Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

That is correct.

I welcome the opportunity to commence the Second Stage debate of this important legislation, namely, the Protection of Residential Mortgage Account Holders Bill 2014. At its heart, this Bill essentially is about consumer protection. It is about ensuring that all mortgage holders in Ireland have a level playing field and enjoy the same statutory protections irrespective of who or what may hold their mortgage at any point in time. As Members are aware, the IBRC mortgage holders now face an imminent threat. However, other mortgage holders could well find themselves in a similar position were their bank or financial institution to decide in the months or years ahead that they wished to sell off that particular mortgage. There are almost 13,000 IBRC residential mortgage accounts, the majority of which relate to family home mortgages. These people stand to lose the vital protection of the code of conduct on mortgage arrears and, critically, access to the Financial Services Ombudsman. Potentially, they could find themselves in a situation in which they are left exposed and vulnerable, having lost statutory consumer protections. In such a scenario, they now would be at the mercy of a non-regulated, unsympathetic foreign-owned fund that simply was out to make a quick buck on the back of their mortgage. This is a valid and legitimate concern and is the issue Fianna Fáil seeks to address by way of introducing this legislation in the House tonight.

As Members are aware, this issue now has taken on a degree of urgency because the deadline for the submission of final bids in respect of the €1.8 billion IBRC residential mortgage book is 14 March and, consequently, this issue must be dealt with immediately. I welcome the indications from the Government by way of a statement this afternoon that it does not intend to reject the Bill on Second Stage and that it will pass Second Stage tomorrow evening. I sincerely hope, however, this is not merely a cosmetic exercise on the part of the Government and I will revert to that issue in a few moments. I do not for a moment claim this Bill is perfect. It certainly can be improved on Committee Stage, as is the case with any other Bill that is introduced. Moreover, as a member of the Opposition, I do not have access to the vast resources available to the Government in preparing legislation. However, this is an honest effort to tackle a genuine problem that is facing approximately 12,000 mortgage holders in IBRC immediately and which potentially could face many more thousands of mortgage holders in the years ahead.

Last week, on the eve of an appearance before the Oireachtas Joint Committee on Finance, Public Expenditure and Reform, KPMG, the special liquidators to IBRC, issued a statement confirming the liquidators had reached an agreement with the remaining bidders for the loan book whereby the latter now had agreed to comply voluntarily with the code of conduct on mortgage arrears. While this of course is better than nothing, it really is not good enough because it is utterly unenforceable. It has no legal standing whatsoever and this was confirmed by the liquidators when they appeared before the aforementioned committee last Wednesday. It will not be written down on any piece of paper and were any issue or dispute to arise between the mortgage holder and the foreign-owned fund that now will be in possession of the mortgage, the mortgage holder has nowhere to which to turn. There will be no one there to police or to enforce the implementation of the code of conduct on mortgage arrears in that scenario. Consequently, were a dispute to arise in that regard, it simply would not be resolvable because as a consumer, there is nowhere to go to have the issue dealt with. One suggestion made by the Government in defence of not legislating on this issue is that were an application for repossession to come before a court in Ireland and had the financial institution not complied with the code of conduct on mortgage arrears, the presiding judge would not grant a repossession order in respect of that property. That is cold comfort for the thousands of mortgage holders who potentially will face such a scenario. A lot of harm and distress can be caused to a family short of repossession. Why would Members allow a situation in which people face such a prospect or such a threat in the absence of a code of conduct? The bottom line, from Fianna Fáil's point of view, is that any mortgage loan issued in this State should be subject to the full protection of the code of conduct on mortgage arrears and the mortgage holder in question should have access to the Financial Services Ombudsman.

I acknowledge the current situation facing IBRC mortgage holders is not satisfactory. At present, IBRC in special liquidation is not a regulated entity. It is not subject to the mortgage arrears resolution targets and its mortgage holders have no recourse at present to the Financial Services Ombudsman. It is controlled, however, by a special liquidator appointed by the Minister for Finance under special legislation passed by this House 13 months ago and no one has disputed the fact that IBRC currently is complying with the code of conduct in full. The point is the current IBRC in liquidation inherited some level of infrastructure because it previously had been a regulated entity and had some capacity to comply with the code, which it continues to do.

There are more than 760,000 family home mortgages in Ireland today and consequently, Members must get this issue right both for the 12,000 IBRC mortgage holders and for everyone else as well, because other banks already have made public declarations regarding their exiting from this State and there is a prospect they will sell their residential mortgage book. Moreover, it would be open to any of the banks remaining in Ireland to pursue a similar path. The Government itself has acknowledged there is a problem in this regard. It is planning legislation regarding the sale of loan books to unregulated third parties to deal with this issue but it is not due to be published until 2015. This legislation will come far too late for the IBRC mortgage holders and possibly far too late for many other mortgage holders as well, if their bank decides to sell on their mortgage. Moreover, by delaying this legislation, the Government in a sense is creating an incentive for those banks to sell on the mortgage book in advance of its introduction. It enables avoidance of such legislation, were the financial institutions in question to sell the mortgage book in advance. It is known that unfortunately, many banks are exiting the Irish market at present.

The question to be asked, therefore, is what would a person lose if he or she no longer had access to the code of conduct on mortgage arrears or if it no longer was binding and mandatory? As Members are aware, it is a vital consumer protection code. It provides, for example, that banks must have proper policies and procedures for dealing with a distressed borrower. A foreign-owned fund outside the code would have no such obligation. A bank under the code must have properly-trained staff to deal with customers who are experiencing mortgage arrears. Again, no such requirement would apply to a foreign-owned fund. The code places restrictions on the ability of a lender to impose surcharge interest on a borrower unless that borrower is not co-operating. It requires a financial institution to work through a series of sustainable solution options with a borrower in difficulty with his or her mortgage. Moreover, it provides an eight-month moratorium on the commencement of legal proceedings from when a person enters into an arrears situation, that is, no legal proceedings can commence for an eight-month period, which is absolutely vital.

The Government has suggested that if one loses the code of conduct, one still has one's mortgage agreement, which will continue to apply to the new financial institution and the mortgage holder. This of course is correct but as I have pointed out, the mortgage agreement is so heavily constituted in favour of the lender that it really is of very little benefit to the consumer. I took the opportunity to look at my own mortgage agreement, as well as examining the Irish Banking Federation's pro forma mortgage deed. It states clearly that enforcement action can be taken in respect of the mortgage holder if any of several enforcement events occur. One such event was if the borrower fails to discharge any of the secured liabilities when they ought to be paid or discharged. In that scenario, the lender has the authority immediately to call in the loan in full and that would be deemed to be a formal enforcement event. As Members are aware, in such a situation, the institution can then opt to commence legal action immediately because the eight-month moratorium simply would not apply. This is the harsh, naked truth that mortgage holders face. I hope this would never come to pass for anyone whose mortgage is sold but that is a potential scenario. If the code does not apply, all with which one is left is one's original mortgage contract and that is constructed so firmly in favour of the lender that it affords essentially no protection to the borrower.

If one misses one repayment, it is technically within its rights, as a financial institution, to call in one's loan and issue a formal letter seeking full repayment of the mortgage. If one cannot comply - of course, nobody would be able to do so - it would again be within its rights, in the absence of the code, to immediately commence legal proceedings. That scenario is completely unacceptable to me and, I expect, to Government and that is why we need to move on this issue.

We know from parliamentary questions that under the relationship framework signed by the Minister and the different banks that AIB, for example, can sell a loan book up to the value of €100 million without even having to consult the Minister. The corresponding figure for Permanent TSB is €50 million. That opens up a potential scenario where the banks can essentially slice up their loan book into smaller parcels and sell those particular parcels without even having to consult Merrion Street. That is unacceptable and the relationship framework needs to be revised in that respect.

The bottom line from our point of view is that retaining the same rights and protections in the code of conduct on mortgage arrears and access to the Financial Services Ombudsman is an absolute must and we insist that takes place. The issue of recourse to the ombudsman has been largely overlooked in this debate but it is a critically important one. It is the statutory body for dealing complaints from consumers in regard to financial products.

It must also be said that it was open to the Minister for Finance, at any time, to issue a direction order under section 9 of the IBRC Act of last year to the special liquidators requiring them to put in a condition in regard to the sale of the mortgage book which would require the purchasers of the IBRC mortgage book to comply with a code of conduct on mortgage arrears. That should have happened several months ago. What our Bill does is that it ensures it is a condition of the sale of the mortgage book that the code of conduct would be fully honoured, would be legally binding and would based on statute.

We know the Central Bank is not satisfied with what is happening here and that it has contacted the Department of Finance and has made its views crystal clear. It believes that when a mortgage book is sold, the code of conduct on mortgage arrears must continue to apply. This voluntary gentleman's agreement is really a no man's land scenario, which is unacceptable.

I read the Department's statement this afternoon in response to our Bill and I welcome the fact that it is not being opposed on Second Stage. However, it is essential this issue is legislated for immediately. We cannot wait until 2015 for the Government to come forward with a Bill. It should accept this Bill on Second Stage and immediately move it to Committee Stage. Let us make the amendments and improvements to the Bill which are necessary so that it can be enacted immediately and in time for the IBRC mortgage holders who face a perilous scenario at this point.

I acknowledge the Bill does not address the situation of 5,500 mortgage holders whose mortgages have already been sold by regulated entities to unregulated third parties. I think Pepper holds some of those mortgages. We know GE sold some mortgages as did Bank of Scotland (Ireland)-Halifax. The advice we received was that this is a far more difficult issue to legislate for. My proposal is that the Minister stops the leak immediately, ensures this condition is stitched into any future sales and that he then examines the options available to deal with the 5,500 mortgage holders whose mortgages are already legally outside the code of conduct on mortgage arrears, even though the owners of those mortgages, as such, are currently in voluntary compliance with the code of conduct. However, as I said, voluntary compliance is simply not an option.

I read at the weekend that the National Consumer Agency raised with the Department of Finance concerns it has. It received approximately 88 separate complaints in respect of loans, albeit not mortgages, which were sold to an unregulated third party. The National Consumer Agency is receiving complaints in respect of the way those loans are currently being handled. That is the scenario that could lie before us in respect of the IBRC mortgages if we do not deal with this issue immediately.

We know from media reports that there are four US giant private equity and investment firms left in the race for the IBRC mortgages, namely, Lone Star Funds, Apollo Global Management, CarVal Investors and Oaktree Capital. They have until 14 March to submit their final bids in respect of the €1.8 billion IBRC loan book. The indications are that there is far greater interest in the non-performing loans, a scenario which is really quite concerning. If one has a mortgage currently in some level of difficulty but one has equity in one's home and if one's mortgage ends up with one of these unregulated third parties, there will be a tremendous incentive for it to move on one immediately. It will be outside the code of conduct and it will be perfectly within its rights to do so. If it buys one's loan at 50 cent in the euro and if one has equity in one's home, it can sell that home and wipe the loan balance immediately and make 50 cent in the euro profit in respect of one's loan.

We are leaving the message loud and clear with Government. We welcome the fact this Bill is being accepted on Second Stage but that is not good enough as it does not go far enough. We want the spirit of this legislation to be implemented immediately, so that the 12,000 or so IBRC mortgage holders will continue to have the same binding and statutory consumer protections as every other mortgage holders in the country. My view is that they deserve nothing more and nothing less than that.

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