First of all, I should like to thank the Deputies for the way in which they have received the Bill. Naturally I am glad to hear so many compliments paid to the work that has gone into the preparation of this measure.
It is clear from what I have heard that we are all in agreement about the need for this Bill. This is not a political measure. It is a measure which affects everybody involved in a building society, as it affects all Members and their constituents. It is the aim and object of the Dáil, as it was of the Seanad to make the Bill as good as it possibly can be made. I accept the criticisms as the points of view of Members. They made these criticisms in the hope that they would improve the Bill in the way in which they thought it should be improved. While I cannot agree with a number of the criticisms made I appreciate that most of them were aimed at improving the Bill.
One Member, Deputy Ray Burke, made a sweeping and, in my opinion, quite unwarranted attack on the societies. I shall deal later with the points raised by him, but I would like to point out now the danger that unjustified and unjustifiable attacks of the kind made by him might damage confidence in the building society movement, the success of which is completely dependent upon public confidence. Such damage could have very serious consequences affecting the inflow of funds and the amount available to finance the housing programme.
I shall, I hope, deal with most of the points raised. I have picked out what I think are the most important points but, if I miss out any, I would be grateful if Members would draw my attention to them.
Deputy Faulkner and Deputy Fitzpatrick referred critically to the various controls proposed in the Bill. The Bill proposes to give four different authorities specific areas of control over the activities of the societies—the Minister for Finance, the Minister for Local Government, the Central Bank and the Registrar of Building Societies. When the Bill was discussed in the Seanad considerable pressure was brought to bear on me to delete all forms of ministerial control and to place the responsibility of overseeing the societies on the Central Bank and the registrar, who would then be an independent almost judical, functionary. This proposition could not be accepted in the Seanad and it cannot be accepted in the Dáil. Responsibility for questions of policy and for subordinate legislation, in the form of statutory rules and regulations, must be vested in a Minister responsible to the Houses of the Oireachtas and able to explain, and defend, if necessary, all his policies and regulations in the Dáil and the Seanad. The executive functions of day-to-day supervision of societies properly rests with the registrar who will be given no less independence in the discharge of these functions than his counterpart in the United Kingdom who was held up in the Seanad as an example to be copied here. To the limited extent that the societies are part of the second level banking system and custodians of more than £350 million of our people's savings, it is proper that the Central Bank should have directive and sanctioning powers over certain of their financial arrangements.
Deputy Faulkner felt the Bill should expand the range of operations of building societies. There are a number of fields of commercial activity which are incidental to building society operations. These would include, for instance, bridging loans, fire insurance and life assurance. Arguments have also been put forward that societies' close involvement with the property market places them in a good position to become more directly involved in that market. Much consideration has been given to these questions but, on balance, it is felt that the interests of the building society movement as a whole and, in particular, the security and confidence enjoyed by investors, are best served by allowing societies to operate only within their traditional limits of accepting funds and making loans to members on the security of freehold or leasehold estate.
When I took over I found that this was not strictly administered. I found that some building societies were investing outside the building field in a big way. I considered that a serious position. As a result of steps taken this has ceased. It was only being done by a small number of societies. Deputy Ciaran Murphy asked how many societies had gone out of existence and I should like to tell him that two went out of existence and, to the credit of the remaining societies, they took over completely the assets and liabilities of those companies. They saved not only the good name of building societies but also the investments of the people who had put money into them and the loans of those who had borrowed from those societies. That shows how useful the societies are when they are combining together like that.
Deputy Faulkner said a greater variety of loan options was desirable and mentioned index-linked loan basic interest rates; fixed repayment rate loans and equity sharing mortgages. There is nothing in the Bill which would prevent such developments. It is up to the societies to operate all or any of them if they wish to do so. The Deputy asked about the position of people in other countries anxious to come here to operate as building socities. There is nothing in the Bill which affects the position of building societies based in the United Kingdom, or other EEC countries, who might wish to open branches in Ireland. Provided any such institution complies with the provisions of the law governing building societies and, in due course, this Bill, there is nothing to prevent them from operating here. The Deputy also asked about the form of annual accounts of societies. The Bill provides in section 62 that the form of accounts will be prescribed by the registrar who can decide what information should be incorporated in them. I am sure they will be properly attended to.
Deputy T.J. Fitzpatrick (Dublin Central) suggested that a saturation situation may have arisen in the case of building societies where they have massive amounts of funds invested with them, but cannot get enough suitable borrowers to take up all available loans, because house prices are too high and incomes too low. I suggest that Deputy Callanan, for whom I have a higher regard than any Member of this House, should contact Deputy Fitzpatrick. Deputy Callanan was complaining about the fact that it was not possible to get loans while Deputy Fitzpatrick took an opposite point of view. He felt that the money was there but could not be loaned. Deputy Callanan referred to the fact that people who had not an investment with a society were refused. I explained to him that if people have not invested money with the societies and there is a temporary shortage of funds for lending, those who have invested with the society have first claim. That is as it should be.
I also suggested to Deputy Callanan, and to the House, that there is not a better way for young people who have money—a number of them have a considerable amount of loose money on hands—to save than to invest with a building society. Should they decide later to build a house they at least can borrow from the building society. Those who borrow from a building society, a bank or any other institution, for the purpose of building a house are in the main people who have a reasonable income. If they have a reasonable income and are paying income tax, they get an income tax remission which makes the rate of interest payable by them very reasonable indeed. I should like to repeat that young people can do no better than acquire a house if they can afford it, and many of them can, by investing and borrowing or by borrowing when the money is available and repaying it over a number of years. When they decide to get married they at least have a house. Even if they do not get married, they have a fine investment, the value of which is growing annually.
The demand for loans from the societies to date exceeds their available funds to such an extent that applicants have to wait for some time before a loan can be allocated to them. The building societies are very reasonable and we should remember that a little more than two years ago the entire amount available from building societies was £43 million but last year it was £65 million and this year it will be between £90 million and £95 million. In addition, approximately £40 million is available from the banks. Anybody who suggests that money is not available for housing does not know the facts. A few years ago if one mentioned a building society loan one was talking about Dublin and, in fact, building societies in most cases were not prepared to consider applications for loans outside Dublin or some of the big cities. However, we now have a situation where many towns have building society offices. They take in a lot of money there and in the main endeavour to loan the money they collect in that area to people living there. It is a great idea. While I would not like to see a building society having two or three offices in one street in a city or town I do not think it is happening. In my view a very reasonable approach is being made towards the whole question of building societies.
With regard to advertising it has been proved that the societies who advertise are those which have grown.
The societies which have expanded their office are those which are taking in most money. If that is so, we must assume that what they are doing is correct. If the amount of money spent on advertising was stopped it would only represent about one-third of 1 per cent on interest rates but it would eventually result in no money being made available because if money is not invested it cannot be loaned. Taking all in all the building societies are dealing in a reasonable way with this matter. They are non-profit making and whatever money is involved is ploughed back into the business. At one time because of the way in which some societies which are no longer operating were doing business it could be assumed that somebody was making profit but, apart from the employees who are paid a salary, there is no question of profit being made.
Deputy Fitzpatrick mentioned something I could not understand, that he was aware of a person who was paying 50 per cent of his income on loan repayments. I should like to know what building society or financial institution would loan to somebody an amount of money which would require in repayments 50 per cent of his income because most of the complaints that have been made is the fact that building societies are careful about the people they have been loaning money to. They want to ensure that people who are borrowing money can repay it. If somebody borrowed money which would require a repayment of 50 per cent of his income then somebody slipped up somewhere. Maybe somebody told the Deputy something which did not stand up to scrutiny.
Deputy Burke criticised my opening speech for not looking at the overall housing picture and made much play of the wood and the trees. I am afraid it is Deputy Burke who cannot see the trees for the wood. This is a Bill to consolidate and up-date building society legislation. I have already commented on its complexity and that it is a Committee Stage Bill. Most of the speakers who took part in the debate recognised that this was so. It deals in a comprehensive way with the operation of building societies, their establishment, founders' shares, control of advertising, investigation of misdemeanours, unions and transfers of engagements, procedures as to the lodgment of deposits at the Central Bank and so on.
To complicate the position by dragging in the overall housing situation, which redounds so much to our credit, would be misleading and not conducive to a proper examination of the proposals in the Bill.
Deputy Burke wants "long-term low, fixed interest rate loans". I was astonished and disappointed with his apparent lack of understanding of the whole basis of operation of the building societies movement which his demand that building societies should somehow provide long-term loans at low and fixed interest rates reveals.
Notwithstanding all that has been written and said about the way in which this outstandingly successful movement has operated over the years, he still endeavours to give the impression that he does not know that building societies obtain their money by offering attractive rates to investors and depositors with the guarantee of repayment at short notice. These rates must not only be attractive enough to raise the funds to make new loans but to retain existing investments and deposits. This effectively means that the rates of interest in the money they lend must vary with variations in the deposit and investment rates they offer.
I think it is fair to say that we all, particularly the societies, would like to find a way to raise money which could be issued in long-term loans at low rates of interest. But the societies have to face reality. Their investors and depositors are not philanthropists. They want an attractive return on their investment or deposit. Any society administration will tell Deputy Burke that their depositors and investors are quite sensitive to changes in the market rate and are not slow to withdraw their funds if they find a more attractive way of investing them. Not only that, but I am quite sure they would quickly see the danger to their investment if any society were to pursue a policy of issuing long-term, low interest rate loans while offering attractive rates of interest, and get out fast from that society.
It should be possible to borrow money at a rate of interest which not alone will attract new business but will keep in the societies money already invested. This is an important matter which many people seem to ignore completely. In the main, it is the small investor who puts his money into a building society. People who invested money ten years ago were getting an interest rate of only 4 or 5 per cent. If the rate of interest had remained at that figure, does anyone imagine that those investors would now be prepared to accept such a rate when they can invest their money elsewhere at double or treble the rate of interest?
Let us be quite fair about this. The building societies are in the business of getting money and lending money. As far as I am concerned, nobody has been tougher than me on the activities of the societies and in insisting that they walk a straight line, but I will give credit where credit is due. To suggest that a person can simply borrow money at the going interest rate and to say that this rate could be guaranteed to be acceptable to the investor over the years is just little short of tommyrot. The Deputy who made the suggestion, knowing as he does so much about housing, must be aware that it is not reasonable. I am afraid it appeared very like rather petty political comment. I am sorry to have to make these comments here but it is very necessary at this stage that we should nail down fast what the facts are. If we do not, we may give people the impression that it is quite simple to borrow money at any interest rate, even if that interest rate is half or one-third of the going rate.
It was also suggested that it should be subsidised. Though there has been a difference of opinion between the Minister for Finance and the building societies over what should be allowed, a substantial income tax concession is being given. Anybody who suggests that a substantial subsidy could be given by the State to the building societies with the object of allowing them to pay a higher rate of interest to investors and to charge a lower rate to borrowers must know that such a subsidy would have to come out of capital. Some people said that this should be done but at the same time they call for a cut in State spending. It is difficult to follow their argument. This is a matter on which political points should not be scored because, in my opinion, this is a purely non-political Bill.
Deputy Burke's suggestion that the Bill should be amended in some undisclosed way which would force societies to issue low interest long term loans is to recommend that this movement, which has done so much to channel the savings of our people into the purchase of houses for so many families, be killed off. Building societies simply could not continue. Investors would withdraw their money and the movement would die overnight.
Deputy Burke referred to waste of funds in establishing branches. This is basically a criticism of management expenses which I consider unfair and unjustified. I regret Deputy Burke should have taken pains to give the impression that societies are grossly extravagant and mismanaged. In so far as the future is concerned the Bill provides adequate powers to enable the registrar to deal with complaints of this nature.
I would like to emphasise for the record, however, that I had the general complaint of too high a proportion of income being spent on management expenses investigated and did not obtain any evidence to justify it. Management expenses for the societies for the periods concerned were found to be reasonable.
On the question of branch developments I do not consider it reasonable to imply as the Deputy did that there is a proliferation of branches all over this country. The movement in my opinion has up to recent times been far too much concentrated in the Dublin area. Part of phenomenal growth in recent years can be attributed to the fact that branches have been established around the country where they never were before.
Deputy Callanan made the point that there are no branches in some of the towns in his area. I should like the building societies to look at these areas and perhaps move to them, and I am quite sure they will do so. They have expanded into many areas during the past few years. Since agriculture is now doing so well, I am sure they would get an extraordinarily high amount of money invested in rural areas.
It has been the policy of the societies to plough back into the branch areas in which funds are raised a considerable proportion of their proceeds in house mortgage loans. As I see it, branch development makes house purchase finance more readily available through the country as a whole. While there must obviously be a saturation point, I am sure the powers in the Bill will enable the registrar to keep the matter under review.
Deputies Faulkner and Burke criticised advertising by societies. Deputy Burke was very strong in his criticism. Societies are seeking for a share of investment funds and they must advertise. It should be noted that the three Societies which adopted fairly vigorous advertising campaigns since the 1960s show the highest rate of growth in assets, while the societies which neglected to advertise showed a very slow rate of growth.
It could be argued, therefore, that if societies do not engage in fairly vigorous advertising they simply will not attract funds from the public. Collective advertising would not appear to be a satisfactory substitute since it was the individual societies which advertised extensively that expanded, while those which neglected to advertise remained almost static. There has been a suggestion that since they are organised in a group they should advertise together.
I am sure this question has been discussed on a number of occasions and, possibly, there will be further discussions on it. The rate of interest is the same and the loan terms are usually the same but the societies run their business in the way they consider best. So far as the borrower is concerned the amount involved would be one third of 1 per cent at present rates. In those circumstances it is not worth while creating a fuss.
Deputy Burke asked me to include in the Bill a provision whereby building societies could be granted trustee status. Obviously, the Deputy is not aware that the granting of trustee status is a matter for the Minister for Finance under the Trustee Acts of 1893 and 1958. In order to be quite clear as to what trustee status consists of, the Trustee Acts enable the Minister for Finance to make an order granting this status to invesments that satisfy fairly rigid criteria so that they can be used as investment media by persons holding funds in trust. When there is in existence Acts which deal fully with the matter it would be absurd to repeat the powers in this Bill. The provisions of this Bill will remove obstacles which have been in the way of the granting of this status to societies. I should imagine that within a relatively short time of the passing of the Bill and when certain technicalities have been deal with, trustee status will be extended to the building societies. I should welcome very much such an extension although it is recognised, as was proved by the action of the existing societies when two societies went to the wall, that funds are safe.
Deputy Burke, too, referred to a statement of demands by ACRA. Clearly, he is not aware that I received from ACRA a copy of a document which contained the demands in connection with building society operations which the association considered necessary and which were similar to those which the Deputy quoted. I had long discussions with the association in this regard. In drafting the Bill careful consideration was given to this submission and to all other such submissions. While I was not prepared to agree that all societies should be required to amalgamate or that the Government should take over building societies, it is fair to say that some of the association's demands were found to be reasonable. The Bill contains provisions which go a considerable way towards enabling their demands to be met. The Deputy admitted that.
Deputy Burke complained also that there was no power in the Bill requiring building societies to lend money only for house purchase. If the Deputy had read the Bill, he would have been aware that section 77 gives the Minister for Local Government the power to make regulations relating to the amounts and purposes of loans by societies. If the situation rendered it desirable to do so, this power could be used to reserve loans for house purchase. Such a situation does not exist. Since March, 1973, administrative controls have been exercised by the Departments of Finance and Local Governments to which the societies have responded responsibly. From time to time these controls have limited maximum loans per house or the proportion of mortgage funds which should be lent for new and previously occupied houses respectively. This matter is being looked after very well and no further arrangement is necessary.
Deputy Moore asked if there is any control to curb a society which wished, as a speculative venture, to build an office block thus depriving housing of mortgage funds. As an afterthought the Deputy added that, perhaps, this development could improve mortgage funds because the society would only need portion of the building for their own purposes and, therefore, could let the remainder.
Section 16 provides that a society may purchase, build, hire or take on lease a building for conducting its business. A multi-storey block of offices of which a society used directly only a limited part and let the remainder would conflict with the section. The purposes for which a society may advance money are indicated in the definition section and it is most improbable that the registrar would regard the building of an office block as a speculative venture as coming within the terms of that definition.
Some questions were asked about the functions of the registrar. Provisions relating to this office are included in the Friendly Societies (Amendment) Bill which is before the House. Questions regarding the registrar's status and the power to remove him from office are proper to that Bill.
Regarding Deputy Moore's reference to advertising, he may rest assured that there is provision in the Bill to enable the registrar to control advertising should he consider that the amount of money being spent in this way is too great.
Deputy Callanan referred to the situation whereby people who are not investors with the building societies are not facilitated when they seek loans. I see nothing wrong with that. If there is a shortage of funds, those who are investors should be entitled to first preference. It has been my experience that an enormous amount of money has been lent to people who were not investors. I have a high regard for Deputy Callanan but I was not able to follow him very well when he spoke of people whose plans were to marry, to start a business and to build a house, apparently at the same time. He referred to such people having saved £1,000 with a society. If they have that amount invested in this way, they would be in a position to borrow much more money than if their investment was elsewhere. Perhaps the Deputy missed the point but I am sure that when he reads the report of the debate he will realise that even in that area people will be looked after. Young people should be encouraged to save regularly with a building society because in this way they will be in a good position to negotiate a loan. In this regard it is pleasing to know that so many young people from various walks of life— professional people, gardaí, civil servants and many others—decide soon after starting work to invest some of their income with the building societies and that within a fairly short time they purchase houses. Some of these people have said to me that in this way they can at least ensure a cut in their income tax. No doubt whatever the State losses by way of this concession is gained in another way.
Deputy Burke complained about the proliferation of building societies. As far as I am aware there are no such societies in places like east Galway or north Clare, for instance but, perhaps, the societies might consider going into new areas where they would have a good field for investment. Although it might not have been strictly relevant, the question of the £60 valuation in relation to farmers was raised by Deputy Callanan. Even with a holding of this valuation which would represent an income of about £6,000 a year a farmer would be entitled to an SDA loan. No doubt quite a number of farmers are availing of that facility.
Regarding the question of subsidising the building societies—a situation that is not likely to happen at present —this Bill would not be the instrument for this purpose since there already exists powers in this regard.
Deputy Burke spoke of 12 people who, although on low incomes, had succeeded in borrowing money from building societies but who subsequently had to leave the areas in which they had gone to live because of their inability to meet the repayments. I asked the Deputy to let me have the names and addresses of the people concerned so I trust he has not forgotten his promise to furnish me with these particulars. I expect he was talking of people who borrowed from the societies because at the time Dublin County Council and Dublin Corporation qualified them for SDA loans but had not the money to make the loans available and in some peculiar way guaranteed the societies that money could be lent to these people. The fluctuating rate of interest made it difficult for the people concerned to meet their repayments. I have much sympathy for people who find that their rate of interest on loans is higher than that which they had expected to pay. But it should be remembered that if people borrowed money at 6 per cent, 7 per cent or 8 per cent some years ago the rate of interest they are paying now is not so high in relation to their present incomes. People tend to exaggerate this. If someone comes along to them and tells them that they are being badly treated, naturally they are encouraged to believe they are being badly treated.
I understand that there are a number of amendments the Opposition wish to put down on this Bill. I would ask Deputy Faulkner if there is any possibility of having them put down so that we might resume discussions on Committee Stage some day next week.
