Monday, 20 July 2015
Personal Insolvency (Amendment) Bill 2014: Committee and Remaining Stages
In accordance with Standing Order No. 136, I wish to direct the Clerk to make a number of minor drafting corrections to the text of the Bill. They are corrections of a verbal or formal nature which are being made in the interests of textual clarity and do not result in any change to the substantive meaning of that text. The changes are as follows: in page 3 of the Bill, line 26, to delete the comma after "respects"; in page 3 of the Bill, line 27, to delete the comma after "insolvent debtors"; in page 24 of the Bill, line 8, to delete "the" where it secondly occurs; in page 33 of the Bill, line 28, to delete the colon after "modifications" and replace it with a dash; in page 33 of the Bill, line 31, to delete the semicolon after "arrangement" and replace it with a comma; in page 33 of the Bill, line 33, to delete the semicolon after "section" and replace it with a comma; and in page 34 of the Bill, line 1, to delete "the" where it secondly occurs.
They would not be circulated. They are just an informal matter. From what I have heard from the Minister of State, it is a matter for the House to agree or not. In the normal course, the Clerk, the Members and myself would be notified of what is coming before us. There is no formal amendment. Is it all to do with section 6?
If they are minor and inconsequential amendments, I have the power to direct the Clerk in this regard. We will deal with them and either accept or reject them. Is it agreed that these are minor and inconsequential? I am of that view.
I suggest we continue dealing with the Bill. We can look at it before the Bill is concluded. Subject to the above, we will continue. I suggest that the suggested amendments could be circulated at least to the Members present, so that we can agree on the issue.
I move amendment No. 1:
In page 14, lines 10 to 14, to delete all words from and including “in accordance with” in line 10 down to and including line 14.
I gave notice on Second Stage of my intention to table this amendment. This issue has been raised with us by those working for people in debt. The problem is that making compliance with the MARP code of conduct on mortgage arrears a pre-condition of availing of a court review is actually empowering the banks. The Central Bank recently published a scathing report showing that the banks were failing abysmally to live up to the code of conduct. We must recall that in connivance with the Central Bank, this Government has facilitated a watering-down of the code of conduct at the very time a strong code was needed. By removing this pre-condition, which is ultimately a veto for the banks, the playing field would be made more level and this is essential at this stage.
Amendment No. 1 seeks to delete text from an amendment to section 91 of the principal Act. The effect of the Senators' amendment is to remove the reference in the principal Act to co-operation with the MARP before a borrower makes a proposal for a personal insolvency arrangement. I thank the Senators for their amendment but I cannot accept it.
Under the existing section 91(1), a borrower must first co-operate with the mortgage lender under the MARP approved by the Central Bank, before he or she can make a proposal for a personal insolvency arrangement. If the borrower does so, but is not able to agree a restructure with the mortgage lender, he or she is then eligible to propose a personal insolvency arrangement. The current provision does not address the situation of a borrower who has been in mortgage arrears on his or her home, has co-operated with the MARP and has subsequently entered a restructure, whether MARP or non-MARP, but the restructure has failed, or is unsustainable, and the borrower remains insolvent. It is important that a borrower in this situation should be eligible to make a PIA proposal. This section of the Bill is designed to expand the categories of person who can apply under section 91 and to ensure that there is no bar to an insolvent borrower in such a restructured mortgage situation being eligible to make a PIA proposal. This section, therefore, already seeks to significantly enlarge the categories of persons who may apply for a personal insolvency arrangement and to ensure that a person in a restructured home mortgage will be able to do so. To remove the link to co-operation with the MARP for any borrower wishing to propose a PIA goes well beyond the scope of this amendment and would require very full policy consideration, not least due to its possible negative effects on incentives for borrowers to engage as early as possible with their lenders regarding any repayment difficulties.
This amendment is at the heart of the issue of personal insolvency or indebtedness. The Bill provides that a debtor makes a declaration in writing that he or she has co-operated for a period of at least six months with the creditor who is a secured creditor and the mortgage is a secured debt. The difficulty here is that the banks are holding all the cards when it comes to the definition of "co-operation". The existing legislation holds that the banks have the right to decide whether the person who holds the debt has co-operated. It is not up to the individual to judge whether the bank is co-operating; it is the other way around. The banks have a clever system in place whereby they periodically send out automated letters to individuals through a computer system. If debtors do not respond to these letters, they may be deemed, after a period of time, to be not co-operating with the lender.
That is where the difficulty lies. The banks are taking individuals to court on the basis they have not co-operated even though, in many cases, those individuals are not aware of their obligations under the law. As noted by independent commentators, the banks effectively wrote the initial personal insolvency legislation to suit themselves and not the debtor. They hold all the aces in going to court and producing a paper trail to show an individual is not co-operating. How can debtors co-operate when it is the banks that decide what constitutes co-operation? In a case where a customer's mortgage repayment is €1,500 per month, say, but he or she can only afford to pay €300 or €400, the bank can refuse to accept that accommodation and the person is deemed to be not co-operating. It is totally unacceptable. Having initially gone after owners of second and investment homes, the banks are now moving on to family homes, as we saw in reports in the newspapers last week. Until there is a level playing field as between debtors and banks, we will not solve this issue. Of course there are defaulters and debtors who are playing games with banks, but that is an entirely separate issue. I am referring here to individuals who genuinely cannot afford to pay and where their bank decides they are not making a fair contribution. How dare banks demand that people reduce shopping bills and other necessary expenses in order to make full repayment?
I support the Sinn Féin amendment, which deals with a key area within the legislation. In so doing, I am not in any way pointing the finger at the Minister of State, who was not in office when the initial legislation was brought forward. That legislation was enacted by way of a rushed process wherein the Government facilitated the financial institutions to protect their own interests. That was wrong. We will not stand in the way of this Bill, but what is really needed is to go back to the drawing board. The banks are laughing all the way to the courts. They are rushing people out of their homes because they know property prices are increasing. People trapped in secured debt situations will lose their homes as a consequence of the banks' veto.
This is an issue on which I hold very strong views, as colleagues know, but it seems to me some Members are confused about what is set out in the Bill. The lines that are proposed to be deleted relate to the provision whereby a debtor may make a declaration in writing that he or she has co-operated. In other words, it is the person who owes money who determines, by way of declaration, whether or not he or she has co-operated. It is a judgment call on the part of the person who is seeking to use the insolvency process. I regard that as an improvement on the previous situation where it was the lending institution that determined whether somebody had co-operated with the process. While the amendment is very well meaning, it perhaps misses the nuances of the relevant provision.
There is an issue in insolvency legislation generally regarding the independence of the process. As I said to the Minister of State on Second Stage, there is scope for amendment in that regard. As a member of the Joint Committee on Finance, Public Expenditure and Reform, I have been at numerous hearings at which banks have been present, and we have heard from a number of them that they do not have an independent process to determine whether a debt is sustainable. We have all acted for people in mortgage arrears, but a number of the pillar banks have said they do not have a difficulty with an independent body to determine what is and is not sustainable. The issue of whether somebody has co-operated should be within the remit of the Financial Services Ombudsman. The legislation relating to the Financial Services Ombudsman is much too weak and this is an area we could very much do with looking at again. It should be a priority of Government to amend the legislation to include provisions relating to the independence of the process and the code of conduct on mortgage arrears. In the context of this particular amendment, however, I do not believe there is an issue with this section.
We dealt earlier with corrections, and on page 24 and 34 advance notice was given. I am satisfied that the corrections are all of a minor or formal verbal nature and are appropriate to be made by the Clerk under the direction of the Cathaoirleach. Having reflected on it, I so direct that such amendments be made. Is that agreed? Agreed.
I move amendment No. 2:
In page 25, to delete lines 15 to 24.
This amendment seeks to remove the temporary nature of the court review procedure. We were promised that the banks' veto would be gone. Instead we have a review of it, and only in certain circumstances. The biggest get-out clause for the banks is that this court review can only happen if the arrears were built up before 1 January. That means if I fall into arrears tomorrow the bank has a clear veto. I do not believe that matches what we were promised. The Government will argue that those who are in arrears but who had a restructured arrangement will qualify, but that is a mean approach when we consider how a family may have just avoided arrears or restructuring by prioritising a mortgage above all other costs. Such a family will find itself excluded from ever having the chance to avail of this review if things even go slightly wrong and they find themselves in arrears having just avoided a restructuring, possibly for years. I hope the Minister supports this amendment. If he does not, I fear we will be back here in six, 12 or 18 months to correct this flaw.
Amendment No. 2 seeks to delete subsection 21(18) of the Bill, which defines "relevant debt" for the purpose of a court review. The effect of the Senators' amendment is to remove the definition of the type of debt that may be the subject of an application for the new court review. I thank the Senators for their amendment, but I cannot accept it. First, this amendment risks creating legal uncertainty. Subsection 21(1) already provides that the new court review refers to a person with a relevant debt. Removing the definition risks leaving it unclear who can apply for the review. This sort of uncertainty has to be avoided, particularly given the urgency of making the review available to borrowers in long-term arrears who urgently need solutions.
Second, the definition of "relevant debt" in subsection 18 targets the review at those who are most in need - people who are in mortgage arrears on their home or in a restructure of such arrears which has not returned them to solvency. It is the Government's policy to prioritise this group. Removing the definition could open up the review to any person proposing a personal insolvency arrangement, including a person whose difficulties relate, for example, to five buy-to-let properties. This may seem superficially attractive. However, it would carry a risk of legal uncertainty.
I strongly underline that the Government's proposal has been very carefully designed and balanced to take full account of the very difficult legal territory of potentially providing for imposed solutions which could impinge on the property rights of secured lenders. Following extensive deliberation and legal advice, the Government believes the Bill is constitutionally robust. An important element, however, is that the Bill concentrates on risk to the borrower’s home where the social policy justification for Government intervention, both regarding the borrower and the implications for public housing and other public policies, is at its strongest. To make the changes proposed by the Senators would disturb this careful balance and risk opening up the Bill to legal challenges. That would be extremely damaging to the situation of homeowners in serious mortgage arrears who are in urgent need of solutions. For these reasons, the Government cannot accept the proposed amendment.
The Sinn Féin amendment has merit. Presuming that the legislation will be signed into law by the President in the next number of weeks if approved by the House, it means one's mortgage has to be at least in excess of seven months in arrears for one's debt to qualify as a relevant debt. Therefore, anyone who has gone into arrears since January is excluded. What is the reason for this? Why would there be legal challenges, as the Minister of State mentioned? What would be the legal consequences? What is the advice from the Attorney General on this issue?
I thank the Senator for his contribution. I am advised that the review is limited to arrears before January 2015 or restructures of such arrears to prevent negative implications for new mortgage lending. Extending the new review to arrears built up from this year onwards would risk increasing mortgage interest rates on new lending, something we are determined to avoid.