Friday, 13 July 2012
Personal Insolvency Bill 2012: Second Stage (Resumed)
I warmly welcome the Personal Insolvency Bill and wish to thank the Minister for Justice and Equality and all who have had an input into drafting this extraordinarily difficult piece of legislation. New Beginnings, a lawyers' group, has stated: "This Bill has the potential to keep thousands in their homes as these new measures could help defuse an economic and social time-bomb, and this is a significant step on the road to recovery". Two other ways of pointing to the need for this Bill are, first, the EU-IMF agreement recognised the need for legislation of this sort and, second, given that personal debt levels in the Irish Republic are the highest in Europe, it is hardly surprising that legislation of this sort is required.
The Bill is an essential element towards getting this country and its people standing on their own feet again. Assuming the Bill operates as intended, it will enable people in great debt to participate more effectively in the economy thereby helping to keep more people at work, as those in debt begin to spend again and generate demand for goods and services.
Like other Deputies, I am glad that under the personal insolvency arrangement, it is possible for people in trouble with mortgages to come to a realistic settlement. In reality, many people are trying to cope with mortgages for houses that are only worth a fraction of the purchase price. This is so important in terms of those people being able to live their lives and participate in their local economies without such an enormous burden.
I am particularly glad that part of this Bill deals with the debt problems of people who effectively have no assets. It is most important that they should be assisted along with, for example, those with severe mortgage problems. I wonder how the conditions will work in practice for those who are eligible for a debt-relief notice. According to sections 40 and 41, it is clearly in the interest of a person with a debt-relief notice to stick to his or her bargain, particularly as he or she will be responsible for all debt if the notice is terminated. Can I presume that when a debt-relief notice or personal insolvency arrangement is being drawn up, the intermediary and personal insolvency practitioner will have a clear financial guide to determine what is reasonable expenditure for the individual or family concerned?
I understand from a briefing by FLAC and other groups that the Vincentian Partnership has come up with a good system for doing this. I ask the Minister to examine that system. I am glad to see involvement of MABS in issuing debt-relief notices because that service already has an expertise in helping people in this situation. I hope that MABS will be adequately resourced to deal with debt-relief notices and to provide advice on all of the new insolvency options. Given the track record of MABS, it is a particularly useful service concerning the issues surrounding this Bill.
I presume the Minister is aware of the concerns about the Bill being raised by the Irish League of Credit Unions. The Minister for Justice and Equality, the Minister for Finance and other relevant Ministers should monitor any impact this Bill has on the credit unions' ability to function. Given the importance of credit unions, particularly for small borrowers, it would be a severe setback if any of them were unable to lend due to lack of finance. In these circumstances, I presume the Minister for Finance would help the relevant credit unions over the hump.
There is some concern that the debt ceiling of €20,000 may not be a high enough figure. Perhaps the Minister can comment on that matter in his reply to the debate. Another provision in the Bill which I welcome is the reduction in the period of bankruptcy from 12 years to three years.
A concern that I have in terms of how this proposed legislation will be received is the question of begrudgery. When speaking about this Bill, it is important that public representatives make it clear that people who are insolvent are in a very bad place and that it is in society's interest to give them a helping hand. I am concerned that there is no possibility of appeal if creditors reject a personal insolvency arrangement proposal. The debtor must go through a lengthy process at the end of which he or she may be left with nothing to show for the effort. It is also worrying that there is no provision for people who cannot afford to hire a personal insolvency practitioner but who need to get out from under a secured debt, such as a mortgage.
Given that this legislation is ground-breaking, I would urge that its operation should be reviewed after a year or so to see how it is working in practice. Flaws that are uncovered during the first year should be dealt with at that stage.
In common with other Deputies, I commend the Minister and his staff for drafting this historic legislation. It is perhaps regrettable that such a Bill is required but that is where our economy is. I have listened to the debate unfolding and I wish to confine my remarks to the credit union movement, which is the working man's bank. While many of the contributions thus far in the debate have been interesting, they focused on secured and unsecured debt in the banking sector. I want to, however, focus on the credit union movement which, in my view, will be negatively affected and disadvantaged by the schemes provided for in this Bill. For example, the Bill provides for the introduction of debt relief notices, which will address secured and unsecured debts of less than €20,000. Given a substantial number of borrowers fall into this category, credit unions will be disproportionately affected. It is hoped this issue will be addressed by the Minister. I appeal to him to ensure we do not end up with a Bill which leads to the situation whereby those on low incomes or on social welfare are prohibited from ever borrowing again. We are all aware of the history of the credit union movement. That people are on low incomes does not mean they cannot honour their debts. The credit union movement states that they are.
We must not legislate in a way which results in people on social welfare or low incomes being thrown back into the arms of unlicensed money lenders. That would be a retrograde step. I ask that the Minister take on board that point.
I, too, welcome the Bill and thank the Minister and his staff for their hard work on it. This Bill introduces many measures to address the personal insolvency issue in this country. The Government is aware of the difficulties which many people are facing. This legislation, the introduction of which has been a priority for the Government, will replace the outdated current legislation.
Many people and homeowners have been badly affected by the collapse in the property market, leaving them with huge debts, in negative equity and struggling to meet mortgage repayments. It is important that borrowers are given the assistance and support they need to allow them restructure their repayments. They must be assisted in agreeing more realistic payment terms with their banks. It is vital also that the banks are flexible towards borrowers, taking into account the current financial climate and restructuring loans taking into account the person's ability to repay. It is in the interests of the bank and the debtor to establish a realistic payment arrangement to resolve debt issues.
It has been clear for a long time that Ireland's personal insolvency legislation needed to be updated to effectively address the mortgage arrears problem. At the end of March this year, there were 764,138 private residential mortgage accounts in respect of principal dwellings in Ireland valued at €112 billion, with 42,000 mortgage holders more than 12 months behind on repayments. It is imperative that measures are introduced to resolve this crisis. It is important to note that the majority of borrowers continue to meet their mortgage obligations but that help is clearly needed for those who are in distress.
The Bill provides for a number of non-judicial debt settlement processes to deal with the crisis, including a debt relief notice, which will allow for the write-off of qualifying debt of up to €20,000, including credit card debt. This will be subject to a three year supervision period, with the debt being frozen for a year before being written off. Like previous speakers, I welcome the involvement of the Money Advice and Budgeting Service, MABS, in relation to debt relief notices. A debt settlement arrangement whereby the debtor agrees to a multi-year arrangement to pay off an amount of his or her loan and a personal insolvency arrangement in relation to the agreed settlement of secured debt of up to €3 million and unsecured debt over six years are also being introduced.
Under the Bill, the insolvency service of Ireland will be established. This body will liaise with the Department of Social Protection and the Revenue Commissioners to investigate applications and to determine whether people are eligible for debt relief notices and will provide information to the Government and public regarding legislation in this area. I welcome that this Bill amends the Bankruptcy Act 1988 to bring Ireland's insolvency laws into line with those of most other EU countries by way of reducing from 12 to three years the automatic discharge from bankruptcy period, which is more realistic.
Debtors are encouraged to make contact with their banks and to engage in negotiations with them in respect of a repayment plan. Likewise, banks should actively engage with customers experiencing difficulties to discuss the various options open to them. This Bill offers new and more flexible choices to people in debt, providing options to those who are genuinely unable to make repayments. Like other Members, I, too, have been told by my constituents of the difficulties they are experiencing and of their fears of losing their homes. It is crucial that the banks engage in negotiations with customers and try to reach mutually agreeable arrangements with those struggling on a financial basis.
The Government wishes to assist people in getting their lives back on track and to ensure credit is available from the banks on a more consistent basis. As regards, the personal insolvency trustees, it is important the Government appoints appropriate people to this role as they are the people who will provide the mediation in terms of resolving people's debt issues. As I stated, currently 42,000 mortgage holders are more than 12 months behind in their mortgage repayments. The personal insolvency process needs to be sufficiently unattractive to banks to persuade them to resolve the bulk of these arrears cases before they reach that process. One wonders if the mortgage arrears solutions proposed by the banks in the newspapers are sufficient to deal with the current crisis and avoid 42,000 families becoming insolvent.
It is imperative that the role of the personal insolvency trustee is independent of Government, the banks and debtors. It must be seen to be independent, transparent, practical and wholly honest in its dealings. Consumer confidence must be restored. While blanket debt forgiveness is not required, the 100,000 to 200,000 people experiencing debt problems will require long-term agreements to be put in place if they are to meet these debts, thus enabling them to once again plan their lives and become valued productive citizens. The current provision of six-month roll-overs may be insufficient. Every effort will be made to allow people to stay in their homes unless they do not want to do so or the cost of staying in their property is too significant. In recognising the financial difficulties many homeowners have been experiencing, the Government has introduced a number of initiatives to help them, including the mortgage interest relief scheme and the mortgage interest supplement. Some 18,000 people are in receipt of mortgage interest supplement which provides short-term income support to those who are eligible to assist them with their mortgage interest repayments. The Government has set aside €61 million this year for that scheme.
The Government has recently announced the mortgage to rent scheme which will further address the issue. This will provide help to families whose mortgage situation is untenable, enabling them to stay in their homes and pay rent while the ownership of their properties is transferred to an approved housing body. This scheme is expected to prevent 3,500 families from losing their homes.
Some of the critics have argued that the Bill is too favourable towards the banks as mortgage holders are advised to discuss their cases with their banks and negotiate a solution. I have some concerns that if banks fail to engage fully it will leave the debtor in a very precarious position. It is obviously important to monitor the banks in this regard and that the debtors have someone with whom they can raise their cases if they feel the bank is refusing to engage in fair negotiations with them. It is vital that the banks are made to comply with the Bill's guidelines.
I obviously welcome what the Minister for Justice and Equality, Deputy Shatter, told the House on Thursday, 5 July when he highlighted that financial institutions will need to step up and provide their customers with a wider range of financial debt resolution options than is currently on offer. I am also encouraged by the recent statement by the president of the Irish Banking Federation, John Reynolds, in which he stated that all banks have a shared purpose and common ground with Government in seeking to ensure that the greatest possible number of borrowers, who are currently experiencing difficulties with their mortgage repayments, have them restructured and restored to sustainability. Some 200,000 homeowners have some form of debt problem and need long-term agreements to allow them to restructure their debts and regain consumer confidence.
The personal insolvency terms in the Bill are better than, for example, the introduction of an individual voluntary agreement, which many believe would encourage people to live a lifestyle of excess in the knowledge that they could have it all written off through such an arrangement. There has been widespread support for the Bill. The chief executive of AIB, David Duffy, has said he supports the legislation and will ensure his bank meets all its requirements. The Independent Mortgage Advisers Federation has welcomed the Bill, as has Chartered Accountants Ireland.
The Government is very aware of the problems many homeowners are experiencing. It is a priority of Government to help these people and the introduction of the Bill is a welcome step in that regard.
I welcome the opportunity to speak on the Bill, which is very detailed and complex legislation. We need to ensure the citizens of the State get a fair hearing, decent legislation, real reform and support for families in crisis as a result of the debt issue. That is what the debate on this legislation needs to be about. It is not a time for sitting on the fence but a time for real legislation that will support people in their hour of need.
I am a member of the Oireachtas Joint Committee on Justice, Defence and Equality, which held hearings in advance of the publication of the legislation. The heads of the Bill were referred to the Oireachtas Joint Committee on Justice, Defence and Equality on 26 January 2012 by the Minister for Justice and Equality. The committee was invited to consider the heads and to respond to the Minister by 1 March. During the debate we received ten written submissions and we also held a public hearing on 5 February. I thank the committee's Chairman, Deputy Stanton, for the magnificent work he and the team did on this legislation. I also thank those who made submissions and appeared before the committee.
We all accept we need to deal with the broader issue of debt. I am interested in the more than 200,000 homeowners; I am not interested greedy people, bankers, developers and others who lost the run of themselves when it came to borrowing during the Celtic tiger. I come from the old-fashioned school that believes that those who borrow something should pay it back or do their best to pay it back and I am sure the majority of people would agree. They are the interests I represent in today's debate.
All those who participated in the hearings would acknowledge that our bankruptcy legislation is outdated and any attempt to address the issue is welcome. The committee recognised that the Bill was one part of a package of measures aimed at tackling the problem of indebtedness, including the recommendations of the recent Keane and Cooney reports. Another issue that came up during the committee's discussions is the human element of this. The committee acknowledged that this is an extremely complex and difficult matter to address in legislation. Irresponsible lending and borrowing have largely contributed to this problem. All members of the all-party committee felt that attributing blame will not address the problem. Behind all the facts and figures are real people who are devastated at the real prospect of losing their homes. That goes to the heart of the legislation.
While I am not a defender in any way of the banks, there is another issue going on behind closed doors that is not trendy to discuss. When people come to my clinics I advise them to try to do a deal to restructure and I often write a letter for them to a bank or building society manager. The majority of them do not seem to need to come back to my clinic. In other words, I get the impression that many side deals are quietly done behind the scenes. People are restructuring their mortgages and deals are being done. I do not know why it never seems to get mentioned in this House and it is not mentioned in the media. I believe that 90% of people, who come to backbench Deputies with problems with banks and building societies relating to mortgages, end up doing some sort of a deal even if it is only paying back €30 or €40 a week. It is common sense to get €50 a week from a family rather than putting them out on the street and trying to sell the house when the market is depressed. I raise this issue because a number of my colleagues seem to be saying the opposite. While I am open to persuasion, that is my experience as a backbench Deputy.
I have to laugh at some of my colleagues in the Labour Party who regularly do their rant about the bank guarantee and have a go at those of us who were around at that fateful time in 2008. I have heard them defending the credit unions - the workers' banks they call them. I remind my friends and colleagues in the Labour Party that one of the biggest lobbyists during the bank guarantee debate in the Dáil at that time was the credit unions. I clearly remember that the credit unions were on our case to ensure their depositors were protected. It was a very complex issue at the time in 2008. People were very worried that Mrs. O'Brien in Donnycarney, who had €30,000 or €40,000 in her little bank account for a rainy day, might lose all her money. People were phoning into Joe Duffy's radio programme and marching on banks. People should have a little more balance when they pontificate after the event. Of course when we all discovered what went on in the banks, I personally voted against much of the legislation at the time. However, during those few days many things were going on in the country and the high moral ground brigade in the Labour Party would want to wise up to that. They just happened to be lucky to call a decision that appeared to be right in the long term.
At the time many people were frightened, many people's businesses were going down the tubes and they had to make a decision. The core issue was that the guarantee was too broad and we all accept that but at the time those bankers lied to their gills to most politicians. I remember banging on the doors of Deputies' offices and asking them what was the story on the guarantee and most of them did not know. They were being fed misinformation by these senior bankers. In terms of history, it is important that be recorded.
The family home should be protected in any insolvency arrangement and in making insolvency arrangements, the family home should be handled separately from other properties such as investment properties or holiday homes. That is an important message to get across. We have to prioritise the family home. If one takes a hit on investment properties or holiday homes, that is a different debate, as against protecting the roof over one's head. It was submitted to the committee that considered this measure that currently when a judge hears a repossession case, where the borrower is in default, the judge has no discretion in regard to the granting of an order of repossession in favour of the lender. The submission proposed that judges, in very specific circumstances, have discretion to refuse repossession in order to encourage reasonable and fair behaviour on the part of the lenders. We asked the Minister to examine the possibility of ensuring that such provision is included in the legislation.
With regard to dealing with the debt issue, there was an overall view that if someone gets into financial difficulty they should initially engage in discussions with their creditors with a view to making a manageable arrangement based on his or her individual circumstances. This is a common sense approach and one I would welcome.
On the broader issue of Bill, many people have major concerns about it, which I would share. My colleague, Deputy Shane Ross, has called it a bankers' charter; I will examine his views on this and, if it transpires that is the case, l will take that on board and examine it. People are concerned, they are wary of the bank veto and the debtor supports.
I am strongly interested in the position taken by FLAC with regard to the legislation. It has concerns that the new Bill must prove its effectiveness in the face of huge and urgent societal problems of people being unable to deal with their debts. That means the State must offer a suite of effective solutions that people can understand, negotiate themselves, or with proper supports to guide them where appropriate.
I broadly welcome the Bill, as providing a structure for people to start dealing with the unsustainable debts in a structured manner but there are concerns about it. While the Bill is for those who are unable to pay their debts in full, it will also help people who need a bargaining chip with their creditors. This is the positive side of the legislation. I have concerns about the imbalance of power between the banks and debtors, as the Bill preserves the creditors' veto in respect of the debt settlement arrangement and personal insolvency arrangement options. These are issues I would like discussed and dealt with by way of amendments.
The proposed law as it stands still does not impose a legally binding obligation on lenders to accept reasonable applications from customers in arrears; neither does the Bill provide for a right of debtor's appeal to a creditor's decision in any of its options. These are matters that can tweaked at a later Stage and dealt with by way of amendment.
I remain concerned about four elements of the Government's action on the mortgage debt plan, namely, the new legislation, bank co-operation, debtor information and support, and social housing, which must have monitors and checks built in to ensure that the plan is working for debtors. The Bill has improved the provision for reviewing the effectiveness of the personal insolvency arrangement option, down to five years from ten years proposed in January. However, I would argue that this is still too long. Reviews should be annual and should be applied across all options.
The Bill provides for some measures of family home protection. 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. These are important issues I would like to raise with the Minister in regard to these measures.
The four options I would like to raise comprise three tiers of out of court settlements and a final bankruptcy option through the High Court. The first is the debt relief notice for write-off of qualifying debt up to €20,000, subject to a three year supervision period. The second is the debt settlement arrangement for agreed settlement of unsecured debt over five years. The third is the personal insolvency arrangement for agreed settlement of secured debt up to €3 million - this cap can be waived with the consent of all secured creditors - and unsecured debt, over six years. The fourth is bankruptcy legislation to provide for automatic discharge from bankruptcy after three years, except in cases of non-co-operation or fraud, on which the court officials would adjudicate.
A new insolvency service will certify or determine applications for the debt relief notice and will certify applications for the debt settlement arrangement or personal insolvency arrangement, and these will be ratified by the Circuit Court or High Court. The personal insolvency practitioners will make proposals on behalf of debtors in the debt settlement arrangement and personal insolvency arrangement and must act impartially. These are the issues involved and we must ensure they are dealt with. I stress that the key issue is to ensure that the 200,000 people who are in genuine need must be protected. Within that figure there are those who will not pay and those who cannot pay. I do not want to see people trying to pull smart one on the State or on the taxpayers of this country and people who have the resources not making an effort to pay their debt.
I have other observations I would make on the Bill. The creditor threshold on debtor proposals under the debt settlement arrangement and personal insolvency arrangement is 65%, which constitutes a veto. However, it may be less attractive for creditors to reject out-of-court proposals, as the alternative may be a three-year bankruptcy where the creditor may receive less money. In bankruptcy, an income payments order may be made at any time during the bankruptcy and the order can last up to five years. Fees and costs may be high for the debt settlement arrangement and particularly the personal insolvency arrangement options, as in the latter the insolvency practitioner will have to monitor the arrangement for some time. Interestingly, a personal insolvency practitioner will have to be able to vouch that the debtor has been unable to come to a voluntary arrangement with creditors before being able to apply for reliefs under the Bill. This gives an indication of how money advice structures and-or loan modification arrangements will fit in with the new options, in that debtors must first seek to settle debts outside the remit of the new legislative options.
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 personal insolvency arrangement. Yet the recent changes to 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. A new provision here is that while secured debt is not part of a debt settlement arrangement, in practice, the insolvency practitioner must try to ensure in the arrangement that the debtor can maintain the family home, unless it is an unsustainable or unsuitable mortgage.
The provision for review of the personal insolvency arrangement after five years is still too long. It is worth noting that the €3 million cap on secured debts under the personal insolvency arrangement can be waived with agreement from all creditors which may be useful for creditors looking for an out-of-court solution to higher debts. Also, a person looking for relief under any of the three options set out in the Bill must be resident in Ireland now or have been living or having a business here for some part of the previous year. This will be welcome news for people who have emigrated recently and who have debts at home. While a minimum protected income is referred to in the Bill there are no regulations as yet to provide the detail. For bankruptcy, the applicant's debts must exceed his or her assets by at least €20,000. These are important points in regard to this legislation.
This is complex legislation and many people are concerned about it because the debt management systems proposed to be established are also convoluted and complex. A citizen will need a heavyweight of professional expertise to understand or access them. Therefore, at this stage people are relying on the spin of politicians or people involved in the financial services industry.
While the banks still retain a veto it is a meaningless and toothless effort if no action is taken on this issue. I refer to other guidelines such as split mortgages and the selling and renting back of a home but in these cases the mortgage holders will still owe the bank. These issues can be dealt with by the tabling of amendments on Committee Stage.
A significant concern is the question of the minimum protected income which any debtor applicant should be permitted to retain free from debt distribution. The committee hearings were told that it is not clear in the Bill what would be a reasonable standard of living and this uncertainty could affect the effectiveness of the Bill. It was also suggested that a certain level of savings should be allowed to debtors to deal with emergencies. I am conscious that there may be individuals who will attempt to pull stunts or smart ones but I agree that debtors should be allowed retain a certain level of savings. The committee was told that in contrast to interest-only payments which leave debts standing still, every payment should cover the capital, the current interests, the arrears and any interest on arrears, mortgage protection insurance and buildings insurance. This would ensure that every debtor would gain something from all payments. Interest-only payments serve only to sustain the profits of the financial institution in question without helping the position of the debtor. It would seem that debtors and their families will be asked to consign their income to the creditors for five to seven years. These issues were raised at the committee hearings and they could form the basis for amendments on Committee Stage.
The provision of a clawback in the event of an uplift following a successful personal insolvency arrangement was a point raised at the committee hearings so that if the value of the property increased in the future the debtor would be required to repay some of this value to the secured creditor. Another possible consideration is that after a period of five years the clawback would abate incrementally by 5% over a period of 20 years. The committee stressed that the clawback should not act as a disincentive to persons seeking career advancement and that an appeals body would be involved in the decision.
The Bill provides for the reform of personal insolvency law and will introduce debt relief, debt settlement and personal insolvency arrangements for secured debt up to €3 million. It will provide help to those in mortgage debt and it is part of the overall economic package. As well as dealing with the debt issue we must also deal with the issue of the national finances and economic growth. The balance must be correctly struck between dealing with debt and reduction in expenditure and encouraging economic growth.
Those who six months ago disagreed with the policies advocated by the Independent Deputies are now coming around to the reality. We were one of the first groups in the House to hammer home the point that the debt issue must be dealt in tandem with the issue of economic growth. Many Members had a go at us for voting "No" in the referendum but we put debt and growth on the agenda and the French followed our example. The Minister should take note that we strengthened his hand when he went to Europe. It was a team effort and we delivered.
I thank the Leas-Cheann Comhairle for the opportunity to speak on the Bill.
I am delighted to hear that Deputy McGrath has such a great influence on European macro-economic policy. It is acknowledged that the subject matter of this Bill is complicated. I thank the members of the committee who conducted the hearings and I acknowledge the contributions to the hearings by representatives of civil society, non-governmental organisations and individuals. It was decided this morning that the committee may revisit the Bill before Committee Stage because the work of the committee and the views of others have been taken into account in the Bill as published. The heads of the Bill have been changed as a result and it may be necessary for the committee to seek further views if time permits before the commencement of Committee Stage. I acknowledge the work of the Ministers and the officials in the preparation of this legislation. The Bill contains many provisions which are of interest or which may need to be tweaked, so to speak.
The issue of debt and bankruptcy is not new. In ancient Greece the issue did not exist as such but a debtor was forced into debt slavery in order to work off the debt. A period of five years was the usual period but it could often extend to a lifetime. Genghis Khan ruled that anyone falling into debt three times would face the death penalty but even he allowed individuals to work off a debt. The Old Testament allowed for a sabbatical year every seven years in which all debts were automatically released. Islamic law recognises that insolvent persons must be allowed time to pay off or work through a debt or to come to some other arrangement. In later times debtors were committed to debtors prison. My point is that the issue of debt is not new and it has been dealt with in many ways over the millennia. We are facing it in our own way in these times and we are attempting to deal with it in the modern age.
I refer to the need for an appeals process and this was raised at the committee hearings. There are constitutional issues to do with property rights and these are complex. The Credit Review Office performs a very useful function. It has no regulatory or mandatory powers but its opinion is noted. I ask the Minister to consider a similar agency or even that agency performing an oversight function or providing an appeals mechanism for complainants.
An intermediary function is provided for in the Bill and intermediaries will need to be strictly regulated. The banks will need to have protocols in place which are consistently applied by all the banks otherwise banks could have different procedures and reactions to debtors and to the insolvency arrangements. How will the creditors evaluate proposals from the insolvency practitioners? A consistent approach will be needed. The personal insolvency practitioners need to be aware of the criteria being applied by the banks. There needs to be a transparent flow of information back and forth from all concerned. All debtors must be treated equally. If debtors are in a similar situation and one goes to one bank and is treated in a certain way and the other goes to another bank and is treated in a different way, that is wrong and unfair. Work must done to ensure all the banks operate in an equal and transparent way. Less transparency will lead to more cost, time and so forth.
The approach in this legislation is extremely complicated. The Minister for Justice and Equality has said that nobody has all the wisdom in this regard and that he is open to suggestions and ideas. That has been evident to date and it is extremely welcome. However, it is important that the implementation of this legislation be monitored and reported from the first day. Five years is too long. How that can be done is another matter, but it must be done because if there are issues, mistakes and problems with the legislation, they must be identified and dealt with early.
We must remember that most of the people who will use this framework are already under severe stress. Many Deputies have had people calling to their constituency offices who are under severe stress, emotionally upset, physically drained and losing sleep trying to deal with this problem. Many Members have said this is complicated legislation so we must ensure we make it as easy as possible for people to work with it. It also must be clear how it will work. There is a job for the Government and the agency to be established under the Bill to provide information and to ensure it is simple to understand. At present, however, it is very complex, and the more one digs into the legislation the more complex it seems to get. Work must be done to inform people how the legislation will work. The money advice and budgeting service has been mentioned and I welcome that it will be involved. However, it must be stressed that MABS needs resourcing and training to deal with this issue.
There is a limit for the debt relief notice, DRN, of €20,000. That is too low. It should be raised to €30,000. I am not sure of the implications of that, but the figure of €20,000 is too low. The Free Legal Advice Centres, FLAC, made a submission on the legislation recently in which it stated that only 15% of clients of MABS, in its estimation, will qualify for a DRN, principally because of the maximum limit of €20,000 of qualifying debts before this option would be available. Work will have to be done on that, and we also need to see figures on it. FLAC suggests increasing the figure to €30,000 which would expand significantly the number to whom this might apply. It also suggests other options.
The veto has been mentioned by many contributors to the debate. I understand what is happening in that regard but if the Credit Review Office is involved and another stakeholder is monitoring it, even though that might serve to complicate it, it has been shown to work well elsewhere. Obviously it is important that all voluntary arrangements be tried first. Some people have proposed that a voluntary arrangement would be a fifth tier; there are four tiers provided for in the legislation. Minimum income must be protected. The banks and credit institutions will, understandably, try to get what they can from this arrangement. However, the minimum income must be protected. The Vincentian Partnership for Social Justice has put forward a proposal on how to calculate a minimum income. That calculation must be clear and everybody must know how it is to be done.
The intermediaries must be trusted by both the banks and the debtors. That means serious regulation. It also means that bankruptcy as a concept should be spoken about. At present, there is a stigma attached to bankruptcy in Ireland, and many people do not want to go that route due to that stigma. If that stigma were removed in some way or made less undesirable, it could mean that people would be less fearful of it. It has been said that credit institutions quite often refuse what might be seen to be a reasonable offer, but if the option is bankruptcy and people were prepared to take that route, the institutions might think again about it. That is the thrust of the Minister's thinking but there is a concern that people might not opt for bankruptcy and instead take an offer that might be quite severe for them, just to avoid bankruptcy and the stigma attached to it. There is work to be done to get that right as well. The other issue is that people often seek help very late in the day. MABS tell us that constantly. Again, it is because of the stigma, embarrassment and so forth. We must encourage people to seek help as early as possible.
As I said previously, we must evaluate this process as we proceed. Not only must we know how it is working but we also need to know the socio-demographic characteristics of those using the legislation. We need to know who is using this and many other statistics in this area because, at present, we do not really know what is happening.
The Minister might also reflect on the issue of the insolvency trustees. How are they to be paid, who will pay them and how much will they be paid? There is a risk of establishing an army of people who will be involved in this. They need to be regulated and controlled, and we must consider how that will be done.
There are some people who have decided their mortgages are untenable, and I realise this involves more than just mortgages, and they have decided to hand over their houses to the banks. That leaves them with a debt. I call on the Minister of State with responsibility for housing, in particular, to ensure the local authorities respond quickly to this. I have encountered a number of cases where people have given up their houses but even though the Government has decided they can go on the housing list, it is not happening in some cases. There is huge resistance to it. Instead of the local authorities and the housing officers asking how they can help these people, they are hunting them away in some instances. There must be clarity about this. If people give up their houses because they are no longer able to maintain the mortgage payments, they must be taken on by the local authorities. The local authority should at least allow them to be put on the housing list because they would then qualify for the rent supplement. Otherwise, such people will be homeless. A number of us have come across such situations. Those people must also deal with the now unsecured debt, which is the overhand of the mortgage.
Moral hazard has been mentioned, but write-downs occur in the commercial sector all the time. It works quite well there. With regard to the debt settlement arrangement, DSA, a State-funded public insolvency area must be created here. Perhaps some MABS advisers could be seconded to it. In Norway and France the creditors can appeal to courts; there is an appeal system in both places. This area is complex and people must overcome many hurdles. Initially people who are already under stress must locate a personal insolvency practitioner, PIP, who will go through their affairs and prepare statements. They must show that they are insolvent. The PIP must apply to the insolvency service and there are reviews involved, but no timelines for them. The creditors can appeal the granting of a certificate to a court if they wish. If the certificate is applied for, the PIP must notify the creditors. Values must be estimated and, at that stage, a meeting of the creditors is called. There is a great deal of bureaucracy and procedures involved, which could deter people. We must streamline that and, initially, make it very clear. As I stated, there is a danger that if people fear bankruptcy, they might agree to an unworkable payment process. We must bear this in mind.
I would like the Bill to do more for those who recognise they have unsustainable mortgages and who agree with their banks that they should give up their homes. While the arrangement is that they can pay as much as they want for up to five years, they can do that now anyway. Alternatively, they could go to England for a year and return almost completely debt free. Many people in this position who have no business or debt arising from investment properties lost their incomes due to the downturn and have engaged fully with their banks to try to work their way out of debt. Their homes are in serious negative equity and they have totally unsustainable mortgages. The Bill should specifically recognise circumstances where debt is associated primarily with the family home and the individual concerned wants to remain in the home. This is covered in the Bill but more needs to be done.
The legislation is complicated and there is a lot of work to be done on it yet. I am worried that people may be deterred by its complication. We need to be very clear so people can use the service proposed. The personal insolvency trustees will need to be subject to strong regulation. While I know an appeal system will not work, a review system should be contemplated. Perhaps the Credit Review Office, which is working quite well in other areas, should be considered in this regard.
There ought to be protocols in the financial institutions so it will be very clear how they are working and so there will be clarity and transparency in both directions. With such protocols, people will be treated consistently and fairly. The insolvency practitioners should know how the system works so they will know what people are getting into. These measures should be reviewed from day one. Since the proposals are so new and complex, a wait of five years is far too long.
We await Committee Stage with keen anticipation. It will be challenging. Before the Minister for Justice and Equality, Deputy Shatter, joined us, I stated that the committee may, if there is time, invite further submissions on the Bill, which has changed considerably since the heads were introduced and since we first examined it.
I welcome the publication of the Bill but, as Deputy Stanton said, it requires major amendment. It represents a very complex and bureaucratic approach to everyday lives. We must first recognise the impact of omitting the bankruptcy option, which pertains to the big and the few. Most ordinary people in debt want simple solutions that are not overly bureaucratic. They want to get on with their lives.
The Government has not been very proactive on the debt issue. This response seems very much controlled by the banks. The reality is that debt worries are affecting many people. Debt is probably the main issue holding back recovery. More important, it is causing untold misery and hardship. We must ask ourselves how many people who have committed suicide in the past four years did so because of debt worries.
The second point we should consider when examining people's response to debt is that if individuals, particularly those at whom this Bill is aimed, really understood all the rules well, they would not really worry as much as those who did not seek any advice. One would realise that in existing law, there are a large number of remedies, particularly in respect of small debt. Therefore, we need to reach out to these people and remove the shame associated with their debt. We need to tell people that indebtedness can be experienced by anybody.
At a time in which we have done great work on reducing the number of road deaths, we must ask how many suicides have been caused in recent years because of debt worries. How many relationships and marriages have broken up because of debt? For human, social and economic reasons, we need to address this.
Time and again we rightly say that people with addiction and illness problems should move on from guilt complexes. I agree with that very strongly. I am worried that we are adding to the guilt complexes over debt with all the talk of moral hazard. When I hear banks talk about moral hazard and express worry about moral hazard associated with a write-off, I think of two phenomena, the first of which is that all of us can make mistakes and the second of which is that most people who make mistakes learn from them and do not repeat them. To hear banks talking of moral hazard is a joke given that they were the biggest serial gamblers of all time. They gambled the equivalent of trillions of euro worldwide. The problem was not confined to Ireland alone. Across the world, the banks have ruined the lives of many people and have caused much misery. Therefore, I do not buy into the moral hazard argument. It is totally spurious and it makes it harder for people with debts to seek advice and relief.
Begrudgery and arguments associated with moral superiority are causing considerable damage. One hears people asking why they should bail out certain individuals. They should do so because they are fortunate enough to be able to pay their taxes. If somebody in one's community is down, is it not right to give him a helping hand on the basis that if one ever needed a helping hand, that individual would give it?
If we were to take the argument of moral hazard to its logical extreme, no smoker, alcoholic, individual involved in a car accident, motorist who was not wearing a seat belt or motorist who was driving a little too fast would be admitted to hospital at the public expense. The argument would be that the individuals should not have done what they did, and that we are only encouraging them to smoke, drive too fast, not wear a seat belt or drink too much by admitting them to hospital. Therefore, when one considers the moral hazard argument in everyday terms, one realises it is crazy.
Let us identify the reasons people are in debt and address the problem in the interest of the common good and in a spirit of community and sharing. My experience of people in debt points to those who, through no fault of their own, are utterly foolish with money and can never seem to keep it in their pockets. They borrow ill-advisedly. I have met people with gambling and alcohol addictions who never have money and who are always in debt. Such people will always be in society. We must help them not to hurt themselves and those around them. I will always help them because the trademark of a decent society is helping those in trouble. I realise, however, that giving more money in any form to people in this group is like putting water into a bucket with a hole in it; on doing so, one is no better off. There are other ways to deal with them. They were with us in the good times and will be with us forever. They need our help and we need to find ways to provide it.
The majority of people in financial difficulties either borrowed beyond their means when they could get easy credit from banks - the banks were giving it out over the telephone but are unlikely to repeat the exercise, having been badly scorched - or did not borrow overly much and based it on the expectation of future income. This latter group could include people in the building trade who had partners in the public service, both of whom had good incomes and borrowed reasonably. One could not claim that, had their incomes been maintained, they had borrowed beyond their means. Other people are a mixture of these two groups.
The moral hazard argument does not stand up. If people tried to repeat the exercise, the banks would be unlikely to lend to them again. We need not worry about the moral hazard of fixing people's problems.
I wish to raise a general money issue as opposed to an issue relating to the Bill. We must consider the macro level construction of money and the banking collapse in Spain and Germany, from where most of the money was loaned, as well as the rest of the world. When we put our money into banks, do we want them to gamble with it, our pension funds, our life assurance policies, our insurance funds and so on? Just as there were ethical investments, have we reached the point at which people making investments or buying into pension funds should take smaller returns if they can be assured their money will not be gambled on the market? The world economy would not be at the whim of the so-called markets, which have got matters wrong before and will do so again. Given the chaos caused by the markets' movement of money from here to there and their multi-trillion euro bets on what would happen, people would not want to be complicit. The world must consider these fundamental issues. Contrary to popular opinion, the bulk of the money in question does not belong to the rich. Instead, it is ordinary wealth that is aggregated and played on the super gambling markets, which have brought us so much misery.
Despite the Cooney and Keane reports, little has happened. How should the problems the Bill sets out to tackle be approached? The Bill's proposals are worthy, particularly given the fact that we must modernise our legislation. If I have enough time, I will address some of its details. However, other non-bureaucratic solutions could give people considerable relief. For example, we could reduce interest rates. The European Central Bank, ECB, keeps reducing rates - the 0.75% is predicted to reach 0.5% - so that the consumer, the person with the debt, is under less pressure. It also works perfectly for the person with the tracker mortgage. It is the greatest relief possible. Due to Basel III and prudential capital assessment reviews, PCARs, however, deposit interest rates have no relationship with the ECB's rate. This situation came about when the regulator decided to get the deposit to lending ratio into a good gear quickly. Since there is only a certain amount of money to deposit, we have created a bubble in deposit interest rates. It places the banks under financial pressure, which is passed on to the customer in the form of variable rates, sub-prime mortgage rates, credit card rates and so on.
It is interesting to spell out the difference made by interest rates, the simplest instruments of all. If one has a mortgage of €200,000 at 7%, interest will cost €269 per week. If one reduces the rate to 5%, interest decreases to €192. If the rate is reduced to 2.75%, similar to a tracker mortgage's 2% above the ECB's rate, interest decreases to €105. This is extraordinary. If the ECB's rate reduces to 0.5%, the person's interest will decrease to €96. For many people, the difference between €269 and €96 is the ability to pay. It is often the difference between being able to pay with a little bit of comfort and not being able to pay at all. Therefore, Europe should reduce deposit interest rates first so that banks can lend to people. Otherwise, reducing the ECB's rate will be pointless. The Government should consider applying pressure or introducing legislation to ensure maximum interest rates. We need to reduce interest rates. This is the simplest solution and is unbureaucratic. Armies of personal insolvency plans, PIPs, would not be needed.
I have always favoured a second solution. Be it through the mortgage interest supplement or an amendment to the family income supplement, FIS, to take mortgage repayments into account, a direct payment should be made to a person over a short period while he or she is, for example, unemployed. Some people were reasonably prudent but ran into problems because their incomes collapsed, for example, a blocklayer who earned €1,000 per week, is now earning nothing and whose spouse is working. The simplest solution is to lift such people over the sty. When they return to employment and the economy picks up, the supplement is withdrawn. From where would the money come? Regardless of how we approach the situation, we will pay. Under my solution, people would repay their mortgages and the banks would not need as much money to absorb their write-offs. We own the majority of the banks. If the mortgages they provided are not repaid, we will pay.
The Bill is dominated by the banks' thinking. The first two solutions, those in respect of less than €20,000 and up to €65,000, should be reduced to one. An ordinary person with a debt of less than €20,000 would need to be in awful trouble to go through this unnecessarily complicated process. If one owed €20,000, I am not sure as to whether one would be better off going to the local District Court instead, admitting to the debt, handing over an examination of means and accepting the judge's decision of a repayment of €10 per week. That might be preferable to the procedure employed here. It should be remembered that many of the people with these small debts have no experience in dealing with these very complicated procedures.
There are other issues. If a person gets €500 or his or car is worth more than €1,200, it has an effect on the process, and that is below the belt. A person may have bought a car worth €4,000 and be three quarters of the way through paying for it with a hire purchase scheme. This is a penal element. The worst part is that having done the deal and agreed the write-off of a debt of less than €20,000, if a person manages to get a job, the deal would be reviewed.
There was a big debate here about the leaked ESRI report about disincentives to work and the poverty traps. In the real world, people do not want to pay what is effectively 75% tax on work. In many cases when people get jobs, between the universal social charge, PRSI, PAYE and all the rest, it is easy to have the tax rate at 35%, 40% or 50%. People would then be told that agreed repayments would be adjusted, and when all of this comes together, what is to be left in one's pocket as a reward for hard work and getting a job? It would be much more tempting to do a little bit on the black market so as not only to avoid all the tax and PRSI but also the possibility of the loan repayments being adjusted.
When debt is written off, it should be done conclusively. We should allow people a new start like we do for people who have gone bankrupt. Those people can have millions of euro written off and when they start making millions of euro again, the bankruptcy is not adjusted, at least in my understanding of it. If it is good for the rich it is good for the poor. Those who will go bankrupt would have been wealthy and got into a deep hole. I beg the Minister to think about this again.
I know there will be logical but boring and unrealistic arguments, and it may be shocking to write debt off if the possibility remains that a person would get a job. Imagine how horrendous it would be if a person could get a job and rebuild his or life. We are speaking about debts of under €20,000, mainly to credit institutions which acted in a totally reckless manner in many cases in loaning this money. They contacted people, asking them to take more money, and they increased credit card limits without being asked.
The Minister should take that element from the Bill and make it clean and simple. A deal is done on a person's current circumstances. There are many rules concerned with how long people should have debt before this process would come into effect. I do not believe, because of its complexity, that people will charge in through the door to avail of this process to get rid of debts of under €20,000 or €65,000. I have a simple request for the Minister, that he reconsider the process of writing off debt. What is done is done and the debt should be written off conclusively. If a person is lucky enough to regain employment or receive an inheritance, he or she will pay tax on that. Otherwise, such people should be able to rebuild their lives and produce again in our economy.
I very much welcome this Bill, which is one of the most significant Bills that has come before the 31st Dail. The Bill provides for comprehensive reform of insolvency law and practice. It provides for new, more flexible options to address the circumstances of insolvent debtors and it addresses the obligations of debtors and the rights of creditors in a proportionate and balanced way, taking into account the financial reality of individual circumstances.
The development of modern insolvency law is a key commitment in the programme for Government. It was also required by the terms of the EU-IMF programme of financial support for Ireland. The reform also takes into account recommendations made in the interdepartmental working group on mortgage arrears report of October 2011, the Keane report. That report states: "The early introduction of new judicial and non-judicial bankruptcy options is vital. Without effective bankruptcy legislation the mortgage arrears problem will not be resolved." The general scheme of the Bill was published for consultation by the Government on 25 January. Several important submissions, in particular the report of the Joint Committee on Justice, Defence and Equality, of which I am a member, were taken into account in the finalisation of the Bill.
Essentially, the Bill provides for the reform of personal insolvency law and will introduce three new non-judicial debt resolution processes. The first of these is the debt relief notice which will allow for the write-off of qualifying unsecured debt up to €20,000, subject to a three-year supervision period. The Bill also provides for a debt settlement arrangement for the agreed settlement of unsecured debt over five years, and the personal insolvency arrangement will enable the agreed settlement of secured debt up to €3 million - although this cap can be increased with the consent of all secured creditors - and unsecured debt over six years.
The Bill makes provision for enhanced oversight of the three new debt resolution procedures by the Circuit Court or the High Court where the debts concerned are in excess of €2.5 million. The Circuit Court will receive the debtor's case file from the insolvency service with an application for a debt relief notice or a protective certificate in respect of a debt settlement arrangement or personal insolvency arrangement.
The court's consideration or hearing will take place on an ex parte basis and neither debtor nor creditor will be required to be present, with no time delays or costs incurred. I very much welcome that. This efficient procedural approach is repeated at the conclusion of the three-year supervision period for the debt relief notice or on the conclusion by the parties concerned of a successful debt settlement arrangement or personal insolvency arrangement proposal prior to its formal registration. A court hearing will only be necessary subsequently where a creditor objects on one of the grounds specified in the legislation. This is consistent with the approach recommended by the Law Reform Commission.
This enhancement of court involvement has the significant benefit to the debtor of providing protection from enforcement actions by creditors, either during the negotiation period or during the lifetime of the arrangement. It is likely that debtors would be the subject of judgments obtained by creditors. In addition, the involvement of the court also ensures our new processes will be capable of meeting the criteria in regard to the European Union insolvency regulations and will recognise cross-border insolvency procedures.
The Bill will continue the reform of the Bankruptcy Act 1988, which got under way 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-year arrangement. We have seen high profile cases recently of what is called "bankruptcy tourism", the most notable in my constituency being the case of Mr. Tom McFeely, the Priory Hall developer. Will the Minister clarify how the Bill will affect this type of behaviour in future?
The insolvency service of Ireland will be established to operate the new insolvency processes and provide a focal point for development of insolvency policy. Organisation and planning for the new service is under way and I understand the director designate will likely be appointed during the summer. However, as the new service will administer a completely new approach to insolvency in the State, with new and complex legal provisions, it is going to take time to become operational. I understand the concerns of those who want an immediate introduction but it is better to the get the service right rather than rush it, which has happened all too often in policy formation in Ireland.
The provisions of this Bill will require careful consideration by all those involved in it. However, individual circumstances vary and the solutions found within the context of the debt settlement arrangement and personal insolvency arrangement processes will also vary. It should be emphasised that the Bill makes clear that those persons experiencing debt difficulties should primarily engage with lenders and negotiate an appropriate settlement.
I emphasise the Bill makes it clear that those experiencing debt difficulties should primarily engage with their lenders to negotiate an appropriate settlement. Lenders should also engage properly with customers. There is no question of the Government forcing settlements on either debtors or creditors. Such an approach would run into legal and constitutional difficulties. The new debt settlement arrangement and personal insolvency arrangement processes described in the Bill facilitate a voluntary deal between a debtor and a specified majority of his or her creditors. We should not forget many different creditors may be potentially involved in the new processes. Many persons or companies may be both debtors and creditors. While I understand the strong antipathy towards financial institutions and their contribution to our current economic difficulties, we must not lose sight of our objective, which is to introduce reformed, workable and balanced insolvency legislation. Such legislation is a required feature of any properly functioning economy. It will assist not only debtors and financial institutions, but also corner shops, tradespersons and local co-operatives.
All debtors and creditors are concerned by this reform. For their sake and the sake of the wider economy, all must be treated fairly. Many individuals are in personal financial difficulty because of the failure of other individuals to pay for work properly completed or goods or services supplied to them. 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, put forward what he or she considers to be a realistic offer to his or her creditors which would restore the debtor to solvency within a reasonable period while at the same time giving creditors a better financial outcome than the alternatives of debt enforcement or bankruptcy. The creditors will need to consider carefully the debtor's offer, conscious that if they refuse, the debtor has another option, namely, the standard debt discharge procedure available under the reformed bankruptcy laws. This is the ultimate appeal mechanism of the debtor. However, in this eventuality - which is best avoided - control is effectively lost by both sides. It would make sense for the debtor and creditor, especially where there is only one main creditor, to seek to conclude an agreement together. The reforms contained in the Bill, in addition to providing new legal remedies, provide a significant incentive for financial institutions to develop and implement realistic agreements to resolve debt issues with their customers.
The provisions relating to a debt settlement arrangement or a personal insolvency arrangement are specifically designed, as far as is practicable, to facilitate a debtor's continued ownership and occupation of his or her principal private residence, unless the debtor does not wish to do so or the costs of the debtor continuing to reside in it are disproportionately large.
The issue of reasonable living expenses is of particular importance in the application process for debt relief notices. I dealt with a harrowing case at my advice centre yesterday and unfortunately such cases are all too common. Where an applicant has a disposable income of less than €60 per month after allowing for reasonable living expenses, and assets and savings of less than €400, with exemptions for essential household or work items and a vehicle worth up to €1,200, he or she will be entitled to a presumption of qualifying for the debt relief notice by the insolvency service in making its determination.
I hope the provisions contained in the Bill will act as a catalyst for honest, open and constructive engagement between unsecured and secured creditors and those in genuine substantial financial difficulty. The Bill provides concrete options for those genuinely unable to discharge their financial obligations as opposed to those who can but will not do so. I commend the Bill to the House.
I congratulate the Minister and commend him, the departmental officials and all those who worked on the preparation of the Bill. I understand it was extremely difficult and required much legal checking and careful drafting, and it is a credit to those who drafted it and worked on it.
Many Members of the House have welcomed the Bill, including those involved in the previous Administration who were 14 years in government. If anything is a legislative monument to the failures of their policies over the years, it is the Bill, because it has been created to deal with the disastrous consequences laden on families and individuals throughout the country who were caught up in an unsustainable economic model based on nothing more than revaluing land and property and constantly refinancing them so people were burdened with more and more debt.
We had an economy in which it was considered socially acceptable and morally right for young couples with limited means to borrow ten times their income to live in a semi-detached house in the suburbs. This was the type of value held by the society we had. These couples are now struggling because one of them may have lost a job due to the collapse of a construction sector based on shoddy foundations and the consequent spreading of this collapse into the domestic economy, and they are stuck with a huge debt on a modest home which is crippling them. To help these people primarily we must bring forward this Bill to allow them have some hope they can resolve their financial difficulties. To hear some of the pontificating and self-righteous remarks from the Fianna Fáil Members during the debate on the Bill is quite simply galling, and they ought to reflect when they come to speak here and have a little more of a humble tone in their voices.
There are two ways to deal with debt settlement. One either writes it off or gives people the means and ability to pay it back. I do not see the Bill as the be all and end all of dealing with the debt problems in the country. The main thing we should do is try to get people back to work, increase their incomes and get the economy functioning again so people can afford their debt and pay it back. This is the most logical way to deal with it and it is the way which will have the best impact on people's lives. Unfortunately, even if we do so, the problem is still so immense the Bill will be very important.
Every day in their advice centres public representatives deal with the consequences of the disastrous economic policies and the disastrous lending by banks. Families and individuals come to speak to me and one would be surprised at some of the people who are in trouble. These include people with good jobs who have mortgages of more than €1 million and cannot afford them any more and people on very limited incomes and social welfare. The debt crisis is not confined to any demographic or sector of society; it is widespread and invidious and is causing untold concern. If a study were to be done on the impact of debt on health, stress levels and family life it would show a disastrous and very dangerous tendency.
I welcome the three main provisions of the Bill, namely, the debt relief notice, the debt settlement agreement and the personal insolvency arrangement. They are very helpful and will have many benefits. The practitioners involved must take cognisance of the very fragile state of those coming to see them with difficulties and problems, and a very compassionate approach must be taken. The drafting of the provisions in the Bill on the delivery of the service is technical, but when these services come to be delivered, care and attention must given to those in a situation they never thought they would be. They may have a sense of shame, which they should not have, or a sense of powerlessness and futility that they cannot control their own financial arrangements which is hurting them and in some cases making them feel they are lesser people because of it. This needs to be taken into account in any delivery of service. Adequate training must be provided for those who will be involved with personal insolvency practitioners, and MABS will also be involved, to ensure people are treated with respect and dignity, and that their situations and any possible mental stress are understood.
The problem is immense. Figures show that at the end of March 77,630 mortgages representing more than 10% of all mortgages were in arrears for more than 90 days. Those figures are telling but what they do not tell one is that mortgages are what people pay first. People will sacrifice food, car, light and heating bills to ensure the mortgage is paid first because of the attitude in this country that one's house is the most important thing. Those figures, while dramatic, mask another level of debt which is below the surface and with which people are struggling.
I like the idea of the independent insolvency service. That is very helpful. This legislation cannot be seen in isolation. The announcement, almost at the same time, of the mortgage-to-rent scheme to help people, who will never be in a position to pay back the debt, to remain in their homes with their families entrenched in the same community, with their children going to the same schools, availing of the same services and with the same neighbours. Merely changing the structure from ownership to renting is a revolutionary idea. I know the targets are quite limited but a couple of thousand people are expected to avail of it. It is socially compassionate and socially right and I very much support it as another element of the manner in which the Government is dealing with insolvency legislation and people's debts.
There are few issues which I am sure can be teased out on Committee Stage. I am sure the Minister will commit to engaging fully on Committee Stage even though I know he has a very ambitious timeframe, and rightly so, to get the legislation implemented by the end of the year. One is the debt relief notice. I note the figure of €20,000 has been set as the ceiling for that. Having talked to people in MABS in Galway and in the citizens advice bureau who deal with these issues, a higher limit - although not a significantly higher one - of perhaps €30,000 would be a much more appropriate level and may have a greater and an immediate impact and keep people out of the next layer. It would keep people in the lower layer, which can be dealt with quickly. The issue of the attachment order that can apply after the three years of bankruptcy has been raised. That may defeat some of the purpose and attractiveness of the bankruptcy period of three years if it is not amended. I am sure the detail and the logic of that can be teased out on Committee Stage.
I support this legislation. What I really like about it is that it takes people away from lawyers. People are terrified of, and are intimidated by, the courts, solicitors and lawyers. The idea of this being non-judicial is more cost effective and allows for more human, trusting and relaxed interaction with people who are already in a very fragile state. Again, I welcome the Bill, although there is some work to be done on Committee Stage to clarify some issues and to see if there are other possibilities. Overall, I commend the Minister, the Government and the officials on drafting the Bill.
Like every other speaker, I welcome the motivation behind this Bill. There is no doubt that it is a recognition of an extraordinarily acute problem which is growing by the day and which probably should be tackled even more urgently than it is being tackled. It has not been properly recognised by the banks but politicians are now beginning to recognise it because of the awful difficulties which they are finding among their constituents on a daily basis, in particular in the area of mortgage debt, although not exclusively mortgage debt as there are bigger debts and smaller debts. This Bill certainly attempts to tackle these problems in a methodical, forensic and genuinely well motivated way to relieve the distress of many people who are suffering absolutely insuperable problems.
What worries me about the Bill is that it seems to be guided by extraordinarily conservative and institutionalised thinking. Although there are some novel suggestions in the detail, and it is new territory, there seems to be a pattern that those who are controlling the strings in our lending policies and institutions are still in positions of great strength. I suppose the predecessor of, or the forerunner to, this Bill was the Keane report on mortgage arrears published last October, which shows the length of time it takes to get from pillar to post in problems of this depth. The Keane report, whatever its recommendations - I do not think I will deal with them because they have been superseded - contained the thinking of institutionalised and official Ireland. I say that because I could not understand when the Keane group was set up how and why the particular personnel were chosen. Whatever the merits of the group, it was almost inevitable that it would come out with a report which was very acceptable to those who were in powerful positions in the lending institutions in Ireland. It was stuffed with civil servants of great calibre, but certainly of a particular way of thinking, and two bankers for a reason I cannot understand.
Perhaps it is all right and justifiable in a group with a membership of that size to have to bankers on it. All the bankers in this saga are undoubtedly those who have the greatest case to answer but the following question has to be asked. If the Government is tackling a problem of this nature, which is so serious for so many citizens and individuals, why did it not put on that group people who are directly affected by this problem and who are not sitting in some sort of self-interested ivory tower directing the operations? Why was there not a representative of MABS, FLAC and of the enormous number of consumers and borrowers who are suffering? Instead we got the usual suspects handing down a so-called solution or suggestions on mortgage arrears from the top. It reflected conventional thinking.
It is no wonder that after the publication of the Keane report, the first to welcome it was the Irish Banking Federation. If one is going to get a panacea or a solution to a human problem of this sort, which is welcomed by the Irish Banking Federation, one must ask whether the input of this lobby group is stronger than the input of the people who are suffering? As Deputy Nolan and other Deputies said, wherever the responsibility for this problem lies - I do not wish to allot it politically at this stage - the primary responsibility lies with the reckless lenders. Certainly some of the responsibility lies with those who borrowed. They included individual, responsible citizens who went to their banks, borrowed far too much and are now in serious difficulties. They surely have a responsibility, too, but the primary responsibility across the board lies with banks and bankers.
The three main categories dealt with by this Bill include the debt relief notice category, which involves very small borrowings. The banks have a responsibility whether it concerns unsecured or secured debt, mortgage debt or even bigger debt. The pattern is that the banks were drip-feeding citizens, businessmen and irresponsible people, playing on their weaknesses and handing out vast sums of money which they could not possibly have been able to afford to pay back. To suggest now that those institutions are the ones that should be the greatest influence on the preliminary solution is bad enough. The problem, however, is that their influence on this Bill is very detectable as well.
The Irish Banking Federation has criticised one or two elements of the Bill, which I suspect is tactical. The Bill, however, fails to recognise that the villains of the piece in the insolvency problems faced by Ireland are the same people today as they were in 2008 and before that. The apparent influence they have had on this Bill is both obvious and regrettable. Let me be more specific. Everybody knows that the IBF beat a path to every Minister's door. Some Ministers are more accessible than others but it is clear that in the case of all Ministers the IBF has a major influence. The power of the banks has not been broken or reduced. When it comes down to the nitty-gritty, they have had an absolutely unacceptable input into legislation. The threat which they carried with them on 29 September 2008 is still there and they are still listened to as though they have some sort of authority. They have got power but they should not be given the same deference today as they were given in 2008.
The problem is manifest in this Bill when it comes to the arrangements being made between debtors and creditors. It seems clear that the arrangement being made between debtors and creditors - however many intermediaries there are, and whatever insolvency monitoring goes on - unequal. This is because the debtor, particularly in cases of house mortgages, only has one weapon. The creditor, which is nearly always the bank, has several. The arrangement which is made leaves the debtor with one option if he or she does not like it - bankruptcy. The bank can walk away and veto it. There is no doubt that there is a bank veto on the debtor, certainly in cases of mortgage arrears which have not been paid. The idea that 65% - in value not in votes - is in some way a protection for the debtor is completely unacceptable. Everybody knows that if a person has a mortgage, whatever the size, it is almost inevitable that it is, first, their largest debt and, second, it is a debt which is nearly always held by one bank or building society. Even if it is not, it is not inconceivable that the banks, as they always have done, will gather together and gang up against the debtor. It is an unequal relationship.
I suggest there is only one way of removing the bank veto from an arrangement of this sort and that is by removing the bank. That is what I mean by institutionalised thinking. The idea that this Bill should give that power to those who have proved themselves to be manifestly unsuitable in their treatment of citizens and in their reckless lending in the past is unacceptable. I do not understand why the Government did not decide to take the banks out of the equation. As it is, they are certainly due back the money that is owed to them, which is the basic premise of this Bill. The thrust and purpose of the legislation is to find a solution by which the borrower can pay back.
Some months ago, there was a Fianna Fáil Bill before the House which did not go far enough. What was to stop the Government from setting up a body - I do not care whether it is judicial or non-judicial - that could call on both parties to be subject to its adjudication?
That body could outline how matters could be resolved. There is no way banks can continue to be allowed to veto an arrangement of this sort. They have proven themselves to be completely unsuitable. An independent body should have been set up to tell both parties, if necessary, in as sympathetic a way as possible to the borrower, what the right solution would be. To allow the banks to tell the borrower to take it or leave it as the alternative is bankruptcy, which is what is happening here, is completely unacceptable. It is treating those who are in vulnerable situations in the normal bullying way that banks have acted for many years and certainly since the State started allowing them such latitude.
The way to go was through an independent body. However, to introduce a Bill which, if a person chooses the bankruptcy road at the behest of the banks because they have no other choice, allows no real appeal process is very dangerous. I cannot understand why there is no appeal process. I listened to what Deputy Stanton said about the possibility of the Credit Review Office becoming an appeals process but I find that puzzling. It is more of the kind of institutionalised thinking which we are becoming very used to. The Credit Review Office is a bankers' gig and a failure. It is now being pumped up and greeted as some sort of salvation for those small businesses and borrowers who have been treated badly by their bank.