Dáil debates

Thursday, 25 June 2009

Priority Questions

Financial Services Regulation.

6:00 pm

Photo of Olwyn EnrightOlwyn Enright (Laois-Offaly, Fine Gael)
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Question 3: To ask the Minister for Social and Family Affairs the action she has taken to persuade lenders, other than members of the Irish Banking Federation, to sign up to the new IBF-MABS Operational Protocol: Working Together to Manage Debt; the reason she did not ensure that sub-prime lenders were made aware of and included in discussions on the new protocol; and if she will make a statement on the matter. [25548/09]

Photo of Mary HanafinMary Hanafin (Dún Laoghaire, Fianna Fail)
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The Money Advice and Budgeting Service, MABS, provides assistance to people who are over-indebted and need help and advice in coping with debt problems. The regulation of financial institutions, including the banks, sub-prime mortgage lenders and the credit unions, is part of the statutory remit of the Financial Regulator. Legislative issues in regard to the Financial Regulator are dealt with by the Minister for Finance.

Under the statutory code of conduct on mortgage arrears published by the Financial Regulator, all financial institutions, including the banks and sub-prime mortgage lenders, must, where circumstances warrant it, refer a borrower in difficulty for guidance to his or her local MABS office or an appropriate alternative.

The new protocol, IBF-MABS Operational Protocol: Working Together to Manage Debt, is the result of almost two years of work by MABS NDL, the national support company for the MABS network and the Irish Banking Federation, IBF, the main representative body for the banking and financial services sector. The protocol sets out an agreed process by which IBF members and the MABS money advisers will approach debt problems experienced by clients. The protocol includes a commitment that no legal action will be taken as long as there is compliance by the client with an agreed repayment plan. Thirteen financial institutions, including the main banks and building societies, have to date signed up to the protocol.

With regard to those other lenders that are not members of the IBF, such as sub-prime mortgage lenders, the MABS advisers will continue to negotiate with these creditors on an individual basis to secure better terms for MABS clients in managing the repayment of the debts.

I am encouraged by the response to the MABS-IBF initiative and the willingness of lenders, not just those who are members of the IBF, to support the protocol. In the subsequent media reports and correspondence I received, other lenders have indicated that they would be happy to support the protocol. I urge all lenders to adhere to the best-practice procedures set out in the protocol. I have asked MABS NDL to follow up on the correspondence I have received and to explore further the possibilities for other lenders.

MABS NDL has initiated work with the Irish League of Credit Unions with a view to developing a similar operating protocol with its members that would set out best practice to support MABS clients in managing debts owed to credit unions.

Photo of Olwyn EnrightOlwyn Enright (Laois-Offaly, Fine Gael)
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At the launch of the MABS protocol on 3 June, the Minister was critical of the fact that the sub-prime lending companies had not signed up to it. Her Department finances the operation of MABS and the lenders come under its auspices in that sense. Did the Minister not believe, prior to criticising the sum-prime lenders, that it would have been better to have them involved or to ask MABS to get them involved? The main group with a high rate of personal borrowing and other financial difficulties comprises those in the sub-prime area. The highest rate of interest being paid is being paid by those in this category. Therefore, having the sub-prime lenders involved is of the utmost importance.

Research that the IBF presented to the Joint Committee on Social and Family Affairs yesterday shows only 40% of borrowers find debt management easy, which means 60% do not. Most of these can manage if they are careful but 15% of the 60% have cause for concern or a real problem. This problem will grow. What discussions has the Minister had with the sub-prime institutions and will she ensure that they sign up to the protocol? While they got an easy buy-out by virtue of the fact that they are not regulated, they are licensed and need to be very involved with the protocol.

Photo of Mary HanafinMary Hanafin (Dún Laoghaire, Fianna Fail)
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I accept they should be involved with the protocol. When launching it, I suggested this. In fairness, within two days one sub-prime lender wrote to me indicating it would sign up.

Photo of Olwyn EnrightOlwyn Enright (Laois-Offaly, Fine Gael)
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They have never been asked to do so and they do not know about the protocol. It is very hard to sign up to it if one does not know about it.

Photo of Mary HanafinMary Hanafin (Dún Laoghaire, Fianna Fail)
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The IBF is a regulatory body. All the groundwork was done with the IBF and this means there is an established protocol. A financial institution that is not a member of the IBF indicated immediately that it would sign up to the protocol. Any institution can sign up to the protocol within days now that the work has been done on it. This is equally the case with the credit unions, but one should remember MABS has a very positive relationship with the credit unions anyway.

The Deputy was correct about the extended loans people have and the difficulties they face in managing them. It is very worrying to consider the average debt people have incurred. This, in itself, has increased. This time last year, it was €12,500 while it was €7,500 just before that. Now the figure has risen to €14,500. Therefore, the people who are contacting MABS this year have more extended debt in all sorts of areas than those who were doing so even last year or the year theretofore.

When one examines this debt, one notes it is not generally constituted of loans from the main mortgage lenders, as we often believe, but of personal loans. Personal credit is the main form of debt and I accept it is much more difficult for people to manage than other forms of debt. MABS is doing a very good job in this area.

I am delighted at least one sub-prime lender and another financial institution immediately took up the invitation to sign up to the protocol. We will work to ensure that the others do so also.

Photo of Olwyn EnrightOlwyn Enright (Laois-Offaly, Fine Gael)
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While the Minister is delighted the institutions took up the invitation, should MABS not have contacted them in advance to ensure that they would sign up?

The Minister will probably be aware of the comments of the Master of the High Court. He still expects an avalanche of claims. The figure in this regard has trebled since he made his comment in February. Will the protocol be sufficient? The Master of the High Court is listening to what is being said every morning. He hears the stories of the people affected, many of whom have no legal representation, and he believes the worst has yet to come in terms of repossession cases in his court. Will the protocol prevent this? Are the comments the Master of the High Court made this week correct?

Photo of Mary HanafinMary Hanafin (Dún Laoghaire, Fianna Fail)
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The protocol will go some way towards preventing it, particularly if the sub-prime lenders sign up. It is not necessary that they be part of the negotiation because it is easy to formulate a protocol with one regulatory body, which is what the IBF is.

In the first quarter of this year, there were nine repossessions of owner-occupied homes. While repossession is extremely traumatic for the families concerned, there has not been the avalanche about which people talk. Where orders for repossessions have taken place, they have not necessarily been in respect of residential homes, nor have the orders been enforced.

Photo of Olwyn EnrightOlwyn Enright (Laois-Offaly, Fine Gael)
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That is because people sold their houses to pay the debts. People are still losing their houses.

Photo of Mary HanafinMary Hanafin (Dún Laoghaire, Fianna Fail)
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I hope that as a result of this protocol, which has been devised after much negotiation, repossession will only occur as a last resort. As long as people make a genuine effort to stick to the repayment plan devised for them by MABS in conjunction with the credit institution, we will not see this happening.