Wednesday, 5 December 2018
Consumer Protection (Regulation of Credit Servicing Firms) Bill 2018: Second Stage
I thank Deputy Michael McGrath for the work he has done on the Bill. The Government welcomed the Bill and committed to working with Deputy McGrath, who initiated it in the Dáil, to make it more effective than it was when it started out. The Bill is quite short but it is very technical. The principle behind the Bill is that loan owners who purchase loan books will require authorisation from the Central Bank and will be regulated by the Central Bank. The bank will be able to impose sanctions on loan owners who breach its codes of conduct. The Bill allows securitisation to continue to take place. We accept that securitisation plays an important role in the financial services landscape and we consider that a passive securitisation vehicle does not have any consumer protection implications.
The Bill was considered in great detail on Committee Stage in the Dáil. A number of amendments were made on Report Stage to reflect these discussions and further consultations with the Central Bank. Prior to Committee Stage, there was not full agreement on whether the credit servicing regime or the retail credit firm regime was the most appropriate structure but I am glad to note that officials of the Department and the Central Bank were able to resolve their issues when the draft legislation was examined in detail.
We now have a relatively short Bill of just three sections. The first section amends a number of definitions in the Central Bank Act 1997, which will have the effect of making the following activities subject to Central Bank regulation: holding the legal title to credit granted under the credit agreement, determination of the overall strategy for the management and administration of a portfolio of credit agreements and maintenance of control over key decisions relating to such portfolios. The second section has transitional provisions in place that mean the transitional authorisation only applies to the newly-regulated activities, requires the owner to seek authorisation from the Central Bank within three months and only applies as long as the other activities are undertaken by a regulated credit servicing firm. The third section is the standard section on commencement and Short Title.
I wish to be clear that it is the intention of myself and the Minister, Deputy Donohoe, that the Bill will be commenced as soon as possible after enactment.
I thank the Minister and the Government for bringing the Bill to the House. Fianna Fáil, and Deputy Michael McGrath in particular, were instrumental in bringing it through the Dáil. I acknowledge that the Minister of State has thanked and congratulated Deputy McGrath for his work on the matter. As a former member of the finance committee, I know we talk regularly about vulture funds, as we refer to them. I will speak briefly as I hope we can conclude Second Stage by 3.30 p.m. today, get all Stages passed before Christmas and have the will of the people, and the will of the Lower House and Upper House, enacted as quickly as possible to provide protection for people.
I welcome the opportunity to contribute. As a party, we brought forward this Bill earlier this year to regulate vulture funds and to protect consumer rights with regard to mortgages that have been sold on. We believe that, by and large, banks should not be selling their loans to unregulated loan owners, or vulture funds, and should instead be working through their non-performing loan book. They are choosing not to do that and we have seen regular sales by many of the large institutions to get the loans off their books. As we know, many vulture funds are not interested in the long term or in protecting the homeowner. They want to get in, get an asset and get that asset in such a position that they can get the tenants out, get the owner out and sell the asset as quickly as they can for as much they can. We see this all the time.
People who have non-performing loans are very concerned. They may have fallen into distress, bought other properties against an original property, had a business that failed or lost their job. Perhaps two people in a marriage have both lost their jobs and have fallen into arrears. Relatively speaking, banks have been understanding in terms of forbearance, interest-only solutions and so on, but they are now using the European Central Bank and the Single Supervisory Mechanism, SSM, as an excuse to get rid of non-performing loans, rather than reducing them in their own way. They do not want the reputational damage of doing it, so they just pass it on to somebody else and let them take the hit. This Bill helps that situation somewhat in that it regulates firms that were operating unregulated within the market. We are on the side of the mortgage holder making an honest effort to pay their mortgage.
The central provision of the Bill is the requirement that a credit agreement owner, that is, a loan owner, must be fully regulated in the normal course by way of Central Bank supervision. This is the central plank of the Bill and is what we are seeking to achieve. Unfortunately, the Government has failed to fully protect borrowers who have found themselves in arrears, despite the majority of these borrowers co-operating with lenders. They insisted on letting the banks keep the veto despite a Bill on an independent mortgage resolution office being brought forward by Fianna Fáil.
It is not acceptable or good practice to allow vulture funds to be unregulated. We believe they should be regulated like any other lender because, otherwise, they are at a competitive advantage to all the other lenders in the industry. Senator Norris referred earlier to confidence and supply. There is a commitment in the confidence and supply agreement to provide greater protection for mortgage holders, tenants and SMEs whose loans have been transferred to non-regulated entities, or vulture funds. Ireland has had loan sales before from NAMA and from the liquidation of IBRC, Danske Bank and Bank of Scotland Ireland. Prior to 2015, there was absolutely no protection for borrowers whose loans were sold to unregulated vulture funds.
Many in the House, such as Senators Conway-Walsh, Kieran O'Donnell and the Minister of State, Deputy D'Arcy, were formerly on the finance committee and we heard many horror stories of how people were treated when their loans were transferred by the new owners, who made the lives of businesses, homeowners and landlords very difficult and awkward in terms of how they were trying to proceed. We heard stories of hotels and other businesses being refused planning permission, with people coming in to allegedly help with the business but really out to destroy it and to get possession of the business and get the existing owners out so they could sell it on for a fast buck.
It is helpful that this Bill has been brought forward. The bottom line is that loan owners who make the key decisions, like setting the interest rates and, crucially, deciding when to enforce a loan, were not being regulated but, hopefully, they now will be. The ECB had been asking banks to reduce the level of non-performing loans but that does not have to be done by loan sales and it can be done internally. However, the banks, including Permanent TSB, AIB and others, have passed on that responsibility and sold off these loans at a discount. Therefore, we have taken the hit again, as a State, given we owned much of AIB and Permanent TSB. They have passed on those loans at a lower value and the vulture funds then make money chasing the full loan and taking people out of their homes, even though this ultimately comes at a cost to us as we end up having to rehouse people. We have all heard stories of these entities buying properties cheap and getting rid of the tenants and homeowners.
It is very positive that we would get this Bill passed and I want it done as quickly as possible. It is important to realise that a significant number of people are in these categories, with 11,824 principal dwelling mortgages owned by unregulated loan owners and with 6,973 of these mortgages in arrears.It is welcome that the Minister of State is bringing it forward in Government time. All of us would like to conclude by 3.30 p.m. in order that we can get through Committee and Remaining Stages and I hope the Minister of State could commit to taking Committee and Remaining Stages before the recess in two weeks.
I welcome the Minister of State to the House to discuss this Bill, which is welcome. I acknowledge his commitment that when the Bill goes through, a commencement order will be signed as quickly as possible. It should brought through the House as quickly as possible. If possible, we should deal with the other sections of the Bill within the time available.
There was a weakness in that the servicing firms were being regulated, rather than the funds themselves. Hopefully, the legislation will address that lacuna.
It is important that an update be provided by the Central Bank of Ireland within the next three months so that when the Bill is enacted, the update will outline the number of applications received within the three-month transitional period for existing funds. Am I correct that is provided for under transitional measures in the Bill? The existing funds must come back within three months of the Bill being enacted to seek authorisation from the Central Bank. I would like for the bank to report that this has taken place and that funds are being compliant.
It is also important in that process, including for newer firms, that when they seek authorisation from the Central Bank, the capacity of the funds to deal with the profile of loans they are taking over is examined. Do they have the capacity to deal with long-term mortgages? There is a perception among the public that funds are buying short-term loans and that they have effectively borrowed themselves to purchase the loans, which they must repay quickly. By definition, that impacts on how they deal with the loans that they have purchased. It is important that if someone has a mortgage and is dealing with a bank with the capacity to deal with long-term loans, he or she would have a fund purchase the deed by way of tranches, which effectively gives it the capacity to work out mortgages over time rather than looking for short-term solutions.
This is a welcome Bill and I hope that we can facilitate the Minister of State in passing it as quickly as possible. I am at the disposal of my colleagues in the House and more particularly, the Cathaoirleach, for that to happen.
I welcome the Bill and Sinn Féin will facilitate its passage through all Stages in the House. It goes some way towards addressing the concerns of all affected homeowners regarding who is regulated.
Since the Bill was introduced back in March of this year, many more mortgages have been sold to vultures. This issue goes back four years when the first raft of Irish Bank Resolution Corporation, IBRC, mortgage holders learned that their mortgages had been sold to vultures. We all knew what the solution was back then.
The owners of the debt themselves needed to be regulated, not the middlemen or the credit servicing firms. The previous Government promised legislation, but after heavy lobbying by the vultures, it chose only to regulate the middlemen. We then found out that ten of these credit servicing firms or middlemen did not go through with the applications, and operated under a transitional scheme. Sinn Féin proposed an amendment to that 2015 legislation, which called for the regulation of the debt owners and that is what we still call for today.
My colleague, Deputy Pearse Doherty, introduced legislation last year which went as far as holding the vultures themselves to account. If they stepped out of line, the Central Bank could hold them to account and, ultimately, prosecute them as opposed to going after the middlemen. It is, therefore, obvious that what homeowners demanded way back in 2015 was not been delivered by the then Labour and Fine Gael Government or the current coalition of Fine Gael and Fianna Fáil.
The Bill does not protect homeowners and this is what we need to discuss. Even if passed, there is still much to do. An impression is being given that because of this legislation, which is important in that it brings us a step forward, somehow these homeowners will be protected. They will not be protected and this message needs to go out loud and clear. It does not give them any additional protection under the Code of Conduct on Mortgage Arrears, CCMA., the consumer protection code or from the vultures repossessing their homes.
The core issue remains the sale of the mortgages by State owned banks to vultures. Many of the properties involved are primary residences or have tenants in them. The problem at its core is that vultures have only a short-term interest. When the legislation is passed, it will not make a difference to the homeowners. There is no additional requirement on the vultures, in particular to offer any of the options under the CCMA.
The Bill does what it says on the tin. It basically states that if the vultures step out of line and do not comply with the code of conduct, the Central Bank can prosecute them, but it does not provide any protection. This is why I plead with Fianna FáiI to use the weight it has in supporting the Government to ensure that continued sales do not go through.
We have a choice as to whether we believe it is acceptable for a bank, especially a bailed-out bank, to pass the buck and to absolve itself of its responsibilities. As always, Sinn Féin says "No" to vultures. A little additional layer of regulation is not the answer but we still support this Bill.
I will be brief in order to expedite the passage of the Bill. I have spoken at length on the question of vulture funds and the financial situation here. I noticed a Fianna Fáil Senator - I think Senator Horkan - use the word "disadvantaged." The people most disadvantaged in this equation are the homeowners and people in difficulties with mortgages. I am horrified at the activities of vulture funds and the fact that they were allowed into this country. They were allowed charitable status, for God's sake. They are the least charitable and the most vicious and vindictive of all organisations so I welcome the fact that this part of a process, albeit it is not the final solution. For the first time, thank God, it allows the Central Bank to impose sanctions. That is critically important because these organisations understand nothing other than sanctions. Pious exhortations are of no use whatever.
I thank the Senators for their contributions. It is wrong to say that this Government has done nothing for people who find themselves in difficulty with a bank or somebody who has that loan sold onto a fund. There have been 17 actions and Bills to deal with this, beginning with the CCMA, and this is No. 18.
We have a structure in Ireland that is historic in nature. We have a psychological scar in our mindset about repossessions, which goes back to the Famine era.
It is indeed and it always was going back to before the Famine. However, there are circumstances in which we are down to the hard cases. I have made the point previously that the legislation that is most relevant and not used much here is the insolvency legislation. Some people find themselves insolvent in respect of their property and there are no circumstances in which they can afford to pay for it. Perhaps it is through no fault of their own or perhaps it is their fault. The reason we reduced the insolvency period from 12 years to one was in order that people could start again but there is a lack of desire to use that legislation.
Someone who is insolvent and never coming out of insolvency will have an opportunity to go back to zero and start again, which is good. It is not used in our jurisdiction because it is a stain on somebody's character to go bankrupt. However, other jurisdictions have moved beyond that psychological barrier and people have the opportunity to restart and get going again.
As a teenager in the 1980s, I recall people who restarted and were successful when they had that opportunity but they had to avail of appalling, Edwardian-type legislation. This is the 18th Bill the Government has introduced to help people who find themselves in that terrible position to get out of it.
I hope this will be concluded before Christmas. We will be not allowed to take all Stages today but there is a commitment from the Minister and Department of Finance to complete it year end in order that the funds are regulated, not their agents or service providers, which would be a positive change.
The Minister, Deputy Donohoe, has said on many occasions that these funds should appear before the Joint Committee on Finance, Public Expenditure and Reform, and the Taoiseach. They have been asked time and again and have on all occasions refused to a man and woman. None has ever shown up or given evidence.
I am happy to move this Bill on as quickly as we can to get it signed into law and enacted.
To respond to Senator Kieran O'Donnell's point, the Central Bank publishes a register of authorised firms, including firms that have a transitional authorisation under the transition agreements. That means I have three months to do this.