Simon Harris (Wicklow, Fine Gael) | Oireachtas source

I move amendment No. 1:

To delete all words after “Dáil Éireann” and substitute the following:

“acknowledges that:

— the Statement of Government Priorities 2014 to 2016 recognised that promoting and encouraging competition and new entrants in the banking sector was required to put downward pressure on interest rates for variable rate mortgage customers, both new and existing; and

— the mortgage interest rates that independent financial institutions operating in Ireland charge to customers are determined as a result of a commercial decision by the institutions concerned and the Minister for Finance and the Central Bank of Ireland have no statutory role in relation to the mortgage interest rates charged;

notes that:

— while the European Central Bank base rates are a factor in determining this interest rate, a broad range of other factors including deposit rates, market funding costs, the competitive environment and an institution’s overall funding are key determinants; and

— the improvements in the overall economy, reduction in the costs of funds, increased demand and greater competition between lenders has led to a reduction in the standard variable rate offered by the majority of banks for new customers and for all standard variable rate customers in the case of AIB;

recognises that as part of the Central Bank’s work on mortgage arrears, lenders were asked to consider all avenues to help customers in arrears, including interest rate reductions;

further notes that:

— the issue of regulation of interest rates remains a policy area under active review and that this has been the subject of correspondence between the Department of Finance and the Central Bank of Ireland previously; and

— 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;

acknowledges the actions already taken by this Government to promote competition in the banking sector including the establishment of the Strategic Banking Corporation of Ireland, the Credit Guarantee Scheme and the amendment to section 149 of the Consumer Credit Act 1995 to encourage new entrants to the Irish financial sector; and

calls for:

— the Government to continue to apply downward pressure on standard variable rates charged by the banks by supporting increased competition in the sector in line with the Statement of Government Priorities 2014 to 2016; and

— active monitoring by the Competition and Consumer Protection Commission and the Central Bank of Ireland of the standard variable rate mortgage market to ensure that the rates offered to new and existing customers are competitive and that mortgage holders are aware of, and can switch to, cheaper, lower cost mortgages providers.”

I was shaking my head because I felt Deputy Ó Cuív was very conveniently misrepresenting the position of the Minister for Finance and the Government regarding our shares in AIB, but that may be a debate for another day.

I advise Deputy Michael McGrath and his colleagues who tabled this motion that the Government welcomes this debate. The standard variable rate charged by the various financial institutions in Ireland has a huge impact on many individual households. Understandable concerns about unfairness can develop when people compare the rates they are charged with the rates being charged to other people, either in Ireland or elsewhere in the euro area.

I welcome the opportunity to discuss the issues and I hope the debate tonight and tomorrow night will add clarity to the situation and help people understand its complexities. The issue of the Economic Management Council has already been raised. During Taoiseach's Questions today, the Taoiseach made it clear that the EMC will meet banks to discuss mortgage issues. I am not an apologist for the banks, far from it. Along with Members on all sides of the House, I would have difficulties with some actions the various banks have taken or not taken in the recent past and further back. The debate highlights the issues and I hope we have an honest debate about the options, and the roles and responsibilities of individuals, organisations and Government. It is too important a subject to do anything else. No one in this House has a monopoly on concern or a monopoly on good ideas.

The lending institutions in Ireland, including those in which the State has a significant shareholding, are independent commercial entities. The Minister for Finance has no statutory role regarding regulated financial institutions passing on European Central Bank interest rate changes or the mortgage interest rates charged by such institutions. Such decisions are commercial matters for each institution concerned. That is not my opinion; it is just a statement of the fact. Given that position, it is not appropriate for the Minister for Finance to comment on or become involved in the mortgage propositions the individual banks choose to put forward to potential customers or how that relates to existing customers.

Having said that, the issue of regulation of interest rates remains an important policy area under active review and has been the subject of recent correspondence between the Department of Finance and the Central Bank. The Central Bank has responsibility for the regulation and supervision of financial institutions in terms of consumer protection and prudential requirements, and for ensuring ongoing compliance with applicable statutory obligations. The Central Bank has no statutory role in the setting of interest rates by financial institutions, apart from the interest rate cap imposed on the credit union sector in accordance with the provisions of the Credit Union Act 1997 and the requirement to be notified of penalty or surcharge interest imposed in respect of arrears. A previous deputy governor indicated that, within its existing powers and through the use of persuasion, the Central Bank would continue to engage with specific lenders which appear to have standard variable rates set at disproportionate rates to their cost of funds, and this is the course of action I expect the Central Bank to continue.

The Governor of the Central Bank, who has been well quoted in this debate, stated that it has long been understood that tight administrative control over the rates charged by banks would be counter-productive in ensuring a sufficient flow of properly priced credit on a lasting basis. Such control would strongly discourage new entrants. In this regard, ongoing competition in the banking sector will be crucial in ensuring the economy is provided with efficient and cost-effective banking services. Such control would be detrimental to the economy, given there have been some movements on mortgage interest rates of late by a number of institutions which suggest that the market may well be entering a new and more competitive phase. We have had comments from people on the banking sector. No one is suggesting the banking sector in this country is fully fixed. There is still a significant job of work to be done.

As I said, the mortgage interest rates that financial institutions in Ireland charge are determined as a result of a commercial decision by the institutions. This rate is determined taking into account a broad range of factors, including European Central Bank base rates, deposit rates, market funding costs, the competitive environment and an institution's overall funding.

The Governor of the Central Bank has put forward two reasons that rates charged in Ireland are higher than in the euro area. The first is that the cost of funds for banks operating in Ireland is higher than elsewhere in the eurozone, and the second is a lack of competition.

The House must acknowledge the actions already taken by this Government to promote competition in the banking sector. The Government continues to work to create an environment conducive to new entrants, primarily through the implementation of policies to promote economic recovery and employment creation but also through various initiatives to ensure that there is an adequate pool of credit to underpin the recovery. The Government's actions in this area include the establishment of the Strategic Banking Corporation of Ireland, SBCI, the credit guarantee scheme and the amendment to section 149 of the Consumer Credit Act to encourage new entrants to the Irish financial sector.

The SBCIwas established during September 2014 with the core purpose of enhancing the supply of credit. The Government's aim for the SBCI is to enhance the range and profile of finance providers in Ireland. The SBCI will achieve this by working with existing and new providers to develop specific funding products and by supporting new entrants to the small and medium enterprise, SME, lending market by allocating significant funding to a number of new and non-traditional finance providers. It is also an objective of the SBCI to encourage competition within that funding market through the provision of funding to a broad range of potential lending partners.

The SBCI launched its first product programme on 19 February 2015 and commenced lending on 9 March 2015 through both Bank of Ireland and Allied Irish Banks. An initial sum of €400 million has been allocated for lending throughout the country. It will also offer some loans for the refinancing of credit originally extended by banks. This is another effort by the Government to encourage competition in the sector.

The credit guarantee schemeencourages additional lending by offering a partial Government guarantee to banks against potential losses on certain loans to eligible SMEs. As the original scheme saw a low take-up, the Government moved quickly to improve the existing scheme and is also developing an alternative scheme to ensure best use of the resources available to the scheme. The Departments of Finance and Jobs, Enterprise and Innovation have worked on an amendment to the existing guarantee scheme to provide funding to SMEs whose banks are exiting the Irish market. The Government has agreed that the new credit guarantee scheme will align with the work of the SBCI. Staff from the Department of Finance, the SBCI and Enterprise Ireland have been assisting the Department of Jobs, Enterprise and Innovation with the drafting of the new credit guarantee scheme. Legislation to enable the introduction of the new scheme is a priority for the current legislative term.

The Government has taken steps to ensure that the Irish financial market is accessible to any financial institution considering establishing in Ireland. That really is the core issue - trying to encourage competition to get new entrants into the market and to have a more competitive banking sector in this country. In seeking to reduce the barriers to entry which are specific to the Irish banking market, section 149 of the Consumer Credit Act,as amended, which provides for the regulation of bank fees and charges, has been disapplied for the first three years in the case of new financial service providers setting up in Ireland.

Of course, promoting competition must be balanced with protecting consumers. The Government recognises that as part of the Central Bank's work on mortgage arrears, lenders were asked to consider all avenues to help customers in arrears, including interest rate reductions. However, this is just one avenue to assist customers. In order to assist borrowers in difficulty, the code of conduct on mortgage arrears, CCMA, provides a strong consumer protection framework to ensure that borrowers are treated in a fair and transparent manner by their lender and that long-term resolution is sought by lenders with each of their borrowers. The code stipulates the conditions that must be met before legal proceedings can be initiated.

Borrowers may seek independent financial advice from the money advice and budgeting service, MABS, which will assess their financial position and may intervene with creditors on their behalf. The Insolvency Service of Ireland, ISI, launched its "Back on Track" information campaign last October in an effort to promote greater engagement between personal insolvency practitioners and people in debt. The ISI reported a greatly increased take-up of its services in the last quarter of 2014 on foot of its awareness-raising campaign.

The Citizens' Information Board, CIB, hosts a free mortgage advice and information helpline, which borrowers can avail of to get details of all options available to them in dealing with their debt situation. The Citizens' Information Board also hosts a panel of financial advisers from whom borrowers can seek independent advice regarding restructuring arrangements offered to them by their lenders. The Government has already committed to examining this area further and to bringing forward more measures in respect of mortgages and mortgage arrears next month.

A further measure to protect consumers is the Consumer Protection (Regulation of Credit Servicing Firms) Bill 2015,which is priority legislation for the Government. It was published in January 2015, and Second Stage of the Bill was taken on 3 and 4 February 2015. Officials in the Department of Finance are working intensively with the Office of the Attorney General and the Central Bank to ensure we can bring the Bill to Committee Stage as soon as possible. The Bill addresses concerns surrounding the continued applicability of the Central Bank's codes and access for borrowers to the Financial Services Ombudsman after loan books are sold to unregulated entities. The proposed legislation provides that borrowers will have the same protections under the Central Bank codes, such as the code of conduct on mortgage arrears, that they had before their loan was sold to an unregulated entity.

It is generally accepted that consumers need protection when they are taking out credit, during the course of holding the credit and when they are repaying the credit. It is not equitable that some of these protections can be avoided due to the regulatory position of the entity which owns the credit; therefore, consumers should retain the protections they had before their loans were sold. That is what the proposed legislation achieves.

The Government recognises that while the country is moving in the right direction, too many people continue to struggle in their daily lives. That is why it is prioritising the decisions needed to best serve our economic recovery and improve the lives of people in Ireland. Building on the commitments in the programme for Government, in July 2014 the Government announced its Statement of Government Priorities 2014-2016. In setting out its priorities the Government acknowledged that promoting and encouraging competition and new entrants in the banking sector was required to put downward pressure on interest rates for variable rate mortgage customers, both new and existing. The Government will continue to apply downward pressure on standard variable rates charged by the banks by supporting increased competition in the sector in line with the statement of priorities. It will do this by working with national and European competition authorities to encourage and support new mortgage lenders in the market.

Departments play a very significant role in representing Ireland at European and international institutions and we intend to use all of our interactions to ensure these institutions are focused on increasing global economic growth, which is crucial to our own economic prosperity. A great deal has been achieved over the past four years, but we must not, and will not, become complacent. We must sustain a competitive economy that can pay its way and serve society and that can survive and thrive in a reformed eurozone and an increasingly globalised international economy. To assist in the achievement of our objectives, the Government calls for active monitoring by the Competition and Consumer Protection Commission and the Central Bank of Ireland of the standard variable rate mortgage market to ensure that the rates offered to new and existing customers are competitive. These issues will receive ongoing attention from the Government. We look forward to working with Members on all sides of the House and to pursuing these issues in line with the objectives outlined in our amendment. I commend the amendment.

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