Thursday, 12 July 2012
Personal Insolvency Bill 2012: Second Stage (Resumed)
This is important legislation and has the potential to be one of the critical parts of the recovery of individuals, families, businesses and the State in general. I welcome the Bill as a much needed change. I congratulate both the Minister on a robust, quite radical legislative measure and his officials, who have been working very hard on this over the last year or more. I consider it a very solid measure.
A few months ago I introduced a Private Members' Bill, the Family Home Protection Bill. I withdrew it so the essence of it could be considered for inclusion in this legislation. The justice committee looked at the Bill and made it its top recommendation that the family home be protected. I am delighted to see a substantive increase in the protection of the family home in sections 63 and 99, if memory serves. I thank the Minister and congratulate him. Obviously, all of that did not originate from me but I hope my contribution helped push the legislation that way. I discussed the Bill with the legal team in New Beginning and they warmly shared the same reaction, which is that this substantively increases the protection of family homes.
In the spirit of making the Bill even more effective, there are three matters I wish to raise with the Minister and to suggest for consideration as the Bill makes its way through the various Stages. The first is the review period. The Bill is due to be reviewed in ten years. The way it is constructed, of course, is that it is prescriptive enough but not so much that the courts cannot apply an amount of interpretation. This Bill will grow as the courts make decisions and set precedents. My understanding is that the processes in the Bill are new, not just to Ireland but internationally. The arrangements are very innovative internationally.
At its best, the court will interpret this legislation by deciding, where the borrowers have made a legitimate offer and are acting in good faith and the bank, in exercising its veto, is not being reasonable, it will grant bankruptcy. In three years this family will be out from under the debt and the courts will leave them with a reasonable standard of living. At its best, that is how I envisage it working. Indeed, at its best, I envisage that happening a few times, after which the banks will begin to act reasonably so people can avoid the entire process. At its worst, the court could decide that the family or individual is not being reasonable, that the bank has a legal call on the money owed and decide to leave the individual or family on social welfare. It could define living on social welfare as having a reasonable standard of living and not grant bankruptcy. If a bank did this, one would essentially be living on social welfare for the next six years. At worst, that could happen. The courts rightly have discretion to begin deciding what is appropriate. However, I suggest that where there is so much room for the courts to decide, an annual review by the Minister or Oireachtas, possibly including the committees responsible for justice and finance, would be very useful. On the basis that there is so much room for the courts to apply discretion, I would love to see an annual review, at least for the first few years, to ensure that a healthy balance between borrowers and lenders transpires through a precedent set in the courts.
The second issue, which is related to the first, concerns the phrase "reasonable standard of living". Correctly, the Bill does not try to determine what is a reasonable standard of living. We have discussed this with banks on the public record at meetings of the Joint Committee on Finance, Public Expenditure and Reform. I and I am sure many others have had private conversations with bankers on the definition of "reasonable standard of living". I am concerned in this regard because when I ask banks privately and publicly what they consider to be a reasonable standard of living, they obfuscate. They say it depends on the individual, his place of work and who he is, and that one must, as a consequence, work on a case-by-case basis. This is true to a point. However, when one asks the banks what guidelines they have given to their staff who are negotiating the deals, they state, more often than not, that they do not really get any guidelines. When one asks the banks what standardised training is being given to staff, they state they do not really give any such training. When one asks how many disciplinary proceedings have been brought against staff for misconduct, or intimidating or humiliating borrowers, the banks typically state they do not know but that there were probably none.
As Members of Dáil Éireann, we all know banks have acted absolutely despicably in some cases, although we accept banks have acted in good faith in many cases. I had a private conversation in which a senior banker obfuscated for quite some time on the question of how much his bank would leave an individual or family with. He eventually conceded that the bank would ultimately try to leave the individual with social welfare. The reason the bank would do so is not because it believes social welfare would result in a reasonable standard of living but because the individual or family would rationally declare bankruptcy if their standard of living were any lower, thereby leaving the bank with nothing.
If one wants an understanding of the mindset of at least some of the banks, one can read the public exchange between me and the chief executive of Bank of Ireland at a meeting of the Joint Committee on Finance, Public Expenditure and Reform. If one does so, one will see the attitude that this bank, at least, has to reclaiming its money. I pointed out that the bank, through PCAR recapitalisation, has had several billion euro made available to it just for mortgages. When I asked how much of this money had been passed on to borrowers, the delegates did not answer the question for quite a while. Having been asked about six times, including through an intervention by Deputy Alex White, the Chairman, they finally said that not a penny had been passed on to borrowers. We know the banks are acting like banks. I believe Mr. Boucher said to me, "I run a bank." I asked him whether his bank had any liability or was culpable regarding the processes it changed, the negative equity and the arrears and he basically replied that he runs a bank. It is well known that the banks - perhaps not all but enough of them - will try to leave individuals, families and business people with nothing.
One of the most upsetting stories I heard in Wicklow was from two constituents with young children. They were in a restructuring process. The mother, who got very upset when telling me her story, said the bank had left her family with so little money that they must measure of the amount of toothpaste they put on their toothbrushes. She said the bank had not left them enough money for that. This is what the banks are capable of.
Perhaps the Minister should issue guidelines or a Government statement to guide the courts on what constitutes a reasonable standard of living. Getting this right will be very important. There is some solid research from the United Kingdom that suggests mortgage payments up to 35% of net household income are reasonable. This leaves individuals, parents and families with sufficient money to live their lives. They may still be paying a lot of money back to the banks but can still invest in their children, themselves and their jobs. If it is at all possible, I urge the Minister to think of a way of making it very clear to the courts, be it through additional legislation, a Government statement or another mechanism, that he does not believe some of the banks are trying to leave people with a reasonable standard of living. He should stipulate that a reasonable standard of living ought to be in line with the new EU directive on having a fresh start. This dictates that, when one has sold off everything one has and goes through a process, one must be able to start again and invest in oneself, one's children and one's business. The Minister should find some way of ensuring a reasonable standard of living is the standard that most of us in Dáil Éireann would choose rather than the standard that some of the banks would choose were they left to their own devices. They are left to their own devices at present.
The third issue concerns personal insolvency professionals. There is a very innovative approach. It is unclear who the professionals will be, what qualifications and training they will need, the regulation that will apply to them and how we will be able to insist on high quality and consistency nationally given the number of professionals. The audit processes, disciplinary processes, codes of conduct etc. should be clear. Something should be done to ensure the professionals are of high quality, are well trained and provide consistent advice to borrowers. Doing so would be very welcome. FLAC has raised concerns about this subject.
We must ensure the process itself is not too onerous. There are some interesting data from the United Kingdom that suggest one in three arrangements, based on the UK's legislative type, fails because it is too onerous. I urge the Minister to examine the bureaucratic hurdles.
I congratulate the Minister and his officials. I thank the Minister for introducing the heads of the Bill first. From a non-Government perspective, this was very useful. I wish the Minister luck in bringing the Bill through the House. I hope some of the issues raised can make their way into the legislation that is ultimately enacted.
I welcome the opportunity to speak on this Bill. It is important to remember the background to the current debt problem, particularly mortgage distress. The Fianna Fáil-Progressive Democrats Government, in particular, allowed a property bubble to develop and an inflationary trend in the building industry. Former Minister for Finance Mr. Charlie McCreevy had his name all over this. Over many years, Governments refused to control the price of land zoned for building. This effectively ensured the coming into being of the circumstances in which 100,000 mortgagors now find themselves. Every facet of the Irish establishment bought into the trend and young couples were told continually that they should buy property or the family home. They were told that if they did not get their foot on the ladder at that time, they never would. We can recall that all the daily newspapers had huge property supplements, all supporting the property bubble. The suicide reference by the former Taoiseach, Bertie Ahern, is associated with the problem. The establishment told young people to the very end that there would be a soft landing and it was still the right time to purchase property. I reject out of hand the ongoing suggestion that all of us lost the run of ourselves. We did not. The majority of distressed mortgage holders are people who bought their family homes, not two or three properties. They are experiencing significant difficulties in repaying their mortgages and are in serious levels of negative equity. I know a family that bought a local authority home under the affordable housing scheme. The apartment's price was €278,000. It is now worth a maximum of €120,000. That the remaining apartments were on the private market for €375,000 indicates the madness of the situation.
Unfortunately, the previous Government's austerity policies are being continued by the current Government. Ordinary families might have had a chance of repaying their mortgages. Due to the large amount of money taken out of the economy and the knock-on effects, many people who took out large mortgages for family homes have become unemployed or suffered significantly reduced incomes and are genuinely not in a position to make repayments. This year's extraction of a significant amount of money from the economy has been promised again for the next two budgets, making it more difficult for families to meet repayments.
We need economic stimulus and growth to ensure job creation. Since the Government came to power, we have lost 18,100 additional jobs. Rather than job creation, we have seen job destruction. Unemployment devastates families, leading to significant health and mental health problems and even suicide. Recent statistics show as much. The Society of St. Vincent de Paul and the credit unions attest to the seriousness of the situations in which people are finding themselves.
This Bill has been long awaited and is welcome, but some of its aspects are disappointing. It should contain a number of cornerstones. For example, the system of debt regulation should be independent. I welcome and support the methods under the Bill for ensuring that people can remain in their family homes. Those methods should be non-judicial. My main difficulty with the legislation is the fact that the lender - effectively the banks, which the State has bailed out in recent years to the tune of €64 billion - will have a veto over the process. This is the Bill's most important provision and should be re-examined by the Minister. There must be independence so that, where borrowers and mortgage holders make reasonable attempts to reach agreements with their banks, these can be independently ordered so that banks will not have a veto.
Regarding the mortgage resolution officers and the reference to the Money Advice & Budgeting Service, MABS, the question of resources arises, as it does in the case of most legislation. I hope that the officers will be additional posts, particularly if they form part of the MABS structure. MABS is already under significant pressure and many of its offices are seeing long delays in dealing with queries, albeit through no fault of the staff. The additional officers would need to be highly qualified.
Will the Minister consider the issue of local authority loans? Perhaps I am wrong, but it is unclear as to whether the legislation addresses the matter. People who have mortgages with local authorities are experiencing significant problems. As of yesterday, I have been told that local authorities have no way of dealing with their mortgage holders. For example, they cannot allow interest-only mortgages, operate the mortgage-to-rent scheme or take over the properties and reinstate mortgage holders as tenants. This issue has been neglected. The Minister and his colleague, the Minister for the Environment, Community and Local Government, should consider it urgently.
This is historic legislation, although I do not say so lightly. We can sometimes be a bit flippant, but the Bill is historic because of the country's historic level of debt. We are introducing new legislation that the country has never previously needed, but has been necessitated by unprecedented levels of personal debt that were built up in short periods by a large number of people.
Some constituents have asked me why they should bail people out when the former did not go mad and spend big during the boom. It is a difficult argument to make, but people must understand that, for the good of the economy and the country, it is in no one's interest to allow so many to be burdened by so high a level of personal debt. When people tell me that they did not take chances and did not lose out and ask why their taxes should be used in this way, I make a point about their children being unable to get jobs and their relations and friends losing jobs in shops, pubs, restaurants and elsewhere in the services industry. They need to understand that many people do not have disposable income and, as such, are not spending, which is choking our economy.
The perception that this is a bailout needs to be challenged. Some have suggested that the Bill is a gravy train, a way out or a handy number for people with personal debts who took many chances. That is not the case. Nobody, if faced with the choice of having debt and going through personal insolvency or being without debt, would choose the former. The Bill is very well structured in that regard, which is very important.
The Bill will allow those currently stifled by unsustainable debt to start living a normal life again. There are families currently struggling to feed themselves and their children, and they are unable to afford the basics in life that most of us take for granted. The difficulty may be in recognising these people. When canvassing, on occasion we might knock on doors of houses that might have a nice car in the driveway. It might be in an affluent area and the house may have been very expensive during the boom. We might think such people are comfortable but in many respects some of these people are struggling the most. The people who did not have much means during the boom probably did not have the potential to get into big debt.
That may be a generalisation but we must change our perception of who is in this type of difficulty. Families may not look like they are struggling to the extent that they are, and the burden of debt and stress placed on the family unit is colossal. This Bill looks to help those people get back to some sort of normality in their lives. The legislation will provide a release from the mental torture and stress that can be brought on families. Whether the father or mother is the main provider, the burden of debt weighs heavily on a person's mind, often with tragic consequences. I am very mindful that yesterday's Central Statistics Office figures indicated a 7% increase in suicides, and everybody in the House should be mindful of this. It is an indication of the level of stress and strain that debt can bring about.
This Bill provides a process that will allow people see light at the end of the tunnel, especially those who can only see themselves in a black hole. The level of debt and stress is relative for people; there are some who owe millions of euro but do not lose much sleep because they have the mentality to the deal with the pressure. If another type of person owes a couple of hundred thousand euro and the family home is on the line, it is a different reality. A certain person may owe €4,000 or €5,000 to a debt collector who aggressively knocks on the door every week. The unregulated money lending area is a big issue in my constituency and although €4,000, €5,000 or €6,000 might seem a relatively small amount of money, if the collectors impose penal interest rates and are aggressive when seeking the money, the consequent stress can weigh heavily on people.
This is the reason there are different methods for different levels of debt, all with very strict conditions. The debt relief notice is for unsecured debts up to €20,000, the debt settlement arrangement is for figures above €20,000 and there is also a personal insolvency arrangement for the settlement of secured debts up to €3 million, along with unsecured debt. The Minister should be commended for the level of work and detail that has gone into this very complex legislation. He has ensured that all sides are being looked after, including the debtor and creditor. We must be as fair as possible and there should also be an acknowledgement that the current period is like nothing we have seen before. I hope we never see anything like it again.
There is a suggestion that the banks will retain much power and control under this legislation. It is important to remember that this Bill will introduce agreements, which cannot come about unless both sides are involved. If the agreement does not kick in, we would consider other options. The banks and lending institutions have an element of power but the debtor also has an option of whether to take or leave this. That should be borne in mind.
It is important to note this is not jut about mortgages but takes in all types of debt, including the smaller debts which can be equally stressful relative to a person's circumstances. Many members of the public may think the introduction of this Bill will in some ways force banks to deal with customer debt levels, and in some ways it will do so. The easier access to settlement options should act as an incentive for banks to reach settlement arrangements. It should also encourage banks to come up with their own initiatives to address customer difficulties, which is already happening to some degree. The irony is that the introduction of this legislation may mean that more settlements are reached outside the legislation due to the incentive the new law will provide. If that happens, it would be a mark of a good Bill.
I have been contacted by plenty of constituents who are with banking institutions that have not yet passed on the recent interest rate reduction from the European Central Bank. The issue has been raised with me and people are very frustrated about it. They have seen the State pumping billions of euro into the banks but when the ECB cuts interest rates, they note that banks do not pass it on. There are two sides to the argument, the issue is quite difficult and I understand where people are coming from. The State cannot micro-manage the banks and they must be allowed to make commercial decisions. Nevertheless, the banks are not commercially funded at present, which knocks holes in any argument to be made in that regard. The banks must return to being commercially funded but that will not happen if the State micro-manages operations. The banks must react and take responsibility for their part in the crisis. They must be as creative in formulating debt settlement and restructuring solutions as they were with sales products during the boom. If the banks can show the same ingenuity now in solving some of the problems they helped create, it should happen.
I welcome a much anticipated and badly needed Bill. I am sorry we are in a position where it is needed but to restore our economy, we must allow people to move on and get back some semblance of normality in their lives. I hope the provisions will provide light at the end of the tunnel for those people currently struggling. I commend the Minister as at the heart of this legislation is a real desire to keep people in their family homes, which is crucial. No matter how many problems any of us have in life, we should always be able to return home in the evening to the family. There is comfort and solace in that. If the family home is under threat, more than anything else that would lead to a level of insecurity. I commend the Minister and his staff for their work and I ask the Minister to keep the pressure on in getting this legislation enacted as quickly as possible.
I thank the House for the opportunity to speak on this Bill. As the Taoiseach has said, the Bill will not solve the mortgage crisis overnight. However it will bring a change in the relationship between customers and banks, which should give the customer more bargaining power. The period for bankruptcy is being cut from 12 years to three years, something which is long overdue. This will allow people who ended up in unsustainable debt, many through no fault of their own, to start again. We need to allow these people the opportunity to use their entrepreneurial skills and experience to get back into business. These are the people who will create jobs and help restore confidence in the economy. As a nation we must change our attitude towards business people who fail and encourage people who have an idea to try.
In sport people celebrate success and acknowledge failure and we need to do likewise in business. Without people who are prepared to take risks, the economy will not grow. This Bill provides such people with some protection should their business venture fail. In the US, England and other advanced economies this is a given. In the US, two former presidents went bankrupt, as did Donald Trump and many other prominent business people who are now contributing enormously to the economy again.
However, even for these people to succeed we must now in Ireland deal with our huge indebtedness from mortgages, credit cards and other general debt, such as credit unions loans and personal loans. Our personal debt grew by 245% over seven years, a level that is not sustainable. Without debt resolution for our people, our domestic economy will not recover, and that is why this insolvency Bill introduces other ways of dealing with debt.
These methods include a debt relief notice to allow for write-off of qualifying unsecured debt of up to €20,000, subject to a three-year supervision period, an agreed debt settlement arrangement for the unsecured debt and a personal insolvency arrangement for the agreed settlement of secured debt of up to €3 million. None of these options is easy and much of the Bill contains provisions to ensure that these new arrangements will not be abused. The underlying principle must be that those who can afford to pay must pay. Those who cannot pay must go through a vigorous process to ensure that they pay what they can over a specified period of time.
Another important provision is to encourage the banks to come up with their own innovative proposals to facilitate a debt resolution for their customers. I understand that banks are now seriously looking at ways to offer resolutions to their customers, which is very welcome. This Bill will ensure that if the banks are not sufficiently flexible with their customers, at least their customers can opt for a solution offered in the Bill.
The fundamental problem for very many taxpayers is that money gets written off or written down. This money must eventually be paid by someone, ultimately the taxpayer. People who did not get themselves into debt or those who have already paid off difficult mortgages find it very difficult to understand why they will now have to contribute to this debt forgiveness, either by paying tax or having to pay higher bank charges so the banks can make adequate profits to accommodate debt write-offs. This is unfortunate, but the reality is that hundreds of thousands of people in the country were encouraged by the then Government, in co-operation with a reckless banking system, to borrow way beyond their ability to pay back. However, the borrower must take his or her share of the responsibility, which is why the Bill contains such strict provisions.
From a national point of view we all agree we cannot have hundreds of thousands of individuals and households with this level of debt. It effects confidence and prevents the economy from returning to growth. We must allow these people space to recover so they can play a part in our economic recovery which will eventually benefit all society.
The resolution of the mortgage crisis was always going to be a difficult task. The Government has always obliged banks to limit the amount of foreclosures. It is hoped the recent changes in mortgage supplement will force the banks to deal more promptly with distressed mortgages. The scene whereby people can remain in a house and pay rent should also be of assistance. We will resolve the mortgage debt crisis quickly for the good of the economy. It is in the best interest of customers and lending institutions to try and deal fairly and reasonably without necessarily having to resort to the legal provisions contained in the Bill.
The legislation is very welcome. I hope it will give many the chance to avail of a shorter time period of bankruptcy should it be needed. In particular I hope the Bill will help the negotiation possibilities between borrowers and lenders so a more favourable solution can be found for both parties. I commend the Minister and I have no hesitation in commending the Bill to the House.
I am delighted to have an opportunity to speak on the Personal Insolvency Bill, which is radical legislation dealing with an area of Irish law which has urgently needed reform for many years. Regrettably, over-indebtedness, bankruptcy and insolvency have grown exponentially in recent years as the effects of the global financial crisis trickle down to individual level. The ideal opportunity to reform this area of law, much of which has remained the same for several decades, was during the economically successful years when far fewer individuals required such assistance. So out of touch with reality was our insolvency legislation that external experts insisted in including this reform in our EU-IMF agreement.
I commend the Minister, Deputy Shatter, for confronting this issue head on, first with the Civil Law (Miscellaneous Provisions) Act 2011 and now with the comprehensive Personal Insolvency Bill. I commend other stakeholders such as the Law Reform Commission, the free legal advice centres and the Money Advice and Budgetary Service, MABS, for conducting very helpful analysis in this area and for making clear, meaningful and citizen-centred recommendations and observations. We must never lose sight of the fact this issue concerns citizens and families who, for whatever reason, find themselves burdened with insurmountable debt which negatively affect all areas of life, from health to family to work. It is to no one's benefit for fellow citizens to endure such pressures and strains.
A positive measure contained in the Bill is the removal of many debt-related matters from a court setting. By all means it is appropriate for the court to play a role such as that required in the approval of arrangements or orders, but non-judicial alternatives would be more beneficial, particularly for over-indebted citizens already in a vulnerable position. I am certain the creation of an independent insolvency service, to be headed by a director and staffed to monitor insolvency arrangements, consider applications for debt relief notices and provide information to the public, will prove constructive. I am less optimistic about the function which permits the service to authorise approved intermediaries and personal insolvency practitioners. A greater detail of focus is needed here. Some commentators on the issue of insolvency and debt relief warn against the creation of a cheats' charter which would enable dishonest individuals evade their financial responsibilities. Greater vigilance will be required if we are to prevent an industry from springing up whose sole purpose is to profit from the financial woes of others.
We have an excellent world-class debt advice and information service in MABS, provided by the State on a non-profit citizen-centred basis. Citizens trust and respect MABS and other bodies such as the free legal advice centres for impartial advice and assistance. I know from the information provided by the Department that the regulation of approved intermediaries will be developed on Committee and Report Stages and I agree fully with the sentiments expressed which view this section as key to the success of the Personal Insolvency Bill.
To those who unkindly comment that some of the reforms contained in the Bill will facilitate the evasion of personal financial responsibilities, I draw their attention to the many measures which pertain to the three main voluntary debt settlement arrangements. Each arrangement, namely, the debt relief notice, the debt settlement arrangement and the personal insolvency arrangement, is specifically designed to assist citizens with various levels of over-indebtedness. The debt relief notice, which facilitates a debt write-off of up to €20,000, contains requirements that a person be unable to pay his or her debts as they fall due and have no prospect of being able to meet these debts. It is a low-cost alternative to bankruptcy which will be in reach of citizens for whom the existing bankruptcy law is of no help. I am confident a debt relief notice would provide a person with the necessary breathing space to solve financial problems and become debt free while also enabling that person to make contributions to paying off existing debt if his or her circumstances should change for the better.
The debt settlement arrangement, which is for larger and longer term unsecured debt, contains innovative and helpful features. One such feature is the protective certificate which, to my mind, is almost like examinership, not for businesses but for citizens. I must concur with some stakeholders who noted the 65% approval rate required from creditors constitutes a veto over the debt settlement arrangement process, but I also believe a majority of creditors will realise there is almost nothing positive to be gained from pursuing through the courts an overly indebted person who is struggling. The exclusion of certain debts, such as taxes, Government charges, domestic maintenance and the protection of the principal private residence, proves that safeguards exist so the Bill assists and helps honest citizens. The personal insolvency arrangements will prove helpful for debts involving property or other large assets and may prove a less judicially focused more co-operative alternative to bankruptcy.
The Bill will provide further clarification in certain areas, the reforms so desperately needed in this area of Irish law and relief to citizens struggling with the burden of debt. It represents the concrete fulfilment of a commitment contained in the programme for Government for national recovery agreed by the coalition partners. It recognises implicitly that any national recovery will be dependent on the collective individual recovery of our over-indebted citizens.
I very much welcome the opportunity to make a contribution on Second Stage of the Personal Insolvency Bill. I warmly welcome the publication of the Bill which is long overdue. It is ground-breaking legislation which will radically transform the opportunities open to distressed borrowers of all levels. It has to be acknowledged that people across the board in society and many interested groups have been waiting quite some time for this type of system to be introduced in Ireland. I commend the work of the Law Reform Commission whose paper and draft Bill at the end of 2010 formed the template of the Bill introduced by the Minister. I also acknowledge the work of the free legal advice centres which have been lobbying for approximately ten years for these necessary reforms to Ireland's insolvency and bankruptcy regime. They have already made a constructive contribution to the debate on exactly what shape the Bill should take and precisely how the arrangements contained therein should be configured to ensure we have the right balance between the rights and responsibilities of borrowers and lenders, and this is very important.
We all acknowledge a non-judicial debt settlement system is urgently needed. In recent years, as previous speakers have outlined, there has been an enormous build up of personal debt in Ireland, not only mortgage debt but also a variety of other forms of personal debt such as credit card loans, personal loans, car loans and hire purchase agreements. People have entered a host of arrangements which have cumulatively resulted in a dramatic increase in the overall level of indebtedness faced by Irish people.
When the economic collapse struck Ireland in 2008, the fall-out from that resulted in many thousands of people losing their jobs and when their income was essentially demolished overnight, they were left with having to face up to liabilities they had built up on the back of an income stream that was no longer available to them. That combination has resulted in the type of carnage that is out there and all of us who are elected representatives now meet on a weekly basis people who are dramatically over extended and who, despite the best will in the world and making all the possible reasonable sacrifices that could be expected of anyone, will never be able to meet their financial obligations. This throws up difficulties in terms of identifying an appropriate policy response. There are rights and responsibilities on both sides and we must also be cognisant of people who are still managing to meet their financial commitments in full. It is important the interests of those people and the wider economy are part of our consideration.
That said, there is no getting away from the fact that we must face up to and confront the scale of personal and mortgage debt people are carrying, because in many instances the level of debt is unsustainable and something will have to give. There are people living in misery because they cannot meet their commitments. They are coming under inordinate pressure from banks and other financial service providers to make repayments, but they have not got the money to do so. This is resulting in the efforts to bring about an economic recovery being stymied by the overhang of debt and until we face up to and deal with that issue, we will not get the type of economic recovery we all want to see.
As the Minister knows, Fianna Fáil brought forward a Bill last October in Private Members' time, the Debt Settlement and Mortgage Resolution Office Bill, which was accepted on Second Stage. The Joint Oireachtas Committee on Justice, Defence and Equality has done significant work on the draft heads of the current insolvency Bill, which was published in January, and issued a report to the Minister and held an extensive series of hearings with interested parties. That report has formed part of the Minister's consideration in bringing forward this Bill. There are a number of differences between the Bill we brought forward last October and the Bill the Minister has now brought forward and if I have time, I will speak about those shortly.
One of the main benefits of bringing forward this Bill is that it puts it up to the banks to act, because they will now know that people can engage with an alternative process. Hopefully, we will shortly have a system in place that people who are over-indebted can access in order to have a tailored solution put in place that will reflect the unique circumstances they face with regard to their financial affairs. This will provide a clear and strong incentive for the banks to engage properly with people. We all acknowledge that it would be far better for the majority of people if they did not have to engage in the new insolvency service and were able instead to restructure their affairs with their financial institutions. The insolvency process being established will not be painless and there will be consequences. The process will be invasive and intrusive in their personal lives and there will be a public register of decisions that have been made.
A clear benefit of the Bill being brought forward is that it forces the banks to face up to their responsibilities and to engage properly with people. While the banks have restructured approximately 70,000 mortgages to date, they could do far more. The official statistics from the Central Bank indicate that what the banks call "restructured mortgages" can be divided into the following categories: putting people on interest only payments, approximately 28,000 cases; reduced payment options, where people pay more than the interest but less than the full interest and capita, 14,000 cases; a reduced payment, as in less than an interest only payment, 11,000; extension of the mortgage term, approximately 9,500 cases; capitalised arrears, 9,500 cases; a repayment holiday, 3,000 cases; and hybrid solutions, approximately 3,800 cases.
The point is that the banks have shown very little imagination in coming up with solutions to this crisis. It is only when the Government, the troika and all other interested parties have come forward with these proposals for an insolvency regime that we see the banks talk about coming up with packages that will include split mortgages, the possibility of taking an equity stake in some houses, where people cannot afford the full mortgage liability, and shared ownership arrangements. Therefore, it is only because it was ultimately put up to the banks to show more ingenuity and imagination to deal with the crisis that they have finally begun to bring forward ideas that will apply to far more people. The previous solutions of interest only payments, extension of the mortgage term and the capitalisation of arrears are not suitable for everyone. I believe that if the will existed within the financial institutions, they could resolve the majority of mortgage distress cases through agreement with the borrowers. That would be the ideal scenario and would save everybody the hassle and distress of going through an insolvency process. That said, the insolvency system is needed, because it provides a backstop, that in the event people cannot restructure their affairs with their bank, this system exists as a last resort for them.
The role of the banks in regard to facing up to the problem must be questioned. I agree they have entered into arrangements with approximately 70,000 people. However, I have dealt with many individual cases over the past few months and it is worth reading into the record some of the correspondence people in mortgage distress have received. The letter I am about to read from comes from a pillar bank with regard to someone with an outstanding mortgage of approximately €44,000, with arrears of a few thousand euro and where the attempts to come up with an alternative arrangement have failed so far. The person in question received a letter saying:
As a result, we now call on you to pay us everything you owe under the mortgage loan ... within 10 business days of the date of this letter. [Essentially the bank is calling in the entire mortgage loan.] This letter is a demand for early repayment of your mortgage loan under your mortgage loan offer letter and the total amount you now owe at the date of this letter is quoted above. Interest continues to accrue daily at the rate which now applies to your mortgage loan.
If you do not pay us what you owe us under the morgage ... within 10 business days ... we can start legal proceedings against you for repossession of the mortgaged property.
Under the terms of your Mortgage Deed, you are responsible for the costs of any legal action we take to repossess the mortgaged property. These costs could be substantial. We include an estimate of costs in the 'Important Information' section of this letter. We would stress the importance of clearing the arrears on your mortgage account to avoid the need for court proceedings.
Please note that if your property is sold for less than the amount you owe us under your mortgage loan, you will still be legally obliged to repay us the remaining amount you owe us. That would include any interest which you owe us, charges and any legal, selling or other costs which we have to pay to sell your property. For example, there will be solicitors' and estate agents' fees and expenses to achieve a sale. Remember: the cost of selling the property must be deducted from the sale price and only the remainder of the sale price can be used to repay your mortgage loan.
This is the type of letter people in mortgage distress are receiving from their banks. People who cannot afford to pay their monthly payment are getting letters calling in the entire mortgage amount to be repaid within 10 days. Of course, the banks know this is completely unreasonable. They are merely ticking a box along the road to court proceedings for repossession. This is essentially what the bank is doing in the case raised in the letter.
To underestimate the effect of receiving a letter like this has on a vulnerable person who is in distress cannot be countenanced. It is unacceptable that people are being treated in that manner.
There is a way to deal with people. The person in this case has made every reasonable effort. I would have been very upfront with the person that this would end up in court ultimately if he or she could not manage to repay some of the mortgage. However, letters like that are unacceptable. There was no mention of the code of conduct on mortgage arrears in that correspondence.
The Minister closely examined the issue of the banks having a veto in respect of the arrangements that follow from this, in particular the personal insolvency arrangement. Legal people have told me there are important constitutional considerations in terms of property rights and so forth and that one cannot set up an independent arrangement whereby a solution can be imposed on the banks. I do not have the legal qualifications to make a determination on that but, without question, allowing the banks to retain a veto takes something from the Bill because, in effect, one could ask the question, what will be different under this arrangement than is currently the case outside of it? Outside of the arrangement, the bank can still say "No". If somebody makes a proposal to restructure his or her mortgage, the bank can simply say "No" and send out a letter along the lines of that which I read into the record to the mortgage holder. Under the insolvency arrangements we propose to establish, the bank can again simply say "No".
The difference is, I suppose, that in the Bill, the Minister is proposing important changes, which we welcome, to the bankruptcy regime. The banks will know that if they do not agree to a proposal from the personal insolvency practitioner in respect of a personal insolvency arrangement, the mortgage holder or the borrower will have recourse to the bankruptcy regime and there is only a three year automatic discharge period. That will help to bring a greater degree of acceptance within the banks that they will have to engage constructively with this process. I would expect the banks to accept the outcome of the recommendations that are being made by the personal insolvency practitioner, otherwise somebody will simply go down the bankruptcy road.
While I hope this Bill will not take a prolonged period to go through the Oireachtas, I would make the point that we must get it right. I do not mind if the Oireachtas spends a reasonably long period of time getting it right because that is absolutely essential. However, the Minister should consider taking out the bankruptcy element and enacting that as separate legislation. The reason I make that point is that having that in place in the shortest possible time would force the banks' hand and would result in them resolving far more of the mortgage distress cases directly with the borrowers without needing to have recourse to the insolvency system. The Minister could actually lessen the workload of the insolvency system if he enacted and put in place those bankruptcy provisions. It would have the effect of more cases being resolved directly between the borrower and the bank.
I mentioned FLAC, which has given its initial response, earlier. I respect very much its experience of dealing with cases over many years. We should all listen very carefully to its suggestions and proposals because they are based on practical experience of dealing with borrowers experiencing difficulty. It has highlighted the need for a right of appeal. In most processes, we would all expect there would be an appeals mechanism in place. Of course, it would be far better if we could ensure the system itself came up with the right solution in the first place and that we would not force people into an appeals scenario. However, that proposal should be given very careful consideration.
The Bill and the debate surrounding it would be greatly enhanced if possible scenarios were given and examples of how it might work for individuals, albeit hypothetical cases. I fully accept each case will be different and it is difficult to set out a model which involves examples but it would make the debate far more meaningful if people knew the possible outcomes at the end of this process.
The Minister has gone into considerable detail in the Bill in respect of the three different arrangements, namely, the debt relief notice, the debt settlement arrangement and the personal insolvency arrangement. The entire process would be enhanced if people could see some tangible examples of options which an insolvency practitioner could recommend without being prescriptive about it. It would allow a practitioner to set out possible scenarios. People will want to know the consequences for them coming out the other side of this process. Will they be able to borrow again within five or ten years? How long will there be a record on the system? How will the Irish Credit Bureau deal with cases where people have gone through the insolvency system and how will any future credit application be considered by the banks? Should we force the banks to consider each application on its merits and without having regard to previous history which will have been disposed of through the system? There are practical issues there which need to be dealt with.
The Government accepted a Bill we brought forward on regulating debt management advisers who will now see a great opportunity to hand hold people through this process and will make all sorts of commitments and promises. This insolvency system opens up great opportunity for them to exploit vulnerable people and I urge the Government to enact that legislation. It is very straightforward and the Bill has passed Second Stage. It is essential that whole sector is properly regulated before the insolvency system is up and running, otherwise people will be exploited.
I wish the Minister well and I am glad we are having the Second Stage debate in advance of the summer recess. Committee Stage will be absolutely crucial and it will be a very onerous one for those tasked with the responsibility for it because they will have to go through the Bill line by line and ensure the correct balance is struck. Many issues need to be addressed but we warmly welcome the broad principles of the Bill and, as a party, we will engage very constructively on Committee Stage to make this new system the best it can possibly be so that it offers some hope for people who are currently in a very dark place.
I welcome the Bill and commend the Minister, Deputy Shatter, and the Minister for Finance, Deputy Noonan, and their Departments on the work they have done on this very important issue as the Government works to overhaul the law on bankruptcy and personal insolvency.
The issue of personal debt is one which is affecting a growing number of people in this country and this Bill will help people to deal with their debts without having to go through the courts. It also aims to help people to stay in their homes and to continue to rear their families, which is a very welcome step.
This Bill represents a lifeline for many people who have found themselves in debt which has consumed their daily lives. It will give them breathing space and allow them to live in their homes and, hopefully, resolve some of the day-to-day credit issues they may face. This legislation introduces three measures which aim to help those struggling with debt. One is a debt relief notice which would allow for the write off of unsecured debt up to €20,000A person who has debt of less than €20,000 will be able to look for a debt relief notice. MABS can act as an intermediary to assist with this process. The debt relief notice is in place for three years and during the three years, the debtor cannot be pursued by the creditor. The second is a debt settlement arrangement for the agreed settlement of unsecured debt over five years and the third is a personal insolvency arrangement for the agreed settlement of secured debt up to €3 million.
This Bill also sets up an independent body called the insolvency service to oversee the non-judicial system and it radically reforms the length of bankruptcy from 12 to three years. Does the Bill go far enough to help those people struggling with debts? Maybe it does or maybe it does not, but it is a start and a step in the right direction and it shows that this Government is committed to helping those in genuine need.
The instability of our banking sector over the past few years has resulted in banks not engaging with their customers and those who must borrow money. The Bill does not provide for an automatic writing off of negative equity. Where people are in a position to service their mortgages, they must continue to do so. Back in the boom times, banks fell over each other to lend money. They gave loans to many people whose ability to repay was not examined properly. Now, many of these people have lost their jobs or have had a reduction in their wages and simply cannot meet their repayments. They face mounting debt and feel utterly helpless. Meanwhile, the banks, for the most part, refuse to engage in any meaningful way with their customers to address their arrears. We heard an Opposition Deputy read a letter that was received by a constituent. How frightening it must be to have such a letter come through one's door.
Furthermore, I am very concerned at the refusal of some banks to pass on reductions in interest rates to their customers. Last week, the European Central Bank cut interest rates by a quarter of a percentage point to 0.75%, a record low. However, customers of many Irish banks will not benefit from this, which is not acceptable. AIB-EBS has refused to pass on this cut, which is a huge blow to their customers who are already struggling. I am also concerned that the banks are reluctant to lend even small amounts that could make life easier for many people, particularly owners of small businesses.
As a housewife, I see a sign of the times when I go shopping at the weekend and notice other people's shopping trolleys. Shoppers are now very focused on what they put in their trolleys, which is sure sign that they are watching what they are spending and do not have the same amount of money as previously.
Last week the Irish League of Credit Unions published its findings on how families are struggling to survive on a low income. Many families have just €100 to live on after they pay all their bills, and rely on family and friends to help them out. The credit union report found that 40% of those surveyed are borrowing to pay household bills, with 10% turning to moneylenders for extra cash. This highlights a worrying trend, where more and more people are turning to moneylenders to help them get by. Many of those who go to moneylenders may not have a bank account, or even be welcome in a bank, and may feel they have no other option to get some extra cash. If they cannot get money from friends or family they turn to moneylenders. However, the consequences of this can be very serious.
There are now more than 40 licensed moneylenders operating here, with countless others operating illegally. They charge interest rates of up to 190%, leaving it almost impossible for people successfully to keep up repayments. These unscrupulous lenders operate a door-to-door policy for repayments, which can lead to a feeling of intimidation. I have witnessed this doorstep intimidation many times in my constituency. This approach means borrowers get themselves into even more debt and borrowing from a moneylender is their only option.
Besides the enactment of the Bill, I would like to see two things to happen. First, credit unions need to look at their own lending practices. Credit unions have traditionally been the people's bank and they must continue to carry out this function. I am frequently contacted by people in my constituency who have trouble getting even a small loan from any traditional source, and this needs to be addressed. Second, I call on the Central Bank to look at the need for regulation of moneylenders. They are currently required to display their high interest rates, under the provisions of the consumer protection code for licensed moneylenders, but there is no cap on the interest rates they can charge. This, effectively, means they are charging what they like.
Illegal money lenders are charging huge interest rates. Many of them follow their borrowers to the local post office on the day children's allowance or other social welfare payments are paid and wait outside to be handed their money. I have witnessed this.
We are living in a very difficult time, but a little more compassion from our banks and other agencies would help people to lighten their burden and help them through the dark tunnel they are in at present.
Many young people are suffering huge stress. Some days ago, Deputy Dan Neville spoke about the incidence of suicide among young people and the growing concern about suicide among young people who are in terrible debt, particularly in mortgage arrears. Every life is precious, but for many people the only way out of their struggle, particularly with debt, is to take their own life. This is a sad reflection on where we have come to. We may be a high-tech country with jobs in high-tech companies but our young people and how they deal with stress on a daily basis is most important. I hope we will continue to identify with people who are struggling, who have lost their jobs and, above all, who feel the only end in sight it to take their lives.
I commend the Bill to the House.
I thank the Minister of State for his presence and for the opportunity to speak on the Bill. First, I will speak on behalf of my constituents in Dublin North which was one of the fastest growing constituencies during the housing boom. Consequently, it is one of the most affected by negative equity, escalating prices and large unsustainable debt.
As noted by many speakers, it is the ordinary people, who were not looking to make millions or who borrowed irresponsibly, who are in dire need of this legislation in order to get their lives back on track. In Dublin North, people borrowed to buy homes and not investment properties, nor was it greedy or reckless of them to do so. Mortgage rates were low, rents were high and it seemed like the only option. Ordinary people played by the rules which were set by bankers and by a Government that afforded tax incentives to get on the property ladder and reduced tax rates to fuel a false economy. Experts told us, over and over again, that it was in our interest to buy property as soon as we could rather than pay an extra €50,000 if we waited a month or so.
The Bill is not just about mortgages. It is also about personal debt associated with the peak of the boom. I used to drive through my constituency, particularly after my first election to the local authority in 2004, and look at towns like Balbriggan, Swords, Rush, Lusk and Skerries that were being transformed in front of my very eyes. Housing estates sprang up from nowhere and I saw signs outside building sites, as all Members have, advertising homes at, perhaps, €300,000. A month later, another sign would appear saying,"Phase One Sold Out; Phase Two €350,000". That was a common occurrence throughout the country.
We could not buy property fast enough and the banks could not lend us the money fast enough. People queued overnight, bought off plans and signed agreements worth up to half a million euro without even seeing a property. This was not because they were foolish or irresponsible. It was because they did not have much choice in the matter. If they chose to hesitate they paid the price. That was the reality. We signed for our homes in good faith, expecting to pay back every cent. I did it, my neighbours did it, my family members did it, my friends have done it, all with the reassurance that we would have a paycheque at the end of the month in order to meet our mortgage or personal debt payments.
No one is looking for special treatment or to get off easy. Easy is far from how I would describe the fear and uncertainty of being unemployed or without a means to keep a roof over one's head. People have come to me in fear of loan sharks, as Deputy Byrne mentioned. These people have been escorted to cash machines or a post office in order to withdraw money to give to these individuals. People have walked out of their homes, desperate to find a way out of their nightmare. Marriages and partnerships have broken down. People have been abandoned by partners and left without financial support to pay creditors alone and with no one to turn to for help. These are genuine stories of real people who were sold the lie and incentivised to invest with the risk free momentum that was carried through our Government and our banking sector.
According to a UK study the typical age of those who enter the personal insolvency process is between 25 and 44. These are the years in which we raise families and invest in family homes. Such individuals are at the lower end of the salary scale even though 90% of them are in employment. They are the working poor. It is not only the unemployed who face financial difficulties in this new Ireland but also those who find their incomes do not meet their monthly expenditure. I hope this Bill will offer a breathing space or a light at the end of the tunnel to these people, who merely want a normal and safe life with their families.
As a member of the Committee on Justice, Defence and Equality I recognise the challenges that arise in publishing this type of legislation. How do we protect the taxpayer or effectively resource organisations such as the proposed insolvency service when we do not even know the scale of what will be required? How can we reform our bankruptcy law to bring it in line with our European counterparts so as to avoid the risk of continued bankruptcy tourism? Has thought been given to what happens at the end of the three year period of bankruptcy? In the UK, for example, individuals enter a probationary period subsequent to exiting bankruptcy. These are big challenges and the work is only beginning.
We will soon have a non-judicial means by which debtors can enter into negotiations with banks, with equal representation on all sides, by way of an insolvency service. This service needs to be an affordable and I know the Government does not underestimate the cost of the expertise and time needed to support debtors during negotiations. MABS has heretofore had the tough job of meeting these needs. It has done an extraordinary job since the crisis began and I trust it will have a significant presence in the implementation of this legislation. It is trusted on all sides by creditors, the Government and the public. I would also like to commend the Free Legal Advice Centres, representatives of which I invited to the Dáil last week to provide Members with a briefing, on their effective advice on rights and options to people who find themselves in a new and difficult situation. I hope the Minister will continue to work alongside these agencies and heed their expertise as his Department develops a fully functioning facilitation process. During our briefing it was noted that while hire purchase agreements are not entitled to recourse for justice they continue to make up a large part of the credit facilities and products advertised by creditors and retail outlets.
I welcome that the insolvency service will function as an independent body reporting to the Minister. It is vital that it is transparent and accountable by means of registers that provide information to the public and that it advises the Minister on any matter relating to its functions. While I understand the importance of maintaining the independence of this body, I urge the Minister to be vigilant on accountability so that it does not become another agency disengaged from the State. I am curious, for example, to ascertain if the agency will be directly answerable to Members of this House. Often when Deputies table parliamentary questions pertaining to agencies of the State they get the response that the matter is the responsibility of, for example, the HSE. This would be an unacceptable outcome but it can be remedied before the Bill is passed.
This is one of the most comprehensive Bills this House has published to date but, as the Minister is aware, a number of issues remain to be clarified. What will creditors be able to expect from debtors in terms of what is a fair deal and the level of flexibility that should be offered if circumstances change? What compliance procedures will be put in place and how long with it take? Until there is an established code of practice I am not at ease with the establishment of an insolvency service that is fully independent of Government. I do not mistrust the proposals for the insolvency service but have concerns about the unpredictability of the outcome. I note that the Minister has legislated for accountability through the service's director but it would be appropriate to also make him or her answerable to this House.
This will be a complex procedure and every case will be different. While it is the only practical means of approaching a settlement, I am concerned about the potential hazard of discretion. I ask for further clarity on the manner in which the banks will approach these negotiations. Will one individual have final sign-off depending on his or her personal judgement of the situation or will the decision be made by a committee or a faceless review board? How can we guarantee that everyone gets a fair deal, regardless of their banks, socioeconomic backgrounds, genders or circumstances? I hope a code of practice will be established quickly to cover all creditors and oblige organisations to follow a formulaic system of criteria and look to precedents to ensure that a fair and equal approach is afforded to all.
I hope this Bill offers those who are living in fear, and young families in particular, a way out of their current situation and a means to provide a future. As a Government, we have an unprecedented mountain to climb and many of the decisions we make are not easy. This Bill, however, will facilitate significant reforms in our banking sector. It is a shared consequence of the legacy that we have inherited and I commend the Minister and his Department on the serious work that they have done thus far.
I am grateful for the opportunity to speak on this important issue. We are a nation laden with debt. The richest went mad with greed and borrowed multiple millions of euro to amass empires of property but they have paid little for their criminal irresponsibility. Some believed the hype they were sold by the Government and the supposed experts that the bubble would never burst and that they were fools if they did not own their homes. They stretched themselves to the limit to enter the property market and are paying the price today by being stuck in possibly unsuitable houses with mortgages in excess of current house prices. Many will be unable to pay for their homes in the lifetime of their mortgages or cannot even make next month's payment.
There is little doubt that the State, in its cavalier promotion of the bubble and its drive to make homeownership a national obsession, is greatly to blame. It has until now done nothing and, despite its many flaws, this Bill is at least welcome as a piece of work which seeks to address this serious problem. However, it is flawed. It leaves the banks in a powerful position and does not properly position the debtor, as citizen, to make arrangements to bring about a rational solution to the problem of insurmountable debt. Sinn Féin has stated clearly that an independent agency must be formed in order to manage the process of debt resolution in a humane and tailored way. As the Bill stands there will be no legal obligation on banks to accept even the most reasonable of arrangements.
This veto will, without doubt, make this Bill in some circumstances completely irrelevant. Indeed, with rumblings of memos stating that certain banks will not accept write-downs, this seems to be a certainty in many cases.
What will be done to address this matter? All the well-drafted legislation in the world can be of no use if there is a very clear get-out clause. The reality is that if the banks were going to voluntarily engage in significant debt resolution arrangements, then they would have done it. It makes sense for the banks to rationalise and address the inability of many of these mortgages to be paid, but they have not done so in sufficient cases to indicate that anything other than an independent binding process is the solution.
The shortening of the bankruptcy period is welcome and will do some good but the fact that bankruptcy causes the person to lose all their assets, including their home, is worrying. This process must also be treated in a humane fashion. Bankruptcy must no longer be the pit of despair it is in this State. In other countries, people seem to be given another chance instead of it being a brand for those who should be avoided at all costs. The period also remains quite long by comparison with the regime in the Six Counties or in England and Wales.
I work mainly on the issue of housing and I am worried by the continuing failure of the Government to shake off the desire to treat housing as a commodity. It has been treated like that for many years to our eternal detriment. However, the Government must recognise it as the most basic of needs for its people as well as recognising their right as citizens to have a home. If this Bill protects that right in some way I am glad, but the problem of people being evicted from their homes is not something on the horizon; it is happening now and has been for some time. This Bill is not a preventative measure but it is long overdue. It will do nothing for the many people who have already lost their homes and now are forced to live in privately rented accommodation, which is often of low standard and poor value.
The treatment of property as a commodity, if continued, will produce these problems again and again until a government is willing to live up to its duty to house its people as of right and to finish subsidising a private property market which takes much and gives little.
Within the last 90 minutes my office in Sligo was contacted by a middle-aged man in tears. He is a married man with a family. He had his own home with a mortgage and has worked very hard for over 20 years with a State agency. Last year he suffered an occupational injury at work but because it was psychological rather than physical, it was not classified as eligible for occupational injury benefit. When he first contacted my office, he had no income to live on because his employer's sick pay had been stopped. He applied for, and received, an invalidity allowance.
He is entitled to back money from the date he first applied but despite several calls to the Department of Social Protection, the arrears have not yet been paid. Meanwhile, his local bank has been telephoning him and sending him threatening letters for the amount of €1,600. The disability allowance arrears would be well in excess of the latter sum for which the bank is putting him and his family under such stress. Last night, his 16-year-old son took a knife to himself but, thankfully, survived with 16 stitches. He said he did it because he wanted to attend university but felt it was unfair because it was putting more financial pressure on his family. It is scandalous that any bank would do that.
The Bill is complex and ground-breaking, and I accept it is a genuine attempt by the Minister and the Government to assist many people such as the man who rang my office in tears. From their own clinics, every Deputy knows the pain that is being caused. Personal debt, which people are incapable of repaying through no fault of their own, is causing sleepless nights, ill health and stress. While the Personal Insolvency Bill will not fix the debt problem in society, it does attempt to fix part of the problem. For that reason this legislation is welcome, but it is just part of the process. While the Bill attempts to alleviate some of the existing debt problems, those who have most to fear are still very much afraid. I still do not know whether this legislation will help the man who contacted my Sligo office in tears earlier today. I have no doubt that many people are following this debate closely but depending on the final shape of the legislation there may be some disappointment with it. The last thing that already stressed people need now is false hope. We need to get this legislation right first time.
I will not go through all the proposals contained in the Bill because several speakers have already referred to them. There are three arrangements for dealing with insolvency. First, debt relief notices are aimed at debtors who possess almost no income or assets. They will be administered by approved intermediaries at no cost to the debtors. Second, debt settlement arrangements are aimed at those who do not fall within the strict criteria of debt relief notices. Third, personal insolvency arrangements will operate in a similar fashion to the debt settlement arrangements but will allow for the inclusion of secured debt.
The Bill will reform existing bankruptcy rules by reducing the period for bankruptcy from 12 years to three years. However, the eligibility criteria for debt relief do not make sense. The legislation, as currently drafted, requires that a debtor does not have a net disposable income of more than €60 per month or assets and savings greater that €400. What constitutes an asset? Would a wedding ring, television set, fireplace or a three-piece suit be counted as assets? Any of these items could well be worth over €400.
Is the Government proposing that people's homes must be stripped to the bare necessities in order to qualify for debt relief? We must re-examine this matter because there has to be a better way of determining qualification for this relief. We cannot give people relief while requiring them to be paupers. It must also be established how personal insolvency practitioners will propose the debt settlement arrangements and broker their terms. The Bill suggests many ways as to how they might deal with debt, but more work needs to be done on how those arrangements can be sorted out.
The personal insolvency arrangements have received most media attention. They will operate in a similar manner to the debt settlement arrangements but will also allow for the inclusion of secured debt. The voting rules needed to reach agreement are complex and I am not sure they will work in their current form. Those criteria need to be reconsidered.
The Bill states that a person must be in debt to at least one creditor holding security over an asset or property situate within the State and that the he or she must make a statutory declaration to the effect that he or she has co-operated with his or her creditors for the past six months in the context of dealing with any mortgage arrears on his or her principal private residence. In other words, he or she will have engaged with the mortgage arrears resolution process. I received a call in my office 90 minutes ago from a man who was in tears. Does that qualify as engaging in a mortgage arrears resolution process?
Another bone of contention in this legislation is the role which the banks will play in the decision-making process. Effectively, the banks are to maintain a veto over decision making. There is no legal obligation on them to comply with an offer, irrespective of how reasonable that offer might be. A robust independent appeals process to oversee bank activity in this regard must be put in place because we know that the banks cannot be trusted. We must ensure through this legislation that the taxpayer does not again become the fall-guy for the banks in terms of their transferring the amounts they have written off onto the shoulders of those who have already bailed them out. We must ensure the banks cannot use compliance with this legislation as yet another reason to burden taxpayers.
The real test in terms of whether this legislation is effective will become evident when we have evaluated if it has been of assistance to the hundreds of thousands of people who are struggling under mountains of debt. How many of these individuals will be able to avail of the provisions contained in this Bill? While this legislation has potential some important changes will need to be made to it. While Sinn Féin supports the Bill we will be submitting a number of important amendments to it, which will, it is hoped, be accepted by Government, leading to better legislation.
Legislation is overdue to address the huge rate of mortgage indebtedness and the great distress it is causing to people throughout Ireland. This Bill, which has been long promised and awaited, received much favourable comment in the media on publication, which gave renewed hope to people in serious distress with mortgages. My fear now is that false hopes have been created because while this Bill is a measure of progress, it does not go far enough to address the social and economic crisis that is mortgage indebtedness in this country today. Most disturbing is the continuance of a creditors' veto, which should be removed on Committee Stage. I call on the Minister to so do.
The stark reality is that some families are going without adequate food in order to service mortgages and keep a roof over their heads. They are in the iron grip of money lenders. Our people should not have to live with these strains. The "What's Left" survey published on 9 July by the Irish League of Credit Unions shows that 1,820,000 people are left with €100 or less each month after bills are paid. I have no doubt that mortgage debt is a dominant factor in this situation. From my work as a Dáil member in my constituency and as my party's spokesperson on health, I am conscious of the serious impact of mortgage debt and consequent poverty on people's health, in particular, their mental health.
CSO figures published this week show that the number of recorded suicides in this State rose to 525 in 2011, an increase of 7% on the previous year. The record shows that 439 men and 86 women took their own lives in 2011. I have no doubt that the recession and burden of debt on individuals was a significant factor in this increase, a further increase on the increase recorded the previous year. These are only the recorded figures. The number of unrecorded suicides is much higher. People are struggling desperately to pay off mortgage debts incurred because of outrageous house prices, which were inflated by rapacious developers, property speculators, banks and irresponsible so-called regulators. This was the Fianna Fáil property bubble, the legacy of which is poverty. The property boom induced a kind of madness. People who could barely manage one inflated mortgage were actively encouraged by banks to take out a second or further mortgages on investment properties. The delusion was created that by not doing so they were losing out. Unfortunately, many people fell for this delusion and are paying the price today. However, the vast majority of people did not participate in the property craze. They were simply trying to buy a home to live in, in respect of which they were forced to pay grossly inflated prices because of the greed and neglect of others. Now tens of thousands of them face penury, possible bankruptcy and the loss of their homes. Thousands have already suffered this fate. To the extent that this Bill may remove or postpone that threat for some, it is welcome. Our concern is, as I have already stated, that it does not go far enough.
At the end of March there were over 116,000 mortgage holders in serious distress. Almost 100 mortgage holders fell into distress each day during the first three months of 2012. Also in the first three months of 2012, there was a 28% increase over the last quarter of 2011 in the number of repossessions. Some 170 families lost their homes in January, February and March this year. That may seem a relatively low number but the increase is ominous and, of course, this is only the tip of the iceberg of distress. Beneath the surface is a mountain of misery for people struggling day in and day out to meet crippling repayments.
The range of concerns that Sinn Féin has about this Bill have been outlined already and will be addressed on Committee and Report Stages. I urge the Minister to take on board our concerns and those of others who want an improved Bill with a real impact. I hope that is what we all want. FLAC has pointed out that the legislation as it stands still does not impose a legally binding obligation on lenders to accept reasonable applications from customers in arrears. Also the Bill does not provide a right for debtors to appeal a creditor's decision. These are serious faults in the Bill, which must be rectified. I thank FLAC for taking the time to engage with Deputies and Senators on this legislation.
We recognise that the Bill provides some additional protection for the family home. A personal insolvency practitioner proposing either a debt settlement arrangement or a personal insolvency arrangement must try to ensure that a debtor can maintain the family home, unless the mortgage is unsustainable or unsuitable. To what extent will this protect people from losing their homes? To how many people will the provisions of this Bill apply and how will they work in practice? What guidance will people have through the new mechanisms established by the Bill? These are all important questions. Mortgage holders and their elected representatives will need clear and adequate information on the workings of the legislation.
As I stated, this Bill has created a hope and an expectation among many people. Many will look to us their elected representatives for guidance. I urge the Minister, his colleagues and relevant agencies to ensure that the process is transparent and accessible and that it is responsive to the needs of citizens. The only we can ensure this is to guarantee that the Bill will as it proceeds through its remaining Stages become the Bill we would all wish it to be. The first issue to be addressed is the removal of the veto on the part of the lending institutions.
I welcome the opportunity to contribute to the debate on this legislation. I congratulate the Minister and his staff on their work on this Bill, which is clearly a detailed piece of legislation. I appreciate the time and effort that went into producing it.
I wish to talk about the unsustainable debt burden in our society at present and the impact it is having on individuals, their families and society. I will also talk about some aspects of this Bill, particularly the non-judicial elements and the impact they will have. The Bill is long overdue. The current legislation relating to bankruptcy and discharging people of their debts is woefully out of date and unsuitable for the challenges we face today. As we know the primary problem in Ireland relates to debt taken on at a time when people believed our economic prosperity would always guarantee their ability to pay their debts.
While listening to some of the previous speakers I was reminded that I am one of those people. I am 35 and most of my 20s were in the first decade of the 21st century. Along with the rest of my friends with whom I grew up, we were told we must be mad not to have a house. I believe one former Deputy said one would even be suicidal not to buy a house at that particular time. Most of us bought into that, which highlights that previous administrations and the current Administration have not done anything about offering an alternative to private accommodation. We really need to revisit the issue of social housing for people. Regardless of whether we like it, we bought into this bubble and I was one of those as were most of my friends. The reality is that those people do not go out at weekends, they are counting their pennies, they do not have fancy holidays, they shop in the places they will get the cheapest groceries and are barely making ends meet. They have enough to pay to go to work. I admire those who go out to work albeit just to pay to stay alive as opposed to live. That is what that bubble caused to people of my generation.
The crippling financial effects of unemployment and failed businesses have stranded many people in situations they never imagined they would face. Other problems relating to debt have arisen through changed family situations or illness. The majority of people who took on debt that is no longer sustainable were those with mortgages on a family home and whose situations have drastically changed. These people now need guidance and help to deal with their financial situations.
The scale of the problem is immense. My figures differ somewhat from those outlined by Deputy Ó Caoláin. I am not sure whose are right but I believe mine are quite accurate. At the end of March, 77,630 mortgages representing 10.2% of all mortgages were in arrears of more than 90 days. That means that approximately 90% of people are paying their mortgages on time. However, I imagine that a significant number of those people are struggling to pay it on time. The number of accounts that were in arrears of more than 180 days was 59,437 at end of March 2012, equivalent to 7.8% of the total stock. Some of these people will be able to work through their debts, but many will not. Debt in Irish society has always had a certain shame attached to it but these people now need guidance and help to deal with their financial situations - they do not need judgment. That means responsible legislation that gives people a workable solution to their affairs.
The Bill and the non-judicial debt resolution measures it will introduce are very welcome in bringing forward these workable solutions. Through options such as a debt relief notice, debt settlement agreements and personal insolvency agreements, these people will now have options for their individual situations. The independent insolvency service to be set up will provide guidance and oversee the non-judicial personal insolvency system. While welcoming these new debt resolution means and in particular the non-judicial ones, it is important not to represent these as easy options for people to avail of. None of these processes should be viewed as anything other than a last option. There are no guaranteed outcomes and creditors will still have a large say in the process. Much will be learned from how these processes are implemented in practice. For instance, it will be interesting to see what is decided as a "reasonable standard of living" in allocating a debtor's income.
It is important that people with unsustainable debts will have options and guidance and the role of the insolvency service will be telling here. I hope the service is adequately staffed and funded to meet this challenge given the scale of the problem. On the issue of resources, MABS, for example, received more than 7,657 helpline calls in the first quarter of 2012. These calls ranged from personal debt and mortgages to difficulties with bills. Not all these people required follow-up help but they indicate the scale of difficulty with financial matters that exists. People come to Deputies every week to talk about their financial situation. They are not looking to easily offload their issues. It takes considerable courage to come and talk to somebody about personal issues. They are explaining that they are in a situation about which they are embarrassed to talk but are making the effort to do so. People who are genuinely in very difficult situations should not be ashamed and I hope they will use the services that the legislation will introduce. Many people have postponed seeking solutions for their debts in anticipation of this legislation so I ask the Minister to pay particular attention to this issue. I believe that more people will use these services than the number of people who have already contacted MABS.
Some commentators have said that this legislation will encourage more entrepreneurial behaviour as it means people will not be tied to their debts for life if a business is unsuccessful. While I accept this point, where business debts are not paid small creditors and businesses also lose out. We must remember that debt relief is not always victimless.
With debt settlement agreements it is important that certain types of debt are excluded in principle without the consent of the creditor. I am thinking in particular of taxes, levies and management company fees. I have found through advising and assisting management companies in my own constituency that where people have difficulty paying their fees, their management companies by and large are usually accommodating in arranging payment plans. As all residents depend on the shared payment of services and necessities, such as insurance and waste, it is important that these fees are not included. These are important points in the context of the debate we are having.
The focus of the solutions as they work themselves out should be to keep people in their homes wherever possible. This has been the focus of some of the Keane report measures already implemented such as the mortgage to let scheme and the same principle should be followed here. If families lose their homes as a result of an insolvency process, the knock-on effects on their lives in terms of disruption to children in school and other factors could be enormous. As I mentioned earlier, we simply do not have the social housing stock to accommodate people displaced from their homes. Keeping people in their homes must be the focus of the solution to unsustainable debt where possible.
I welcome this legislation. I welcome any Bill that seeks to remove the burden of unsustainable debt from people's shoulders. I also welcome that the Oireachtas will have oversight of the insolvency service. We will learn much about the finer points of the Bill as it passes through the House and as it is tested in practice but I welcome it and I thank the Minister for introducing it. While many Deputies have already spoken on this debate and more will do so, some are saying that the Bill does not go far enough. Unfortunately, no Bill will go far enough to deal with the reality of everybody's situation. However, our hope is that it will go far enough to deal with those who are most burdened in order to allow them to live again.
I endorse what Deputy Lyons has said and I wish to add some remarks of my own. I welcome the opportunity to speak on this very important legislation. I commend the Minister on his efforts in bringing this Bill before the House and in taking action on the debt crisis which many people in Ireland are currently facing. I welcome the measures proposed in the Bill but I would make a few brief observations with regard to improvements that could be made to it. I hope the Minister will engage constructively with me and all the Deputies who comment on the Bill to ensure that it is as effective as it can be in tackling this crisis. I am confident that when we look back on this most difficult period for our country this legislation will stand out as one of the key measures taken by this Government to improve the lot of our people and to help get the country out of the mess that this Government inherited.
Like every other Deputy, I have been inundated with queries from constituents in despair over personal and mortgage debt and despondent because they see no way out. This is a live issue across Ireland. Years of reckless lending by banks, a property bubble fuelled by speculation, poor regulation and corruption created a situation where over-indebtedness became a norm. The subsequent property crash, and the economic crash that went with it, has had enormous consequences. It has left growing number of families trapped by negative equity in unsuitable accommodation. People who were encouraged to get on the property ladder before it was too late now find themselves unemployed and unable to meet their mortgage payments. Many business owners who invested personally in their companies when times were good have seen demand for their products and services fall off, and have found themselves weighed down by debt. Difficulty in meeting personal obligations has left people paying large bills with credit cards, or worse still going to moneylenders who prey on such people.
The situations I have outlined reflect the anecdotal evidence which every member of this House will have experienced and this anecdotal evidence is backed up by the numbers. The total level of household debt in Ireland is €190 billion with 70% of the debt being accounted for by mortgages. Some 19,000 mortgage holders are currently in receipt of mortgage income supplement from the Department of Social Protection. More than 10% of all residential mortgages - that is more than 70,000 - are now in arrears of 90 days. A further 80,000 homeowners have had their mortgages reconstructed by their lenders because of the difficulties they face.
Before the last general election, the Labour Party recognised the need for intensive action on mortgage debt. It stated that "We are committed to undoing the damage caused by Fianna Fáil's recklessness, beginning with helping homeowners in distress to weather this recession ... Labour believes that the best way to deal with distressed mortgages is to make keeping people in their homes an absolute priority." In developing a programme for Government, Labour's commitment in this area was reinforced. The programme for Government states: "This Government is committed to helping homeowners in distress to weather the recession ... A more radical approach is needed to protect families in fear of losing their home." The legislation before the House today reflects a major step in delivering on these commitments.
I take this opportunity to commend a related action, which has been taken by my ministerial colleague, Deputy Jan O'Sullivan, in her capacity as the Minister of State with responsibility for housing. The proposed mortgage to rent scheme will offer a ray of light for thousands of low income families who find themselves burdened with completely unsustainable mortgages. More important, this scheme will ensure that the family remains in the home. I welcome the work of the Minister of State, Deputy O'Sullivan, in developing this scheme, and in working with the social housing agency, Cluid, to bring this about. She has set ambitious targets but I am confident they will be reached. The Government has budgeted for this scheme to be taken up by 100 families this year and it is estimated that as many as 3,500 families in total could avail of it. I admire the foresight of the Government in allocating the necessary resources for this initiative. This sort of scheme has long been a commitment of the Labour Party and I am delighted that the Minister of State, Deputy O'Sullivan, has been able to deliver on it.
Turning to the items contained in the legislation, it envisages three new non-judicial debt settlement arrangements, namely, debt relief notices for people with low income and assets to write off unsecured debt of up to 20,000; debt settlement arrangements for unsecured debts of €20,000 to €3 million; and personal insolvency arrangements,the key mechanism for people with distressed mortgages, which will allow for agreement to be reached between debtors and both secured and unsecured creditors. In addition to these three formal avenues, I am confident that these measures will encourage creditors to begin engaging fully with struggling customers to reach voluntary agreements. In many instances the banks have been holding off on acting until they see what comes of this legislation. Now that they know what lies ahead, I hope that they will begin to engage constructively with families in distress.
Many critics of this legislation point to the effective veto which banks may have over personal insolvency arrangements and debt settlement arrangements. This is highlighted as a major flaw in the legislation and evidence of the Government putting the banks before the people. This is simplistic reasoning and it misses a major point. While there is no denying that creditors can veto the reaching of a personal insolvency agreement, the new measures taken by the Government will also give the debtor a veto. This comes in the form of the change to the bankruptcy law. We have seen in recent times bankruptcy tourists travelling to the UK to be declared bankrupt there because bankruptcy in Ireland has been so harsh. By reducing the term of bankruptcy from 12 years to three in Ireland, this greatly strengthens the hand of debtors in their dealings with the bank. If a creditor refuses to engage fully and fairly where debts become unsustainable, or refuses to agree a reasonable personal insolvency agreement, then the option now exists for the debtor to file for bankruptcy and, if successful, they can now be relieved of their unsustainable debt within three years. One issue that has been brought to my attention in this regard, however, is the fact the legislation envisages an income attachment order period of five years, which will commence on completion of the bankruptcy period, effectively extending the term of bankruptcy to eight years. I am genuinely concerned that this measure will take away the incentive for individuals to make a second go of it, to try to seek better employment, etc. The programme for Government commits to bringing Ireland "in line with best international standards" in bankruptcy and insolvency legislation, but I do not believe the proposed extended income payments order period squares with this, especially when compared to the UK and other European countries.
Similarly, I am somewhat concerned about the change which has come about in regard to debt relief notices for small, unsecured debts of under €20,000. When the Minister introduced the heads of this Bill earlier this year, debt relief notices were set to expire after a period of one year, allowing the individual to expunge their debt and get on with their lives, but now the draft legislation has extended that period to three years. I would like to hear from the Minister what brought this change about because I suspect it may very well be a result of the input of the banks. With regard to debt relief notices, I would like to address the recent comments made by the Minister, Deputy Shatter, around the paltry allowance which will be made for personal effects, and his statement that individuals would have to sell items such as engagement rings to avail of this measure. When I first heard of this I was appalled. The idea that an individual would have to sell such an important personal item as a wedding or engagement ring to begin making their way out of a debt crisis is completely unacceptable. For a person, already dealing with the personal and emotional anguish and mental health issues that go hand in hand with severe over-indebtedness, to be asked to sell such items of sentimental and symbolic value would finally strip that person of all dignity. I urge the Minister to reconsider and find some way to make an exception.
I would like to refer to the role envisaged for the Money Advice and Budgeting Service, MABS, in these proposed arrangements. I welcome the Minister's confirmation that MABS will have a legally defined role to play in the debt relief notice aspect of the legislation, with an agreement that it will act as an approved intermediary in this regard.
However, the Minister has been less forthcoming with regard to the role MABS can play in debt settlement and personal insolvency arrangements. MABS is anxious that its money advisers would be able to take on the role of personal insolvency practitioner to act as a mediator between the debtor and creditors in these arrangements. By all accounts the Minister is not supportive of this suggestion. The legislation does go into detail as to the qualifications required to be a personal insolvency practitioner but I hope that he will recognise the advantages of using MABS in this area.
Over the years, MABS has built up a great stock-in-trade in reaching agreements between debtors and creditors. The agency has solid relationships with all types of creditors and has earned a reputation for credibility and trustworthiness. If MABS is to be excluded from participating in these important aspects of this legislation, much of this accrued knowledge and experience will go to waste. I would not like to see the Minister legislate for the abandonment of all theexcellent work done by MABS over the years.
I should begin by asking the Minister of State, Deputy Perry, to convey to the Minister, Deputy Shatter, and his officials our appreciation for the substantial work in compiling what is inordinately important legislation. Those of us on this side of the House have a responsibility to identify and highlight the inadequacies or the shortcomings of the legislation but none the less we recognise the importance of it and we will do everything in our power to ensure its speedy passage through the House. Likewise, I hope that the Minister will be willing to engage constructively with all the Opposition parties when dealing with the many amendments on Committee Stage.
I compliment Deputy Conaghan on becoming the champion of the engaged and married ladies of Ireland who will be happy to know, having listened to his contribution, that they will not have to rush to the pawn shops with their jewellery in order to help deal with their mortgage situation.
Like all Members, I see at first hand the effects that financial pressure brings to bear on individuals, couples and families in our everyday engagement with them in our constituencies. I live in Kildare, in the heart of the commuter belt where the population of every town and village has mushroomed. Much of that population has come from the Dublin suburbs as young people moved out to avail of cheaper house prices or indeed many older people moved in order to trade up to larger properties or when departing local authority properties and with some substantial investment capital. Many fine housing developments were established and I am happy to report that the ghost estates are not as great a problem in County Kildare as in many other areas.
However, the county has many trophy homes and one could meet people who talked about the number of holidays they could enjoy each year and the number of second homes they had acquired. At that time, 10,000 people in County Kildare were employed in the construction sector but all this has changed. A visit to some of these homes now will see a very different life with food cupboards and fridges very often empty. Mothers and carers very often have to turn to grandparents to borrow from their pensions in order to provide for their children. This Bill is, therefore, very important as it has the capacity to have an impact on the daily lives of people. As I go about my work I do not encounter a palpable sense of expectation that this legislation will do all this, but all of us who understand the importance of the Bill realise it must have the effect of improving the prospects for people who are burdened with debt.
The programme for Government states that the Government intends to fast-track personal bankruptcy reform. There has been a protracted delay in the publication of the legislation, with deadlines moving from April back to June while a Fianna Fáil Private Members' Bill encompassing mortgage debt and based on the LRC's recommendations was ready to go. If this were an era of real political reform, it should have been possible to take that Bill on board and to move it forward.
This Bill aims to amend Ireland's antiquated bankruptcy laws and to considerably shorten the period of bankruptcy and restrictions from the minimum of 12 years to three years. This is welcome. It means Ireland will be in line with our European partners and with developed economies in general. Some of the main proposals in the Bill include a broadly non-judicial insolvency service that will operate separately from the courts. However, there remains a role for the courts, albeit small, but there is a question about the issue of costs and additional waiting times as courts struggle to get through the backlog of cases that will inevitably arise. A simple mechanism, a one-year debt relief certificate, will be put in place for small personal unsecured borrowings of €20,000 and an arrangement lasting for five or six years would cover unsecured borrowings of over €20,000. This is to be welcomed. Mortgage debt will be included in the non-judicial debt agency under a personal insolvency arrangement. However, the process will see people remain within its confines for even longer - a period of six years - than would be the case under a full personal bankruptcy
I refer to the role of personal insolvency practitioners. The Bill does not provide for how these people shall be appointed or what qualifications they must hold. Practitioners will play a central role in the process of reaching and monitoring agreements with the banks. It is paramount that steps must be taken to ensure that those who first negotiated and granted the mortgages to those people who are now in difficulties are not given these new roles. This is a very real prospect because I understand the Department is already swamped with applications for positions in the new agency. Indeed, FLAC and Noeleen Blackwell have also alluded to this issue and to the need for a proper appeal system. I pay tribute to FLAC as being a very articulate and brave advocate on behalf of the many people across the country who are afflicted by personal and mortgage debt. Strong regulation of this central role in the overall process is needed to ensure that people can have full faith in the process and that only fully qualified and skilled individuals are eligible for appointment to the role. The Insolvency Service of Ireland will need to be adequately staffed for the volume of work it will need to undertake.
We are seeing the effects of the volume of work with which MABS must contend. We are all aware in our constituencies of the vital work of MABS. We are conscious of the dedication, commitment and skills of the people who work in that agency. We are also conscious that public engagement with the Department of Social Protection is hampered by the increasing length of waiting times. The State is proving very ineffective in responding to what is very often an urgent need on the part of the public. The Minister of State, Deputy Lynch, will be aware of the difficulties with regard to the issue of medical cards where delays are experienced and the very great delays in the area of the issuing of carer's allowance and carer's benefit. People who are burdened down with debt will expect that this new agency will be in a position to address their problems in a fair, realistic and expeditious timeframe.
The provisions regarding the bank veto and the lack of an independent arbitrator is a grave concern. The Bill provides that 65% of creditors will be required to agree to the personal insolvency arrangement empowering banks to block agreements if they see fit. Incredibly, there is no scope for appeal, which gives the banks a stronger position in the bargaining process. It amazes me that within these proposals there is an absence of any independent authority to provide a sensible and fair solution where a person finds themselves in serious debt and is unable to come to an agreement with his or her creditors. This situation is going to occur frequently, where banks will expect those in serious debt to make major changes in their standard of living that may prove unacceptable and unfeasible to these people.
Deputy Conaghan spoke, quite correctly, about women being forced to sell their engagement rings. We have all heard of engagements with banks where the weekly shopping basket has been the topic of discussion. The essentials of life which a parent must provide should not be the subject of negotiation with banks. I doubt that many people facing financial crises of the type being discussed here are eating caviare for dinner or going to any other great excesses. There are no apparent terms and conditions that can be applied or no definition of what is to be reasonably expected of those in debt and no remit for appeal or further dialogue if talks break down.
The issue of the bank's veto is also significant when measured against the performance of the pillar banks in respect of the €3 billion provided to each of them to support the small and medium enterprise, SME, sector. If this insolvency legislation is to work, the banks will have to demonstrate a great deal more good faith, willingness and proactivity than they have done in the case of lending to the business sector and given what the public has experienced and witnessed in the banking sector in recent years, people have very little reason to be optimistic that this will happen. There is a need for the Government to play hardball. There is a view across the country that while this legislation was being worked on, with the best of intentions, the banking lobby was very effective and achieved this level of veto or excessive influence over the potential outcomes.
Fianna Fáil's policy is significantly different. We have brought forward two new Bills, the family home Bill and the regulation of debt management advisers Bill, and a series of additional initiatives to overhaul personal insolvency law and make it extraordinarily difficult for lenders to remove people from their homes. Our Bill empowers a Money Advice & Budgeting Service, MABS, style agency to move in and arbitrate on such issues. I agree with colleagues on the Government side who say the very last thing that should happen is that families should be removed from a house which, more likely than not, will not be capable of being sold on the open market. Such people will be forced into a situation where, unless they have fully surrendered their title to the house, they will be unable to go on a local authority waiting list and, therefore, not be in a position to avail of the rent supplement.
People are faced with inordinate difficulties. In fact, people who come forward to surrender the keys of their houses are experiencing difficulty because in many instances they are told by their local authorities that they are not eligible to go on a housing waiting list. How much better it would be if such people could arrive at some level of agreement with the lending agency, whereby a rent of some description would be paid to that agency. In fairness, however, and having been critical of the banks, I acknowledge that Allied Irish Banks has been quite positive and constructive in its engagement with some of the voluntary housing agencies, where real efforts are being made to arrange circumstances in which people can remain in their homes.
The proposals Fianna Fáil has brought forward offer an independent arbitration role, thus reducing the influence and power of banks in the overall process. This would ensure that those struggling at present will not have to suffer any further due to unrealistic pressures placed on them by the banks. In that context, I hope the Government, in the course of its engagement with the banks, will talk to them about the training given to banking personnel who are dealing in a direct, person-to-person capacity with people who are over-burdened with debt. Such people are living through a period of inordinate stress and pressure in their lives. Other Members in their contributions on this issue have mentioned the incidence of suicide. Too frequently we meet people who are suffering severe mental distress due to the pressure of indebtedness. It behoves the banks and the lending agencies, who were so flaithulach in the distribution of the money in the first instance, to ensure the people who engage with hard pressed members of the public have the type of training that will equip them to deal with particularly sensitive circumstances.
Fianna Fáil published a Bill in October 2011 to establish a debt settlement and mortgage resolution office to provide an independent, non-judicial debt settlement system for persons struggling with personal debt and those in difficulties with their mortgage. This Bill was specifically based upon the recommendations of the Law Reform Commission's report from December 2010. I believe this approach would provide a more clear and transparent system of dealing with the issue of debt and allow all parties involved to have confidence in the process without becoming disillusioned.
Personal debt is a major problem for the economy. As a recent IMF study found, household debt restructuring programmes help economic growth by removing the unsustainable burden from the shoulders of consumers. This proposed solution does not achieve that ambitious aim. Directly dealing with the crucial problem of mortgage debt with a mechanism for an independent arbitrator is an essential part of our policy and forms the core of the Bill we brought forward. That is not apparent in this legislation and that is regrettable. A functioning market economy needs an effective legal route to clear insolvency issues and allow people to move on from unsustainable debts.
In summary, while this Bill is welcome, it is somewhat under-ambitious and gives too much power to the banks. However, I appreciate having the opportunity to address this issue. I wish the Government well in the early implementation of the legislation and I hope our misgivings about it prove unfounded and that it does work to alleviate the unbearable pressures under which many people are labouring.
The Personal Insolvency Bill can be the central plank in a suite of legislation aimed at addressing the problems of thousands of our people mired in the unsustainable debt which is the legacy of the Celtic tiger years. This is not a knee jerk reaction to a current problem, but an attempt to address our insolvency legislation which is acknowledged to be outdated, penal and retrograde.
This Bill is long overdue and honours commitments agreed in the EU-IMF deal. It also addresses concerns raised in a number of recent reports regarding the draconian nature of our insolvency laws compared to those of our European and international counterparts. The Bill seeks to overhaul the laws of bankruptcy and personal insolvency by introducing a system of non-judicial debt settlement and establishing the insolvency service, while updating the approach to judicial bankruptcy proceedings. In bringing this legislation into force, we must be mindful of the thousands of decent people who will rely on it to free themselves from the unsustainable debt burdens they bear in the wake of changing financial circumstances and often through no fault of their own, brought about by the deteriorating economic environment in the economy over the past number of years.
There are countless members of society whose only crime is to have wanted to provide a safe and secure home for their families and who, responding to the unrelenting reports of increasing property prices, sought to get a foot on the property ladder before it rose above their reach. We all know about the term "property ladder". Unfortunately, not many were aware of the snakes lurking in the undergrowth, seeking their opportunity to return those recently ascended to a position far below whence they came.
Thousands of business people progressively embarked on business enterprises that were well researched and thought out but they could not possibly have factored in the calamitous collapse in their business fortunes brought about by the worst recessionto rage across this country since the Wall Street crash of 1929. We are now part of the global economy and our legislation must keep pace with progressive legislation relating to financial matters in the greater economic environment in which we operate. We must look to Europe, including the United Kingdom, and America and reflect the means by which they deal with insolvency. These are our trading partners and it is to them we must turn when seeking inward investment. We must have a business model in Ireland agreeable to and reflective of the trading partners we hope to attract and on whom we rely in the day-to-day functioning of commerce.
In the USA, a culture has developed of getting progressive business people back into the game fast. Sensibly, this has spread across the Atlantic and is now reaching our shores. To an extent, it is encountering the thankfully declining Irish culture of penalising or keeping progressive people out of the game, which is the nub of the problem. Do we legislate in such a way as to ensure the re-entry into commerce of those who tried and failed or those who bought and, through changing circumstances, could not pay, or do we legislate in such a way as to relegate them to the margins to look on from afar? When deciding, one should take into account the fact that these individuals were the bright young things who were participating and forging ahead. These were the ones who did not rely on public authorities to house them or their families. They were in the front charge when expanding the economy and driving it forward to reach a level that may have proved unsustainable but in an environment in which even the trained eye of the economist and banker failed to foresee this unsustainability.
It is a fact that those who failed in business enjoy an incredibly enhanced rate of business success on re-entering the world of commerce by comparison with those who never experienced such failure. They have learned valuable lessons and have experienced the taste of failure. They have been introduced to the world of closed bank doors and disappearing friends, and they have become aware of the dangers of exposure on a number of fronts. The membership of this club boasts such international household names as Abraham Lincoln, Henry Ford, founder of Ford Motor Company, William Durant, founder of General Motors, and our own Oscar Wilde. How poor would the world be if such luminaries and thousands of other lesser known progressive individuals were consigned to the margins? It is imperative, especially in light of the unprecedented decline in economic circumstances that prevailed when these individuals were endeavouring to establish businesses or homes, that we legislate to ensure the talents and progressive abilities of these people will not be lost to the economy, that they will not be forced out, that their potential contribution will be recognised and embraced and that we will move forward together to build a better future for the generations to come. We have a small country with limited personnel and we cannot afford to expel some of our brightest and most progressive from commerce, which is occurring on foot of our current bankruptcy laws.
This brings us to the next dilemma facing us in addressing the problem. There are those who can pay, those who cannot pay and those who will not pay. We have a moral responsibility to differentiate and put in place a means of differentiating between those who cannot pay and those who simply will not pay. If we get this wrong, our legislation will lack the moral authority essential to success. It will have devastating consequences for the banking sector and business in general if those who will not pay are released from their responsibilities and, as a consequence, undermine the efforts of the many people who honour their lawful debts against a background of dissipating incomes and, in many cases, job losses. We would be rewarding the unjust and encouraging others to follow suit.
In legislating for this matter, we must be acutely aware that the eyes of those on whose behalf we legislate are upon us. I do not use these words lightly. We have had the banking collapse. This, in the eyes of those whom we represent, was avoidable. The irresponsible lending engaged in by the banks was driven purely by greed. The recklessness and negligence displayed by the banking sector in this country crossed the threshold of legality and caused the collapse of our economy.
The senior members of the previous Government were ambushed in the middle of the night and, erroneously and with grave consequences for this economy and its dependants, signed a blanket bank guarantee to secure the future operation and survival of these greedy and negligent institutions. The people underwrote the financial institutions' debt and became responsible for it, as if they had borrowed the money themselves. The institutions, which would be bankrupt save for the intervention of the citizens of this State, are now lobbying to extract a veto over the non-judicial debt settlement element of this Bill. This veto has the potential to derail negotiations and instigate draconian measures on behalf of the banking sector. Of course, the response is that the individual retains the option of seeking the protection of judicial bankruptcy proceedings. However, is the whole exercise not aimed at averting these consequences? The banks themselves were not so enamoured with the prospect of such proceedings when they shuffled into Government Buildings and huddled together like the moneylenders in the temple in the middle of the night.
The banks have abdicated their moral authority to advise or even engage in these negotiations by virtue of their obvious inadequacies. It is now the responsibility of the Government, on whose shoulders fell the responsibility of extracting the economy from the mess it found it in, an exercise it undertook with care and diligence and which I am pleased to advise the House is beginning to have a positive result, to address the problems facing its citizens in a non-partisan and fair manner and to ensure the latter are protected from exposure to proceedings and forums that may present a real and lasting danger to their economic survival. These are extraordinary times and they require extraordinary solutions, but let us leave nobody behind in our endeavours. Let us take all along with us in an orderly and humanitarian fashion. Let not the bullies isolate and divide. Let the process we adopt be open and fair for all to see, and let it be a lasting solution to the economic woes facing citizens.
The previous Government acted in a negligent fashion, ignoring the warnings and allowing the gulf between what was available to spend and what was actually spent to reach a level that was completely unsustainable in any circumstances. It enjoyed surpluses of billions of euro each year, yet, shortly after the commencement of the recession, the money had evaporated. The people still fail to understand this, and rightly so. There was unquestionably bad fiscal management at play, yet, when faced with economic collapse, the former Government was offered a lifeline in the form of the EU-IMF bailout. The banks and State got bailed out. However, if some of the financiers had their way, some people would be thrown out of their houses. Everything possible must be done to ensure this does not happen. We must legislate for the greater good to ensure the least possible damage is inflicted on the people as a result of these extremely difficult times. These times will pass. When they do, let us not look back with regret having left some to die in the wilderness. Let us be firm, but fair. That is what is required of us, and we must deliver thereon. The people must view this legislation for what it is, namely, their legislation and the solution to their problems, because the people affected include all our families. Each affected individual is somebody's son, daughter, brother, sister, cousin or friend.
This Bill is largely capable of delivering the required solution to the problems it seeks to address. In many ways, it has brought us from having the dinosaur of insolvency legislation to leading the way through the provision of a non-judicial, low-cost and efficient process designed to minimise the long-term detrimental effects incurred by those engaging in the insolvency programme. Unfortunately, the Bill lacks the independent decision-making element in regard to the debt settlement agency programme. This is reflected in the potential consequence of a creditors' meeting at which one major creditor, in most cases a bank, could vote down the others, thereby frustrating the system and rendering it void. I would prefer to see this element being adjudicated upon by an appropriate independent, non-judicial authority with a view to strengthening the debt settlement agency section of the Bill and reducing the arm-wrestling capacity of the banks that have ungraciously accepted their re-financing packages, which appear to be safely deposited in some safe haven far away from the SMEs in this jurisdiction.
What do the luminaries Abraham Lincoln, Henry Ford, Walt Disney, Milton Hershey and H. J. Heinz all have in common? They all went bankrupt and failed. Winston Churchill stated: "Success is not final; failure is not fatal: it is the courage to continue that counts." Our current bankruptcy legislation frustrates courage. It makes mice out of lions, it makes bottle-washers out of hoteliers, and it makes paupers out of sole traders.
The Irish novelist Samuel Beckett stated: "Ever tried. Ever failed. No matter. Try again. Fail again. Fail better." While this might have been chanted first by an Irishman, it is the mantra of American entrepreneurs, not Ireland. As legislators, we should have listened to Beckett a long time ago. Our entrepreneurs deserve our support, not our condemnation, but a balance must be struck. If we had listened, perhaps our archaic bankruptcy legislation would have been more in line with that of the rest of the world. Perhaps we would have less forum shopping in this area.
In the years to come we will tell our children the tale of the "Flight of the Bankrupts". An entire industry has been established to assist our bankrupts in declaring elsewhere. They are referred to as bankruptcy tourists. It has been claimed that as many as 4,000 Irish residents per year file for bankruptcy in the UK, where an average of 1,392 people are declared bankrupt per week. This can be compared with just 30 declared bankruptcies in Ireland in 2010. This situation is hardly surprising, given how negatively our bankruptcy laws compare with the UK's. If one was offered a prison sentence of 12 months or 12 years, which would one take? It is a no-brainer. In the coming years, it is important that we watch to ensure that this legislation abates bankruptcy tourism. If it does not, we will need to readdress the matter.
As a politician, I believe that it is right and fair to allow bankrupts to start over after a reasonable time. The timeframe should be adjusted for scale. Someone who is €500,000 in the red should be given preferential treatment over a person who is €5 million in debt. A sliding scale would be more ethical. Our criminal justice system does not treat a drug user and drug pusher in the same way. Similarly, we should not treat all bankrupts the same. Some bankrupts might not like the comparison to drug users, but both leave victims in their wake. Creditors can be plunged into bankruptcy by a bankrupt debtor. Keeping Irish bankrupts at home gives creditors a greater opportunity to get more of their money refunded.
It was once highlighted that capitalism without bankruptcy was like Christianity without hell. Therefore, we need to wake up and start tackling the issue. Like capitalism, it is here to stay. We need to put a stronger system in place not just to support bankrupts, but also to support the fatalities they leave behind. Personal debt is a problem for many people. I will not roll out the numbers, as that was done earlier. Often, the plight of the people in question is lost in the statistics.
I have been contacted by many people in dire straits. As a Deputy, telling constituents that legislation to assist is coming has been frustrating. One constituent replied, "So is Christmas". People are frustrated and it is imperative that the Bill not frustrate and alienate them further. We must avoid judgments that ignite Irish begrudgery instincts or situations in which neighbours are torn apart, for example, if one neighbour receives a personal insolvency agreement and the other does not.
I welcome the opportunity to discuss this legislation. As an elected Deputy for the past 18 months, I have dealt with personal queries from distressed constituents throughout counties Louth and east Meath. From Laytown to Greenore, Clogherhead and Tallanstown, the message has been the same - people need to be able to see the light at the end of the tunnel.
As a businessman, I have seen the devastation that bankruptcy can cause for people and their families. I have witnessed business men and women suffering greatly, but not just in the urban areas of Dundalk and Drogheda. Small villages and towns like Dunleer, Collon, Ardee and Carlingford have all been host to greatly distressed business families. As a friend, I have attended some gruesome funerals, deaths that could have been avoided. I have consoled grieving families, widows and widowers. I do not wish to experience this anymore.
To fail in business is not a crime or a source of embarrassment, nor should it be a slur on one's character. As in life, what is unforgivable is not trying again. In my constituency, I have seen fabulous examples of people overcoming great adversity to come back stronger in their business, personal and sporting lives. Whether in life, business or sport, I never advocate lying down, but always encourage people to try again. Let me borrow a quote from the great Canadian ice hockey player Wayne Gretsky. He stated: "You miss 100% of the shots you don't take." Quite right. By not trying, you fail. If this country is to restore itself to greatness and economic prosperity, we need people who are prepared to try, are not afraid to fail and will not lie down. Great countries are made of people who will get back up and try again.
The current draconian legislation is preventing people from returning to business and trying again. They have an abundance of skills and knowledge that would be of great benefit to the business community, but they are excluded. They have displayed bravery in trying a new venture. We need more people like them. They should be applauded rather than ostracised. This Government is passionate about jobs and enterprise and this legislation is a strong step in the right direction. The Bill's implementation should ensure that people are encouraged to re-enter business and help to remove the irrational stigma associated with business failure. The Bill is a welcome addition and I commend the Minister, Deputy Shatter, on its detail.
The Bill will continue the reform of the Bankruptcy Act 1988, which began in the Civil Law (Miscellaneous Provisions) Act 2011. The critical new provision is the introduction of automatic discharge from bankruptcy, subject to certain conditions, after three years in place of the current 12 years. This provision is noteworthy and has captured much media attention, but another of the Bill's aspects is worth additional emphasis. The Bill makes it clear that those persons experiencing debt difficulties must primarily engage with their lenders to negotiate appropriate settlements. This is crucial, as the Bill does not simply provide an out for those in financial arrears.
As a result, the Bill does not lose sight of the objective, which is to introduce reformed, workable and balanced insolvency legislation. Such legislation is a requisite feature of any properly functioning economy. The Government is firmly committed to the introduction of same. The Bill will assist not only debtors and financial institutions, but also all forms of traditional commerce. All debtors and creditors are concerned by this reform, thus it is far reaching and all encompassing. The Government is committed to treating everyone fairly.
The underlying philosophy of the debt settlement arrangement and personal insolvency arrangement is that the insolvent debtor will, with the assistance of a personal insolvency practitioner, make what he or she considers to be a realistic offer to his creditors, one that will restore the debtor to solvency within a reasonable period while giving creditors a better financial outcome than the alternatives of debt enforcement and bankruptcy. This is a win-win for both sides.
I cannot emphasise how important this legislation is to the wider business community. It is a great addition to the Statute Book and I have no hesitation in commending it to the House.
I welcome the opportunity to contribute on the Bill. I commend the Minister and public servants on their tireless work, particularly given the Bill's level of detail, scope and breadth in dealing with the issue of insolvency. The Bill is a step in the right direction, although it is an insufficient response to the issue of mortgage debt in particular. I might elaborate on these points during my contribution.
I wish to note the context in which the Bill has been introduced, particularly the element of mortgage distress. At the end of last September, 8.1% of private residential mortgage accounts had been in arrears for 90 days or more.
That has since increased and this amounts, in practice, to 62,970 individual accounts. Of those households in arrears over 90 days, almost 40% have been in arrears for a year or more, and the average amount of arrears in the loans is €27,000, compared to an average outstanding balance of just over €200,000. That exemplifies the level of debt that people are experiencing, particularly in families enduring unemployment or a severe drop in income. On top of the arrears of 90 days or more, a significant number of borrowers have restructured loans or delinquent payments of less than 90 days, bringing the total affected to 20% of borrowers in the mortgage market. It is something that is making an impact right across our society.
Arrears tend to be highest with buy-to-let properties and among first-time buyers, as these purchasers took on larger debts owing to the high house prices between 2005 and 2008. It was mentioned in an earlier contribution by Deputy Mitchell O'Connor that our society and economic model is here to stay and the free market will reign forever. I certainly hope that in the years to come, the type of economic model we design and economy we build will be fundamentally different from what we have seen over the past ten years, when banks were able to give out 100% mortgages and there was light-touch regulation. The banking sector could hold the Government to ransom on the night the bank guarantee was approved, and we cannot afford to lose sight of that fact. We need very widespread and fundamental reform to ensure our financial institutions behave responsibly, and if they are not capable of that, the regulator must force them to do so and treat people in arrears and those with debts with dignity and respect.
The main impact of the Bill is the proposal to introduce a State-run insolvency service to operate the new non-judicial insolvency arrangements. It allows for three voluntary debt settlement systems and reduces the period of bankruptcy from 12 to three years, which I welcome. The first voluntary debt settlement proposed is where a debtor has unsecured debts for an amount under €20,000, where there can be a one-year moratorium period during which creditors cannot pursue action against the debtor in respect of the debts covered by the debt relief certificate. This commences on the date of the certificate's registration on the insolvency register and the debtor is restricted from applying for further credit. After the end of the year, if the debtor is still unable to pay off the debt, it is written off, which is a welcome provision.
The second voluntary debt settlement proposal deals with unsecured creditors owed more than €20,000. In this scenario, a debtor can apply for a debt settlement arrangement and creditors would be presented with a possible arrangement indicating how the debt is to be repaid over five years. A percentage of what is owed would be offered to be repaid to creditors, with 65% of creditors having to approve this proposed arrangement. If the arrangement is agreed, it would be registered on the insolvency register.
The third voluntary settlement proposal is a personal insolvency arrangement for secured and unsecured creditors for an amount of €20,000 up to a maximum of €3 million. The personal insolvency trustee would apply to the insolvency service for a protection certificate that would prohibit creditors from pursuing the debtor for 60 days. The trustee would contact the creditor and put forward proposals for how debts would be repaid. Unsecured creditors would be offered an agreed percentage of what they are owed to be repaid over six years. If part of a person's mortgage is in negative equity, this amount could be written off under a personal insolvency arrangement. For a personal insolvency arrangement to be effective, at least 55% of the unsecured creditors and 75% of secured creditors must agree to the arrangement. That gives significant power and scope to banks, which will continue to hold many of the cards in dealing with people in debt.
The Free Legal Advice Centre, FLAC, has welcomed the Bill but there are legitimate concerns about arrangements to allow people stay in the family home, which must be agreed to by creditors. It has been a subject of debate as to whether these proposals are optional and, in my view, they are as the banks do not have any legislative obligation to agree to them. However, it may well be in the commercial interests of banks to come to formal arrangements as this would recover some of the loan, although there is certainly no legal obligation. The reduction in the bankruptcy term from 12 years to three years, with possible extensions up to eight years, gives the banks further incentives to avail of these arrangements, which is positive.
A number of organisations, including FLAC, Threshold, Focus Ireland, New Beginning, the Society of St. Vincent de Paul, Northside Community Law Centre, the Ballymun Community Law Centre, Respond! and numerous academics in the housing area have called for the following principles to be addressed with mortgage arrears. These are over-indebtedness and inability to pay; the need for more detail and data on mortgage arrears; proposals for solutions to multiple debt liabilities in one account; personal insolvency legislation, with the establishment of a debt resolution agency; and debt write-off, with debtors paying to the best of their ability for a limited period before remaining debts are written off. We must consider that closely if we are to lift the weight of debt from our domestic economy. Other principles include access to representation, as debtors must be entitled to have an advocate represent their interests in negotiations to agree processes to contest debt repayments; and minimum incomes, as debtors must be entitled to a minimum income in order to meet basic needs while repaying debts. Many people in debt have families and responsibilities, and in any modern society the protection of a minimum income for daily life and secure access to essentials for a family must be considered.
Unsustainable mortgages that result in repossessions should lead to appropriate social housing arrangements. That has happened in some cases, which I welcome. For example, we have seen some voluntary housing agencies take on a property, with the incumbent in the home leasing it back. I strongly welcome that process, which should be developed and expanded to ensure nobody must leave a family home where it is not possible to meet mortgage repayments. This is particularly relevant in considering there is, essentially, a crisis in housing need in Ireland, with social housing waiting lists longer than they have ever been and almost 100,000 households on them. Nevertheless, we are failing to provide sufficient social housing options for people, and the provision of social housing by local authorities has ground to a standstill. If people who lose their home have to go on to a waiting list for an allocation, it would be completely irrational, so the idea should be rejected out of hand. The retention of people in the dwelling in which they live should be done with State supports, and people should be kept in their homes, where possible, either while continuing to pay a mortgage or as a tenant where appropriate.
There is a question as to whether this Bill addresses those principles. I believe it does in many respects but debt write-off and the retention of the dwelling are optional components. It would be preferable, from the stressed mortgage payer's perspective, if the independent debt resolution service could impose an agreement on creditors and debtors. That would have further negative consequences for the banks and it may be subject to constitutional change but it must be considered. Appropriate State supports for those who have homes repossessed are not addressed in the Bill but I hope they will be dealt with elsewhere.
The Bill is a welcome step forward in addressing the problem of mortgage arrears but it could go further.
Progressive Deputies should vote in favour of the Bill, but we should also encourage the Government to return to the issue and see how it can be amended and improved, particularly with regard to the independence of the debt resolution process and forcing the banks to engage with people.
The banking sector has criticised the Bill. Criticism that the Bill does not go far enough is valid, rather than the slow and tepid response from some elements in the banking sector in dealing with the issue of debt. It is too soon to tell for certain how successful the insolvency legislation will be in practice. However, it is reasonable to conclude it does not go far enough. The Bill lacks provision for an independent debt resolution service which could make repayment agreements with debt write-downs that are binding on creditors, and also lack provision of a guarantee that people who make every effort to pay back what they can will be protected from eviction or home repossession. These issues need to be addressed as the Bill goes through the Oireachtas.
There are a number of sections of the Bill I have mentioned which require elucidation. Section 61 provides for the full repayment of preferential debts to creditors under debt settlement arrangements unless creditors agree otherwise. This means these debt settlement arrangements may be of no use to thousands of families. Section 62 guarantees the rights of secured creditors, which prevents banks and lending institutions entering into debt settlement arrangements with distressed mortgage holders whose liabilities are far in excess of €20,000. There is no quick-fix solution to balancing the rights of secured creditors and distressed mortgage holders. While the Bill provides some positives for families struggling with debt, it favours the rights of creditors, banks and lending institutions and a better balance must be struck. I call on the Government to introduce provisions for an independent and binding mortgage debt arrears resolution process.
To identify the level of debt and tightened nature of personal and family budgets, on 9 July the Irish League of Credit Unions published a report on the incomes of families and the level of disposable income they have after five years of austerity. A total of 1.8 million households are left with €100 or less each month after bills are paid. Half of bank account holders are unaware of the bank charges they must pay. A total of 54% of current account holders have no idea how much they pay on overdraft charges. Of those with credit cards, 46% do not know the interest rate they are charged. There is a huge information gap between consumers and the financial sector.
On average, Irish consumers owe €1,000 on credit cards and 25% of credit card holders rely on their credit cards to make ends meet at the end of the month, which is a shocking statistic. A total of 40% have borrowed to pay household bills in the past 12 months and 10% use moneylenders. Like other Deputies, I have spoken to people in communities I represent who are to the pin of their collar with regard to their finances. They have no more money to pay and have been bled dry by the disastrous policies being pursued in terms of not taxing wealth or the rich. They cannot take any more and they have told me they have had to borrow from moneylenders at exorbitant interest rates, which is wholly unacceptable. We need to address this issue.
The crippling nature of personal debt is a weight on our economy which needs to be addressed. The Bill takes some steps in this regard which are small but welcome none the less. However, we will need to revisit the issue of mortgage debt because the Bill will not solve it in and of itself. Chronic mortgage arrears and debt exists and the Bill will not cater for those with liabilities of more than €20,000. I welcome the Bill but the Oireachtas will have to return to the issue.
I welcome the opportunity to speak on this long anticipated Bill. It provides for the reform of personal insolvency law and will introduce a number of new non-judicial debt resolution processes. It will provide a framework for people to start dealing with unsustainable debts in a structured manner and to start putting their lives back together. The legislation significantly reforms the insolvency regime and allows for more flexible ways of dealing with people with unsustainable debts and mortgages. As stated by the Minister, the legislation addresses the obligations of debtors and the rights of creditors in a proportionate and balanced way and it represents a radical overhaul and modernisation of Ireland's personal insolvency law.
With this legislation, the Government has put together a suite of solutions to personal insolvency and I commend the Minister and the Department on all the work involved in drafting it. The radical overhaul of Ireland's regime for personal debt insolvency is fundamental to the Government's strategy. As the Tánaiste stated recently, it is mammoth and ground-breaking legislation. The Government has put together effective solutions which people can understand and negotiate themselves, or have proper supports to guide them where appropriate.
The Bill has three main features. If bankruptcy is declared, the bankruptcy period is reduced from 12 years to three years; the possibility is created of having unsecured debt of up to €20,000 written off if one has a net disposable income of less than €60 per month and one's circumstances do not change over a period of five years; and a debt settlement arrangement is created for secured debt of up to €3 million. In addition, the Bill provides for the establishment of an insolvency service to operate the new arrangements. However, as the Minister stated, the Bill does not provide for an automatic writing off of negative equity, and where someone is in a position to service their mortgage they must continue to do so.
The issue of mortgage arrears has been one of the most pressing economic, social and human problems facing the country, with many at risk of losing their homes. According to Central Bank data, at present 773,420 private mortgage accounts are held in Ireland to a value of approximately €115 billion. A spokesperson from the Independent Mortgage Advisers Federation recently stated approximately 80,000 mortgage holders have fallen behind on at least three months of payments, not including a much greater number of people struggling to repay buy-to-let mortgages. According to some commentators, this could just be the tip of the iceberg. The Central Bank estimates the value of arrears has passed €1 billion for the first time, with the average size of the arrears just over €17,000 and the average loan amount outstanding €196,400. It is not surprising agencies such as FLAC and MABS have expressed concerns that not enough supports exist for people seeking legal advice. With the advent of this legislation there will be a surge in demand for their services which they will not be able to meet.
In May, the Financial Regulator stated banks need to examine other ways of dealing with the arrears, such as reducing the amount of debt owed. He was to meet each bank board to ask directors to focus personally on the arrears problems. Is it possible for these discussions with the banks to be taken into consideration?
All commentators are agreed this is a very detailed and well thought out Bill. Given this is such complex legislation, we need to ensure proper supports and infrastructure are in place so normal everyday ordinary people are able to negotiate their way around it to find the solution which is most appropriate to their circumstances. The scheme contains up to ten options. It has been estimated the cost of the services of intermediaries and legal practitioners will be between €3,500 and €4,000. I am concerned that people facing into a personal insolvency scheme will not have the financial resources to pay for such services. I welcome the inclusion in the Bill of details of a potential waiver for application fees. Hopefully, other costs will reflect individual personal circumstances. We do not need to preclude people from entering the process. Everyone has waited a long time for this legislation but it must come with the proper supports to make it function. We need to recognise this and to get it right.
I welcome the fact that the Bill contemplates the issuing of guidance, by way of codes of practice to be published by the insolvency service, regarding the mandatory requirements for the debt settlement arrangement, DSA, and personal insolvency agreement, PIA, proposals. These may include guidelines regarding the assessment of reasonable expenditure and essential income when determining what a debtor might need to enable him to maintain a reasonable standard of living. People want to resolve their debts, so let us help them do it with dignity and fairness. We must ensure that we rebalance the rights of the borrower and lender in a fairer manner. The proof of that will be in the pudding but this Bill makes a good start.
I, too, welcome the opportunity to contribute on this much awaited legislation. I commend the Minister and his officials on the work involved in compiling and drafting this complex legislation. I also commend the Oireachtas Joint Committee on Justice, Defence and Equality which provided important feedback to the Minister and his officials on a cross-party basis. The Departments of Finance and of Social Protection and their officials were also involved.
Coming as I do from Waterford, which is now an unemployment black spot, I am aware that individuals and families are living under intense strain due to mounting debts incurred during the Celtic tiger era. Many of these genuine people ran businesses, but they now find themselves under increasing pressure due to financial difficulties. We must put down a marker that will ensure we never forget how we arrived at this place and how our economy suffered the crash and crisis we are undergoing. It was the propagation of a property bubble that contributed to the economic crisis. Houses and property were being sold, with little or no regulation or control and little leadership from the political and banking sectors which have contributed to the crisis. Families are now experiencing mounting debt. We were dependent on revenue from the property sector and the boom Celtic tiger years to fund ever increasing costs in the public Exchequer. This is the legacy this Government has been left to deal with.
Trying to resolve these issues will not be easy but this Bill is a step in the right direction. The Government must try to rebalance the economy and put it on a sustainable footing. I was a member of the previous Seanad in 2008 and I remember advice given by the Leader of the time. His advice illustrates the type of leadership we had in 2008, when we had our first experience of the property crash. He said:
Now is the right time to buy. We have a duty to tell first-time house buyers, young couples with no previous experience that there is unbelievable value in the marketplace today. I will remind the House, perhaps in 12 or 18 months time when prices have again increased by 25% or 30%, that they were told this by this Leader of this House on this historic day.
I know it is easy to talk in hindsight, but the property the Fianna Fáil leader of the Seanad was telling young couples to buy and suggesting it would increase in value by from 25% to 30% has fallen in value by over 50%. That is the kind of leadership we got from the previous Government.
I remember a time when the ESB provided a facility for people to buy appliances and pay for them by instalments on their ESB bill. In order to qualify to avail of that hire purchase arrangement, the ESB operated a strict credit control and assessment policy. Many people who could not qualify to buy appliances on their ESB bills suddenly qualified for mortgages, car loans and other credit mechanisms proposed and propagated by the banks. The banks lost all control and competed with each other to provide easy access to credit. The did this through intensive advertising, bulging property supplements in the press, banking incentives of 100% mortgages, interest only loans and general easy access to credit. Now we find ordinary people have been the victims. Some people remortgaged their homes to buy second properties. We all remember the queues outside hotels on Sundays when people were being encouraged to buy foreign properties in places like Bulgaria, Turkey and Spain. We are now seeing the true impact of that easy credit. The banks have been bailed out but they gave out easy money with little regulation. I concur with Deputies who spoke previously that we must call on the banks to step up to the plate now and engage with people in mortgage and debt distress to find a resolution to this mess. This Bill and the mechanisms contained within it will facilitate this.
I would like to acknowledge the role of MABS in assisting people in mortgage and debt distress. The MABS organisation has a valuable and experienced network of negotiators and I would encourage the Minister and his officials to ensure MABS has an important role in any function relating to debt resolution because over the years, MABS has built up good contact networks within the banks and other credit institutions. Every effort must be made by banks and stakeholders involved in this process to achieve fair debt resolution and, where possible, every effort must be made to ensure families remain in the family home.
I hope this Bill will give renewed hope to those who feel they cannot get beyond the huge debt they currently face and look to a new future. This Bill will change the law to reduce the term for bankruptcy from 12 years to three years, an important reduction. The Bill sets out the framework for a mortgage arrears resolution process and a code of conduct on mortgage arrears. The Bill will establish an insolvency service that will oversee the non-judicial personal insolvency system. It establishes three kinds of voluntary debt settlement arrangements, through debt relief notice, debt settlement arrangement and personal insolvency agreement. It is not meant to provide a blanket debt write-down, but has been drawn up to help those who cannot pay, rather than those who will not pay.
I and Deputies from all parties and the Government will monitor closely this process and how the banks engage with those in distress. If the banks do not step up to the plate we will exert political pressure to ensure they engage properly.
Figures from the Central Bank for the fourth quarter of 2011 showed that household debt in Ireland was €184.6 billion, or €41,000 per person. That figure makes for dismal reading and the reality behind it is sleepless nights for thousands of people for whom, whichever way they add up their assets and liabilities and factor in their income, both current and projected, there appears to be no way out of their financial dilemma. The Personal Insolvency Bill now before the House aims to provide those householders with some answers.
The Bill provides relief for a small percentage of people currently burdened with major debt, people who are insolvent. For home owners struggling to pay their mortgage who want to retain ownership of their home, the Bill is not a panacea. However, I welcome the fact that the people working at the coalface of the household debt problems in Ireland, particularly groups such as the Money Advice & Budgeting Service and the free legal advice centres, have had their voices heard in the drawing up of this Bill. Such people are only too aware that the current insolvency arrangements in Ireland are completely outdated and are of little use to indebted householders. Recent figures from the Courts Service bolster this argument. Despite the tsunami of debt under which many households are struggling, in 2008 there were only eight bankruptcies. In 2009 that number rose to 17 and to 29 in 2010. Clearly the current bankruptcy mechanism is not fit for purpose.
The Bill contains a provision for the establishment of a debt settlement office, which would licence a panel of personal insolvency trustees. These trustees would manage debt settlement arrangements and make debt relief orders. I have already had numerous inquiries about the process of becoming a personal insolvency trustee and believe that there will be a huge volume of applications for these positions. However, it is important that as this formal process replaces what was a voluntary process, the huge extra costs are not borne by already hard-pressed householders seeking to regulate their financial affairs.
The debt settlement arrangements which relate to unsecured debt only will be the key section of this legislation for many householders. Through such an arrangement, both parties will agree to an amount to be paid over a period of five years. At the end of the term, the debt will be deemed fully paid but this arrangement will only be available to a person who acts in good faith and who makes a full disclosure of all assets. People who conceal assets in this fashion will face criminal prosecution.
The issue of bankruptcy tourism has only presented itself to the Irish people in recent months, with a number of high profile business people featuring in court proceedings as various parties sought to determine the jurisdiction in which their bankruptcy proceedings should be conducted. For debtors in Ireland, the regime in the UK is infinitely easier to navigate than the current system in Ireland and allows a person to become debt free after 12 months. The European Union opposes such bankruptcy tourism and debtors can be involved in insolvency proceedings in more than one state at any time.
The Bill aims to fulfil an important element of the programme for Government and the EU-IMF programme for Ireland. Given the financial difficulties faced by thousands of people across the country and its effect on a vast section of the children growing up in Ireland today, change to the current legislation is imperative. The Minister for Justice and Equality, Deputy Shatter, has invested huge time and energy in the current Bill, the aim of which is to bring Ireland in line with other European countries in dealing with insolvency.
The Minister has also stressed the need for people in mortgage arrears to engage with their lenders and for lenders to engage constructively with customers in genuine financial difficulty. I am glad to note the Minister's statement that the protections afforded under the Central Bank code of conduct on mortgage arrears will continue to be available to co-operating borrowers. In conclusion, the Bill is a step in the right direction in modernising the Irish bankruptcy laws and in terms of putting in place a mechanism for those unable to service their debts to deal effectively with them.
Deputies have been waiting for this Bill for some time, mainly because the debris of the economic collapse is all around us, but most especially in the lives of our citizens who have seen a dramatic fall in the value of their fixed assets, such as homes and businesses. The value of homes has reduced, according to various reports, by up to 61% since 2008. In some cases, the fall has been greater when there is a very cautious bank policy on lending. In many cases, the real value of many properties is far less than the value of the remaining mortgage.
Business premises, industrial units, office blocks, hotels, pubs and restaurants have devalued beyond belief. Many business people secured huge loans with personal guarantees and are now directly in the firing line and face ruin. I welcome this Bill for the reasons already mentioned and, specifically, the proposed measures to reform insolvency law personal and the introduction of the following non-judicial debt resolution processes subject to relevant conditions in each case. The first is a debt relief notice to allow for a write-off of qualified unsecured debt up to €20,000, subject to a three-year supervision period. The second is a debt settlement arrangement for the agreed settlement of unsecured debt and the third is a personal insolvency arrangement for the agreed settlement of secured debt up to €3 million and unsecured debt. The Bill also reformed the Bankruptcy Act 1988, which will include the introduction of automatic discharge from bankruptcy, subject to certain conditions, after three years instead of the current 12 years. The 1988 Act is a farce and the number of people who have explored the possibility of moving to the UK and benefiting from bankruptcy rules in that jurisdiction is startlingly large. As a Deputy, I have been consulted by many constituents who have nowhere to turn but to the UK. Our laws on the issue must at all times be compared to the UK. I welcome the Government initiative.
A debt relief notice remains in effect for a period of three years from the date it is recorded in the register of debt relief notices. The time period is not set in stone as an extension may be granted by the court on application by the insolvency service in specific situations. There will also be a system of debt settlement arrangements between debtors and one or more creditors to repay unsecured debt over a period of five years, with a possible agreed extension to six years. The debt settlement arrangements will assist persons with incomes, assets or debts that fall outside the criteria of the debt relief notice. The Bill makes a number of amendments to the Bankruptcy Act 1988, including an increase in the minimum amount for a creditor petitioned for bankruptcy from €1,900 to €20,000. I welcome the modernisation of our bankruptcy laws, which bring them in line with our European neighbours.
Compromise is the name of the game and I have no doubt disputing parties will have workable debt resolution processes and it will encourage lenders and borrowers to resolve debt issues. It is estimated that more than 10,000 home owners are in real difficulty and will never be able to pay for their homes. Beyond that, 50,000 will find a resolution through negotiation and interaction with lenders. However, in some cases this mechanism will not suffice. Many Members know households where both parties worked in construction or related commercial activities and now receive social protection payments as income, with a mortgage up to €1,500 per month. The value of the house may be €150,000 while the mortgage is somewhere near €300,000. In such cases, we have a problem and that is where the new Bill can assist. Such people are, technically, insolvent and, with the bank's agreement, they can sell the home and outstanding debt can be written off after six years. The mortgage holder will contribute something over six years to pay off the debt but will still maintain an adequate standard of living. Banks may agree to such arrangements as it removes a non-performing loan from the book and arrears are no longer building up.
In most cases, especially if the individual is unemployed and has little prospect of regaining employment, almost no level of mortgage debt is sustainable irrespective of the value of the property. In such cases, it is unrealistic that creditors will agree to a write-down to a sustainable level, if they see it is less than the current level of the value of the property. Their duties to their shareholders prevent them from doing so. There is also the possibility that many of the home owners in difficulty can keep their homes under the personal insolvency arrangements and will have their debt written down to a sustainable amount. This figure may not be the value of the home and could be a lot more but it must be sustainable and the person must be comfortable with the commitment. In this case, I hope the banks will only agree to it where the home owner in difficulty has an income other than social welfare system and that the mortgage arrears resolution process has failed to make the current level of the mortgage sustainable.
I welcome the opportunity to speak on this Bill and I commend the Minister on introducing it. With the collapse in the housing market and the collapse in economic confidence, the resultant impact on business has led to many people facing exceptionally difficult circumstances in respect of their solvency and the amount of debt owed. Deputy Mitchell O'Connor referred to a number of well-known historical figures, including Abraham Lincoln and Henry Ford, who tried and failed, went bankrupt and came back again. She noted that, in America, it is a badge of honour for someone involved in business to have tried and failed - to have had a business that became insolvent before trying and coming back again. It can arise when someone is trying out a new idea. There is always the risk that it will go wrong. In this country, the debt phenomenon has happened primarily with regard to the housing market. Although businesses will always try and fail, it is unprecedented for a generation to try and fail in getting their lives started, buying homes and making moves not to set up businesses but to set up steady lives for themselves and steady futures.
One of the consequences of the collapse of both the Celtic tiger and the housing market is that we have an entire generation mired in negative equity and facing into a future devoid of hope in terms of their financial position. In that context, the Bill is long overdue. Thousands of people are struggling on a daily basis with an unsustainable burden of debt. The provisions in this Bill will at least offer some clarity as to the options available to them to alleviate their plight. The latest figures illustrate the severity of the problem. Some 116,000 mortgage holders were in serious distress at the end of March 2012, an increase of 8,500 since the previous December. From January to March, a further 95 mortgage holders fell into arrears every day. Meanwhile, some 170 families lost their homes to repossession in the first quarter of the year, an increase of 30% on the figure for 2011. These are the people in the most severe distress, those who are finding it very difficult, if not impossible, to meet their mortgage demands.
What the figures do not reflect are the large numbers who are meeting their mortgage payments but are being put to the pin of their collar to do so. Many people, for example, purchased apartments during the boom and now find themselves in negative equity, often for as much as €200,000. Some of these home owners, being fortunate enough to have a reasonable job, are able to meet their repayments. They cannot, however, move on with their life in terms of purchasing another home which would better meet their changing needs. Unfortunately, the Bill offers little hope for that category of home owner. I accept it is a difficult and complex issue to address. I recently spoke to a person whose one-bedroom apartment, purchased during the boom for €350,000, is now worth no more than €150,000. Although this particular individual is in secure employment and can afford the mortgage repayments, it is soul destroying to be carrying a negative equity burden of €200,000. The prospect of seeing a substantial portion of one's income being eaten up for years to come in paying off one's negative equity is leading many to despair. Home owners in that situation are essentially stuck, often unable to trade down or upgrade their current home. It is little wonder that so many cannot see a viable future for themselves and their families. Instead of a light at the end of the tunnel, they can see only years of paying for a property which will never again be worth what they paid for it and in which they are effectively marooned.
One of the concerns that has been expressed regarding the Bill is that it might present a disincentive to people in a situation where they can afford to meet their mortgage repayments but are facing into ten or 15 years of negative equity to continue shouldering all of that burden. Some home owners, for instance, might look around and consider that if they were not in employment and no longer in a position to meet their mortgage commitments, some of the options set out in the Bill would be available to them. There will inevitably be a certain number of people who no longer see an incentive to work and instead opt to go down one of these pathways. It is difficult not to sympathise with those who are facing a future burdened with a level of debt that inhibits their ability to progress in life in a manner in which they could reasonably have expected to do.
One of the weaknesses of the Bill, as referred to by many speakers, is its failure to provide for an independent system of appeal, particularly in regard to the debt settlement and personal insolvency arrangements. The requirement that the consent of creditors owning at least 65% of the debt is required in order to enter into one of these arrangements will effectively afford a veto to the banks in most cases. The Minister observed that the ultimate court of appeal for people will be the option of bankruptcy, under the new conditions laid out in the Bill. For many, however, that is simply not an option. It is entirely unsatisfactory as an ultimate appeals mechanism.
The provision to reduce the period of discharge for bankruptcy from 12 years to three is very welcome. Coming from a Border area, I am only too familiar with the increasing phenomenon in recent years of people opting to apply for bankruptcy in another jurisdiction in order to avail of a process which is more considerate of the needs of those who find themselves in this situation. Bankruptcy laws which end up leaving people bankrupt for a period of 12 years are totally unsuitable. The new provisions ensure that the penalty for bankruptcy remains sufficiently onerous while also allowing us to deal with people in a more humane way.
The problems we are facing in this area can be traced back to the housing bubble and the failure to take action to address it. This was a failure on the part of society, the political establishment, the business community and the banking system. There is a tendency to simplify what happened by seeking to assign all the blame to one political party and one Government. That is a very simplistic and erroneous analysis of what happened. The reality is that we had a European and global economy that was performing strongly and an Irish economy that was performing much too strongly. Loans were given out by Irish banks to an extent that was simply not sustainable. In fact, at the very peak of the boom, at the very time when restrictions in the opposite direction should have been imposed, there was a move towards the provision of 100% mortgages. We are all wise after the event, but the reality is that there were very few in the world of business, banking or politics calling for an end to this and for a tightening of credit rules. That added extra froth to the situation and extra weight to the problems now facing so many people throughout the country.
The three debt resolution arrangements provided for in the Bill offer reasonable solutions to those in difficulty in accordance with their particular needs. In regard to the relief certificate option, I welcome the fact that MABS will be involved. It is an appropriate body which is doing much fine work under great pressure in terms of resources in trying to deal with the growing workload that has come its way. It is important MABS has the resources and the ability to give that assistance and that we do not place unacceptable pressure on it. In regard to the debt settlement and the personal insolvency arrangements, we must ensure the personal insolvency practitioners, who will act on behalf of the debtor, are properly regulated and that the best possible advice is provided to the person who owes money.
On Committee Stage, I urge the Minister to look at an independent appeals mechanism to arbitrate in situations where the bank and the debtor do not agree. It is unacceptable that the only recourse in situations like that is the court route or the bankruptcy route. It is very important that an independent body, which is able to intervene and impose a binding resolution on the bank and the debtor that is fair and takes into account the particular circumstances, is provided for in the Bill. I do not see why a situation like that should escalate and go straight to the courts resulting in somebody going into bankruptcy.
My party and our spokesperson, Deputy Calleary, will bring forward amendments to try to improve the Bill but I support the broad thrust of it and welcome its introduction.
I am delighted to speak on the Personal Insolvency Bill 2012. It represents a significant step forward in our efforts to deal with personal debts. The financial turmoil in recent years has resulted in too many people facing debts they are never likely to be able to repay. Most people are agreed that the existing legislation is draconian and offers little opportunity for people to escape these crushing debts. I very much welcome the introduction of this legislation which will provide a comprehensive reform of insolvency law and offer new and more flexible options to address the circumstances of insolvent debtors.
It is important to say a few words about the context for this legislation. Over the past number of years, we have spent much time dealing with the fallout from what were described as the glory years of the Celtic tiger. It was a very brutal animal and left a huge trail of destruction behind it and we have been picking up the pieces ever since. There is no doubt that it caused more damage than good.
It was good to note today the improvement in the Slate's finances and the fact that in 2011, the economy improved from the expected growth of 0.7% to 1.4%, double what was expected. We hope that continues into the future. However, the troika - the EU, IMF and ECB - is in town. It is completing the seventh examination of whether we are dealing with our finances in an adequate fashion, of how we are dealing with our debts, our banking debts and our mortgage arrears, of the economy and of whether the fairly harsh road on which we have had to embark is being trodden on carefully and diligently.
This is all about people's lives which have been damaged and destroyed in one way or another and about people who are in arrears with their mortgages, those who are unemployed and whose income has dropped considerably. We have been seeking to put in place the necessary policies and legislation to address the matter. I hope we are coming close to putting the final piece of the jigsaw in place to deal with the problems caused by the madness which the Celtic tiger instilled in the country - the expectation it would go on forever or that there would be a soft landing. The then Minister for Finance said the bank guarantee introduced in 2008 would be shortest bailout in the history of the world and not just of Ireland.
This Bill deals with personal debt, personal insolvency and bankruptcy. This major reform of our personal insolvency and bankruptcy laws forms one part of a series of steps which the Government is taking to deal with the problem of unsustainable mortgage and personal debt which affects households and acts as a drag on the economy. The steps taken by the Government to assist with mortgage debt include increasing mortgage interest relief for people who bought their first home at the peak of the boom, fast-tracking personal bankruptcy reform to bring us into line with the best international standards and directing mortgage providers in receipt of State support to present the Government with plans for cost cutting.
Furthermore the Government introduced the mortgage-to-rent scheme to assist people whose mortgage debts are unsustainable to stay in their homes. The Minister might look into a case I have been dealing with. The mortgage-to-rent scheme seemed to be the ideal solution to the problem but it transpired that the cut-off point was €200,000 for qualification for the scheme. The value of the home of the man in question, with a wife and three children, was valued at more than €200,000 and, therefore, he could not avail of the mortgage-to-rent scheme. That ceiling might, in some way, be adjustable. Will the Minister look at that carefully to see how this scheme, which has been of value to a number of people, might be extended to this person and to others who might be deemed to be in the same situation?
The Keane report of October 2011 recommended that the early introduction of new judicial and non-judicial bankruptcy options was vital. It stated that without effective bankruptcy legislation, the mortgage arrears problem would not be resolved. This is, in many ways, the final implementation of the recommendations that were made in the Keane report. I am delighted that at last they are being addressed. The reform of personal insolvency law contained in the Bill involves the introduction of the following new non-judicial debt resolution processes - a debt relief notice to allow for the write-off of a qualifying debt of up to €20,000, subject to a supervision period, a debt settlement arrangement for the agreed settlement of unsecured debt over five years, and a personal insolvency arrangement for the agreed settlement of secured debt up to €3 million and unsecured debt over six years.
Finally, the significant reform of the Bankruptcy Act 1988 that was begun in the Civil Law (Miscellaneous Provisions) Act 2011 is continued. A significant measure is the introduction of automatic discharge from bankruptcy after three years, as opposed to the existing12 years. This development moves Ireland to the European norm for such discharge and is most welcome. It is a better period than the one year which is the norm in our neighbouring jurisdiction. It provides the correct balance.
The Bill aims to provide a modern insolvency process that addresses the obligations of debtors and the rights of creditors in a proportionate and balanced way, taking into account the financial reality of an individual's true circumstances.
These new personal insolvency laws, in addition to providing new legal remedies, should give a significant incentive for financial institutions to develop and implement realistic agreements to resolve debt issues with their customers. The provisions relating to a personal insolvency arrangement are specifically designed to facilitate a debtor's continued ownership and occupation of his or her home unless the debtor does not wish to do so or the cost of the debtor's continuing to reside there is disproportionately large. If it is not possible to come to a non-judicial debt settlement between debtors and creditors there is still the option of debt enforcement or judicial bankruptcy.
The Bill will be welcomed by mortgage holders and those with personal debt as a means of resolving what seemed like an insoluble problem. I would like to have seen the legislation on the Statute Book before now, but the steps taken to date have all been taken with a view to reaching a solution to the crisis that has befallen us in recent years. Solid steps have been taken in the right direction.
The Bill brings us almost to the end of the road of solving the problem of those who are unable to meet the debts they have incurred and must find a way forward for their families. The economy will benefit substantially by this drawing of a line in the sand. People who want to do their best to make ends meet, to get on with their lives and to build a society in Ireland are now in a position to do so.
I welcome the opportunity to speak on this very important Bill.
The Bill has the capacity to change people's lives. I am sure all Members in this House have been contacted by constituents who are struggling to repay untenable mortgage payments. I am certainly well aware of it myself. It is another legacy issue from the Celtic tiger, the effects of which have been particularly corrosive for many families. In my constituency of Wicklow I have been contacted from people living in Bray, Greystones, Wicklow, Arklow, Blessington and across the county. This demonstrates that this is not an isolated problem and is not confined to any particular area or street.
It is clear that the fault lies with the bankers and their very close friends in Fianna Fáil. I cannot conceive why this gross property bubble was allowed to develop or why a political party would put developers and bankers to the fore ahead of the people they were elected to serve. The Labour Party recognised this when we criticised, in our election manifesto, the policy of putting the interests of big developers and the banks ahead of people looking to purchase a modest home. This was a direct cause of Ireland's disastrous property boom and bust. I am still angry at Fianna Fáil and their banking and developer friends. I am angry that no banker and no politician has gone to jail for what are and were crimes against the State. They betrayed the country. It is quite despicable and disgraceful to have to listen to what is left of Fianna Fáil speak with mock indignation of their shallow criticisms of the Government. They have demonstrated, without any doubt, their sheer inability to run an economy. What shame there is on them for allowing the troika into this country. They can clearly never be trusted again. This leaves the Government cleaning up the mess they left behind in the best way it can. We have made progress on this.
The Personal Insolvency Bill is part of this progress. It will be of great benefit to the many families who have need of it and it delivers on another promise in the programme for Government to give more protection for home owners with distressed mortgages.
In tackling the heart of the problem the Government sought the views of the Joint Committee on Justice, Defence and Equality. As Vice Chairman of the committee, I was more than happy to facilitate hearings on this important Bill. The report that was compiled has greatly helped in developing it.
The Bill outlines a number of avenues that can be pursued by people in debt. Three non-judicial debt resolution processes are detailed. The first option is that of the debt relief notice which will help people who have unsecured debt of €20,000. The second option is the debt settlement arrangement on unsecured debt with a supervision period of over five years. The third option is the personal insolvency arrangement. This last option will look to secured debt of up to €3 million, though an agreed settlement can go higher with the agreement of all creditors. These options are welcome, and I look forward to the establishment of the insolvency service of Ireland which will act as a point of contact for insolvency measures.
I hope, when the Bill is passed and the technical and structural mechanisms are put in place, that a greater fairness and balance will be brought home to those in financial difficulty. So far, many banks have shown little regard to this fairness. I am particularly angry at the way Permanent TSB has treated its customers. I have received many criticisms of banks from constituents but I have a great disdain for Permanent TSB. It sometimes gives the appearance of addressing the needs of its customers, but it is only an appearance. It has customers who are struggling to repay loans and I know this bank does not give a tuppenny damn for them. I hope this legislation can in some way help these constituents in particular, because it would appear that TSB will not do so on its own.
I look forward to the implementation of the legislation although I would like to ensure that when it is passed all bases are covered and there are no inherent flaws.
I hope we will see the Bill enacted and the processes put in place in the autumn when we can seriously help the thousands of people who are just about keeping their heads above water.
Thank you, a Cheann Comhairle, for the opportunity to speak on this most important Bill. I welcome its publication Bill. It is radical legislation which, if passed as it is designed, will overhaul our laws on personal insolvency and bankruptcy.
The destruction of our economy by the previous Government laid bare numerous underlying faults and flaws in the economic, political, societal and legal structure of our State. Two such faults were the lack of regulation of our banking sector and in our building regime.
Toxic lending to young people to buy poorly built homes is a double tragedy affecting thousands of people all over the country. This was brought to a head when the economy collapsed and unemployment soared. People were suddenly faced with loans they were struggling to meet and mortgages they were unable to pay. Our bankruptcy laws were totally inadequate to deal with the sudden onset of the mortgage crisis.
The Personal Insolvency Bill is a strong example of the Labour Party delivering on its promises to tackle mortgage debt reform. Reform and fairness formed two pillars of our general election campaign and the Bill looks to deliver elements of both. The Bill provides workable solutions for individuals and families struggling to restructure some of their debts. There will be options to allow for people to remain in their homes or move to smaller more affordable alternatives. For the first time since the economic collapse, distressed home owners will be able to see at least some light at the end of the tunnel.
The three voluntary debt settlements created by this Bill, the debt relief notices, debt settlement arrangements and the personal insolvency arrangements, will provide mechanisms for people to relieve themselves from different levels of unpayable debt. The processes for each arrangement will not be easy but they will be manageable. This is not blanket debt forgiveness; it is debt settlement and relief. It is designed for people who are making every effort to meet their debt requirements but through no fault of their own are unable to do so. For the first time the relationship between the borrower and the bank will be rebalanced towards the borrower. This is a big shift for which the Labour Party has fought over many years.
The reduction of the period of bankruptcy from 12 to three years is a long overdue and most welcome change. The 12 year period was outdated and represented a severe punishment for bankruptcy by EU standards. A three year period demonstrates progressive reform and is a much fairer timescale.
However, the Bill must not be viewed as an isolated approach to our mortgage crisis. The Minister of State at the Department of the Environment, Community and Local Government, Deputy Jan O'Sullivan, announced recently that the mortgage-to-rent scheme is to be rolled out nationally. This scheme allows people to arrange for local authorities to purchase their homes from the bank at the current market rate while they continue to live in it as tenants of the council. This is another progressive step by the Government in dealing with the mortgage crisis. However, the road is long and we have many obstacles to overcome. The Personal Insolvency Bill 2012 is a big step in the right direction but it is not the answer in and of itself. The Government will need to monitor its application in practice. If issues need to be addressed in the application of the Bill, we need to be swift and decisive in addressing them.
That said, this Bill is a game changer for bankruptcy law and personal insolvency in Ireland. Its success will be predicated on an open, honest and constructive engagement between borrower and lender. It is incumbent on all of us in this House to ensure that borrowers engage with lenders in this manner. If they do so, this Bill has the potential to be a big step on the road out of our current mortgage crisis.
Sinn Féin welcomes the publication of the Personal Insolvency Bill 2012. I have no doubt that the people and families who are weighed down by debts that they will never be able to repay will also welcome the Bill and the same can be said of the many NGOs and organisations who work in this area. However, it must be noted that the legislation was long overdue and its delay has only added to the distress experienced by those who are in debt.
Even though the Minister has had ample time to produce comprehensive legislation, the Bill as it stands is disappointing and vague. Therefore, while Sinn Féin welcomes it and views its publication as a beginning of sorts, we regard it as seriously flawed legislation that does little to address the fears and concerns of people who are in debt. When the Bill was published we were to the forefront in stressing the importance of ensuring that the proposed insolvency scheme is independent. We have repeatedly called for a more humane approach to this issue. It should, therefore, come as no surprise that the Bill is a bitter disappointment to us, especially when one considers that it gives the banks power over personal insolvency arrangements for the majority of families in mortgage distress. This makes for bad policy and poor legislation and, more important, it leaves those who may have hoped to avail of this Bill in the tight clutches of the financial institutions. Sinn Féin has called for an independent agency which would be empowered to enforce legally binding settlements on debtors and creditors. The only other option open to people in serious arrears is bankruptcy.
For many people this is a painful and stressful situation, particularly where families and young children are involved. Single mothers and those with mental health problems are particularly vulnerable when they find themselves weighed down by debts which they have no hope of repaying. Evidence from other countries indicates that the main users of consumer bankruptcy and insolvency arrangements are from lower middle income, working class and low income groups. Those who have to deal with additional issues such as divorce, separation or the break up of a long-term relationship are over represented when it comes to personal insolvency, as are women and single parents. Therefore, while Sinn Féin welcomes the reduction of the bankruptcy term from 12 to three years, we are mindful of the fact that people entering bankruptcy will lose all their assets, including their homes. Our party's position is that people should be helped to remain in their homes and that an independent agency should examine on a case-by-case basis how to make mortgage debt sustainable.
We repeatedly criticised the Government for delaying the introduction of personal insolvency legislation. When the Bill was published we stated that the proposed insolvency service must be made independent, that the threshold of debt qualifying for a debt relief certificate needed to be carefully examined and that a more humane approach to bankruptcy was required. What is humane about legislation which allows a person to lose his or her family home? This type of legislation makes no sense in that it puts additional pressure on the State's already stretched resources and on vulnerable people who are just about keeping their heads above water.
We know that debt increases the risk of mental illness and that mental illness increases the risk of getting into debt. Research conducted in other countries indicates that people who are unemployed or on welfare are over represented in the debt relief notice category. I have heard Government commentators describe this Bill as radical but that word must be viewed in the context of the current environment. In this environment of high unemployment and high levels of personal insolvency, any attempt to change the current legal framework on debt and bankruptcy would appear innovative or radical. The reality is somewhat different, however. The test of whether this Bill will make a genuine difference to the situation in which thousands of people find themselves will be its capacity to help those who are struggling in the face of massive debts by empowering them to negotiate solutions without having to pay third party companies. There is no one-size-fits-all approach. A range of measures must be made available to those who are unable to deal with their debts.
We have serious concern about certain provisions in this Bill, including, in particular, the imbalance of power between banks and debtors. Banks are allowed to retain their veto when it comes to debt settlement and personal insolvency arrangements. They will not be legally obliged to accept reasonable applications from customers in arrears. Furthermore, there will be no legal obligation on any bank to accept an application for resolution options from customers in arrears and the absence of a right to appeal a bank's decision potentially leaves debtor with no option but to apply for bankruptcy.
The Free Legal Advice Centres, which have extensive experience in these matters, welcomed the review of the personal insolvency arrangement and the reduction from ten to five years in particular. However, we share their concern that the period is still too long and agree that the reviews should be held annually.
While we acknowledge that the Bill provides a measure of family home protection and addresses the need to maintain debtors in the family home where the mortgage is sustainable, a broader question arises in respect of how the State views property and housing. In this regard, it appears that nothing has changed with this Government. It is business as usual despite everything we now know about past mistakes. Housing is still a commodity and the banks are busy throwing people out of their homes after giving them mortgages they can never repay. The Government is pushing people into substandard rented accommodation because it refuses to acknowledge the State's primary role and obligation in social housing. The State adds injury to insult by acting as if the payment of rent supplement to private landlords is some kind of charity for the poor rather than a subsidy to private landlords and property speculators who made their money during the boom years of the Celtic tiger.
Measures that have been added to the Bill since it was first published include different out of court arrangements before final bankruptcy and provision for automatic discharge from bankruptcy after three years. We are concerned about the fees and costs contained in the debt settlement and arrangements. This will be a very real concern for people considering a personal insolvency practitioner who will, under the Bill as it stands, have the capacity to vouch that a person in debt was unable to come to a voluntary arrangement with their creditor or bank. These are not State practitioners. They are private and thus far unregulated entities and they will not work for free.
FLAC also made the following important point:
It is ironic that the Bill requires six months of co-operation with the mortgage lender under the code of conduct on mortgage arrears - or a similar Central Bank-approved process - before applying for a PIA. Yet the recent changes to the mortgage interest supplement mean that a person must currently prove 12 months of making agreed alternative payment arrangements under the code of conduct before he or she can even apply for the supplement.
There are promising elements in this Bill. However, we are mindful of the fact that there may only be around 30,000 mortgage holders who may avail of the provisions, while approximately 80,000 people are in mortgage arrears of three months or more. Most of them are owner-occupiers rather than buy-to-let property owners. According to reports, the Department has said that only 16,000 people will be able to avail of this during the first year. We must ask ourselves whether that is really adequate. How many people's situations will worsen during that timeframe?
The Government has failed to take the opportunity to loosen the grip that the banks have on people. It would appear that the State still refuses to recognise that creditors and banks should not be the ones setting the agenda on these issues. An independent body must be created that can deal with mortgage arrears and debt resolution.
There is no doubt that the Bill is long awaited. However, unlike some of the Labour Deputies, I do not think there will be great celebrations about it. The legislation is disappointing and we will be tabling a number of amendments on Committee Stage to try to improve it. It is not the great step forward that many people require and it does not deal with the core issue of mortgage debt. Inevitably, there will have to be a write-down of some of that debt which is unsustainable.
The Bill has three main features, to which other Deputies have alluded. First, it reduces the bankruptcy period from 12 years to three, which is welcome, although the anomaly that still exists with the North of Ireland and Britain may prove to be a problem. Nonetheless, it is a step in the right direction. The second measure deals with the possibility of having unsecured debt of up to €20,000 written off if the person meets certain criteria. That is welcome, although it does cause problems for credit unions. I will deal with the latter point later on. Third, the primary part of the Bill deals with a debt settlement arrangement for secured debt or mortgages of up to €3 million. The key problem here is the retention of a veto for the banks. A creditor who controls 65% of a person's debt will have to agree to engage in the debt resolution process, which is an inherent weakness in the legislation.
The Bill itself is so big, convoluted and complex that it will be inaccessible for many people. It must be seen in the context of the Government's lack of other measures to deal with the overall mortgage crisis against the backdrop of the Keane report. The provisions and guiding principles of that report show the weakness in the Government's approach. The report's primary findings stated that those who can discharge their mortgage obligations must do so. In addition, there is no entitlement to a particular solution and solutions have consequences. Crucially, there are unsustainable situations and unfortunately it is inevitable that people will lose their homes. While acknowledging that this needs to be minimised, I do not think the measures outlined in this Bill actually address the objective of keeping people in the family home, although that objective is in everybody's interest.
The Bill does not deal with the need for debt reduction through a write-down process. In fact, it absolves banks of any responsibility in this situation. The only options facing home owners who are struggling to pay mortgages are an interest-only repayment mechanism, possibly a year's break from payments or a reduction in payments for a period. The authorities are standing over a situation where arrears are increasing, however, and the Bill does not provide a long-term solution. It is delaying the inevitable situation whereby people cannot meet their repayments.
When the Minister, Deputy Shatter, introduced the Bill it contained caveats. He spoke of the Bill incentivising banks and having a better outcome potentially, but there is no compulsion in it so home owners have no safeguards. The legislation hopes that banks will come up with a solution which I do not think is good enough. A constituent of mine wrote to the Minister on foot of his contribution last week when introducing this Bill. She put it well when she wrote:
I am sitting here seething at the audacity of you to suggest that we sell our jewellery and so on to pay the banks. Do you remember that they lent us money that they never had in the first instance? Then they made interest on it and now you want the people of Ireland to pay them again. How do you sleep at night? I invite you to walk in my shoes and travel with me, and learn what it's like to live at the mercy of the present Irish Government paying for the bail-out of the banks.
She goes on to talk about the problems in the economy and the effect that austerity is having. This Bill does not solve the problems of mortgage debt in any way because it leaves the issue and decision making in the hands of the banks. As Deputy McLellan said, 10% of mortgages are over 90 days in arrears. Some 77,630 family homes are in arrears. Some 8% of homes are over 180 days in arrears, and 40% of owner-occupier dwellings are in negative equity. This is an almighty stranglehold on the economy. The total deadweight of that mortgage debt is stifling all aspects of economic recovery. Sadly, the Bill does not address the problem in any way.
This is one measure the Government intends to take to deal with the mortgage crisis. While I have problems with this aspect of the legislation, the other aspects as not too enticing either. The mortgage-to-rent scenario has been outlined but the reality is that it has not seen the light of day. The Department of the Environment, Community and Local Government is currently engaged in a pilot programme with AIB for 20 cases. Some of the subprime lenders, including GE Money and Start, have been approved for 40 cases with voluntary housing associations. Some 60 cases are being dealt with, out of 80,000 houses in arrears, so we are a long way from solving the problem. Even if half of those cases default, which is entirely likely, 60 is nothing. Under the Government's plan it would take hundreds of years to deal with this. We cannot see it separately from what the Government is doing in terms of social policy and the complete lack of investment in the provision of social housing. The objective should be to keep people in the family home but I do not see any way in which that is being done.
Other measures include banks developing a mortgage arrears resolution strategy beyond what existed before. While we are told that the banks have drafted such a strategy, we have not had any information on it. The Central Bank is seeking information about it but has not received any either. We have heard the stated intention that a mortgage advisory agency would be set up and run in co-operation with MABS but there has been no discussion with MABS in that regard. When we are talking about a holistic approach, where this is one of a number of measures, we must examine the other measures as well. However, they have not gone far enough to deal with this overall crisis.
The arrangement to deal with unsecured debt of less than €20,000 - which would primarily be credit card debt and credit union debt - is a welcome addition. However, the criteria are quite limited. We must take into account the submissions made by credit unions which are a different type of financial institution. They are owned by their members and operate on a not-for-profit basis. In fairness, they have made the point that they will be affected by all the measures in this Bill but particularly by the unsecured debt provision.
A high percentage of credit union lending would come within this category. As a result, credit unions will be disproportionately affected. The credit unions make the point that they will also be affected by other provisions and that while they are being made accountable in terms of these arrangements they will have little control over the outcome in that regard. I agree with them that this legislation was drafted from the banks' perspective. As stated, credit unions and their members will not pick up the bill for the mistakes made by the banks in advancing unsustainable property loans. Like all taxpayers, credit union members are paying for the recapitalisation of the banks and they should not be hit on the double through this provision. We need to take into account the special role of credit unions so as not to disproportionately disadvantage them.
I take on board the point made by the credit unions that this Bill, in terms of its impact on financial inclusion, may drive people out of credit unions, who will be reluctant to lend because of the provisions in this Bill in respect of people on social welfare, which assume they do not have the capacity to repay. We must be mindful of this.