Denis Naughten (Roscommon-South Leitrim, Fine Gael)
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Question 157: To ask the Minister for Finance the steps he is taking to address the cost of sub-prime mortgages; the discussions he has had with the Irish Financial Services Regularity Authority on this issue; and if he will make a statement on the matter. [37603/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The decision on the interest rate to be charged by lending institutions for mortgages is a commercial decision for the financial institution concerned. This decision will reflect a range of different factors including funding costs, market conditions, profitability and business strategy as well as the competitive environment overall. The Deputy will appreciate it is a core function of the Board and senior management of each institution to assess where the appropriate balance lies between these competing objectives particularly in ensuring the financial health and commercial viability of the relevant institution. It is not an appropriate role for the Minister for Finance to seek to determine this decision making by financial institutions operating under competitive market conditions.

The Government took steps in October 2007 via an amendment to the Central Bank Act, 1997, to provide for an appropriate system of authorisation and supervision of retail credit firms by the Financial Regulator engaged in specialist or so-called sub-prime lending. Such lenders were not previously subject to financial regulation in respect of lending activities. The primary purpose of this amendment was to extend to customers of these firms the benefit of the consumer protections provided for in the Financial Regulator's Consumer Protection Code. This regulatory regime has been in place since 1 February 2008 and is being implemented by the Financial Regulator. Consumer credit, including sub-prime lending, is also regulated in Ireland under the Consumer Credit Act 1995. The Act makes detailed provision for the form and content of loan agreements and for advertising of consumer credit.

Some non deposit-taking mortgage lenders are required to notify charges under Section 149 of the Consumer Credit Act, 1995 (as amended) to the Financial Regulator for approval. However interest rates are excluded from this requirement. Also, legal fees tend to be imposed by 3rd parties and then passed on directly by the institution to the consumer. In general these do not require approval.

When approving fees, the Financial Regulator takes the following criteria into consideration:

· promotion of fair competition;

· commercial justification;

· passing on any costs to customers; and

· the effect on customers or a group of customers.