Seán Fleming (Laois-Offaly, Fianna Fail) | Oireachtas source

I thank Deputy Michael McGrath for bringing forward this motion. The issue of mortgages and mortgage arrears is one that Fianna Fáil has raised consistently over the past couple of years. We are now raising the issue of people on the standard variable rate. I must declare my own interest. I am on a standard variable mortgage from Permanent TSB and I feel the pain but I do not think too many people will be interested in the pain suffered by Deputies. Be that as it may, I wanted to put that on the record because many of us may have an interest and in case people think I was just making a case for myself.

I want to look at the motion we have put down and go through some key aspects of it and the response by the Government in its amendment. The motion states that the standard variable rate for residential mortgages charged by State-owned Permanent TSB and AIB-EBS, as well as other banks operating in the market, is up to 2% higher than comparable mortgage rates in other eurozone countries. It has already been outlined by Deputy Troy that a standard variable rate customer with a typical €200,000 mortgage will pay approximately €6,000 a year more in interest than a borrower with a tracker mortgage. This is €500 per month and over €100 per week. That is the difference between surviving and being able to have a life. Banks operating in the Republic of Ireland and Northern Ireland are on average charging customers in the Republic 2% more for a standard variable rate mortgage. These are the same banks with the same access to the same money at European level but they are charging 2% more in the Republic than they are in Northern Ireland. I have already mentioned that the banks here charge more than the average mortgage rate for new mortgages across the eurozone.

Ireland is a small country with only 4.5 million people and one of the difficulties we have relative to other larger countries as a result of the small market here is that normal competitive forces that would allow customers with high mortgage costs to switch to an alternative provider essentially do not operate here. There is no great appetite among the financial institutions to facilitate people who want to switch their mortgages. They will say they have schemes and mechanisms in place, are willing to do it and are in the market for it but when one looks at the number of people who actually succeed in doing it, one can see it is very low. This is because of the lack of competition due to the size of the Irish market. The European Central Bank has a base rate of less than 0.5%. A person would almost have to pay to leave their money with them the way interest rates are going yet we see the excessive rates of 4.5% charged by the Irish financial institutions. We have called on the Economic Management Council to impress on the banks the unfairness of the current pricing regime for standard variable rate mortgages.

In addition, we have said that residential mortgage holders whose mortgages are sold to third parties need to be protected from profiteering. The Minister for Finance deals with that in an unsatisfactory manner in the wording in the amendment substituted for the wording in our motion. We also call on the Central Bank in its consumer protection code to engage directly with the banks on the issue of high standard variable interest rates and the need for fair treatment of existing customers.

In its response, the Government says that the regulation of interest rates remains a policy area under active review and that this has been the subject of previous correspondence between the Department of Finance and the Central Bank. I consider that to be a very important issue because the Government is saying that it is a matter of policy that is currently under review and that there has been correspondence between it and the Central Bank. I would like to see that correspondence to see what the Department is saying to the Central Bank on this issue. The Central Bank has power of persuasion in respect of the banks while the Department has power of persuasion when it comes to dealing with this issue. The Government acknowledges that it is a policy area under its remit. I know the Government cannot get in and micro-manage the banks. Perhaps it should but we will come to that some other day because it is not in the wording of the motion and we are not suggesting that this should happen. The Government is acknowledging that it is a policy area. I do not think it is doing anything about it. How do you call a policy a policy when the Economic Management Council has not met the banks collectively and individually for a number of years? It might be a policy on a shelf or in a book or laptop somewhere but it is not the policy that is being implemented in practice.

The amendment to this motion says that the Consumer Protection (Regulation of Credit Servicing Firms) Bill 2015 will ensure that all mortgage holders in the State will have the protection of the code of conduct on mortgage arrears and have access to the Office of the Financial Services Ombudsman. It is still a Bill: it has not even been enacted. Does the Government want to wait for ten years after the commencement of the difficulties in the banks, which is seven or eight years ago, before it actually does something about it? It has published a Bill. When will it be enacted and commence? I think the Government is waiting for the problem to pass and thinks that if it procrastinates long enough, the problem will have eased and there might be no need to do that. I spoke on Second Stage of that Bill, which contains serious flaws because it will only be a code of conduct and will apply to the service providers - the people who are managing those mortgages. As we all know, a vulture fund, be it in the US, China, Japan or Canada, will be the owner of the mortgage. The service provider - the company that actually deals with the customer - will be subject to the code of conduct on mortgage arrears and subject to the Office of the Financial Services Ombudsman but the person with the financial and monetary interest in and ownership of the mortgage will not be subject to it, particularly if they are not resident in the State. This is a deliberate loophole on the part of the Government to allow some Irish banks to offload some of their mortgage book to third parties outside the State so there is the charade that the local service provider will be regulated but in fact, it will not really be regulated because the owner of the mortgage will not be covered by these regulations.

We are in the complicated situation whereby some of these companies will have a monetary interest in the mortgage but no legal interest. This is a new concept that is creeping in. Some of these financial institutions have monetary control over the particular loan but do not have legal control. It is a very delicate division that has not been the case heretofore and the financial institutions are expert at working at this.

These high standard variable rates feed into the arrears issue. Some people are seriously in arrears but the first thing other people do every month is pay the mortgage no matter what. Parents want to keep a roof over their families' heads but then have no money to live on. This is an example of the banks in a roundabout way using their veto in respect of the insolvency legislation to exercise unfair muscle in respect of their mortgage account holders by having such a profiteering level of interest on these mortgages.

I support the principle of bankruptcy legislation to provide for an exit from bankruptcy after 12 months, an issue that will be raised in the House by several people in the not too distant future. We need to take a slightly more aggressive approach with the banks now that they are returning to profit. The banks know that the current three-year period in respect of an exit from bankruptcy is off-putting for people and so they continue to exercise their veto. The introduction of bankruptcy legislation would bring the banks to heel because they would know that if they were not fair and reasonable in their dealings with the person in serious arrears that person would have the option of applying to the courts for bankruptcy, leaving them free from their debts in 12 months.

The Government does have influence over the Central Bank. I recall the Governor of the Central Bank saying at the finance committee some time ago that he was not in favour of the introduction of percentage targets in respect of mortgage restructuring by the banks. However, following pressure from the Government and the committee, despite his publicly declared intentions at that time, he is now working to targets. It is important these targets are carefully monitored on behalf of the people.

At a time when banks can borrow at less than 0.5%, it is grossly unfair and obscene that the standard variable rate for existing customers of AIB is 4.15%. The variable interest rate charged by Bank of Ireland is 4.5%; by Permanent TSB is 4.5%; by KBC is 4.5% and by Danske Bank is 5%. This is utterly unfair. It is an abuse of power and position. The Government must use the power of persuasion in this regard. In the past, there was a lack of strong regulation of the banks. We are lapsing into that situation again in that the regulator, because the banks are returning to profit, believes everything is fine again. Everything is not fine. The public interest must also be looked after.

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