Michael McGrath (Cork South Central, Fianna Fail)

I very much welcome the opportunity to make a contribution on Second Stage of the Personal Insolvency Bill. I warmly welcome the publication of the Bill which is long overdue. It is ground-breaking legislation which will radically transform the opportunities open to distressed borrowers of all levels. It has to be acknowledged that people across the board in society and many interested groups have been waiting quite some time for this type of system to be introduced in Ireland. I commend the work of the Law Reform Commission whose paper and draft Bill at the end of 2010 formed the template of the Bill introduced by the Minister. I also acknowledge the work of the free legal advice centres which have been lobbying for approximately ten years for these necessary reforms to Ireland's insolvency and bankruptcy regime. They have already made a constructive contribution to the debate on exactly what shape the Bill should take and precisely how the arrangements contained therein should be configured to ensure we have the right balance between the rights and responsibilities of borrowers and lenders, and this is very important.

We all acknowledge a non-judicial debt settlement system is urgently needed. In recent years, as previous speakers have outlined, there has been an enormous build up of personal debt in Ireland, not only mortgage debt but also a variety of other forms of personal debt such as credit card loans, personal loans, car loans and hire purchase agreements. People have entered a host of arrangements which have cumulatively resulted in a dramatic increase in the overall level of indebtedness faced by Irish people.

When the economic collapse struck Ireland in 2008, the fall-out from that resulted in many thousands of people losing their jobs and when their income was essentially demolished overnight, they were left with having to face up to liabilities they had built up on the back of an income stream that was no longer available to them. That combination has resulted in the type of carnage that is out there and all of us who are elected representatives now meet on a weekly basis people who are dramatically over extended and who, despite the best will in the world and making all the possible reasonable sacrifices that could be expected of anyone, will never be able to meet their financial obligations. This throws up difficulties in terms of identifying an appropriate policy response. There are rights and responsibilities on both sides and we must also be cognisant of people who are still managing to meet their financial commitments in full. It is important the interests of those people and the wider economy are part of our consideration.

That said, there is no getting away from the fact that we must face up to and confront the scale of personal and mortgage debt people are carrying, because in many instances the level of debt is unsustainable and something will have to give. There are people living in misery because they cannot meet their commitments. They are coming under inordinate pressure from banks and other financial service providers to make repayments, but they have not got the money to do so. This is resulting in the efforts to bring about an economic recovery being stymied by the overhang of debt and until we face up to and deal with that issue, we will not get the type of economic recovery we all want to see.

As the Minister knows, Fianna Fáil brought forward a Bill last October in Private Members' time, the Debt Settlement and Mortgage Resolution Office Bill, which was accepted on Second Stage. The Joint Oireachtas Committee on Justice, Defence and Equality has done significant work on the draft heads of the current insolvency Bill, which was published in January, and issued a report to the Minister and held an extensive series of hearings with interested parties. That report has formed part of the Minister's consideration in bringing forward this Bill. There are a number of differences between the Bill we brought forward last October and the Bill the Minister has now brought forward and if I have time, I will speak about those shortly.

One of the main benefits of bringing forward this Bill is that it puts it up to the banks to act, because they will now know that people can engage with an alternative process. Hopefully, we will shortly have a system in place that people who are over-indebted can access in order to have a tailored solution put in place that will reflect the unique circumstances they face with regard to their financial affairs. This will provide a clear and strong incentive for the banks to engage properly with people. We all acknowledge that it would be far better for the majority of people if they did not have to engage in the new insolvency service and were able instead to restructure their affairs with their financial institutions. The insolvency process being established will not be painless and there will be consequences. The process will be invasive and intrusive in their personal lives and there will be a public register of decisions that have been made.

A clear benefit of the Bill being brought forward is that it forces the banks to face up to their responsibilities and to engage properly with people. While the banks have restructured approximately 70,000 mortgages to date, they could do far more. The official statistics from the Central Bank indicate that what the banks call "restructured mortgages" can be divided into the following categories: putting people on interest only payments, approximately 28,000 cases; reduced payment options, where people pay more than the interest but less than the full interest and capita, 14,000 cases; a reduced payment, as in less than an interest only payment, 11,000; extension of the mortgage term, approximately 9,500 cases; capitalised arrears, 9,500 cases; a repayment holiday, 3,000 cases; and hybrid solutions, approximately 3,800 cases.

The point is that the banks have shown very little imagination in coming up with solutions to this crisis. It is only when the Government, the troika and all other interested parties have come forward with these proposals for an insolvency regime that we see the banks talk about coming up with packages that will include split mortgages, the possibility of taking an equity stake in some houses, where people cannot afford the full mortgage liability, and shared ownership arrangements. Therefore, it is only because it was ultimately put up to the banks to show more ingenuity and imagination to deal with the crisis that they have finally begun to bring forward ideas that will apply to far more people. The previous solutions of interest only payments, extension of the mortgage term and the capitalisation of arrears are not suitable for everyone. I believe that if the will existed within the financial institutions, they could resolve the majority of mortgage distress cases through agreement with the borrowers. That would be the ideal scenario and would save everybody the hassle and distress of going through an insolvency process. That said, the insolvency system is needed, because it provides a backstop, that in the event people cannot restructure their affairs with their bank, this system exists as a last resort for them.

The role of the banks in regard to facing up to the problem must be questioned. I agree they have entered into arrangements with approximately 70,000 people. However, I have dealt with many individual cases over the past few months and it is worth reading into the record some of the correspondence people in mortgage distress have received. The letter I am about to read from comes from a pillar bank with regard to someone with an outstanding mortgage of approximately €44,000, with arrears of a few thousand euro and where the attempts to come up with an alternative arrangement have failed so far. The person in question received a letter saying:

As a result, we now call on you to pay us everything you owe under the mortgage loan ... within 10 business days of the date of this letter. [Essentially the bank is calling in the entire mortgage loan.] This letter is a demand for early repayment of your mortgage loan under your mortgage loan offer letter and the total amount you now owe at the date of this letter is quoted above. Interest continues to accrue daily at the rate which now applies to your mortgage loan.

If you do not pay us what you owe us under the morgage ... within 10 business days ... we can start legal proceedings against you for repossession of the mortgaged property.

Under the terms of your Mortgage Deed, you are responsible for the costs of any legal action we take to repossess the mortgaged property. These costs could be substantial. We include an estimate of costs in the 'Important Information' section of this letter. We would stress the importance of clearing the arrears on your mortgage account to avoid the need for court proceedings.

Please note that if your property is sold for less than the amount you owe us under your mortgage loan, you will still be legally obliged to repay us the remaining amount you owe us. That would include any interest which you owe us, charges and any legal, selling or other costs which we have to pay to sell your property. For example, there will be solicitors' and estate agents' fees and expenses to achieve a sale. Remember: the cost of selling the property must be deducted from the sale price and only the remainder of the sale price can be used to repay your mortgage loan.

This is the type of letter people in mortgage distress are receiving from their banks. People who cannot afford to pay their monthly payment are getting letters calling in the entire mortgage amount to be repaid within 10 days. Of course, the banks know this is completely unreasonable. They are merely ticking a box along the road to court proceedings for repossession. This is essentially what the bank is doing in the case raised in the letter.

To underestimate the effect of receiving a letter like this has on a vulnerable person who is in distress cannot be countenanced. It is unacceptable that people are being treated in that manner.

There is a way to deal with people. The person in this case has made every reasonable effort. I would have been very upfront with the person that this would end up in court ultimately if he or she could not manage to repay some of the mortgage. However, letters like that are unacceptable. There was no mention of the code of conduct on mortgage arrears in that correspondence.

The Minister closely examined the issue of the banks having a veto in respect of the arrangements that follow from this, in particular the personal insolvency arrangement. Legal people have told me there are important constitutional considerations in terms of property rights and so forth and that one cannot set up an independent arrangement whereby a solution can be imposed on the banks. I do not have the legal qualifications to make a determination on that but, without question, allowing the banks to retain a veto takes something from the Bill because, in effect, one could ask the question, what will be different under this arrangement than is currently the case outside of it? Outside of the arrangement, the bank can still say "No". If somebody makes a proposal to restructure his or her mortgage, the bank can simply say "No" and send out a letter along the lines of that which I read into the record to the mortgage holder. Under the insolvency arrangements we propose to establish, the bank can again simply say "No".

The difference is, I suppose, that in the Bill, the Minister is proposing important changes, which we welcome, to the bankruptcy regime. The banks will know that if they do not agree to a proposal from the personal insolvency practitioner in respect of a personal insolvency arrangement, the mortgage holder or the borrower will have recourse to the bankruptcy regime and there is only a three year automatic discharge period. That will help to bring a greater degree of acceptance within the banks that they will have to engage constructively with this process. I would expect the banks to accept the outcome of the recommendations that are being made by the personal insolvency practitioner, otherwise somebody will simply go down the bankruptcy road.

While I hope this Bill will not take a prolonged period to go through the Oireachtas, I would make the point that we must get it right. I do not mind if the Oireachtas spends a reasonably long period of time getting it right because that is absolutely essential. However, the Minister should consider taking out the bankruptcy element and enacting that as separate legislation. The reason I make that point is that having that in place in the shortest possible time would force the banks' hand and would result in them resolving far more of the mortgage distress cases directly with the borrowers without needing to have recourse to the insolvency system. The Minister could actually lessen the workload of the insolvency system if he enacted and put in place those bankruptcy provisions. It would have the effect of more cases being resolved directly between the borrower and the bank.

I mentioned FLAC, which has given its initial response, earlier. I respect very much its experience of dealing with cases over many years. We should all listen very carefully to its suggestions and proposals because they are based on practical experience of dealing with borrowers experiencing difficulty. It has highlighted the need for a right of appeal. In most processes, we would all expect there would be an appeals mechanism in place. Of course, it would be far better if we could ensure the system itself came up with the right solution in the first place and that we would not force people into an appeals scenario. However, that proposal should be given very careful consideration.

The Bill and the debate surrounding it would be greatly enhanced if possible scenarios were given and examples of how it might work for individuals, albeit hypothetical cases. I fully accept each case will be different and it is difficult to set out a model which involves examples but it would make the debate far more meaningful if people knew the possible outcomes at the end of this process.

The Minister has gone into considerable detail in the Bill in respect of the three different arrangements, namely, the debt relief notice, the debt settlement arrangement and the personal insolvency arrangement. The entire process would be enhanced if people could see some tangible examples of options which an insolvency practitioner could recommend without being prescriptive about it. It would allow a practitioner to set out possible scenarios. People will want to know the consequences for them coming out the other side of this process. Will they be able to borrow again within five or ten years? How long will there be a record on the system? How will the Irish Credit Bureau deal with cases where people have gone through the insolvency system and how will any future credit application be considered by the banks? Should we force the banks to consider each application on its merits and without having regard to previous history which will have been disposed of through the system? There are practical issues there which need to be dealt with.

The Government accepted a Bill we brought forward on regulating debt management advisers who will now see a great opportunity to hand hold people through this process and will make all sorts of commitments and promises. This insolvency system opens up great opportunity for them to exploit vulnerable people and I urge the Government to enact that legislation. It is very straightforward and the Bill has passed Second Stage. It is essential that whole sector is properly regulated before the insolvency system is up and running, otherwise people will be exploited.

I wish the Minister well and I am glad we are having the Second Stage debate in advance of the summer recess. Committee Stage will be absolutely crucial and it will be a very onerous one for those tasked with the responsibility for it because they will have to go through the Bill line by line and ensure the correct balance is struck. Many issues need to be addressed but we warmly welcome the broad principles of the Bill and, as a party, we will engage very constructively on Committee Stage to make this new system the best it can possibly be so that it offers some hope for people who are currently in a very dark place.

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