Tuesday, 30 June 2015
Consumer Protection (Regulation of Credit Servicing Firms) Bill 2015: Committee Stage
I welcome the Minister of State, Deputy Simon Harris to the House.
Amendments Nos. 1 to 4, inclusive, are related. Amendments Nos. 2 and 4 are cognate. Amendment No. 4 is a physical alternative to amendment No. 3. Amendments Nos. 1 to 4, inclusive, may be discussed together, by agreement. Is that agreed? Agreed.
I move amendment No. 1:
I will speak to amendments Nos. 1 and 3, the Sinn Féin amendments. In respect of amendment No. 1, there is a difficulty for many who find that their mortgage holder is no longer regulated. A total of 18,000 people fall into this group, approximately 13,000 of whom are with the Irish Bank Resolution Corporation, IBRC. The stories I and other elected representatives have heard about their experiences are amazing. The danger is that the process has opened the door to firms which seek to profit-strip from the crisis and have received reductions or write-downs on the size of the mortgages. For example, they may have bought mortgages at 60% of the market value and therefore see an opportunity to sell houses as soon as possible to realise a profit. The system has created a commercial opportunity that works against the interests of citizens whom we are here to represent and protect.
In page 3, to delete lines 20 to 26 and substitute the following:“(c) by substituting the following definition for the definition of “retail credit firm”:“ ‘retail credit firm’ means a person prescribed for the purpose of paragraph (g) of 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 or owning such credit or both, but does not include—
(a) a person who is a regulated financial service provider authorised by the Bank or another EEA regulator to provide or own credit otherwise than under this Part, or
(b) a person who is an authorised credit intermediary under Part XI of the Consumer Credit Act 1995 when carrying on the activity of a credit intermediary, or
(c) a person who provides credit on a once only or occasional basis, but only if the provision of the credit does not involve a representation, or create an impression (whether in advertising, marketing or otherwise), that the credit would be offered to other persons on the same or substantially similar terms, or
(d) a person who is exempted, or who belongs to a class of persons that is exempted, under section 29A from being required to hold an authorisation as a retail credit firm;”.”.
One individual who was in Leinster House when this legislation was in the Dáil was a couple of days behind in his mortgage repayments. He received a letter from the mortgage provider, which was outside the system of regulation, for repossession. This shows that these guys were jumping at the opportunity to repossess homes. I know another individual who bought a house and was €2,000 in arrears for four months, whose house was forcibly sold. When it was sold, he was left with a debt of €80,000. I think the Minister of State would agree that kind of practice is shocking and disgusting.
The fact that mortgages were sold off in the first place is significant. We were not able to restructure debts for citizens, or do any restructuring or write-down of debt for those in mortgage distress, yet these vulture capitalist firms were able to come in and buy distressed mortgages from the IBRC. They pocketed the write-down by getting the loan on the cheap, while the mortgage holder still has the full debt. It beggars belief.
We also know that when citizens try to engage with these unregulated vulture funds, they are dealing with an opaque system. There are mortgage holders who received letters from a company called Acenden in Sweden about particular mortgages. When they went back to the company, they found they were dealing with some other company which knew nothing about the parent company and operated through a PO box number. When they wrote to the other company associated with Acenden, which is Mars Capital - probably well-named, if we are to be honest - it took a long time to obtain the information. There are no telephone numbers for these companies. Individuals receive statements with no opening balances, just the details of the year involved. If they look for other information on their 2014 statements halfway through 2015, that detail cannot be provided. They make payments to central accounts that have no reference codes and they cannot obtain a digital receipt or information from the firm involved.
We have a wild west-type system of deregulation for a significant cohort of individuals. In the main, their situation is the result of a Government decision. We hoped the Government's response to this crisis would be to fulfil and safeguard the rights of citizens as much as possible. I cannot understand why it has not been achieved in this instance. In overall terms, the Government has fallen short on supporting families in mortgage distress. Although the Minister of State will say differently, the banks still have a veto. They still do not have to deal comprehensively with the range of options which should be available to those in mortgage distress, such as split mortgages, mortgage to rent, and restructuring of debt. None of that is being actively pursued by most banks, as they are just sitting back and not really doing much. We have recently found out that some banks were even in breach of the code of conduct for mortgage arrears. It shows that even the weak protections which are in place are not respected by the banks.
The Minister of State will recognise the text of the amendment because it is taken from the original document. It seeks to regulate all players operating in the mortgage system. There should be no separation or difference between owners and service providers. It should also include those who own the credit. It is a legally complex issue, but the first objective of any Government should be to ensure that the people concerned are fully protected. I appeal to the Minister of State to return to the track he was on initially to ensure full protection for all mortgage holders.
I thank the Senators for their amendments. We are all here to do the same thing, which is to try to ensure that mortgage holders are protected regardless of who owns their mortgage book. That is the very reason the Government is bringing forward this legislation, and it is eager to work with the Houses of the Oireachtas to ensure that it can be enacted as quickly as possible.
I will discuss the Sinn Féin amendments, Nos. 1 and 3, together as they are broadly aimed at the regulation of owners of credit. The purpose of this legislation is to protect consumers whose loans are sold by regulated financial service providers to unregulated firms. I welcome the broad support given by Senators to this overall objective. We are all agreed that our aim is to protect the consumer and to ensure these protections are put in place as soon as possible.
Over the course of discussions on this Bill, the question of who should be regulated has arisen. I would like to take this opportunity to further explain the evolution of thinking on the Bill. As has been pointed out previously, the initial thinking was that the best approach would be to regulate the new owners of the credit. However, this thinking evolved over the course of preparing the legislation. Often, governments are accused of not listening. The Department of Finance ran a comprehensive public consultation last July and August, seeking views on the proposed legislation. This was followed by further engagement with the Central Bank and Office of the Attorney General. The public consultation process highlighted an issue with this approach, as it was possible to envisage cases where owners would effectively be passive special purpose vehicles, SPVs, and where they would outsource servicing of the loans to a firm that would not be regulated. Indeed, this was one of the factors we considered and we saw that there was the potential for a lacuna to arise if a foreign-based unregulated owner were to use a local credit servicing firm which was not regulated.It therefore became clear from the consultation process that if we were to effectively protect the consumer it was better to regulate the process of credit servicing as that is the customer facing activity. It is the part of the operation with which our constituents and citizens interact and it is very important that it is regulated.
However, if an owner does not outsource credit servicing and instead undertakes the activity himself or herself he or she will be required to be regulated. In other words, at all times some regulated entity will be responsible for all credit agreements. The purpose of the Bill is to ensure that consumers retain the protections they had prior to the sale of their loans. This Bill will require entities dealing with consumers to be authorised by the Central Bank and subject to its code of conduct. Dealing with consumer credit servicing and the definition of credit servicing is broad.
In order to further strengthen borrowers' protections in this area a new section, section 5, was added to the Bill on Committee Stage. This is a statutory obligation that states that a credit servicing firm cannot do something or fail to do something which would be a prescribed contravention if performed or if not performed by a retail credit firm. It also prevents the owner of a credit from instructing a regulated credit form to perform such an action. This is a belt-and-braces approach and its purpose is to try to address some concerns and further enhance the consumer protection element of the Bill.
As such, I am not accepting these amendments as the decision to regulate the credit servicing firm as a customer-facing activity has been carefully considered and put out to public consultation. There has been extensive engagement on this and it is the best way to go about this. The decision was not arrived at lightly and many scenarios have been discussed at length. In consultation with the public, the Central Bank and the Attorney General, the Minister, Deputy Noonan, and the Government have reached a decision that this is considered to be the best way to protect borrowers.
Regarding amendments Nos. 2 and 4, I thank the Senator. The Minister, Deputy Noonan, discussed them on Report Stage in the Dáil, but I am glad to have an opportunity to clarify the reasons they are not being accepted. I understand and welcome the intention behind the amendments, that is, to impose regulation on firms that take an active role in managing the relationship with borrowers even when the borrower is not in financial difficulty. However, I am glad to be able to inform the Senator and the House that the amendment is unnecessary because the definition of credit servicing is broad enough to capture this already. Currently, borrowers whose loans are sold to unregulated entities are not protected. It is, therefore, imperative that we enact protections as soon as possible.
We all want to strengthen the protections for consumers whose loans are currently with unregulated entities by restoring them to the position they were in before the loan was sold. The Bill is about ensuring that people have the same level of protection under the various codes and Central Bank after their loans were sold as they had beforehand. That is not the case today for many of our constituents and that is why we need to pass the Bill.
I thank the Minister of State for his lengthy response. I support the Bill, for which thousands of families have been waiting. Many who are in this situation have campaigned for some time. Others may only be waking up to the reality that their mortgages are owned by venture capitalist firms and they will receive new demands in the post from such companies. I want to put on the record people like Denise McCormack and the IBRC mortgage holders group, who put this issue firmly on the agenda. Had it not been for their campaigning we would not be here today. It is a credit to their bravery and courage that we are discussing this Bill.
The Minister of State mentioned that there was consultation. That is a good thing and we welcome it, but when one considers the paragraph we are seeking to remove, one would believe that it was included based on lobbying from the vulture fund companies involved in the purchasing of mortgages. We have met people who are affected and those who have had their mortgages sold to vulture fund companies. We are here to represent people who have been affected by such sales.
The Bill should not limit any recourse action against such companies. Therefore, it would be strengthened by the removal of the paragraph. While the Minister says there is no need for it, those affected do not believe that. They have asked us to put forward an amendment to remove the paragraph for the reasons I have stated. Having said that, I welcome this as a very positive step forward in the context of the Bill. I will not need to speak again as I support the Bill. I thank the Minister of State for his contribution and I will listen to any response. We will press the amendments.
I thank Senator Cullinane and other Senators for their broad based support for the Bill. We are all united on what we are trying to do, that is, provide a level of protection which they do not have today to mortgage holders whose mortgage books have been sold, and that is what we need to get on with doing.
I do not just believe that the amendment is unnecessary. Rather, it would inadvertently weaken consumer protection for the technical reason I have outlined to the House. Some owners of credit are, in effect, special purpose vehicles, and if they were to outsource credit servicing there could be lacuna in the law. I am not being difficult by not wishing to accept the amendment. My decision is based on extensive consultation with the Central Bank. We believe this is the best way to proceed, from a belt-and-braces point of view, to ensure that the consumer is protected.
I move amendment No. 5:
In page 6, between lines 10 and 11, to insert the following:“(2) Section 33A of the Central Bank Act 1997 is amended by inserting the following subsection after subsection (5)—“(6) The Bank shall also impose, on a debt management firm and or a credit servicing firm, a condition that a customer shall, within 30 days of his or her credit agreement being sold be:(a) advised of the terms on which his or her credit agreement was sold,
(b) advised on any material change to the terms under which the credit agreement is serviced,
(c) advised whether the loan was sold at a discount, and
(d) provided with details of his or her rights under—(i) the Code of Conduct on Mortgage Arrears 2013, and
(ii) the Financial Services Ombudsman.”.”.
I thank Senators Wilson and O'Brien for the amendment. From the discussion on it on previous Stages in the Dáil, I understand its aim is to ensure that the consumer is correctly informed and protected, but I am not accepting it for reasons I will now outline.
It seeks to impose obligations on credit servicing and other firms regarding credit which is sold. The first set of obligations concern commercial information on the deal to sell the credit, in other words, the terms under which it was sold and whether the loans were sold at a discount. However, the terms of the individual's contract with the lender are not changed by the sale of the loan. It is, therefore, difficult to see any benefit in making this information known to the borrower as it essentially concerns the contract of sale between two private entities. The term of this contract, as I have said, does not impact the borrower's contract with the person who owns his or her mortgage, therefore his or her obligations under such a contract remain the same.
For example, even if the overall loan book is sold at a discount, the amount owed by the individual borrower does not change, nor do the terms and conditions. This Bill is about ensuring one is not at a disadvantage if one's loan is sold to another provider. Furthermore, these loans are usually bundled for sale at an aggregate price and individual loans are not separately priced, thereby making it difficult for a customer to be advised of the exact terms or price under which his or her loan was sold. These bundles are often made up of non-performing as well as performing loans. The overall price of sale takes these factors into accounts. In any event, the price at which a loan is sold does not change the circumstances of the borrower because the amount he or she owes on the loan, which is the bottom line, remains the same and is not affected by the sale.
The second set of obligations mentioned in the amendment concern the borrower's rights under the code of conduct on mortgage arrears and access to the Financial Services Ombudsman. Following the enactment of this Bill, the rights of a borrower under the code and the right of access to the Financial Services Ombudsman will be the exact same as when the loan was with the originating bank and are not changed by the sale of the loan. Therefore, I do not consider it necessary that the borrower be given any additional reminder of his or her rights. In fact, such a reminder may serve to frighten the borrower into fearing that his or her circumstances have changed when in fact the rights that he or she had before the loan book was sold remain the same. That is the purpose of the Bill.
I must again stress the importance of passing the Bill so that borrowers will have the same rights as they had prior to the sale of the loans, but I do not consider the Senator's amendment as adding to the protections for consumers, which is the aim of the Bill. I regret, therefore, that I am not in a position to accept the amendment.
I move amendment No. 6:
In page 7, between lines 13 and 14, to insert the following:“(3) A person who carries on the business of credit servicing exclusively for an already regulated financial service provider shall be required to be regulated under this Act.”.
I thank Senator Wilson for his amendment. This issue was also discussed on Committee and Report Stages in the Dáil and I am glad to have the opportunity to again reassure the Seanad on this matter. I should make it clear to the House that the intent was always that an existing regulated financial service provider authorised to provide credit and already undertaking credit servicing would not be required to apply for additional authorisation as a credit servicing firm. These firms have already been through the authorisation process and we do not want to impost an additional regulatory burden on them. We are proposing in these provisions that such firms be deemed or taken to be authorised as credit-servicing firms, rather than being excluded from the definition of credit-servicing firms. This ensures that firms servicing credit, whether newly authorised or taken to be authorised, will be treated equally in respect of that activity. In addition, if the Central Bank wishes to impose conditions on credit-servicing firms, there will be a single cohort available to it. The model which currently operates for regulation by the Central Bank is that a single entity is responsible and answerable to the bank for actions it undertakes or that are undertaken on its behalf. This model works well and there is, therefore, no reason to change it, with the single exception of the need to address those loan books which are sold.
If a firm is undertaking credit servicing solely or exclusively for a firm which is already regulated, such as a bank based in Ireland, then it does not need to be regulated itself. It is the regulated firm that is answerable to the Central Bank for any actions it takes or that are undertaken on its behalf. The regulated financial service provider must ensure that firms undertaking services on its behalf follow all relevant regulations. It is likely that firms which are servicing credit exclusively for a regulated firm and therefore do not need to be regulated may none the less decide to seek Central Bank authorisation, possibly in order to expand their customer base. I hope my response has reassured Members in respect of Government thinking on this matter.