Dáil debates

Tuesday, 2 July 2013

Ceisteanna - Questions (Resumed) - Priority Questions (Resumed)

Bank Codes of Conduct

2:50 pm

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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66. To ask the Minister for Finance the reason, at a time of still increasing mortgage arrears, he is allowing banks, through a revised Code of Conduct on Mortgage Arrears, to deal more aggressively with struggling home owners including by removing the 12 month moratorium, lifting the limit of three contacts per month and supporting the reversal of the Dunne judgment. [32192/13]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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The Central Bank has now concluded a review of the Code of Conduct on Mortgage Arrears, CCMA, following a public consultation process, with in excess of 230 submissions received. The revised CCMA was published on 27 June 2013 and came into effect on 1 July 2013. The submissions made, as well as a feedback document outlining the Central Bank's response to some of the main issues raised, have been published on the Central Bank's website, www.central bank.ie.

The CCMA provides an integrated and cohesive package of consumer protection measures for borrowers facing or in mortgage arrears. It reflects the current mortgage arrears situation and seeks to deliver on the following principles: to ensure appropriate resolution of each borrower's arrears situation; ensure that lenders deal with borrowers in a fair and transparent manner; support and facilitate meaningful engagement between lenders and borrowers; and ensure borrower awareness of the benefits of co-operating with their lender, and the consequences of not co-operating. With regard to the moratorium, to clarify, the 12 month moratorium applied from day 31 after arrears first arose and did not take into account any time taken by the lender to gather information from the borrower, complete an assessment or make an offer. The revised CCMA requires a lender to wait at least eight months from the date the arrears arose before legal action can commence against a co-operating borrower.

Separately, regardless of how long it takes the lender to assess a case, and provided that the borrower is co-operating, the lender must give three months' notice to the borrower before they can commence legal proceedings where the lender does not offer an alternative repayment arrangement or the borrower does not accept an alternative repayment arrangement offered by the lender.

This will give co-operating borrowers time to consider other options that may be available to them, such as voluntary surrender, voluntary sale or a personal insolvency arrangement, PIA. The combined effect of the protection period and the requirement for a notice period is that, for a co-operating borrower, legal proceedings must not commence until three months from the date the letter is issued - where the lender declines to offer an arrangement or where the borrower does not accept an arrangement offered - or eight months from the date the arrears arose, whichever date is later.

Additional information not given on the floor of the House

With regard to the Dunne judgment, the Government has taken steps to address a lacuna in the law arising from the High Court decision in July 2011 which created uncertainty in the law relating to the exercise by lending institutions of their repossession rights. A Bill which will ensure that statutory provisions in force prior to implementation of the Land and Conveyancing Law Reform Act 2009 on 1 December 2009 will continue to apply to mortgages created prior to that date was published at the end of March. The Bill has recently completed Committee Stage and will move to Report Stage shortly. However, one of the important provisions in the Bill is that it will give a discretionary power to a court to adjourn a repossession hearing in respect of a principal private residence - if it considers this to be appropriate - in order to allow the debtor to propose, and the secured creditor to consider, the possibility of a PIA as an alternative to repossession. In preparing a PIA, there is an onus on a personal insolvency practitioner to formulate a proposal, in so far as is reasonably practicable, on terms that will not require the debtor to dispose of an interest in or cease to occupy a principal private residence.

The Deputy will be aware that the Personal Insolvency Act 2012 provides new statutory insolvency frameworks to allow debtors - through the utilisation of professional personal insolvency practitioners - and creditors to consider an arrangement to resolve unsustainable mortgage and personal debt. It also provides a legal framework for the resolution of mortgage arrears as well as other personal debt. It will also provide certainty for borrowers and lenders alike regarding the consequences of non-payment and failure to reach agreement. The effect of this legislation is to rebalance the relationship between debtors and creditors and to offer more accessible and effective options to debtors to deal with debt difficulty. The Insolvency Service of Ireland, which will oversee the operation of the new insolvency frameworks, has been established and will shortly begin accepting applications for the new personal insolvency processes.

3:00 pm

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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As the Minister said, the new code of conduct on mortgage arrears came into force yesterday. There is no doubt that the banks are enjoying the fact that the Government and the Central Bank have let them off the leash. In recent months there has been a major spike in the number of people whose mortgages are in distress contacting my constituency offices in Donegal. The distress to which I refer takes a number of forms. We continually refer to mortgage and financial distress but there is also the distress which happens behind closed doors. Such distress puts pressure on individuals and families. In some cases it can lead to marital breakdown, while in others it has obliged people to leave the country - I have met some of them while travelling abroad - in order that they might find better opportunities which will allow them to repay their mortgages here. Unfortunately, and this has been attested in the courts, it has also led to a number of people taking their own lives. We must be conscious here of what we are discussing. We are not, for example, concerned simply with a sheet of paper containing numbers, statistics, percentages and values, what is at issue here is real people and real suffering.

As already stated, the banks have been let off the leash. That is not surprising because this is the Government's plan. I stated previously that I very much hope the new targets will work. It is my view that an independent body should be established to adjudicate on this matter. The new code of conduct on mortgage arrears will mean nothing more than harassment of people. Who demanded the mechanism whereby it will be possible for a bank to repossess, within three months, the property of someone who is being unco-operative? The banks will only be obliged to produce flimsy evidence of people being uncooperative and their staff will be able to carry out home visits. Report Stage of the Bill relating to the Dunne judgment, which will allow repossessions to happen, is to be taken tomorrow. The fact that the banks retain their veto clearly shows that the Government is on their side. Even at this late stage, will the Minister not agree with some of those who have made submissions - including myself on behalf of my party - to leave the code of conduct as it stands or to try to strengthen it in favour of consumers rather than the banks? Will he not consider pulling back from his current position on the code of conduct? The code is clearly an aggressive move which supports the banks and which will place some consumers under serious financial and other pressures.

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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The Central Bank is responsible for the code of conduct on mortgage arrears. It initially proceeded in this regard by publishing a draft code and it then took into account advice it received. The code was put out for public consultation, 230 submissions were made and it was modified accordingly. The final version which has been promulgated seems to have attracted significantly more support than the draft version. The Central Bank commenced this process in 2009 when it issued a statutory code of conduct on mortgage arrears. As matters progressed, the relevant group recommended that the mortgage arrears resolution process, MARP, and the appeals process be formally reviewed within 18 months of the announcement. Consequently, a review took place in 2011 and another is currently taking place. I presume this is principally due to the fact that matters have again moved on and because the insolvency legislation is coming into effect.

The House will be aware that the Personal Insolvency Act 2012 provides new statutory insolvency frameworks to allow debtors - through the utilisation of professional personal insolvency practitioners - and creditors to consider arrangements to resolve and make sustainable mortgage and personal debt. The code of conduct has been in place since 2009. It was reviewed in 2011 and it is now being reviewed again in light of prevailing circumstances and the current legal position.

3:10 pm

Photo of Pearse DohertyPearse Doherty (Donegal South West, Sinn Fein)
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We are now approaching the mid-point of this Government's term in office. I assume that when the Minister took office he did not expect to be approaching the mid-point with the mortgage crisis getting worse. The latest figures show there is an increase in mortgage arrears. Under the Minister's stewardship, we have seen a doubling of the number of those in mortgage distress. There was also a doubling of the number in mortgage distress in the last 18 months of the Fianna Fáil-led Government.

The more we delve into the code of conduct on mortgage arrears, it becomes clear it was written for the banks at the behest of the troika by a compliant Central Bank and, ultimately, supervised by this Government. There are many in this Chamber who believe MABS is the organisation with the most experience of working with those in mortgage arrears. In its submission, MABS stated very clearly that no change should be made to the existing code in regard to permissible unsolicited contact between lender and borrower. The code has removed the three unsolicited calls and has left it at an unlimited number. It also facilitates home calls. The Minister must look at this in conjunction with the Dunne judgment, the personnel insolvency veto and the fact the Government is coming down on the banks all the time, which sends a very negative signal to those in mortgage distress.

The Minister mentioned the 25,000 people who have been offered sustainable solutions, which is welcome. However, we need the details. I know the details of a family who had arrears for the first time ever of €450. The bank scrutinised their position and said there was no other solution but to voluntarily surrender the house. There are serious questions to be asked. I hope that is a one-off case but I would say there are many more like it.

When will the next targets be issued, which are acceptance of sustainable agreements? They were supposed to be announced before July but we still have not got them. When will the Government announce the second round of targets, which is the agreed sustainable agreements and not just the offers from the banks?

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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I agree with much of the Deputy's analysis. It has been a very difficult time for a group of people who borrowed to acquire family homes at the height of the Celtic tiger and who, for one reason or another, have found it very difficult to pay their mortgages. On top of that, they have found that the collateral underpinning the mortgage is not worth what it was when they borrowed. It is a very difficult situation for people and we are trying to work our way through it.

The people most adversely affected are those who lost their jobs - where one partner in a household lost a job or where there is no one at work in the household anymore. These are the people in most difficulty.

There is a whole variety of circumstances. We tried with the Keane report to design solutions which would accord with the differing circumstances. We are at a stage now where we think the Central Bank has taken a very strong interest in this and is driving the solutions forward. The revised code, which it has published and to which lenders and borrowers will hopefully adhere, hits the right note and hits the average. I hope the situation will be resolved but there will still be difficulties. It is very easy to pick out the most difficult case which goes to one's advice clinic. We all have such cases and we tend to get the more difficult ones but the solution must work on the averages as well. To have 25,000 proposals for solutions in the first quarter is pretty good and I will continue to drive it in so far as I have an influence over it to meet the targets. There is an answer on the data on solutions but I cannot find it in my brief. I will write to the Deputy about that.