Tommy Broughan (Dublin North East, Labour)
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Question 60: To ask the Minister for Finance if his attention has been drawn to reports that more lenders plan to launch sub-prime mortgages in 2007 in addition to the existing packages offered by a company (details supplied); if the Financial Regulator is in discussion with these banks to ensure that charges such as arrangement fees and rates are set at reasonable levels and remain at reasonable levels; and if he will make a statement on the matter. [39238/06]

Brian Cowen (Laois-Offaly, Fianna Fail)
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I am aware of the reports referred to by the Deputy. The sub-prime market exists to provide finance to those who have difficulty accessing mainstream credit, usually owing to an adverse credit history or difficulties proving income. Consequently, interest on such loans is normally higher than in the case of mainstream credit, as the lender must allow for a greater degree of credit risk. As the Deputy may be aware, the level of lending in the sub-prime market is currently extremely small.

Sub-prime lenders are regulated in Ireland in respect of their lending activities under the Consumer Credit Act 1995. The Act makes detailed provision for the form and content of the various loan agreements and advertising of consumer credit. The Financial Regulator has powers of investigation, review and enforcement regarding matters covered by the Act. The Act also provides for a procedure whereby lenders not otherwise authorised by the Financial Regulator may be prescribed as a credit institution by the consumer director of the Financial Regulator for the purposes of compliance with the Consumer Credit Act 1995. If so prescribed, the lender in question is then required, under section 149 of the Act, to notify the Financial Regulator for approval of the non-interest charges and arrangement fees that it imposes on its customers. Failure to notify the consumer director in the Office of the Financial Regulator of new charges or changes to existing charges is now an offence.

The Deputy may wish to note that, as part of its consumer protection remit, the Financial Regulator continuously monitors new and developing financial products in the marketplace. In view of my role as Minister for Finance, I will give full consideration to any recommendation from the Financial Regulator that may require a legislative response.

Joan Burton (Dublin West, Labour)
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I have previously raised sub-prime lending with the Minister for Finance and the Committee on Finance and the Public Service. I find it paradoxical that the Financial Regulator takes, no doubt correctly, a reasonably tough attitude to building societies, which are the people's banks, particularly for those with whom ordinary banks will not deal. He is even stalling on facilitating very well endowed credit unions to offer more home products. However, at the same time people go from door to door through housing estates, particularly local authority housing estates — not to mention afternoon television — offering sub-prime mortgages.

The subtext in sub-prime mortgages is that they can solve one's financial problems by consolidating one's loans, meaning one could be better off. The hidden part is that there are arrangement fees, and I would like to hear the Minister's views in that regard. Some are as high as 1% of the price of the property, meaning that one could pay €4,000 in arrangement or start-up fees on a €400,000 property. With certain products, if one fails to meet the loan conditions, the provision for penalties is extortionate.

Many people who are less well informed financially lack access to the normal banking system and cannot go to a credit union. They are being pressurised by sub-prime lenders who will make a fortune from them. We spoke earlier of mortgage interest rates crossing the 5% threshold some time next month. Is the Minister concerned that sub-prime lenders may be preying on the vulnerable? People must take responsibility for their financial decisions, but the sub-prime lending market is very much unregulated compared with building societies, ordinary banks and credit unions.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I understand the company to which the Deputy referred is one of a handful of companies operating in this sector, but I have no information on the intentions of such companies in what is essentially a commercial matter for themselves. In regard to the procedures used by the Financial Regulator to determine what charges it will allow a lender to impose, section 149 of the Consumer Credit Act 1995 sets out as criteria the promotion of fair competition, the statement of commercial justification, a credit institution passing any costs onto its customers and the effect on customers of any proposal to impose any charge in regard to the provision of such services. In the case of housing loans, the Act specifically obliges mortgage lenders to inform borrowers of the effect on the amount of their repayment instalments of a 1% increase in interest rates in the first year of their mortgage.

The issue to which the Deputy referred is, therefore, covered by the 1995 Act. If the Deputy is concerned that these companies are not operating within the remit of the Act, she should bring her concerns to the attention of the Financial Regulator for investigation.

Joan Burton (Dublin West, Labour)
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Will the Minister for Finance send out a message to some of those entering this potentially hugely profitable market that he will seek to protect consumers? He is passing all responsibility for this issue to the Financial Regulator as though it is nothing to do with him. Will he let it be known that he will not let some of the poorest people in our society be completely ripped off by companies that may operate at a level not many degrees above that of loan sharks?

Moreover, many of these companies are offering roll-up products. Not only can customers get a new mortgage or transfer an existing one but they can also amalgamate car loans and credit card debt and even have something left over to go on holiday. We have spoken about the Central Bank's financial stability report. This is dangerous territory. Has the Minister written to the Financial Regulator and requested a meeting to discuss this issue? Will those vulnerable people who may be ripped off by these companies be left simply to pick up the pieces? Sub-prime lending does not represent a soft lending for the housing market.

Brian Cowen (Laois-Offaly, Fianna Fail)
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As I said, the Financial Regulator has a consumer protection remit in the area of financial services. It was established as a modern regulatory authority that would perform its function in an independent fashion.

Joan Burton (Dublin West, Labour)
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The Financial Regulator is not even aware of this problem.

Brian Cowen (Laois-Offaly, Fianna Fail)
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If a practice comes to the Deputy's attention which she believes is not in compliance with the statutes, she should raise it with the Financial Regulator.

Joan Burton (Dublin West, Labour)
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I raised it with the Financial Regulator but it did not know about it.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I will raise the matter following this discussion and I am sure it will be investigated. That is the statutory remit of the Financial Regulator. It is a question of ensuring it has the information so it can investigate any issues.