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

I move: "That the Bill be now read a Second Time."

I am pleased to move the Second Stage of the Consumer Protection (Regulation of Credit Servicing Firms) (Amendment) Bill 2018. For too long in this country, private equity or "vulture" funds have been literally above the law. They are unregulated, unaccountable and untouchable. They have no interest in the long-term health of the Irish economy or the well-being of our people. If enacted, this Bill will ensure that these vulture funds are regulated and can be held to account. Our statutory regulator, the Central Bank of Ireland, will be able to inspect them, investigate them and to impose sanctions on them, as required. Enacting this Bill is a vital and necessary step.

This issue is not just relevant for mortgage holders. It is equally relevant for farmers and small business owners who find their loans being sold on from under them. We all know the business model of these funds. They specialise in buying portfolios of distressed loans at a large discount. They squeeze the borrowers for everything they can and the ultimate objective is often to get their hands on the underlying asset, whether it is the family home, the buy-to-let property, the farm or business property. Their investment horizon is short-term. They have no interest in working their way through a distressed loan over a long period. In a game of pass the parcel between vulture funds, loans, including mortgages, can be sold on again and again with no limit. The 2015 Act is a half-baked measure that only regulates the intermediary, the credit servicing firm. This Private Members' Bill is not a silver bullet for people struggling with excessive debt but it is a crucial step in the right direction. Other measures are also needed. We have called for a review of the 2013 code of conduct of mortgage arrears and I am pleased that the Minister has agreed with this and initiated a process. There are those who believe that these vulture funds do not need to be regulated directly. We strongly disagree with this view.

I want to put some facts on the record about the current vacuum. Vulture funds are beyond the reach of the Central Bank. When the Government moved to regulate credit servicing firms in 2015, the Central Bank wanted the actual loan owners - the vulture funds - to be directly regulated. The Central Bank has no power to investigate or impose fines on any vulture fund. Vulture funds make all the key decisions regarding loans. They decide what interest rate to charge, whether to restructure a loan or renew an existing restructuring agreement, whether to enforce a loan or initiate legal proceedings. These decisions are merely communicated to the borrower by the middle man. The 2015 Act explicitly excludes these critical decisions from regulation. The Central Bank can take no action against the vulture fund that fails to honour the consumer protection code, the code of conduct for mortgage arrears or a code of conduct for business lending to SMEs. Vulture funds are not covered directly by the 2016 Central Bank SME lending regulations. Credit servicing firms only paid €35,000 in regulatory fees in 2017. Vulture funds paid nothing because they are not regulated. No information is currently available for the number of mortgage restructures entered into by vulture funds, as opposed to restructures which they have inherited. We do not know how many SME loans are owned by vulture funds and how many such SME loans are in arrears. There is no direct contact between the borrower and the fund that owns and controls their loan. The Central Bank has no enforcement power when a vulture fund miscalculates mortgage arrears, as has happened.

Permanent TSB should not be selling on loan portfolios to vulture funds. Permanent TSB and all the other banks should do what banks are meant to do: work through their loan books and make decisions on a case-by-case basis. This would involve restructuring loans, as a last resort, taking enforcement action, and writing off unrecoverable debt. That is precisely what they were recapitalised to do. It is not the case that the ECB supervisory board has instructed any Irish bank to sell loan portfolios. It is true that there is pressure to reduce the level of non-performing loans, but the chair of the ECB supervisory board has made it clear to me in writing that the ECB has not expressed a preference for some non-performing loan reduction tools rather than others.

We know from evidence given to the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach last September that Permanent TSB has entered into almost 6,300 split mortgage arrangements with owner-occupiers. We do not know how many of these are part of the Project Glas portfolio the bank intends to sell, but it is reported to be several thousand. If a vulture fund buys these loans, it can quite literally terminate that split mortgage agreement at the stroke of a pen for any reason it thinks fit. It is indisputable that a vulture fund is much more likely to do this than a licensed credit institution. We must not throw these mortgage holders to the wolves in this manner.

I will give some examples of how these vulture funds treat their customers. Bank of Scotland Ireland restructured its operations in 2012 and as part of that restructuring it sold around 2,000 mortgages to Tanager DAC. Since then, many of the customers have been living a nightmare. In many cases of which I am aware, customers fell into arrears during the economic crisis but have been making full repayments on their mortgage, interest and capital, for several years now. They have pleaded with the fund to recapitalise the arrears but they have hit a brick wall. They have been told in writing that Tanager DAC does not offer capitalisation of arrears as an option. This is the plain vanilla of mortgage restructures and it does not offer it as a solution and it is in no way unique in that approach as a vulture fund. These are responsible mortgage holders, they have tried to engage with their loan owner, they are now making full repayments and have been for years. Tanager DAC has not attempted to engage or even negotiate with these customers. Lapithus DAC, the regulated credit servicing firm, is passing messages back and forward. There is no direct contact between the mortgage holders and Tanager. Tanager has no interest in entering into any restructuring arrangement. Its line is simple and it has communicated this through Lapithus to the mortgage holders that they must pay the balance on the loan or give Tanager the house. This is its attitude and it is a disgrace. The only protection these customers have received is from the courts. Despite the actions of the courts, Tanager has not changed its approach even when it was found that Tanager was miscalculating the amount by which people were in arrears. Its tactic is simple, which is to intimidate people into giving up their family home and to wear them out so much that they finally succumb and surrender, which many ordinary people will do because of the immense pressure they are under. All of this is being done by Tanager without any regulatory oversight from the Central Bank.

On SMEs, we know that both performing and non-performing loans have been sold to unregulated loan owners. Business expansions have been halted by the loan owner despite the fact that the company has never breached its loan agreement. We have come across the so-called loan to own strategy whereby a vulture fund simply wants the underlying assets of the company and will do anything to engineer a technical default to allow it to enforce the loan agreement. I am aware of these cases. Companies have complained about instances where vulture funds have bought loans in an industry where they already own or manage competitors in the same industry. They play one off against the other. This results in a clear conflict of interest and we know of cases where the vulture fund has acted on the loan to benefit a competitor. Many of the leading legal firms also have non-compete clauses with many of the vulture funds. This restricts companies from taking legal action against vulture funds.

There is one extraordinary story I must bring to the attention of the House. I have seen the original paperwork and can stand over the facts of this case. In May 2014, an individual was contacted by Pepper Asset Finance on behalf of Stapleford Finance DAC, a unit of the US investment giant CarVal.

The individual was informed that Stapleford Finance DAC had purchased his loan of €1.6 million from the IBRC special liquidators. This individual had no loans with IBRC and he certainly did not owe €1.6 million. This was a case of mistaken identity. Pepper Asset Finance was informed of this fact but the individual was still pursued repeatedly. The letters kept coming and he was threatened with legal action by solicitors acting on behalf of Stapleford Finance DAC. This man had to engage his own solicitors to fight the onslaught. It cost him and his family immeasurable stress and worry. In November 2015, following a freedom of information request, the IBRC special liquidators confirmed in writing to this gentleman that he never had a loan with it, or with the old Anglo Irish Bank. This confirmation was sent to the funds' solicitors and in December 2015 the funds' solicitors paid the individual just over €2,400. Of this, €1,500 was a gesture of compensation and €900 was towards his legal costs. The man asked that his records be deleted from its system. Stressed by the experience the individual agreed to settle in order to move on. To him the case was closed. In January 2017, extraordinarily, he received another letter demanding, again, payment of the €1.6 million. More letters followed. The last letter was received in October 2017. The individual wrote back enclosing confirmation of the fund's error, which the company had sent him through its solicitor, and he demanded that his details be deleted and its record corrected. He has not heard anything back since then. Almost four years on and he is still being pursued for a debt that is not his. The nightmare is continuing. I will conclude with the words of this individual, sent by him to me in an email:

I am around in business a long number of years but never have I seen arrogance, thuggery and bullish attitude as I have had with this - ruthless cowboys out to get money from anyone who will part with it. I think this demonstrates the reason as to why they have to be brought in line.

I believe we have a duty to act.

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