Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

The Bill requires the Central Bank to assess whether market failure exists in the principal dwelling house mortgage market. However, assessment of competition issues comes within the remit of the Competition and Consumer Protection Commission, CCPC, not the Central Bank. It would not be appropriate for the Central Bank to make this assessment. Previously, the Central Bank had a mandate in this area, but the Honohan report in 2010 found that this responsibility caused conflict with the other goals of the Central Bank. Competition represents the most favourable method of driving down interest rates, both competition between existing lenders and that introduced by new entrants. New entrants are looking to enter the Irish market. We must be careful that we do not deter new entrants from coming in, meaning that, ultimately, consumers have less choice and will end up paying a higher price or, worse, having no access to credit at any price. The introduction of the legislation may result in potential entrants deciding not to enter the Irish market.

Competition is a better solution to the issue, given that it benefits all banking customers. If banks must respond to increased competition, it will benefit not just mortgage interest rates charged, but the costs and fees of other banking products and the types of products they offer to all customers. Over recent months, the main lenders have announced a number of new products and initiatives that have reduced the cost of borrowing. These rate reductions by lenders should narrow the margin between lending rates in Ireland compared to the European average, and the longer this competition is allowed to flourish, the better the rates being offered to consumers will be. These are all significant factors that should be considered before this Bill is read. That is why I suggest the Bill be reviewed before it advances further.

The programme for Government commits that all Bills will be subject to pre-legislative scrutiny. Given that the Bill has not been through this process, I strongly suggest that the scrutiny and analysis of an appropriate committee is needed here to ensure the significant concerns which the Bill raises are properly investigated. The committee could also examine the potential unintended consequences of the proposed legislation, which have not yet been discovered or considered. For example, a possible response of a lender faced with restricted flexibility on interest rate setting could be to seek to recover lost revenue through other means, such as up-front charges for other mortgage related services or higher prices for other products.

The regulation could also have unintended consequences on the availability and cost of credit, which could lead to consumer detriment in the longer term. Given that lenders would not be able to price for risk, rationing of credit to those presenting the lowest risk would be the likely outcome. High risk borrowers would not get money from any bank due to the legislation. If a bank can charge only up to a particular regulated rate, the bank may be more likely to refuse credit to the higher risk borrower, thus locking a cohort of potential borrowers out of the housing market, when we all want to make buying a home accessible and affordable to all.

I understood everybody in this House agreed several weeks ago, in the great rush to reform the Dáil and have new politics, that all legislation would be referred for pre-legislative scrutiny. I thought that was a common position, but Deputy Michael McGrath has decided, two weeks before the introduction of pre-legislative scrutiny, to reintroduce a Bill that was debated here previously. It looks like he is trying to beat the deadline for pre-legislative scrutiny. This flawed Bill badly needs pre-legislative scrutiny.

The Government has publicly stated its intentions when it comes to excessive or high variable rates. Deputy Michael McGrath has already quoted from the relevant section of the programme for Government:

It is not ethically acceptable for Irish banks to charge excessive interest rates on standard variable rate customers. We will take all necessary action to tackle high variable interest rates; including through establishing a new code of conduct for switching mortgage provider, administered by the Central Bank and the development of a new, easy-to-use standardised and dedicated switching form. We will also request the Competition and Consumer Protection Commission to work with the Central Bank to set out the options for the Government in terms of market structure, legislation and regulation to lower the cost of secured mortgage lending and improve the degree of competition and consumer protection.

This is a "Year 1 Action" to which we have committed. We intend to see it through. The Government is very conscious of the difficulties faced by borrowers. It supports the principle of reducing interest rates. However, it does not consider that regulating interest rates is in the long-term interest of the Irish economy. It is widely accepted that appropriate competition is likely to be more effective and to provide consumers with a better outcome over the medium term and the long term. Furthermore, encouraging an environment in which borrowers switch between mortgage providers will force the banks to reduce rates and to become more competitive in attracting switching customers and retaining their own customer base. A Central Bank economic letter that was published last July suggested that 21% of existing private dwelling home variable-rate mortgage customers could save money by switching providers. In the present environment, in which we are seeing lenders reduce rates and introduce offers specifically targeted at the switcher market, I have encouraged borrowers to contact their banks to see what is available to them in their circumstances.

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