Wednesday, 11 December 2013
Credit Reporting Bill 2012: Second Stage
The Credit Reporting Bill 2012 will establish the legislative framework for the creation of a central repository of credit information to be known as the central credit register. A credit register is a database of credit information based on credit applications and agreements, which assists lenders in making informed lending decisions and the identification of high risk borrowers. The creation of a central credit register was sparked by reports produced in recent years by the Law Reform Commission, the expert group on mortgage arrears, the Central Bank and the Government’s banking inquiry, which illustrated the prevalent weaknesses in the Irish reporting system and highlighted the potential benefit of having an effective credit reporting system.
While there are privately run credit bureaux operating in Ireland, there is no central repository of credit data on a statutory basis, nor is there a statutory obligation on financial institutions to report credit data to the privately run credit bureaux operating in Ireland. Such private bureaux require their members to report credit information. However, as a number of financial institutions are not members of any credit bureau, the information gained does not represent an accurate picture of how much creditors are lending and how much an individual borrower is borrowing. Consequentially, the full extent of a borrower’s indebtedness is not apparent. The current system does not allow the Central Bank of Ireland to see the overall borrowing situation in Ireland, which may lead to lenders being unable to properly assess total borrower exposure. Moreover, the current system does not allow for the identification of systemic risk.
This unsatisfactory position resulted in the establishment of an inter-agency working group tasked with developing a strategy to put in place an effective credit reporting system. The report of the inter-agency working group on credit histories was presented to me at the end of June 2011. The recommendations contained in the report which were developed following consultation with stakeholders helped to inform the Department of Finance in drafting the general scheme of the Credit Reporting Bill published at the end of August 2012.
Following the publication of the general scheme, further consultations were held with representatives of the finance industry, the Central Bank and the Data Protection Commissioner. Their comments were taken on board in developing the general scheme in the Credit Reporting Bill published on 28 September 2012. The achieved deadline of the end of September 2012 was a structural benchmark under the EU-ECB-IMF programme for financial support. Changes made to the general scheme were in the interests of enhancing consumer protection and technical changes which were required. As the Bill progressed through the Dáil, Deputies from the Opposition parties were very supportive of the Bill and positively engaged in the debate on various proposals. The contributions from the Opposition have helped to clarify issues and by bringing forward beneficial amendments the quality of the Bill has been greatly enhanced. I am very thankful for the great support received while the Bill passed through the Dáil. I am pleased to note that we are on track to complete the passage of this important Bill through all Stages in both Houses of the Oireachtas by the end of the year.
The key elements of the Credit Reporting Bill are the establishment of a central credit register which will be maintained and operated by the Central Bank of Ireland; the creation of a statutory credit reporting system under which lenders will be obliged to report information on loan applications and loan agreements which reach a threshold in excess of €500; the Bill provides for the categories of personal and credit information to be held on the register and the purposes for which it can be used; detail is provided as to when this information can be accessed and by whom; the Bill requires lenders to check the register when considering approving credit applications of more than €2,000; the circumstances in which information on the register can be amended are provided; and the Bill prohibits the misuse of the information held on the register.
The Bill prohibits the misuse of the information held on the register.
I will now outline the main provisions of the Bill. Part 1 is the preliminary and general section. Section 1 provides for the Short Title and the commencement provisions. Section 2 is the standard interpretation provision defining the terms used in the Bill and setting out the scope of the Bill. Section 3 provides that any regulations or order made under the Act may contain incidental, supplementary or consequential provisions. Section 4 is the standard section for expenses incurred in the administration of the Act.
Part 2 pertains to the central credit register. Section 5 provides that the Central Bank of Ireland will establish, maintain and operate a database of personal and credit information to be called the central credit register. Section 6 defines the personal information relating to credit information subjects which may be held on the register. The type of personal information which can be held is determined by whether that subject is an individual, an individual carrying on a business or not an individual. Personal information includes names, addresses, place and date of birth, telephone number, PPS number, employment status and tax reference number. Power is given to the bank to make regulations to specify additional personal information which may be held on the register. The bank must consult with the Data Protection Commission and is required to obtain the consent of the Minister for Finance before specifying any additional information.
In addition to the personal information referred to in section 6, the register may hold credit information relating to a credit information subject. Section 7 provides that the type of information held will depend on whether the information is obtained in relation to a credit application or a credit agreement. Section 7 also provides details as to what constitutes credit information, which will be held in relation to a credit agreement made by a credit information subject or a credit agreement of which the credit information subject is a guarantor. The bank also has the power under this section to make regulations, following consultation with the Data Protection Commission and with the consent of the Minister, specifying additional credit information which may be held on the register.
Section 8 provides for the period for which information may be held on register. Section 8(2)(a) specifies that data retention for this information is linked to the closure or discharge of a debt arrangement, rather than that arrangement's entry on the register. Section 8(2)(b) specifies that data retention for this information is linked to the date of its entry on the register not to any specific credit agreement. Section 8(2)(c) clarifies that this kind of information should be retained for five years after the closure of an account not immediately upon closure. Section 8(2)(c) provides that personal information be treated separately and not linked to a specific credit agreement but rather to a credit information subject more generally. In relation to anonymised information, this section permits the information to be held on the register indefinitely.
Section 9 illustrates the application procedure to make an amendment to the information held on the register. Applications from credit information subjects or credit information providers to amend information held on the register must be made on the basis that the information is inaccurate, not up to date or incomplete. Where the Bank makes the decision to amend the credit information held on the register, a number of parties must be advised of this decision as provided for in section 10. Notice of the decision must be given to the borrower, the credit information provider and any person who is party to an ongoing credit agreement. Where the bank decides not to amend the register it must, if requested to do so by the subject, enter on the register a record of the amendment sought.
Section 11 obliges credit information providers to supply certain information to the bank, which the bank will then hold on the register. This section also allows the register to impose some minimum standards around the data to be reported and the verification procedures with which credit information providers must comply. Finally, this section also provides that the bank may, with the consent of the Minister, make regulations specifying the information and the form in which it is to be provided. Those regulations may differentiate between classes of applications, agreements, providers and subjects.
Section 12 obliges a credit information subject who makes a credit application to give notice to the credit information provider of any aggregate foreign debt in excess of €5,000 outstanding. This refers to credit agreements not covered under section 2(2). Section 13 permits a credit information subject to add to the register, a short explanation of no more than 200 words, about the subject’s credit information held on the register. The bank is obliged to include this information on the register. Section 14 obliges a credit information provider to access information on the register which relates to a credit information subject when that subject makes a relevant credit application. The threshold for access can be amended by regulation but as a default is set at €2,000. The register does not have to be accessed where the credit information provider has previously accessed information relating to the subject in question within seven days before the credit application is made. Information accessed under this section may only be used for purposes specified in section 16 of this Act.
Under section 15, a credit information provider may apply to access information on the register where a person has made a credit application for an amount less than €2,000 or is proposing to give a guarantee or indemnity in connection with a credit application made to a credit information provider. This section also provides access for a lender beyond the performance of credit agreements it has entered into with a particular credit information subject, to the performance of credit agreements entered into by that credit information subject with other credit information providers, where there is a change or a breach of terms of a credit agreement. This will allow a credit information provider a fuller picture of a person’s indebtedness resulting in more responsible lending.
Information accessed in accordance with this section may only be used for purposes specified in section 16 of this Act. Section 15 allows a credit information subject or any person who has the consent of the credit information subject to access information relating to that subject. This section also permits the bank to use the information held on the register for the performance of its functions.
Section 16 details the specific reasons for which information on the register can be accessed by credit information providers. The reasons include verification of information provided; evaluating risk from the affording or extending of credit to or the taking of a guarantee or indemnity from a credit information subject; evaluating any risk arising from any changes to the credit agreement or guarantee; monitoring failures to comply with any obligation under a credit agreement; evaluating whether to make any proposal or arrangement with respect to the debts of a credit information subject in circumstances in which a credit information subject has made a request for such an evaluation to be made; and analysing the nature of the credit information provider’s portfolio of credit agreements.
Under section 17 the bank may, having consulted the Data Protection Commissioner and with the consent of the Minister, make regulations relating to applications to access information to which the bank is required to give access in response to such an application, when access to the information is to be given and the manner in which such access is to be given. A credit information provider is required to keep a record of each application made to access information on the register for a period of five years. If required to do so by the bank, a credit information provider is obliged to provide information about any occasion on which that provider has been given access to information on the register. The bank is required to keep a record for five years of all occasions on which access to the register was granted. Section 17 allows for a credit information subject to request from the bank a report detailing each occasion access has been given to information relating to that subject within the previous five years, the identity of the persons who applied for access and the dates on which those applications were made.
Section 18 allows credit information subjects to place pre-emptive flags on their register accounts notifying any prospective lenders in respect of their identity being compromised. This enhances consumer protection on the register.
This enhances consumer protection on the register. Where a notice of suspected impersonation is entered on the register, the bank is required to notify the credit information subject, at least within 48 hours, if any application is made to access information on that subject or if information is provided for the bank in connection with a credit application made by that subject.
Section 19 applies the provisions of the Data Protection Acts 1988 and 2003 to credit data held on the register for individuals and bodies corporate with an annual turnover of not more than €3 million. The Data Protection Commissioner will, therefore, be able to deal with complaints from microenterprises and SMEs in respect of their data held on the credit register. The section provides that the bank may make regulations, with the consent of the Minister, specifying how and by reference to what year annual turnover is to be calculated. The bank must also notify the Data Protection Commissioner of any systemic problem identified and take action to eliminate or minimise any such systemic problem.
Under section 20, a credit information provider is required to take steps to verify the identity of a credit information subject who makes a credit application or credit agreement with that provider or proposes to give a guarantee or indemnity in connection with a credit agreement to which that provider is a party. The bank has the power under this section to make regulations, following consultation with the Data Protection Commissioner and with the consent of the Minister, specifying the steps credit information providers must take to verify a subject’s identity. These regulations may make different provisions for different classes of credit information provider or different classes of credit information subject.
Section 21 obliges a credit information provider to take reasonable steps to verify the information it obtains from credit information subjects. Under section 22, a credit information provider shall notify a credit information subject where that provider reasonably believes the subject has been impersonated by any person. Section 23 imposes an obligation on credit information providers to ensure credit information subjects are made aware of their rights and duties under the Bill. Section 24 stipulates that credit information providers are required, at the application stage, to notify applicants that the Bill requires information on qualifying credit applications and agreements to be supplied to the bank for inclusion on the register.
The register will not be set up to generate profit. However, section 25 allows for a levy to be imposed on credit information providers to meet the expenses of the bank in performing its functions under the Bill. The levy will be set with the consent of the Minister. The regulations will determine the parameters of any levy to be introduced. The regulations may also differentiate between different classes of credit information provider. This will assist in ensuring smaller lenders are not disproportionately affected by a levy. The section also provides that any party engaged by the bank to operate any aspect of the register is able to recover levies owing to it by way of court proceedings, instead of requiring the Central Bank to bring such proceedings.
Section 26 instructs that the bank may make regulations, with the consent of the Minister, to set out the fees to be paid for accessing information kept on the register or being provided with a record of occasions on which access has been given. The regulations will determine the parameters of any fee to be introduced. However, regulations under subsection (1) may not prescribe a fee for access to information by an individual under section 15(5) if the access is pursuant to the first application made by the individual in any year.
Section 27 outlines how the bank may compel credit information providers to comply with their obligations under the Bill. If the bank considers a credit information provider has failed, or is failing, to comply with any imposed obligation, it may direct that the credit information provider take specific steps to comply with its obligations. If necessary, the bank can apply to the High Court to make an order requiring the credit information provider to comply with the direction.
Section 28 outlines the provisions of a direction under section 27. Section 29 provides for a number of offences. It is an offence for a credit information provider to knowingly supply false or misleading information required to be supplied under the Bill and it is an offence for a credit information provider to knowingly use information, accessed by the provisions of the Bill, for a different purpose than those set out in the Bill. The penalties for the offences provided for in the section are a class A fine and a term of imprisonment not exceeding six months following summary conviction or a fine or imprisonment for a term not exceeding five years, or both, following conviction on indictment.
Section 30 provides that the bank may produce credit scores of credit information subjects and also general reports, analyses and statistics which contain anonymised data only. This means data that cannot be used to identity credit information subjects. The section also allows the bank to publish and sell items produced under this section, including to potential market entrants.
Section 31 requires certain staff of the bank to attend before the relevant Oireachtas committee and provide the committee with information on the performance of its functions under the Bill, if so required. Section 32 prohibits the unauthorised disclosure of confidential information received by the bank in connection with the performance of its functions under the Bill. The disclosure of confidential information constitutes an offence.
Section 33 provides that summary proceedings for offences under sections 29 and 32(4) may be brought and prosecuted by the bank. Section 34 is necessary in circumstances where the Central Bank engages third parties to carry out specific tasks. Consequently, section 33AK should include a reference to an agent of the bank, in line with the proposed section 32 of the Credit Reporting Bill 2012.
Section 39 is an amendment of section 5 of the Central bank (Supervision and Enforcement) Act 2013. It amends section 5(2) and (3) of the Central bank (Supervision and Enforcement) Act 2013 to change “to 3” to read “to 4” and ensure it shall be treated as always having had that effect. It corrects a technical error relating to a cross-reference.
The Credit Reporting Bill aims to support the removal of the deficiencies in the Irish financial services industry by establishing a statutory credit reporting system. This aims to support the promotion of responsible borrowing and lending. It will also aid the supervisory functions of the bank and enhance consumer protection measures in respect of lending. The legislation will assist in providing a tool to produce an overall picture of the level of indebtedness in Ireland. The establishment of a mandatory credit reporting and credit checking system, regulated and operated by the Central Bank of Ireland, will ensure lenders have access to the most accurate and up-to-date information on a borrower's total exposure. The provision will benefit both borrower and lender and ensure lenders are in a position to make informed lending decisions. The establishment of a central credit register will also help to support policies to combat over-indebtedness. The Bill achieves this and I commend it to the House.
I welcome the Minister and thank him for his detailed explanation of the Bill which is an important step forward in improving the current arrangements for the recording of consumer credit information. We will support the Bill in the Seanad, as we did in the Dáil.
When will the new regime be up and running once the Bill is passed? There have been some reports that it will be as late as 2016.
Perhaps there could be clarification of when the Minister believes the new system will be up and running, as it is important it is done soon. It leads to much improved transparency for the customer, first and foremost, and it will ensure that decisions made by banks, particularly about individuals with a heavy debt burden, will be accessible. In the US, people are far more familiar with accessing their credit information and ratings on a regular basis but in Ireland it is something people generally do not do. By rolling out this new process under this Bill, we will have to engage in a consumer education and information programme. I welcome the Minister's statement that the individual will not be charged if an application for an update is made once every 12 months, as that is reasonable. A nominal charge could apply to cover expenses of the Central Bank for more frequent updates. I suggest that the levy applied to banks on credit information providers should not be passed to the consumer in a loan application. This has been done with other fees and it should be made clear to the banks that even if it is a nominal charge to cover the bureau's expenses, it should not be passed on to individual customers in full or in part when there is an application.
The limit is set at €2,000 and anything above that should be checked with the bureau. It is mentioned in section 15 that the limit can be lowered and there has been mention of €500. Money lenders, sub-prime lenders and particular short-term credit providers are prevalent in England and are becoming more prevalent here. These are lending amounts of €200, €300, €400 or €500. It might get some of these lenders out of a bind if they can say that under law, they do not have to check Darragh O'Brien's rating, for example, to see if I am up to my neck in debt. Powers have been provided so that institutions can look at amounts of less than €2,000 but I wonder why there has not been a stipulation that the bureau should be consulted on amounts more than €500.
The National Consumer Agency suggested that spouses, guarantors and executors would be allowed access individuals' information but I warn against that, as it is not appropriate. In his comments, the Minister indicated that should a borrower give consent to an individual, he or she may access the information but I wonder if the Minister is just referring to the institution. For example, if I give written permission to my wife allowing access to information, does that go to the bureau and is it put on its system? How will that work in practice? I welcome the fact that the Minister has not automatically given the right of access to credit scores to spouses, executors or guarantors.
I understand the Data Protection Commissioner has some concerns about personal public service, PPS, numbers appearing on loan applications, and it is intended that the credit bureau will hold such information. The commissioner makes a fair point in that a PPS number is not for the benefit of private or lending institutions so how will that information be protected? What discussions did the Department have with the Data Protection Commissioner, as the office seemed to strenuously oppose banks collecting individuals' PPS numbers?
I have already mentioned consumer education, which is important. I do not intend to delay the Minister as the Finance (No.2) Bill which we will discuss later has much more meat on it.
Absolutely. There is quite a lot to it. With regard to errors, I welcome the fact that if somebody - usually the lending institution - makes a change to a record, the individual must be advised of that. I assume the advice must be in writing. That has not happened up to now and most people would have no idea what information is held with the credit bureau on their behalf or the type of statements that are made. The Minister mentioned errors by financial institutions and where they happen, the procedure must be very clear for where people go and they follow up. I was one of the thousands of people affected by Ulster Bank's "technical issue", and mortgage payments were not made because of the glitch. I phoned the credit bureau after that to ensure there was no incorrect information held. If mistakes are made by institutions or somebody's payment is not made because of an institutional error, how would somebody go about following up?
I welcome the Bill and this will improve the conditions for both lenders and borrowers. I am particularly interested in finding out when the Minister sees this coming into being. I hope it will not be 2016, although there may be a good reason if it is to be that date. Will the Minister elaborate on those points?
I welcome the Minister again. It is not that often that a piece of financial legislation meets general approval from both Houses but it seems to be the case on this occasion. I do not intend to delay the Bill, as it is a good piece of legislation. Perhaps it was required in the past, and I have argued before that the lack of legislation in the financial area was one of the reasons we ended up in such a fantastic mess. It is amazing that coming to the end of 2013, coming to midway through the second decade of the century, we are only putting this type of very important legislation on a statutory footing. It is a deficit that has to be addressed in the interest of the consumer. I support Senator O'Brien's comments in that any fee should not be put down as a box to be ticked on a form by a financial institution, with the cost passed to the consumer.
We can deal with particular sections on Committee Stage. Section 30 deals with the power of banks to produce credit scores. I welcome the fact that a consumer will get one copy per year if requested but the record should be user-friendly. Far too often people who discuss such matters know about banking and finance but they do not comprehend that the public may not be able to make head or tail of it. I am not talking about dumbing down the report but it must be user-friendly. A person should be able to analyse the report and see exactly what it states. More often than not, this aspect is overlooked.
Information will be made available to financial institutions and there is an obligation on them to request that information. If the Central Bank sends a report to a financial institution, is there a follow-up if it is obvious that somebody is overly indebted? Does the Central Bank have another role when it is clear that a loan of a certain amount was made?
Has any analysis been made to determine how a financial institution allowed this person who is obviously over-indebted to borrow that amount of money? I am not sure this is within the scope of the legislation, but perhaps it should be. It would act as a brake on financial institutions and we would never again see what happened with Anglo Irish Bank and other institutions. Perhaps it does not form part of the Bill, but I ask whether it should. If it should form part of the Bill, how do we factor it in?
I am not sure I agree with Senator Darragh O'Brien's point on guarantors. If somebody agrees to be a guarantor of a loan, the credit history of the borrower should be made known to him or her. At least, if that box was not ticked and the borrower did not agree to releasing information on his or her credit history, it would set off alarm bells for the guarantor. It would reinforce the point for him or her that he or she would be responsible if the loan repayments were not made.
The lower limit in the legislation is set at €500. The limits for credit cards can be above that amount or equal to it. Some people use credit cards very prudently which is very wise, given the rates of interest payable on them. Some use a credit card to pay for small items like cinema tickets, make online purchases and so forth and do not use their cards on a daily basis. If these small amounts are not cleared in time, will that go against a person in his or her credit history? Will a sum of €50 or €70 work against an individual? A person could have a very good credit history in the case of larger credit items like mortgages and so forth, but failing to pay smaller bills could spoil his or her credit history in an unfair way.
I welcome the Minister and thank him for his explanation of the Bill. I conducted some research on the subject and was surprised to find that we were way behind other countries in this area. Many other countries already have a system like this in operation. I hope it will be one tool that will prevent reckless lending in the future.
We should look at the Bill from the perspective of the consumer or business. How can consumers or businesses build a good credit rating, not just in terms of their dealings with banks? In some countries the credit register takes into account an individual's or a business's dealings with retailers, trade creditors and utility companies, as well as their dealings with regular financial institutions. I know from my experience in business that some suppliers or retailers were totally reliable and trustworthy, but they could have had a bad credit rating because they had missed a payment some years earlier. If they wanted to expand their business, a bank could refuse them a loan, in spite of the fact that I, as a bigger retailer, knew how reliable they were. On top of this, even today I am aware of businesses that do not have traditional relationships with banks. Could we include a provision in the Bill in order that retailers, trade creditors and utility providers could feed into the register? In doing so, we would be emphasising the good in individuals or businesses instead of focusing purely on the negative, with the register being used to justify a refusal of credit, based on the data therein. My idea would, in theory, see a business that would generally be refused a loan because of its credit history actually being offered a loan because I, as a retailer, had fed so much good information on it into the system. Surely such day-to-day dealings are as reliable, if not more so, than some loan repayment information. The World Bank supports this practice and argues that sharing information on reliable repayments allows customers to establish a positive credit history and improves the ability of lenders to distinguish between good and bad borrowers.
In Spain it is the practice to distribute credit information from retailers, trade creditors and public utility providers, as well as from financial institutions. Could we learn from this best practice? Could we get utility providers, retailers and trade creditors to electronically report on good payment practices by their customers? It is also worth noting that in Panama a law allows entrepreneurs and SMEs to request the addition of information on utility payments to their files, helping them to build a good credit history to improve their chances of securing credit. If the Minister is not open to getting retailers or utility providers to report on a customer, could he, at least, allow SMEs to request additional information on utility payments to be added to their files? That would be a small first step which could make a difference to the very survival of a business. In a recent report the World Bank cited an example of a utility company in the United States, DTE Energy, an electricity and natural gas supplier, which began full reporting of customer payment data to credit bureaux. DTE Energy customers with no prior credit history - approximately 8.1% of its customer base - gained either a credit file or a credit score. Customers began to make payments to DTE Energy a priority and within six months the company had 80,000 fewer accounts in arrears, which is very significant. This would be a pro-business measure and I ask the Minister to indicate whether he would be open to the idea. Spain has undertaken this measure, with 57 other countries. We could learn a lot from them.
The Bill allows people to access their credit history data, but could we allow SMEs to insert explanations or complaints about negative instances in their credit history reports? Their side of the story must be heard. It is not always about figures; there are people behind the numbers. Panama allows this to happen and it would be a good addition to the Bill which would help to balance it out.
I welcome the Bill and the effort that has been put into it. I was rather surprised to find that Ireland was one of a number of countries that did not have something like this up and running. It is welcome that we are developing this system now and I echo Senator Darragh O'Brien's question as to when it is likely to come into operation. Is it not expected to be in operation before 2016? I hope it will be operational a lot earlier than that date.
I welcome the Minister. The Bill is technical in nature. It contains 35 sections, most of which are very detailed about the legislative framework for the creation of a repository for credit information. This is to be welcomed; the creation of a central credit register has been welcomed by all stakeholders involved in the collaborative process behind the drafting of the legislation. I followed the progress of the Bill through the other House and was glad to see that it had received universal support. So far today, it has received the support of this House.
A private credit bureau is already in operation here. It is doing some of the work the new credit register will do. However, the data available to the bureau do not represent the full picture on the level of lending in the country. It cannot do so because of its non-statutory nature. The Central Bank, as a result of this legislation, will have a fuller view of the lending landscape. Had this register been in place at the height of the boom, we might not be in our current difficult position.
What action is available to the Central Bank if some institution is imprudently lending to people who are already over-indebted? It would seem necessary that such a role be covered by this legislation.
It is enough to frighten the lives out of customers when they hear their banks or lending institutions will be keeping information on them. Sections 18 to 24, inclusive, have achieved some balance between the necessity of recording customer information and individual’s data protection. Why is there a restriction under section 13 of 200 words for any information held on the central credit register?
Section 30 provides for the power of a bank to produce credit scores and anonymised information. What kind of data might this be and what use could it be put to if it is at such a macro level? Senator Darragh O’Brien, in his good contribution earlier, referred to banks passing on fees for accessing information to their customers. It would be in a bank’s interests to seek credit information but also not to pass on any levy or fee. However, I am not sure that can be covered by this legislation. Will the Minister elaborate on this, as we know the banks are not altruistic or charitable in their approach to customers?
I look forward to discussing this important Bill in more detail on Committee Stage.
I welcome the Minister for Finance to the House. As in the Dáil, Sinn Féin will support this legislation.
This Bill aims to create a more responsible lending environment and to prevent any further reckless lending such as that which occurred in the past. While the Minister referred to improvements made to the Bill in the Dáil, I am concerned that in some elements of it there is still room for improvement. The Bill states that the central credit register must be checked when any loan over €2,000 is requested. Earlier, it was stated that many moneylenders typically lend under that amount at higher interest rates and are, accordingly, excluded. This would reduce the effectiveness of the register. I understand the Minister has indicated his willingness to review this, which is welcome. Will he update the House with regard to when we can expect amendments in this respect?
The National Consumer Agency stated that the register would only be as useful as it is known. There already exists a credit register privately run by the Irish Credit Bureau. However, very few people are aware of its existence. I agree with Senator Michael D’Arcy that a register should be user-friendly. How does the Minister intend to publicise the existence of the central credit register?
The register should not be used as a stick to beat those who are having difficulties with mortgage repayments. If a family moves into a restructuring plan and meets its terms, any black marks on its credit record should be wiped away. The register lays down penalties for abuse of the system. Without some sort of will to use these, the register could become a way for certain lenders to chase and drum up business. We have been told the Bill is watertight in this regard. Without strict monitoring, however, there is a danger that some of those rules could be ignored, allowing some borrowers to be open to speculative lending.
While Sinn Féin supports the Bill, will the Minister give more detail as to when the register will come online, exclusions and other matters to be addressed on Committee Stage?
I welcome the Minister to the House.
The Bill’s purpose is to promote more responsible borrowing and lending practices among borrowers and lending institutions. Much has been lamented about our Celtic tiger years and how too many people are now paying the cost of reckless lending by our financial institutions to industry and the consumer back then. Banks lent moneys to developers whose ability to pay was based on the continuing rise, or at least continued stability, of the property market. Banks also lent moneys to people across the board who wanted to get on the property ladder, as they were advised to do so at the time. Some on low incomes overestimated their earnings to secure loans. We know of older parents re-mortgaging their own homes to help their children get on the property ladder. There appeared to be no checks and balances to protect the institutions from being overexposed or to protect the consumer from borrowing beyond his or her ability to repay. Financial institutions and consumers were exposed, accordingly, to significant risks if things went wrong in one sector of our economy. The consumer who borrowed to purchase a home was overexposed to large debt if the property market crashed, which it did. Did we hear the alarm bells? Some did, but others did not want to acknowledge them.
This Bill will help prevent a return to the past. It creates a statutory centralised register of credit applications. The information on it will help the Central Bank form a picture of borrower indebtedness and how much financial institutions are lending. In essence, the checks and balances that should have been in place in the past to prevent the overexposure of lending institutions and the consumer will now be put in place. This has to be welcomed.
The Government has been active in supporting the small business sector and recognises its vital importance to the economy and its role in the economy’s recovery. This legislation will extend the role of the Data Protection Commissioner to deal with complaints from microenterprises and small and medium-sized enterprises, SMEs, with a turnover of less than €3 million with respect to their data held on the credit register. This initiative may provide some comfort to enterprises that have concerns about the potential storing of inaccurate data but may not have the resources to take legal action to have it corrected. Inaccurate data on the central credit register could result in the refusal of credit to a small company. Such a refusal could do irreparable harm to a small business, resulting in the loss of its good name and jobs.
The database of credit information will be owned by the Central Bank. How will this information be stored and managed? I note the Central Bank could outsource the operation and maintenance of this register to a third party. Given the sensitive nature of this information for both businesses and consumers, can the consumer be guaranteed that his or her information will be safeguarded in a central location, using the best available software to prevent data breaches? In the interests of all consumers, it is important that such information is not transported on laptops but stored centrally.
Credit providers will be required to make mandatory credit checks with the register for all credit applications above a threshold of €2,000. This should help prevent both businesses and consumers from borrowing too much money, ending up with debts they cannot afford to repay.
None of us wants to go back to the past system of reckless lending, therefore I welcome this Bill to the House.
We have had a very constructive debate on the importance of the Credit Reporting Bill, which will create the legislative framework for a central repository of credit information to be known as the central credit register. The register will go some way to resolving what were identified as weaknesses in the Irish financial services industry by providing a tool which supports responsible borrowing and lending. It will assist the Central Bank in its supervisory role and augment levels of consumer protection in respect of lending. I thank all the Senators for their constructive input to this debate and the Fianna Fáil and Sinn Féin parties who supported the Bill in the Dáil and the Seanad. I am grateful that we have had quite a number of very interesting contributions. A number of Senators, including Senator Quinn, intend to bring amendments forward on Committee Stage. I welcome their helpful contributions and discussion of the Bill and will be happy to discuss their proposed amendments on Committee Stage.
I will respond to a number of issues, proposals and queries that were raised during today's debate. Senator Darragh O'Brien and others asked when the register will come into operation. The Central Bank intends to take a phased approach to the establishment and development of the register and has suggested that the indicative timeframe for the implementation phase would be over 2015 to 2016. It is anticipated that 2014 and much of 2015 will be spent in procuring, developing and testing the technical solutions in partnership with all relevant stakeholders with data being supplied on a phased basis over the course of late 2015 and into 2016.
The indicative timetable will depend on and be influenced by the successful enactment of the Credit Reporting Bill by the end of 2013 and subsequent agreement on secondary legislation in 2014. It will also depend on the successful development of a technical solution, which is likely to involve a substantial public procurement process and the capacity of credit information providers to meet the significant operational challenges within a tight timeframe and within the context of other competing demands.
A number of Senators raised the question of control of the data to be held on the register. This is why we have provided for strong controls in section 16. This section outlines the purpose for which information on the register can be used, which would preclude the use of the information on the register by credit providers for marketing purposes, as is feared by some Senators. Data protection concerns have been, and continue to be, of utmost importance during the development of this legislation. It is important to note that the Data Protection Commissioner has contributed to the development of the Bill, ensuring that the rights of consumers are protected at all times.
Regarding the thresholds set by the Bill in sections 11 and 14, which Senator Darragh O'Brien raised, we will consider the contributions made by all Senators. It is very important that we correctly strike a balance between trying to prevent a lender from avoiding having a check or report to the register. I would not like to make it overly bureaucratic by setting the threshold too low. I am satisfied that I have been provided with sufficient power to amend the thresholds, if necessary. A concern was raised in the Dáil and here again today on the threshold being pitched too low regarding moneylenders. Senator Reilly raised this issue. It is anticipated that banks and credit unions would be the first credit information providers to be phased in under section 11, which will place on them an obligation to provide information to the register and to access information on the register in certain circumstances.
I am satisfied that the threshold is satisfactory. I have the power to amend the threshold following consultation with the Central Bank having regard to the consumer price index, implications for the effective and efficient operation of the register and the effect on credit information providers and credit information subjects. It would be more appropriate to determine if the threshold should be changed after a period of practical operation of the credit register following the phasing in of moneylenders. The register will be capable of providing statistics that could be examined by the Central Bank to assist it in its supervisory function. The Central Bank would be in a position to determine whether the behaviour of a particular credit information provider illustrated the need to change the threshold or whether legislation is required to provide for a threshold specific to a particular credit information provider. This is not the vehicle primarily to regulate moneylenders. It is a register for capturing information to support credit and lending decisions and prudential supervision of the financial services industry.
Senator Darragh O'Brien suggested a widespread programme of consumer education should be conducted. I agree and believe it would benefit the consumer, particularly as the Senators have highlighted the lack of awareness of the ability of consumer credit information. I agree that it is very important that citizens be made aware of the register and what implications it will have. It is equally important for consumers to know they have the ability to access a free copy of their credit report each year. Consumer awareness and education are imperative for the legislation to have the positive effect it is intended to have.
The Central Bank will carry out a public awareness campaign during which it will highlight the opportunity for individuals to avail of a free copy of their credit report each year. The National Consumer Agency has indicated that it is keen to engage in this important consumer issue. In response to Senator Darragh O'Brien's question about a free report each year, this is provided and we will help to clarify issues and corrections that need to be made on Committee Stage.
This represents an opportunity to develop a responsible reporting structure which will benefit both borrower and lender and ensure lenders are in a position to make informed lending decisions. The register will help support our continued policy to combat the overall indebtedness of this country. In response to questions by Senators Michael D'Arcy and Gilroy on the role of the Central Bank where evidence of over-indebtedness is available, the register will be capable of providing significant useful information. The Central Bank will have the power to use this information for its supervisory functions.
The consumer credit regulations and the mortgage credit directive, which was voted on by the European Parliament, provides for creditworthiness assessments. The Central Bank has and will have a role in regulating financial service providers and ensuring they adhere to the requirements of the various pieces of legislation in operation. The credit register will greatly assist the role of the Central Bank in meeting its statutory obligations. Again, I thank the Senators and I commend the Bill to the House. I am very grateful for the support from all sides and the very good preliminary debate here on Second Stage.