Written answers

Tuesday, 7 July 2020

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Social Democrats)
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182. To ask the Minister for Finance if the relationships framework which prevents the State from intervening in the way in which banks manage their day-to-day business, in the case of banks in which the State has a shareholding will be reviewed by the Government and the European Commission in view of the actions of some banks to greatly restrict mortgage lending in the midst of a housing crisis and unilaterally deny mortgage approval to applicants that are in receipt of a State wage subsidy; and if he will make a statement on the matter. [14412/20]

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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As the Deputy will be aware, the Temporary Wage Subsidy Scheme is one of the main tools with which we are protecting the income of employees who otherwise would not be working. However, whilst I acknowledge the seriousness of the issue you have raised and its impact on those affected, what I cannot do is mandate how temporary payments received under the Temporary Wage Subsidy Scheme are treated in lending sustainability evaluations by regulators and lenders.

As you have mentioned, the Relationship Framework applies in cases like this. It means that as Minister for Finance I cannot mandate or overrule the internal risk assessment processes in any bank, even one in which the State has a shareholding. Decisions in this regard are the sole responsibility of the board and management of the banks which must be run on an independent and commercial basis. The independence of banks in which the state has a shareholding is protected by Relationship Frameworks which are legally binding documents that cannot be changed unilaterally. These frameworks, which are publicly available, were insisted upon by the European Commission to protect competition in the Irish market.

However just as relevant are the European Union (Consumer Mortgage Credit Agreements) Regulations 2016 (CMCAR). These mandate that before concluding a mortgage credit agreement, a lender must make a thorough assessment of the consumer’s creditworthiness. That assessment must take appropriate account of factors relevant to verifying the prospect of the consumer being able to meet his or her obligations under the credit agreement. The CMCAR also provide that a lender should only make credit available to a consumer where the result of the creditworthiness assessment indicates that the consumer’s obligations resulting from the credit agreement are likely to be met in the manner required under that agreement.

The assessment of creditworthiness must be carried out on the basis of information on the consumer’s income and expenses and other financial and economic circumstances which is necessary, sufficient and proportionate. In addition, the Central Bank’s Consumer Protection Code 2012 imposes ‘Knowing the Consumer and Suitability’ requirements on lenders. Under these requirements, lenders are required to assess affordability of credit and the suitability of a product or service based on the individual circumstances of each borrower.

This overall regulatory framework means a decision to grant or refuse an individual application for mortgage credit is a commercial decision to be made by the regulated entity. Where a formal loan offer is made by a lender, the loan offer may contain a condition that may allow the lender to withdraw or vary the offer if in the lender’s opinion there is any material change in circumstances prior to drawdown. In such cases, the decision to withdraw or vary the loan offer is also a commercial decision for the lender.

These overlapping and complimentary regulations are designed to protect consumers, prevent risky unsustainable lending, protect the integrity of the financial system and preserve competition in the market.

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