Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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Last week in reply to a parliamentary question about sub-prime mortgage lenders, the Minister referred to the Financial Regulator's consumer protection code, which he stated requires lenders to "act honestly, fairly and professionally in the best interests of their customers". I would like to give the Minister an example of how that requirement is being adhered to in the real world.

I was contacted by a constituent who, like so many others, is struggling to make ends meet in the current economic downturn. She and her partner bought a house during the so-called boom years, when young adults came under intense pressure to get on the property ladder. In their particular circumstances, they felt they had no option but to turn to a sub-prime lender for their mortgage. With her partner having recently been made redundant just a month before the birth of their third child, they are both out of work and unable to meet their mortgage repayments.

The couple went to the Money Advice and Budgeting Service for assistance, whose staff contacted their lender to ask for a six-month moratorium on their mortgage. The lender's response was "We do not do moratorium". The lender would offer nothing but to reduce the mortgage by half for six months, not as a discount but as a deferral. Under the arrangement offered, the couple would have to repay the difference over the following months, with half the mortgage paid now and the full mortgage to follow along with a €100 additional sum per month to cover the difference until cleared. That was the only option open to the couple and the Minister of State would agree it was no option at all. They had to take it because they are desperate.

The lender has unsurprisingly refused to pass on most of the recent interest rate cuts. As of last month the people were paying a rate of 8.45%, only a 0.5% of a decrease since the European Central Bank first began cutting rates in October. The lender has simply refused to pass on the other reductions in the lending rate. Today, the ECB rate was decreased by a further 0.25% and I fear the lender will not pass on this cut either.

It is clear the sub-prime leopard has not changed its spots. For all the opprobrium it has rightfully received, the industry still engages in predatory practices aimed at squeezing every last penny it can from those with the least ability to pay. The Government's response to this crisis has been entirely inadequate and has made matters worse by ensuring that low income people have even less money to pay their mortgages because of the income levy, the so-called pension levy and the increase in value-added tax. It has refused to insist that interest rate decreases are passed on or to legislate for a moratorium on repossessions, apart from the minimalist six-month moratorium which applies only to banks benefiting from the recapitalisation scheme. It has offered no protection to people who simply cannot pay.

We are already beginning to see the consequences of this in the increasing numbers of repossessions coming before the courts. How many people will have to lose their homes before this Government finally decides something must be done? If the current global economic crisis has taught us anything, it should be that a hands-off approach to the private sector simply does not work. There must be a point at which the Government steps in and insists that private industries operate not only according to an aspirational code but under firm and clear regulations.

A mandatory two-year moratorium on repossessions for all mortgage lenders should be the urgent first step in this process. We must also look at legislation to allow the victims of aggressive lending practices to renegotiate mortgage terms, including allowing people on fixed rates to change to variable rates without incurring the extortionate penalties some lenders are charging.

I am appealing to the Minister to consider the issues I have raised. There are thousands across the State in a similar position to that of the constituents who contacted me, and their numbers will only increase over the coming months and, perhaps, years. The refusal to properly regulate this industry played an enormous role — which should be clearly understood — in leading us into this crisis to begin with. It is inexplicable that this Government has not learned from this mistake.

I urge that the points I have made are taken on board and acted upon. I hope measures will be announced in the coming week that will bring relief to the hard-pressed families throughout the country to whom I refer.

Noel Ahern (Dublin North West, Fianna Fail)
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As the Deputy will be aware, the Government took steps in October 2007, under section 19 of the Markets in Financial Instruments and Miscellaneous Provisions Act, to provide for an appropriate system of authorisation and supervision, by the Financial Regulator, of retail credit firms engaged in specialist or so-called sub-prime lending and home reversion providers not previously subject to financial regulation in respect of lending activities. The primary purpose of this amendment was to extend to the customers of these firms the benefit of the consumer protections provided for in the Financial Regulator's consumer protection code. This regulatory regime has been in place since 1 February 2008 and is being implemented by the Financial Regulator. Consumer credit, including sub-prime lending, is also regulated in Ireland under the Consumer Credit Act 1995, which makes detailed provision for the form and content of loan agreements and for the advertising of consumer credit.

The consumer protection code requires all mortgage lenders to undertake suitability assessments before offering a product or service to consumers. In addition, the consumer protection code sets out the requirements that a regulated entity must contact the consumer as soon as it becomes aware that a mortgage account is in arrears and that it must have in place a procedure for handling accounts in arrears. The Financial Regulator's CEO pointed out that the regulator considers this to include a requirement that lenders agree a remedial action plan with borrowers where it detects arrears starting to emerge and to try to assist such borrowers in managing their financial commitments and not allow the situation to worsen.

It is a particular priority of the Government to ensure that, as much as possible, difficulties in respect of mortgage arrears do not result in legal proceedings relating to home repossessions. Home repossession should be, and generally is, the last resort for the lender. The preferred method of dealing with arrears cases should be early intervention.

The finalised recapitalisation scheme announced on 11 February last includes a new code of conduct for mortgage arrears, which has been issued by the Financial Regulator and which came into force on 27 February. The new code applies to mortgage lending activities to consumers in respect of their principal private residences in the State and is mandatory for all mortgage lenders — including so-called sub-prime lenders — registered with the Financial Regulator. Under the mortgage arrears code, where a borrower is in difficulty the lender will make every reasonable effort to agree an alternative repayment schedule and will not commence legal action for repossession until after six months from the time arrears first arise.

The two banks participating in the recapitalisation programme have each committed to delay commencing court proceedings for repossessions of principal private residences until after 12 months of arrears appearing where customers continue to co-operate reasonably and honestly with them. In addition, the recapitalised banks have assured the Government that, in the normal course of events, they will make every effort to avoid repossessions.

The Minister for Finance understands that other IBF members also make strenuous efforts to ensure that repossession is not attempted until every reasonable effort has been made to find an alternative. These include the use of flexible procedures for the handling of arrears cases, which are aimed at assisting the borrower as far as possible and which recognise the provisions of the Consumer Credit Act 1995 in full.

Following a 2008 examination of procedures in place within financial institutions to deal with arrears and repossessions, the Financial Regulator wrote to all regulated mortgage lenders on 16 December last with feedback. Its letter sets out best practices for dealing with arrears that were identified during the examination. The Financial Regulator is currently carrying out a further examination of mortgage lenders to ensure that they are in compliance with the specific provisions of the consumer protection code and the Consumer Credit Act 1995. The examination will also review the application of the residential mortgage arrears and repossession procedures and practices in place in mortgage lenders, as advised to the Financial Regulator in 2008, to ensure that consumers are being treated fairly. In addition, an update will be sought regarding the implementation of the best practices outlined in the Financial Regulator's letter of December last.

If a consumer has a complaint about his or her mortgage, that complaint must first be made directly to the lender. If the consumer is dissatisfied with the outcome of his or her complaint, he or she can then refer the matter for further investigation to the Financial Services Ombudsman. All Members have met people who are affected by difficulties in this regard. One of the difficulties is that people do not seek help early enough and instead try to hide from the problem. All we can do is encourage them to come forward.

The Minister for Finance has consistently highlighted the need for responsible behaviour on the part of both borrowers and lenders and, in particular, the need to factor into their financial decision-making the effects of potential future changes in economic and financial conditions. Unfortunately, a small minority of borrowers develop debt problems.

Joe Costello (Dublin Central, Labour)
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The Minister of State has far exceeded the time allocated for his reply.

Noel Ahern (Dublin North West, Fianna Fail)
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The reply is rather long. I apologise for that.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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Will the remainder of the Minister of State's reply be included in the Official Report?

Joe Costello (Dublin Central, Labour)
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No. Perhaps the Minister of State will forward the reply to the Deputy.

Caoimhghín Ó Caoláin (Cavan-Monaghan, Sinn Fein)
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I asked if it will be noted in full in the Official Report.

Joe Costello (Dublin Central, Labour)
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No. The Minister of State, who had exceeded the time available to him by one minute, will forward the complete reply to the Deputy.