Written answers

Tuesday, 24 November 2009

Department of Finance

Financial Services Regulation

9:00 pm

Photo of Deirdre CluneDeirdre Clune (Cork South Central, Fine Gael)
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Question 179: To ask the Minister for Finance the procedures in place to ensure that sub-prime lenders are obliged to engage with their customers who find themselves in changed and strained economic circumstances; and if he will make a statement on the matter. [43053/09]

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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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 engaged in specialist or so-called sub-prime lending by the Financial Regulator. 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.

The Financial Regulator has a Code of Conduct for Mortgage Arrears, which came into effect in February 2009 and which applies to mortgage lending activities with consumers in respect of their principal private residence in the State. The Code is mandatory for all mortgage lenders registered with the Financial Regulator. Under the Code, where a borrower is in difficulty the lender will make every reasonable effort to agree an alternative repayment schedule and will not commence legal action for repossession until after six months from the time arrears first arise. I should also point out that people in serious debt or in danger of getting into serious debt can avail of the services of the Money Advice and Budgeting Service (MABS). This is a national, free, confidential and independent service.

Photo of Deirdre CluneDeirdre Clune (Cork South Central, Fine Gael)
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Question 180: To ask the Minister for Finance the steps he will take to ensure that mortgage holders facing difficulty meeting the repayments on their primary residence are supported; and if he will make a statement on the matter. [43054/09]

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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It is a particular priority of the Government to ensure as far as possible that difficulties in relation to mortgage arrears do not result in legal proceedings for home repossession. Home repossession should be and generally is the last resort for the lender. The preferred method of dealing with cases of arrears should be early intervention and engagement. In the revised Programme for Government we have stated that we will be: · Introducing new measures to protect families having difficulties with their home mortgage payments; · Examining ways of expanding the existing options available for dealing with debt situations; · Examining ways of expanding existing state sponsored mortgage-support measures;

The commitments contained in the revised Programme for Government span the broad area of personal debt management and its legislative framework and, as several relate to the responsibilities of several Government Departments, they will require close collaboration in the period ahead. Further work is ongoing on these issues with a view to early results. The Law Reform Commission's recently published Consultation Paper on Personal Debt Management and Debt Enforcement has made an important contribution to this whole area. The Government are carefully examining their recommendations and relevant officials will be closely liaising with the LRC in regard to its remaining body of work.

In relation to the position of mortgage holders generally, the Irish Bankers Federation published a Statement of Intent on 10 November which provides further reassurance to homeowners who find themselves genuinely unable to maintain mortgage repayments on their principal private residence. The Statement of Intent has been agreed and supported by all IBF members and is a welcome development. It is also welcome that the IBF Oversight Committee on the implementation of the Statement of Intent will include representation from the Money Advice and Budgeting Service (MABS).

This follows on from the IBF and the Money Advice and Budgeting Service (MABS) Operational Protocol on consumer debt, which was recently put into effect. The Operational Protocol will enable MABS and the IBF to continue to work together effectively when dealing with debt problems of personal debtors who approach the MABS Service for assistance. It should be noted that there are already other important arrangements in place to assist consumers who have fallen into arrears or are in danger of falling into arrears.

The Government provides support for payment of mortgages under the Mortgage Interest Supplement Scheme. This scheme is administered by the Community Welfare Service on behalf of the Department of Social and Family Affairs. It provides assistance where the mortgage relates to a person's principal private residence. Furthermore, people in debt or in danger of getting into debt can avail of the services of the Money Advice and Budgeting Service (MABS). This is a national, free, confidential and independent service.

The Financial Regulator's Consumer Protection Code sets out requirements that a regulated entity must contact the consumer as soon as it becomes aware that a mortgage account is in arrears and that it must have in place a procedure for handling accounts in arrears. The Financial Regulator also has in place a Code of Conduct on Mortgage Arrears. This Code applies to mortgage lending activities to consumers in respect of their principal private residence in the State and is mandatory for all mortgage lenders registered with the Financial Regulator. Under the code where a borrower is in difficulty the lender has to make every reasonable effort to agree an alternative repayment schedule and the lender has to give consideration on a case-by-case basis to alternatives such as deferral of payments, extending the term of the mortgage, changing the type of mortgage, or capitalising arrears and interest.

Obviously cases will arise where the arrears persist despite newly agreed changes in repayment schedules. The Code provides that where such situations persist, the lender may reserve the right to enforce the mortgage agreement. However, it must wait at least six months from the time arrears first arise before applying to the courts to commence enforcement of any legal action on repossession of a borrower's primary residence. Furthermore, as part of their recapitalisation scheme, A.I.B. and Bank of Ireland will not commence court proceedings for repossession of a principal private residence until after 12 months of arrears appearing where the customer continues to co-operate with the banks.

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