Alan Shatter (Dublin South, Fine Gael) | Oireachtas source

It will not recoup the extra two thirds and if that individual has no other assets, even if the institution is not willing to write off formally the outstanding debt, there is no way it will ever recover it. For individuals in this position, there is one message and one message only to the financial institutions, which is to use the personal insolvency arrangement, PIA, to effect what Members call debt forgiveness and which everyone outside this House refers to as being when one writes off a portion of the capital debt. There is nothing to be gained by the bank in doing anything other than that and it is better off doing this if the circumstances bring about a position in which the individual can now start repaying both capital and interest on what remains of the capital debt. In such circumstances, the bankers save the cost of repossessing a property, of securing the property and of engaging agents to sell the property when possibly, because it has been repossessed, it might go at an even lower price than market value. Were the banks to start repossessing homes of individuals in such circumstances, all they will do is to undermine further the security they have in other properties held in the residential home mortgage sector or even in the purchase-to-let sector.

Consequently, I will repeat yet again what I have stated previously in this House, which is the financial institutions must use this legislation to engage with people whose financial circumstances are so burdened that there is no realistic possibility of them ever being able to discharge the capital sum due on their homes, where they are in negative equity and where they cannot afford to make the repayments. It is not about people who will not pay; it is about those who cannot pay. Moreover, the personal insolvency arrangement is designed to ensure that in such circumstances, where it is appropriate, fair and reasonable, that individuals will retain their homes. The benefit to the individuals is they will retain their homes and there is a rearrangement of debt. Effectively, the personal insolvency arrangement is a form of personal examinership and recalibration of financial circumstances.

I am anxious to ensure that whatever the position has been of the financial institutions heretofore, that they do so engage. The Deputy gave an example of an event of which he has experience. There is a difficulty, which is that in the first instance, the financial institutions must apply the provisions of the legislation although in fairness, the legislation has not been enacted yet. However, once it has been enacted, we will be in a different and new world. Second, the financial institutions must ensure they have staff within the institutions who have the skill to deal with this in a sensible, commonsensical and humane manner, as well as in a way that is financially appropriate with regard to both financial institutions and individuals. There is no point in making a pretence that one can recover a debt in circumstances in which there has been a full-faith disclosure and one knows there is nothing from which one can recover it. In such circumstances, one enters into an appropriate discussion with the personal insolvency practitioner and appropriate arrangements should be reached. If banks and financial institutions fail to engage constructively in using these mechanisms, I will not be slow to return to this House and to do anything that is necessary to ensure this occurs.

However, I believe we are heading into a different set of circumstances. I believe that within the financial institutions, in circumstances that are appropriate to debt forgiveness, there has been too much kicking the can up the road and only dealing with what is short to medium-term debt forbearance. However, each of these issues must be dealt with based on the individual background circumstances of the individuals concerned, with a full good-faith financial disclosure into which everything fits, including income, resources, assets and liabilities, as well as with a degree of expertise within the financial institutions to ensure a uniform approach is taken in the context of similar circumstances and that people are not unnecessarily frightened.

However, there are other issues. Some individuals who are in debt are not engaging with their financial institutions and are simply ignoring any correspondence they receive. It is important that there be constructive engagement and that these mechanisms are used. I revert to the issues raised by the Deputy as to whether one could start the timeframe for a PIA from the date someone begins to go into arrears. I believe the Deputy primarily is referring to a PIA, as opposed to the debt settlement arrangement.

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