by any existing regulatory regime. This will ensure it is made clear that where debt management firms provide such services they will fall to be regulated.

The proposed regime will cover those persons or firms which provide debt management services to consumers for remuneration. This includes those who provide advice on budgeting or other similar advice on money management issues to consumers in respect of their financial affairs. It includes those who provide advice to consumers about the discharge of their debts to any creditor. It includes those who negotiate with any creditor or creditors the terms for the discharge of a consumer's debt. Finally, it includes those who take over the consumer's obligations to discharge a debt to any creditors of that consumer.

I assure the House that Deputies will have a further opportunity to debate this issue when the Government brings forward its proposed amendments to the Central Bank Acts, which will take account of the ongoing public consultation. I commend Deputy McGrath on using valuable Private Members' time to highlight this important matter. I assure the House that when enacted, the Government's provision for regulation of this sector will be robust and one in which consumers will have confidence. I assure the House also that the Central Bank will have the necessary powers to ensure compliance. That will be welcomed by all sectors.

I listened carefully to Deputy Cowen's comments about MABS and agree that it is a critical service. The facilitation of MABS for the consumer is important in terms of the huge demand for its services. I support the Deputy's view and will raise it with the Minister, Deputy Noonan.

Deputy Browne made the point that the pillar banks should have an advisory role to advise people who have restructuring requirements and that they would enter into meaningful negotiations with them and give them a sympathetic ear. That is an important service from the point of view of banking and also the MABS service. Those points are well made and I will convey them to the Minister, Deputy Noonan.

I compliment all Deputies on their valuable contributions to which I listened carefully. It is important that we do not lose sight of the consumer. There is immense pressure on a huge number of people but this Bill will be important in that regard. I am certain that once the consultation is concluded the Minister, Deputy Noonan, will be concerned to get the legislation into this House as quickly as possible. That will be made clear tomorrow evening when the debate is concluding.

I thank Deputy Fleming for moving this important Bill. We are very conscious of the need for such a Bill.

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