Brian Hayes (Dublin South West, Fine Gael) | Oireachtas source

I thank the Deputy for raising this issue. I have been informed by the Central Bank that this initiative is being implemented to establish, on a test basis, an approach to deal with both secured and unsecured debt. This pilot scheme will take in a sample of approximately 750 cases where borrowers have debts with multiple lenders. To address this scenario, the Central Bank has commenced a process to facilitate a voluntary, co-ordinated approach among lenders to the resolution of multiple debts owed by distressed borrowers. An unsustainable debt position has been reached by many borrowers, which needs to be addressed for the benefit of both borrowers and lenders alike.

The Central Bank envisages that the participants in the pilot framework will be the main retail lending banks and the credit unions that have agreed to participate, as well as certain other unsecured lenders. This pilot framework contains a restructuring waterfall that will be applied to each borrower who agrees to participate to establish the most appropriate modification to put him or her on an affordable repayment path. The framework is expected to commence in June and will operate for three months, after which the results will be assessed to establish the effectiveness of the framework and to determine the appropriate next steps. To be eligible for the framework, a borrower must be co-operating with their lenders, as defined in the code of conduct on mortgage arrears. The framework will apply to borrowers experiencing financial difficulty but who have taken reasonable steps to maximise income and curtail expenditure. It is important to reassure borrowers in difficulty with their mortgage repayments that all existing protections afforded by the Central Bank's consumer protection code and code of conduct on mortgage arrears will continue to apply to participating borrowers.

The Central Bank is encouraging the involvement of all lenders in the process to ensure maximum effectiveness of this learning and information gathering pilot stage and it has a number of lenders engaged to date. The bank has written to all credit unions individually to invite them to participate in the pilot framework. It is confident that the pilot framework will offer outcomes that support borrowers and will allow the Central Bank to test and learn from this approach. It must be borne in mind that a key consideration in a decision to opt out by lenders will be that borrowers from these institutions cannot be part of the pilot framework to restructure their debt and cannot avail of the benefits that could be accessible to the borrower.

I am aware of the concerns expressed by the ILCU regarding the Central Bank initiative and its view that the arrangements under the Personal Insolvency Act should be applied to the resolution of multiple debts owed by distressed borrowers, including credit union members. While that regime will be available, the Central Bank pilot scheme will offer the opportunity for distressed borrowers, including participating credit union members, to resolve their debts without the need to enter into the formal statutory insolvency process. In this respect, it is important that, where possible, credit union members should not be left with a more limited range of options than that available to customers of other financial institutions. It is in this spirit that the Central Bank has written to all credit unions to make them aware of the pilot framework in order that the credit unions can decide whether participation is in the interests of their members, including those with distressed debts across multiple lenders. Credit unions have been invited by the Central Bank to nationwide information seminars on the pilot scheme to discuss its objectives and approach. The ILCU has been invited to attend at these sessions and to provide input. Notwithstanding its official stance on the pilot programme, the ILCU has played a constructive role in working with the Central Bank and other lenders to address this difficult issue and credit unions continue to have an important role to play in supporting distressed borrowers in resolving their problems.

The Central Bank initiatives in the mortgage arrears area, in particular the mortgage arrears targets initiative announced last March, and the recent announcement regarding the framework pilot on the development of a co-ordinated, holistic and voluntary approach by secured and unsecured lenders, is consistent with the overall approach of Government to deal with the mortgage arrears problem. In particular, the Government, while significantly modernising Ireland's bankruptcy and insolvency law and procedures, has also advocated and encouraged borrowers and lenders to address debt difficulties, where possible, on a bilateral and informal basis, and the recent Central Bank initiatives should underpin that process. Taken together, the framework is in place to enable banks to work with distressed homeowners to reach sustainable solutions for dealing with their personal indebtedness.

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