Tuesday, 4 March 2014
Protection of Residential Mortgage Account Holders Bill 2014: Second Stage [Private Members]
That is correct.
I welcome the opportunity to commence the Second Stage debate of this important legislation, namely, the Protection of Residential Mortgage Account Holders Bill 2014. At its heart, this Bill essentially is about consumer protection. It is about ensuring that all mortgage holders in Ireland have a level playing field and enjoy the same statutory protections irrespective of who or what may hold their mortgage at any point in time. As Members are aware, the IBRC mortgage holders now face an imminent threat. However, other mortgage holders could well find themselves in a similar position were their bank or financial institution to decide in the months or years ahead that they wished to sell off that particular mortgage. There are almost 13,000 IBRC residential mortgage accounts, the majority of which relate to family home mortgages. These people stand to lose the vital protection of the code of conduct on mortgage arrears and, critically, access to the Financial Services Ombudsman. Potentially, they could find themselves in a situation in which they are left exposed and vulnerable, having lost statutory consumer protections. In such a scenario, they now would be at the mercy of a non-regulated, unsympathetic foreign-owned fund that simply was out to make a quick buck on the back of their mortgage. This is a valid and legitimate concern and is the issue Fianna Fáil seeks to address by way of introducing this legislation in the House tonight.
As Members are aware, this issue now has taken on a degree of urgency because the deadline for the submission of final bids in respect of the €1.8 billion IBRC residential mortgage book is 14 March and, consequently, this issue must be dealt with immediately. I welcome the indications from the Government by way of a statement this afternoon that it does not intend to reject the Bill on Second Stage and that it will pass Second Stage tomorrow evening. I sincerely hope, however, this is not merely a cosmetic exercise on the part of the Government and I will revert to that issue in a few moments. I do not for a moment claim this Bill is perfect. It certainly can be improved on Committee Stage, as is the case with any other Bill that is introduced. Moreover, as a member of the Opposition, I do not have access to the vast resources available to the Government in preparing legislation. However, this is an honest effort to tackle a genuine problem that is facing approximately 12,000 mortgage holders in IBRC immediately and which potentially could face many more thousands of mortgage holders in the years ahead.
Last week, on the eve of an appearance before the Oireachtas Joint Committee on Finance, Public Expenditure and Reform, KPMG, the special liquidators to IBRC, issued a statement confirming the liquidators had reached an agreement with the remaining bidders for the loan book whereby the latter now had agreed to comply voluntarily with the code of conduct on mortgage arrears. While this of course is better than nothing, it really is not good enough because it is utterly unenforceable. It has no legal standing whatsoever and this was confirmed by the liquidators when they appeared before the aforementioned committee last Wednesday. It will not be written down on any piece of paper and were any issue or dispute to arise between the mortgage holder and the foreign-owned fund that now will be in possession of the mortgage, the mortgage holder has nowhere to which to turn. There will be no one there to police or to enforce the implementation of the code of conduct on mortgage arrears in that scenario. Consequently, were a dispute to arise in that regard, it simply would not be resolvable because as a consumer, there is nowhere to go to have the issue dealt with. One suggestion made by the Government in defence of not legislating on this issue is that were an application for repossession to come before a court in Ireland and had the financial institution not complied with the code of conduct on mortgage arrears, the presiding judge would not grant a repossession order in respect of that property. That is cold comfort for the thousands of mortgage holders who potentially will face such a scenario. A lot of harm and distress can be caused to a family short of repossession. Why would Members allow a situation in which people face such a prospect or such a threat in the absence of a code of conduct? The bottom line, from Fianna Fáil's point of view, is that any mortgage loan issued in this State should be subject to the full protection of the code of conduct on mortgage arrears and the mortgage holder in question should have access to the Financial Services Ombudsman.
I acknowledge the current situation facing IBRC mortgage holders is not satisfactory. At present, IBRC in special liquidation is not a regulated entity. It is not subject to the mortgage arrears resolution targets and its mortgage holders have no recourse at present to the Financial Services Ombudsman. It is controlled, however, by a special liquidator appointed by the Minister for Finance under special legislation passed by this House 13 months ago and no one has disputed the fact that IBRC currently is complying with the code of conduct in full. The point is the current IBRC in liquidation inherited some level of infrastructure because it previously had been a regulated entity and had some capacity to comply with the code, which it continues to do.
There are more than 760,000 family home mortgages in Ireland today and consequently, Members must get this issue right both for the 12,000 IBRC mortgage holders and for everyone else as well, because other banks already have made public declarations regarding their exiting from this State and there is a prospect they will sell their residential mortgage book. Moreover, it would be open to any of the banks remaining in Ireland to pursue a similar path. The Government itself has acknowledged there is a problem in this regard. It is planning legislation regarding the sale of loan books to unregulated third parties to deal with this issue but it is not due to be published until 2015. This legislation will come far too late for the IBRC mortgage holders and possibly far too late for many other mortgage holders as well, if their bank decides to sell on their mortgage. Moreover, by delaying this legislation, the Government in a sense is creating an incentive for those banks to sell on the mortgage book in advance of its introduction. It enables avoidance of such legislation, were the financial institutions in question to sell the mortgage book in advance. It is known that unfortunately, many banks are exiting the Irish market at present.
The question to be asked, therefore, is what would a person lose if he or she no longer had access to the code of conduct on mortgage arrears or if it no longer was binding and mandatory? As Members are aware, it is a vital consumer protection code. It provides, for example, that banks must have proper policies and procedures for dealing with a distressed borrower. A foreign-owned fund outside the code would have no such obligation. A bank under the code must have properly-trained staff to deal with customers who are experiencing mortgage arrears. Again, no such requirement would apply to a foreign-owned fund. The code places restrictions on the ability of a lender to impose surcharge interest on a borrower unless that borrower is not co-operating. It requires a financial institution to work through a series of sustainable solution options with a borrower in difficulty with his or her mortgage. Moreover, it provides an eight-month moratorium on the commencement of legal proceedings from when a person enters into an arrears situation, that is, no legal proceedings can commence for an eight-month period, which is absolutely vital.
The Government has suggested that if one loses the code of conduct, one still has one's mortgage agreement, which will continue to apply to the new financial institution and the mortgage holder. This of course is correct but as I have pointed out, the mortgage agreement is so heavily constituted in favour of the lender that it really is of very little benefit to the consumer. I took the opportunity to look at my own mortgage agreement, as well as examining the Irish Banking Federation's pro forma mortgage deed. It states clearly that enforcement action can be taken in respect of the mortgage holder if any of several enforcement events occur. One such event was if the borrower fails to discharge any of the secured liabilities when they ought to be paid or discharged. In that scenario, the lender has the authority immediately to call in the loan in full and that would be deemed to be a formal enforcement event. As Members are aware, in such a situation, the institution can then opt to commence legal action immediately because the eight-month moratorium simply would not apply. This is the harsh, naked truth that mortgage holders face. I hope this would never come to pass for anyone whose mortgage is sold but that is a potential scenario. If the code does not apply, all with which one is left is one's original mortgage contract and that is constructed so firmly in favour of the lender that it affords essentially no protection to the borrower.
If one misses one repayment, it is technically within its rights, as a financial institution, to call in one's loan and issue a formal letter seeking full repayment of the mortgage. If one cannot comply - of course, nobody would be able to do so - it would again be within its rights, in the absence of the code, to immediately commence legal proceedings. That scenario is completely unacceptable to me and, I expect, to Government and that is why we need to move on this issue.
We know from parliamentary questions that under the relationship framework signed by the Minister and the different banks that AIB, for example, can sell a loan book up to the value of €100 million without even having to consult the Minister. The corresponding figure for Permanent TSB is €50 million. That opens up a potential scenario where the banks can essentially slice up their loan book into smaller parcels and sell those particular parcels without even having to consult Merrion Street. That is unacceptable and the relationship framework needs to be revised in that respect.
The bottom line from our point of view is that retaining the same rights and protections in the code of conduct on mortgage arrears and access to the Financial Services Ombudsman is an absolute must and we insist that takes place. The issue of recourse to the ombudsman has been largely overlooked in this debate but it is a critically important one. It is the statutory body for dealing complaints from consumers in regard to financial products.
It must also be said that it was open to the Minister for Finance, at any time, to issue a direction order under section 9 of the IBRC Act of last year to the special liquidators requiring them to put in a condition in regard to the sale of the mortgage book which would require the purchasers of the IBRC mortgage book to comply with a code of conduct on mortgage arrears. That should have happened several months ago. What our Bill does is that it ensures it is a condition of the sale of the mortgage book that the code of conduct would be fully honoured, would be legally binding and would based on statute.
We know the Central Bank is not satisfied with what is happening here and that it has contacted the Department of Finance and has made its views crystal clear. It believes that when a mortgage book is sold, the code of conduct on mortgage arrears must continue to apply. This voluntary gentleman's agreement is really a no man's land scenario, which is unacceptable.
I read the Department's statement this afternoon in response to our Bill and I welcome the fact that it is not being opposed on Second Stage. However, it is essential this issue is legislated for immediately. We cannot wait until 2015 for the Government to come forward with a Bill. It should accept this Bill on Second Stage and immediately move it to Committee Stage. Let us make the amendments and improvements to the Bill which are necessary so that it can be enacted immediately and in time for the IBRC mortgage holders who face a perilous scenario at this point.
I acknowledge the Bill does not address the situation of 5,500 mortgage holders whose mortgages have already been sold by regulated entities to unregulated third parties. I think Pepper holds some of those mortgages. We know GE sold some mortgages as did Bank of Scotland (Ireland)-Halifax. The advice we received was that this is a far more difficult issue to legislate for. My proposal is that the Minister stops the leak immediately, ensures this condition is stitched into any future sales and that he then examines the options available to deal with the 5,500 mortgage holders whose mortgages are already legally outside the code of conduct on mortgage arrears, even though the owners of those mortgages, as such, are currently in voluntary compliance with the code of conduct. However, as I said, voluntary compliance is simply not an option.
I read at the weekend that the National Consumer Agency raised with the Department of Finance concerns it has. It received approximately 88 separate complaints in respect of loans, albeit not mortgages, which were sold to an unregulated third party. The National Consumer Agency is receiving complaints in respect of the way those loans are currently being handled. That is the scenario that could lie before us in respect of the IBRC mortgages if we do not deal with this issue immediately.
We know from media reports that there are four US giant private equity and investment firms left in the race for the IBRC mortgages, namely, Lone Star Funds, Apollo Global Management, CarVal Investors and Oaktree Capital. They have until 14 March to submit their final bids in respect of the €1.8 billion IBRC loan book. The indications are that there is far greater interest in the non-performing loans, a scenario which is really quite concerning. If one has a mortgage currently in some level of difficulty but one has equity in one's home and if one's mortgage ends up with one of these unregulated third parties, there will be a tremendous incentive for it to move on one immediately. It will be outside the code of conduct and it will be perfectly within its rights to do so. If it buys one's loan at 50 cent in the euro and if one has equity in one's home, it can sell that home and wipe the loan balance immediately and make 50 cent in the euro profit in respect of one's loan.
We are leaving the message loud and clear with Government. We welcome the fact this Bill is being accepted on Second Stage but that is not good enough as it does not go far enough. We want the spirit of this legislation to be implemented immediately, so that the 12,000 or so IBRC mortgage holders will continue to have the same binding and statutory consumer protections as every other mortgage holders in the country. My view is that they deserve nothing more and nothing less than that.
I congratulate Deputy Michael McGrath on bringing forward this legislation. Having heard the response from Government, this is beginning to be like playing handball against a haystack. In other words, the Government knows it is wrong, so it will not vote this Bill down because it knows that if it was to do that, the public would never forgive it. It hopes that by acquiescing to the principle of the Bill and by doing nothing about it, the issue will go away and that somehow it will be forgiven for not providing the protections afforded in this Bill.
One must ask the following simple question. If this is not important, why is the code of conduct there? If the mortgage agreements people have with mortgage companies were adequate, why did we have to bring in the code of conduct? As the Minister knows, the truth is that the code of conduct is there because, as Deputy McGrath said, if we left it to the agreements most people have with the mortgage companies, all of the cards would be stacked in favour of the mortgage companies and not the person in difficulty, and many people are in difficulty.
People took out loans in good faith which were transferred to a State entity, namely, IBRC, and they are now being sold off to the private sector which is being told it can do as it wants but that the Government would like it to give a verbal commitment to honour the code of conduct. I find that absolutely extraordinary given the Government's Pauline conversion on regulation. It was very critical of the previous Government for having gone with light touch regulation. It said one cannot trust the financial sector with light touch regulation and that what needs to be done must be stitched in in very specific terms but here is the Government saying that in this case, zero regulation will do, word of honour will be enough and that this will protect the customers of the IBRC, originally Irish Nationwide Building Society, and other loan books which will be sold in the future by the covered institutions. The reality is that loan books are being sold by the day. People think they have mortgages with certain banks but what is happening is that the loan books are being sold on. Those who buy the loan books buy them at a discount - at their value today - and are, therefore, in a much better position because there is no write-off involved for them.
The write off has already taken place before the purchase. They are in a much better position because the loans do not impair their balance sheets. They can realise the assets without incurring major losses. As Deputy McGrath pointed out, if they decide to repossess and sell the property, they will not be at a loss because they bought the loan at way beneath its original nominal value. Therefore, there is a much greater chance that repossessions will take place and that people will be exposed.
The Government is neither coming with us nor going against us. It is trying to put this into cyberspace in the hope that it goes away. Obviously the Government cannot oppose this Bill because it knows in its heart and soul that this legislation is a no-brainer. On the other hand, as I understand it, no firm commitment has been given on a date for the enactment of this legislation and for other legislation that would be needed to ensure that everybody who took out a mortgage would be protected in the event of their loans being sold on to third parties that are not regulated at the moment.
This must create enormous worry for those who have borrowed and are now exposed. In terms of trying to measure risk, one must ask why the Government is not legislating and making sure that legislation is in place before the sale actually takes place. The argument that has been put forward is that it would impair the value of the loan book to do so. If the loan book is not as valuable because one of the conditions of sale is that purchasers must adhere to the code of conduct on mortgage arrears, that means the people who are adding to the value of the loan book are the mortgage holders themselves who are being asked, in effect, to stump up, in the form of risk, the difference between the value of the book with the code in place and without the code in place. That is totally unfair. Why should they bear the burden and the risk? If there is a difference in the price, that must mean that the promise that is given is not worth the same, in financial terms, as one underlined by a statutory obligation to adhere to the code. That shows the lack of cash worth of the promise that has been given to the Government.
This is a totally new situation which follows from the Government's decision to liquidate IBRC. It also relates to what is happening in the market generally, where loan books are being sold on. People are buying them at a discount and hoping, by working them out, to make a profit. There is nothing wrong with that in and of itself as long as the borrower is given protection. In making the decision to liquidate IBRC, the Government has exposed ordinary citizens who have acted in good faith at all times and who expected that their mortgages would get the same protection as all others. When one looks at all of the provisions in the mortgage arrears resolution process, MARP, all of the conditions attached and the processes to be followed, one realises how deficient the previous processes were. Without MARP and the code of conduct on mortgage arrears, banks were not adhering to good practice and were not giving customers a fair chance. They were not working through difficulties in collaboration with their customers in order to avoid the repossession of family homes, if at all possible.
The Minister has taken a small step in the right direction in that he has admitted the principle of the Bill; that is what not opposing Second Stage means in parliamentary parlance. It is quite an achievement for Deputy McGrath to have forced the Government to accept the principle of the Bill. However, it is vital that we now go a step further, having admitted that the Bill is correct in principle and is necessary. Before the loan book is sold and the loans are transferred out of a State entity and into the private sector, the Government should immediately enact this legislation and give protection to borrowers. To be quite blunt, this legislation is as urgent as the legislation to liquidate IBRC, which we sat up all night to pass. I suggest that the Government puts the same effort into protecting the consumer, the ordinary citizen. It must not only accept the principle but must also put the legislative blocks in place to protect our citizens from anything that might go wrong in the future.
I am grateful for the opportunity to speak on this Bill and I compliment Deputy McGrath for putting forward legislation which aims to protect mortgage holders because under what is being proposed at present, they will have very little protection. The IBRC wrote to its customers recently outlining their loan position. Regarding the terms of loans, the letter asserts that customers' obligations to IBRC and their payment terms are unaffected by the liquidation of IBRC and will remain the same, regardless of who acquires the loans from the special liquidators. Deputy McGrath has already pointed out that this is not actually the case at all. If the entity that acquires the loans from the liquidators is not regulated, then the mortgage holders will not have the protection of the Central Bank, will not have access to the code of conduct on mortgage arrears and will not have recourse to the offices of the Financial Services Ombudsman. The letter sent to IBRC customers is incorrect.
The aforementioned letter also claims to provide an update to the mortgage holders on the sale of their loans as part of the liquidation of IBRC and to afford them the opportunity to make a written submission on how their loans are to be sold. One of my constituents made a written submission to IBRC on how he felt his loan should be sold. He suggested that it be sold to him at a reduced rate. He put 12 questions to the special liquidators, Mr. Kieran Wallace and Mr. Eamonn Richardson, including in what capacity the special liquidators were authorised to correspond with him and who was the proposed purchaser of the loan. He sent his submission in August 2013 and has not received a reply to date. The liquidators gave the impression that when customers made a submission to them regarding how their loan would be sold, they would have an opportunity to purchase it themselves but that is not the case. My constituent has not received a response and has not been informed of how he could go about buying his own loan at a reduced rate. He pointed out to me that Mr. Denis O'Brien and other multimillionaires are being given the opportunity to purchase these loans at a reduced rate but the ordinary mortgage holder who took out the loan in the first instance is not being allowed to purchase it at a discount. This is very unfair. The special liquidators should engage more with single mortgage holders to bring about a resolution of this issue.
The Government has promised legislation in 2015 to deal with the sale of mortgages to unregulated entities. This will be far too late for the mortgage holders in question. This issue has immediate importance for the customers of the former Irish Nationwide Building Society as the special liquidator of IBRC is in the process of selling their loans. Equally, this could apply to other banks. Most of those in contact with me have their mortgages with Irish Nationwide who feel there is an urgency about this matter. Our Bill will address the current gap in the Central Bank Act by placing a legal obligation on the purchaser of loans, including unregulated entities, to abide by the code of conduct on mortgage arrears while borrowers would also continue to have recourse to the Financial Services Ombudsman.
I welcome the fact the Minister has accepted the Bill, a positive development. However, there needs to be more urgent action from the Government in this area. People who have mortgages with Irish Nationwide and other lending institutions feel let down, believing there is no sympathy or desire to help them on the Government’s part. It is not good enough for these loans to be sold off and to be left at the mercy of those who purchase the loans. The Government should insist the liquidators allow these mortgage holders to get the same write-down as the fat cats will get. They want to avail of the opportunity to purchase their mortgages at a write-down rate which has not been granted to them yet. The liquidators just want to sell these loan books off as a going concern and to hell with the ordinary mortgage holders. I hope the Government will rethink this to allow the individual mortgage holders’ concerns be dealt with and protections for them to be built into the law as soon as possible.
I welcome the opportunity to speak on this important legislation, the Protection of Residential Mortgage Account Holders Bill 2014. I compliment Deputy Michael McGrath for bringing forward this time-sensitive legislation, given the impending sale by the special liquidators, KPMG, of IBRC’s 13,000 mortgages which will result in 13,000 individuals, families and fellow citizens being left vulnerable. Currently mortgage holders, whose loans are with financial institutions regulated by the Central Bank, enjoy the protection of the code of conduct on mortgage arrears and have recourse to the Office of the Financial Services Ombudsman if a dispute arises with their lender. However, if these mortgages in question are sold to an unregulated third party, our fellow citizens will not enjoy the code, meaning they are potentially exposed to higher variable rates, more interest surcharges and a heightened risk of repossession. As Deputy Ó Cuív said earlier, if there were no need for the code, why is it there in the first instance?
While I welcome the Government’s acceptance of Deputy Michael McGrath’s legislation, why has it taken so long for it to acknowledge that something had to be done? Why has it taken such forceful opposition by my colleague, Deputy Michael McGrath, and public outcry for the Government, as it said in its own press release, to “re-prioritise” this legislation? The Government knew this legislation was needed because it had a similar Bill scheduled in its legislative programme for 2015. While it is all very well to accept this legislation, will the Government give a clear timeframe for the passage of this Bill? The Government is great at playing optics, accepting legislation on Second Stage. It did not oppose its backbenchers’ legislation on wind farms on Second Stage over 18 months ago. That legislation, however, is now gathering dust on a shelf in Government Buildings.
When IBRC was to be liquidated, the House sat all night to ensure the relevant legislation went through. This week we have the farcical situation in the Dáil with Minister after Minister coming into the Chamber to pat themselves on the back for work done over the past three years but no legislation being debated. The 13,000 families who will be thrown to the wolves on 14 March would prefer to see the House debating this legislation, ensuring it goes through all Stages to be enacted before 14 March. Is it correct this legislation cannot be retrospectively enforced, meaning those 13,000 families will be left in a precarious situation if the Bill is not enacted before 14 March? Last week, it was confirmed at the Oireachtas finance committee that the voluntary compliance with the code that the funds bidding for these mortgages said they would observe is not written down, has no legal standing, would not be policed by the Central Bank, is utterly unenforceable, does not include recourse to the Financial Services Ombudsman and would fall entirely if the mortgage were sold on again. It is important for the Minister for Finance to give a clear timeframe for the enactment of this legislation. This would send a strong and positive message to the 13,000 people who will be affected by this sale in the next several weeks that we are not throwing them to the wolves and will accept, albeit with some amendments, this Bill initiated by Deputy Michael McGrath.
The Government is not just letting these people down in not affording them statutory protection but also in not affording them any write-down if they were able to re-finance their loans. They will have to pay the full value of their loan while unsympathetic, unregulated vulture funds can avail of massive write-downs. This is a regrettable development which is effectively the Government giving the two fingers to these people who have worked hard to meet their commitments and pay their mortgages. I am not at all surprised by this, however, because the priority the Government has shown the mortgage crisis since coming into office is nothing short of scandalous. The mortgage arrears statistics are a shocking indictment of the strategy adopted by the Government to deal with the crisis. The number of people in mortgage arrears has doubled since this Government came to power. Behind all these statistics, there are harrowing stories.
Like Members on this side, I am sure both Ministers of State will be aware of the serious financial position of many families and of their harrowing stories. There is a vacuum in adequate advice available to help people in financial distress. Reference might be made to MABS but the service does not always have suitably qualified staff at the ready and it is at breaking point. The Minister of State may refer to the debt management advice service authorised by the Central Bank. My understanding is that only six firms nationally have availed of this service.
I recently held an information day in my constituency office. I offered free consultations with financial advisers and personal insolvency practitioners. I was dumbfounded by the uptake but what was more astonishing was that the people who came in were at breaking point. They were embarrassed to come to my office and they asked whether there was somewhere more discreet where they could wait because they did not want to be seen in these circumstances. The problem is they are not getting supports from the State. The Government may well talk about the insolvency legislation and while the insolvency service is up and running within six months of enactment, it is not working. The proof is that in the recent months there have been more bankruptcy cases than insolvency cases. Banks are not engaging with people. I have examples of cases on which I have worked on behalf of constituents dealing with the banks. I do not have the time to go through them. However, the banks are not subject to a specific timeframe. In one instance, the original contact was made in December 2012 and a resolution came about only last week. There were 214 entries on my system relating to telephone calls and letters on behalf of the client. That shows the banks are not engaging.
I acknowledge I have strayed from the purpose of the Bill, which is the same as that of another Bill my colleague brought forward more than two years ago regarding independent debt settlement offices. That Bill was not opposed either on Second Stage but it has not been enacted and because of that, there is no independent watchdog overseeing the banks to ensure they facilitate and work with people in distress who come forward with credible solutions.
I ask the Government to give this issue the priority it deserves. It should not use this debate as a window dressing exercise by not opposing the Bill on Second Stage. The Minister of State should clearly outline in his reply when this important legislation will be enacted. I have no doubt he has an interest in this issue and I ask him to convey to the Minister for Finance and to the Cabinet that much greater priority needs to be afforded to the many families who are at breaking point because of their financial circumstances.
I wish to share time with Deputies Maloney and Lawlor.
I welcome the opportunity afforded by this Bill to explore the issues raised by the sale of loans books by regulated entities to entities that are not regulated. I consider this an opportune and timely intervention given the context of the upcoming sale of the IBRC loan book.
I am fully aware of the concern among mortgage account holders that they could lose the protection of the Central Bank's code of conduct on mortgage arrears. The sale of loan books to unregulated third parties Bill, which is listed in section C of the Government legislative programme, will address concerns surrounding the continued applicability of the Central Bank's code of conduct after loan books are sold to unregulated entities. In preparation for this legislation, Department of Finance officials are already examining the complexities of this issue with their colleagues in the Central Bank and in the Attorney General's office. The Minister for Finance fully intends to bring forward this legislation from 2015 to protect mortgage account holders.
The Government accepts the principle of the Bill, as put forward by Deputy, but unfortunately, the Bill, as proposed, is flawed and, therefore, will require significant additional work to achieve the objectives sought. Considerable protections apply to people who are in mortgage difficulties. The Government is firmly of the view that the last resort should be people losing their family home. In that regard, the Government has put in place measures to ensure this does not happen. The Central Bank's code of conduct on mortgage arrears provides an integrated and cohesive package of consumer protection measures for borrowers either facing or in mortgage arrears. The code provides that mortgage lenders should allow for a flexible approach in the handling of arrears and pre-arrears cases and that they should aim at assisting the borrower who is in genuine difficulty as far as possible, having regard to the specific circumstances.
The code reflects the current mortgage arrears situation and seeks to deliver on the following principles: to ensure appropriate resolution of each borrower's arrears situation; to ensure lenders deal with borrowers in a fair and transparent manner; to support and facilitate meaningful engagement between lenders and borrowers; and to ensure borrower awareness of the benefits of co-operating with their lender, and the consequences of not co-operating. The code places particular requirements on lenders when communicating with customers to ensure the level of communication is proportionate and not excessive; communications are not aggressive, intimidating or harassing; borrowers are given sufficient time to complete an action they have committed to before follow-up communication is attempted; and steps are taken to agree future communication with borrowers. A lender must also produce and implement a board approved policy regarding communications with borrowers to ensure these requirements are met. If a borrower is not satisfied with a lender's compliance with the requirements of the code or with the lender's treatment of the borrower's case, then any complaint by the customer must be dealt with in accordance with the complaints provisioning set out in the Central Bank's consumer protection code.
I refer to the protections afforded by the provisions of the Land and Conveyancing Act 2013 which, inter alia, provides that a court has the discretion in any proceedings brought by a mortgagee for possession of a principal private residence to adjourn such proceedings to enable the mortgagor or another relevant person to consult a personal insolvency practitioner and where appropriate to instruct a personal insolvency practitioner to make a proposal for a personal insolvency arrangement, PIA. These provisions will apply in respect of all primary home mortgage repossession cases, irrespective of whether the mortgage is also subject to the code of conduct on mortgage arrears. The Minister for Finance has previously said that the matter of extending the protections in the code of conduct to unregulated financial institutions is complex and requires careful examination.
The proposed Bill illustrates some aspects of that complexity. Section 4(1) purports to impose an obligation on purchasers of loan books from regulated entities to agree to be bound by existing Central Bank codes. This issue was discussed by the Joint Committee on Finance, Public Expenditure and Reform last week. The special liquidator confirmed that the remaining bidders for the IBRC loan books had made such an agreement with the liquidators. However, it also emerged that there are likely to be difficulties enforcing that agreement. The Minister for Finance has been advised that a contract is not generally enforceable by a person who is not party to it and, therefore, the proposed Bill would create an unenforceable obligation on the purchaser. This could potentially lead to further stress for the borrower.
The question also arises as to what would happen if an entity not regulated by the Central Bank were to breach the Central Bank's code of conduct. With regard to a regulated entity, the Central Bank has a range of sanctions available to it, ranging from cautions or reprimands to the imposition of significant financial penalties. However, the Central Bank does not have the power to impose such penalties on entities which are not regulated by it. Therefore the proposed Bill would lack the power to impose sanctions on institutions which breached the terms of the code.
A similar issue arises in the case of the Financial Services Ombudsman. The Financial Services Ombudsman is a statutory officer who deals independently with unresolved complaints from consumers about their individual dealings with regulated financial service providers. The limitation of the role of the Ombudsman to regulated financial service providers is contained in primary legislation establishing the Office of the Financial Services Ombudsman. Any extension to the work of the Ombudsman would require primary legislation. This is not included in the proposed Bill.
It is worthwhile returning to the origin of this issue. The Central Bank Act 1997 was amended by the Markets in Financial Instruments and Miscellaneous Provisions Act 2007. The main purpose of this amendment was to bring non-deposit taking lenders under the remit of the Central Bank. "Retail credit firm" was defined as meaning "a person prescribed for the purpose of paragraph (g) of the definition of 'credit institution' in section 3 of the Consumer Credit Act 1995, or any other person who holds itself out as carrying on a business of, and whose business consists wholly or partly of, providing credit directly to relevant persons." A number of exclusions were contained in the section and the significant one in this context was "in relation to credit that was originally provided by another person, a person to whom all or any part of that other person's interest in the credit is directly or indirectly assigned or otherwise disposed of."
I fully appreciate that what I have just said is not easy to take in at first hearing but it illustrates how complex the issue is. This provision had the effect of excluding special purpose vehicles, SPVs, to which interest in credit was sold or otherwise assigned. As we have now discovered, it also covers funds which may purchase mortgage loan books from regulated entities. Such transactions would not have been expected in 2007 but, like a lot of other things, they have come to pass. A simple solution to ensure that mortgage holders whose mortgages are currently with regulated entities continue to have the protections of the codes would be to remove that exemption. However, this would mean that SPVs would also be subject to regulation, which was not the intention in 2007 and does not seem to be a good idea. The original thinking was to ensure that consumer protection would apply to retail consumers but that it was not needed when a large corporate was selling a securitised bond to another large and financially astute corporate.
Securitisation by use of SPVs is not uncommon in the Irish financial sector and banks use it as a means of raising funds. A bond would be secured against a book of mortgages and the bank would usually get the funds at a lower price than it would pay for unsecured funds. Both the bank and the buyer of the bond know what they are doing and the individual mortgage holder whose mortgage is part of the deal is never aware of or affected by the transaction. I am quite clear of the outcome that the Government and I want. We want to ensure that existing mortgage holders who have the protections of the code of conduct on mortgage arrears now will continue to have these protections if their loans are sold to an unregulated entity. If this can be achieved by the voluntary application of the codes by the purchasing entity, well and good, but we will work to explore how this can be achieved without unintentional effects on other entities.
The current regulatory regime in Ireland is based on whether or not an entity is regulated by the Central Bank. The Central Bank has informed me that firms that are already authorised or registered with the Central Bank for other regulated activities do not require a separate authorisation to provide retail credit. The consumer protection codes, including the code of conduct on mortgage arrears, apply to the regulated activities undertaken by regulated entities and the Central Bank supervises lenders' compliance with those provisions and financial services legislation generally. Similarly the remit of the Financial Services Ombudsman is confined to regulated entities.
As the House will recall, the introduction of a regulatory regime for debt management firms was achieved by making debt management firms regulated businesses which require Central Bank authorisation. One of the options that needs further consideration is whether we should make holding mortgage books - to put it in non-legal language - a regulated activity. If we take this option, we also have to consider how this could be implemented if the holder is based overseas and how sanctions could be applied in these circumstances. Another option is whether we could regulate how the holders of mortgage books service them. The holder may not have a presence in Ireland but someone has to make contact with the borrower and collect the repayments. Such activity may be outsourced to a firm based in Ireland and regulation of the activity rather than the entity which holds the loans may be a viable option.
Depending on the approach taken, we may have to consider whether the purchasers of loan books would be required to pay fees or levies to either the Central Bank or the Financial Services Ombudsman or both. The Ombudsman collects levies from institutions it covers to fund its activity and additional institutions could also be required to make a contribution towards its operating costs if their customers have a right of appeal. All of the focus at the moment is on the application or otherwise of the code of conduct on mortgage arrears in the event of the sale of a mortgage loan book to an unregulated entity. The protections provided by the code of conduct on business lending to SMEs and the consumer protection code also apply to certain existing loan books with regulated entities which could be disposed of by their current owners. There may also be other options which would provide the solution required which have yet to come to the notice of the officials examining the issue so I do not present this as an exhaustive list. I think it is clear that there will not be a quick solution to this issue but I do not want this fact to cause undue concern to existing mortgage holders whose mortgages may be sold shortly.
As the Minister for Finance has already said, it is in the interests of the purchasers of existing mortgage books that they treat their new customers in accordance with the code because their failure to do so may be held against them. This commercial reality is illustrated by the behaviour of Apollo Global Management which purchased the Bank of Scotland Ireland loan book. Apollo met the Central Bank and the Department of Finance and indicated clearly that it intended voluntarily to adopt the code of conduct on mortgage arrears to manage the acquired loans. Apollo Global Management believes that following the code is in the best interests of both and forms part of its core strategy. As the House will be aware following the meeting of the Oireachtas Joint Committee on Finance and Public Expenditure and Reform last week, the remaining bidders for the IBRC loan books have committed to abiding by the Central Bank code of conduct on mortgage arrears on a voluntary basis. I look forward to further debate on this issue of importance.
I compliment Deputy Michael McGrath on bringing forward this legislation. In the context of the debate in the last couple of weeks on the loan books of the former IBRC, a good strong debate on this is welcome. As the Minister said earlier, little did we realise that when banks were issuing bonds to generate capital so they could lend on further, these bonds were secured on mortgages. One often wonders, had we been forced to burn those senior bond holders, as we were asked to do, what the consequences would have been for the holders of the mortgages against which those bonds were secured. It would have been interesting to have found that out.
It was interesting that Deputy Troy mentioned that there will be no regulation on these loan books that have been sold on. Had there been proper regulation by the Fianna Fáil led Government at the height of the Celtic tiger we might not be dealing with this issue now. That is a sad reflection on what was happening at the time. Regulators were in place who were not regulating.
We are having a debate now regarding a situation where there is no regulator in place, yet according to the Minister, there is adequate cover for those mortgage holders who are concerned about their loans which are being passed on to an entity with which they are not familiar.
This brings me to the main issue, namely trust. The problem is that because the banking system has been so impaired, the public and mortgage holders have a complete lack of trust in the banks, regulation within the Central Bank and the Government. The sad thing is that this stems from previous Administrations. It is taking us a long time to try to rebuild that trust, so that the public and mortgage holders can feel safe in trusting that what we tell them is the truth.
I understand the legislation is on the legislative programme for 2015, but if something happens in the meantime and we find out that one of the agencies that has purchased some of the loan books is not complying with the Central Bank's code of conduct, will it be possible to bring forward the legislation speedily so that we can ensure those mortgage holders have security? Another concern relates to an issue people have contacted me about. They are concerned there may be an increase in the interest rates for these mortgage holders. The entities that have purchased the loan books have done so in order to make money. They may have bought them at a discount price and some of the loans may never be repaid, but that is part of the risk they take. The concern is that individuals with mortgages will see an increase in the interest rate they pay. It would be good to get some clarification in this debate on the strength of the code of conduct put in place by the Central Bank on this. I welcome the fact that all of the purchasers of the loan books have agreed to this, but we must remain vigilant in that regard.
I welcome this debate and support the thrust of the legislation introduced by Deputy McGrath, but we need to strengthen it further. The Bill makes no provision for the imposition of penalties if there is a failure to comply with the code of conduct or with the Financial Regulator. It needs strengthening. I look forward to the legislation to be brought forward by the Minister in 2015.
Cuirim fáilte roimh an mBille atá curtha i láthair na Dála anocht ag an Teachta Michael McGrath. Níl dabht ar bith go bhfuil an Bille seo iontach tábhachtach ag an am seo mar go bhfuil an spriocdháta 14 Márta ag bualadh linn go gasta. Is é sin an lá a mbeidh go leor daoine amuigh ansin ag crith, mar beidh a fhios againn ansin cé a bheidh ag ceannach na morgáistithe seo, na 13,000 morgáistithe atá in IBRC. Nuair a bheidh siad díolta, caillfear na protections atá acu cheana féin. Níl againn ach cosaint iontach lag ó thaobh an code of conduct agus ó thaobh an Financial Ombudsman, Fear an Phobail. Ach, tá siad ansin agus tá daoine ag brath orthu agus ag iarraidh iad a choinneáil.
I welcome Deputy McGrath's Bill. It was very interesting to hear Deputy Lawlor and the Minister of State, Deputy O'Dowd, find fault with this legislation. I acknowledge the fact the Government does not intend to oppose the legislation, but if this was a genuine Second Stage debate and it was intended to move to Committee Stage next week to deal with the issue, we would agree we should look at the areas where the Bill needs to be strengthened. Then we should look at the issues in terms of the special purpose vehicles, SPVs, the fact that penalties cannot be imposed or that, as Deputy McGrath acknowledged, it does not deal with those mortgages that have already been passed on to unregulated entities.
However, this is not the type of debate we are having here. This debate is about parking the issue. It is about allowing Second Stage to take place and for the Bill to be sent on for Committee Stage. The Government has no option but to do this, because it declared in its legislative programme at the start of this session that it is introducing a Bill that will have the same type of effect as that intended in this Bill. The only difference is that the Government wants to do it when all of these mortgages are sold to unregulated entities. The Department of Finance claims that this will be able to be done retrospectively, but I am not sure it will. I accept the adviser's word that it can be done retrospectively, as presented by Ann Nolan at the Oireachtas Joint Committee on Finance, Public Expenditure and Reform.
The real question here is not about penalties or unintended consequences, but whether there is the political will to deal with the issue. I cannot understand, and I am sure the 13,000 mortgage holders with IBRC and those fearful their mortgage books will be sold from other banks to unregulated institutions cannot understand why the Government will not deal with the issue here and now. The Government has told all of us, through its legislative programme, that it intends to introduce this legislation, but not until 2015. A number of months ago when the legislative programme was introduced, I questioned the Taoiseach on the Order of Business. I asked whether it was a misprint that this legislation was to be published in 2015. I told him at the time that the books were being sold and the words "horse", "stable", "door" and "bolted" sprang to mind.
The Taoiseach stood up here at that time and gave an explanation as to why the legislation was not being brought forward in this session. He acknowledged in his contribution that the books were being sold in the here and now. The explanation he gave for it not being introduced in this session was that there were 61 bids for legislation in this session. He went on to explain there are no longer three sessions in a Dáil year, but only two. He said there were 61 bids and because of pressure of time, only 43 could be dealt with. Therefore, he basically told the House that the 13,000 mortgage holders just did not come out of the pot at the right time and that only so much could be squeezed into a session.
I wonder what people at home or what anyone with an IBRC mortgage would think of this. On the day the Taoiseach made the explanation, it sounded quite reasonable, or at least plausible, but look at what is happening now. What legislation did we deal with today? None. We are having a love-in. The Government is having its three-year love-in. It is a clappy happy week, with no legislation to be dealt with and nothing to be prioritised. When the Taoiseach was telling us that the IBRC legislation could not be dealt with in this session because of the lack of time, did he know there was going to be a whole week of backslapping on having survived three years and that he was going to provide for these debates so that every Minister could tell the House how good he or she is, forgetting about legislation that affects people and which might allow them to continue with the protection they already enjoy? No, these are not priority issues for the Government.
I challenge whichever Minister comes to the Chamber to speak on this later to explain to the 13,000 mortgage holders why this legislation came down to a lottery. We are told it just did not come out of the hat. There were 61 applications for legislation, but not enough time. However, the Cabinet found enough time to have not one or two, but three, days of debate, without legislation, on the record of the Government. This is unbelievable, but it is a trademark and hallmark of the Government. It is about spin, not about substance.
If the Government is genuine about providing protection for these mortgage holders, we can deal with the legislation right now.
I am not saying the legislation can be brought in overnight, but Deputy McGrath's Bill is definitely the basis for moving forward. There are areas that need to be improved and strengthened, which we can do on Committee Stage, if there is a real political will and desire to deal with the issue. The Government has said it wants to do that. When I questioned a senior official from the Department of Finance at a meeting of the Oireachtas Joint Committee on Finance, Public Expenditure and Reform she said it was the Government’s intention those IBRC mortgage holders would be protected and could therefore rely on the code of conduct and the Financial Services Ombudsman.
The Minister for Finance can issue a directional order to the special liquidators of IBRC. This is not some magic power of the Minister for Finance. He has used this power three times. He can do this. He has done it. At the stroke of a pen he can issue a directional order, in the context of the Bill, not to proceed with the sale of the IBRC loans. It is not a major issue to delay the sale further because these loans were due to be sold before Christmas. It could be done now but the Government lacks the will. If that were done it would knock heads together to draft the best and strongest legislation to protect consumers and taxpayers. It would achieve the Government’s intention of providing the protection of the code of conduct and the Financial Services Ombudsman to mortgage holders with IBRC and other financial institutions. I challenge the Government to explain why a directional order, which is allowed under the Act, will not be issued. Why does the Government not accept my offer to work with it, even if that means for extra days or over weekends, in committee to come up with the best legislation to provide the protections that everyone in this Chamber says we want? The Government needs to decide whether it really wants it right now. Why does it not accept that challenge?
This concerns the vulture funds that want to bid on the assets. We saw the story in the media today about Wilbur Ross and his turnover. People are applauding him and saying it was the best investment he ever made, but it was a terrible investment for this State. It gave it a boost at the time but it was not a good investment. Selling the taxpayer short in the middle of March is not good for the State in the long run. That will happen if the Government does not put in protection. The Government might think it will satisfy the vulture funds and tell its colleagues in Europe, particularly the Commission, which has restructuring documents for other financial institutions on its table, that there is an appetite for Irish mortgages, but it will be bad in the long term. We need to start to stand up for the interests of ordinary Irish taxpayers.
Deputy Lawlor asked, in what I presume was a slighting tone, what would happen to the mortgages if we burnt the bondholders and their unguaranteed bonds. We can all make mistakes, but people should do their research. We are provided with researchers in this House. Deputy Lawlor should also know there are different types of bond - guaranteed, unguaranteed, secured and unsecured. I remind him, even though he is not here, and the Minister of State, as the Government celebrates its third anniversary, that on 25 January 2012 the Government allowed Anglo Irish Bank, now IBRC, pay out €1.25 billion to an unguaranteed, unsecured bondholder. That shows Deputy Lawlor that those bonds were not secured against mortgages. He should not try to muddy the issue. The Government paid out in full and the bondholder received a huge bonanza. In the same way, the vulture funds that are about to pounce on the 13,000 mortgage holders will likely get a bonanza because the Government refuses to put in place the legislation necessary to give statutory effect to the code of conduct and recourse to the Financial Services Ombudsman because it would be a disadvantage to those bidders. All the smoke and mirrors around voluntarily accepting the code has been exposed as nonsense. There is no formal written agreement between the Central Bank, the Department of Finance and the potential buyer of these mortgages. It has no legal standing. The restructuring arrangements can be torn up as part of the review when it comes up within a year, as most do. The Government is pandering to the vulture funds, as it did to the bondholders. This Government is bloody damn well consistent, because the next time it stands up for ordinary taxpayers will be the first time. There was a time, when it entered government, that it talked tough, and there was also the belief that it was going to walk tough, but it does not even talk tough any more. It does not even pretend to stand up for ordinary taxpayers. While I welcome the fact that this legislation will go to Committee Stage, that will mean nothing unless it is done before the mortgage book is sold. The Minister for Finance should issue the directional order to stop the sale of the 13,000 mortgages to the vulture funds and sit down with the Joint Committee on Finance, Public Expenditure and Reform to allow us to improve this legislation, or let the Minister present his own legislation and pass it. Only then should the Government allow the sale of IBRC’s mortgage book to proceed.
I congratulate Deputy Michael McGrath on his introduction of this Bill. It is important and timely legislation. While I acknowledge that the Government will accept the Bill tomorrow night, I listened carefully to the speech of the Minister of State in my office and, with respect, I have no idea what the Government will do. It will accept the Bill tomorrow night but I do not know if it will go to Committee Stage soon. I do not feel it will be in place before the sales process. That reflects the Government’s quite extraordinary position on this issue throughout. That position has been that it will not legislate but will wait to see who buys the loans of these 13,000 families and then phone them up and say "What's the story?", to quote the Minister for Finance, Deputy Noonan.
The Government says it will legislate if necessary. Of course it is necessary. These 13,000 families deserve equal protection under law. We do not say it is illegal to burgle one set of houses but not illegal to burgle a particular set of 13,000 houses. What the Minister is saying is that we would prefer if nobody burgled those houses, but if too many people do, he will legislate. That is a completely unacceptable position. When in this country did we start treating people differently under the law? Surely we are moving to a better place than that.
The notion of a voluntary agreement, which the Minister of State mentioned, is complete nonsense. It is not written down. There is no oversight by the Minister, the Financial Services Ombudsman, the Central Bank or the Department of Finance.
Nobody will ask the bidder whether it has spent the €1 million required to bring the IT system into compliance with the CCMA. Nobody will see the IT system. These American hedge funds will not be asked whether they have hired 40 compliance officers. The CCMA is a complicated and unwieldy document which offers limited protection, despite the amount work it requires to be done. Nobody will walk into the company's office in Dallas or Chicago and demand to meet the compliance officers or investigate the IT systems and audit trail. That is not going to happen.
The liquidator told the Joint Committee on Finance and Public Expenditure and Reform that, in his professional opinion, if the bidders were asked to sign a binding agreement, they would reduce their bid price. The liquidator said he believed the bidders would comply, but at the same time he expressed the opinion that they would lower their bid if they were forced to comply. That means that they are putting a cash value on the ability to walk away from their agreement. It is preposterous for the liquidator and the Government to maintain these two positions at the same time.
Even if the families in question are given some protection under the legislation - I hope they will - they will not be allowed to bid for their own mortgages. I previously outlined the example of a family who were going to be evicted from their house because they were unable to pay their arrears. According to the latest information I have received, the mortgage will be sold for 30 cent in the euro. The mortgage is valued at €220,000 and the Government will sell it for approximately €60,000 to someone from America who will knock on the family's door to tell them to get out. If they do not get out, he or she will not only pursue them for the residual amount but will also add €10,000 in legal fees for the eviction.
I have raised this issue repeatedly during Leaders' Questions and we spent four hours discussing it with the liquidator. I have tried to understand the Government's position. I have told the Taoiseach and the Tánaiste that a process could be designed to return to the State the same amount of money, while also allowing the families in question to bid for their mortgages. I urged the Government to pause the sale to allow such a process to be designed, but the answer was "No." I have been asking myself why it will not help 13,000 families at the same time as returning the same amount of money to the State. It has only occurred to me in the past few days that it does not want to do so. It does not want these families to bid for their own mortgages because it may result in an inconvenient headline from some begrudger complaining that a family got a mortgage write-down of 50% and from a bunch of other people asking, "What about me?" This reflects a pathetic and damaging lack of political leadership. I commend Deputy Michael McGrath for introducing the Bill. The Government's position is appalling. It is feeding 13,000 families to the wolves.