Deputy McCreevy does not appear to be in the House. Does any other Deputy wish to speak? If not, I will call on the Minister to conclude.
Building Societies (Amendment) Bill, 1986: Second Stage (Resumed).
Question again proposed: "That the Bill be now read a Second Time."
I would like to thank Deputies for the interest they have shown in the Bill. It is important legislation which will benefit many thousands of existing and intending building society borrowers. The measures proposed are designed to deal with a number of aspects of building society operations about which there has been widespread public concern. It also opens up to societies the prospect of at least the first step towards new powers which may possibly be extended further in due course. I will recall briefly once again the main areas covered by the Bill.
Regulations can be made permitting new forms of lending. Initially, societies will be enabled to provide bridging finance. Tiered mortgage rates are to be prohibited in the case of loans taken out before 1 August to which such rates do not apply on that date. Tiered rates will also be prohibited in the case of new loans except for a six month period from the passing of the Act. Rules can be prescribed in relation to redemption fees, valuation reports, choice of insurer, legal costs and mortgage protection insurance.
There has been a welcome for the legislation from many Deputies though some have expressed some misgivings or pointed out other areas which they consider need to be addressed. I must reiterate what I said at the outset. I see this Bill as simply a first step towards a wider revision of legislation affecting building societies. Recent events must, of course, encourage me to think very hard about the nature of the further measures which should be proposed but certainly the present Bill is not, and was never intended to be, the last word on the subject.
I have some difficulty in understanding the general thrust of Deputy Burke's contribution. The conclusion I had to come to was that he appeared to be very lukewarm in his support for the measures in the Bill, measures which are quite clearly designed to be beneficial to house purchasers, both those on existing mortgages and those who will in the future be seeking mortgages. I got the impression that the Opposition were not prepared or did not want to be seen openly to oppose the measures.
The Deputy sought assurances for Committee Stage that individual sections of the Bill would not result in increased mortgage repayments. The Bill is a very carefully balanced one which provides for a number of changes; the abolition of redemption fees, production of valuation reports, giving a choice of solicitor and measures to restrict or reduce legal costs, all of which are designed to assist the house purchaser. The abolition of certain tiered interest rates will also be beneficial to house purchasers, bearing in mind that tiering is in many cases introduced at a level well below the amount of the average loan. What I think is not often realised by some people is that a number of societies commence their tiered rate at £20,000 or, in the case of one major building society, £21,000. As the House will appreciate, in the case of some of those societies virtually all the mortgages they advanced in recent years have been charged at a rate higher than the base rate prevailing.
The Bill gives me the power to prescribe purposes for which loans not secured by way of first charge on property may be made by building societies. I have already said in discussions with the societies that I would like to have their views as to how that new power would be applied. In that context I should like to see the setting up of some representative body from whom the views of the building society movement in general could be obtained. From the point of view of the preparation of further legislation it is important that the Government have access to a forum from which the views of various sections of the building society movement in general can be obtained in a balanced way. There is already in legislation reference to the Irish Building Societies Association. That association represents the four largest of the ten or so building societies in operation and from that point of view represents the societies responsible for the vast proportion of mortgage business. On the other hand, I am anxious that the views of the smaller societies, and particularly those societies that are expanding and introducing new and interesting approaches in their operations, should be obtained as well. There are difficulties in this regard which need to be addressed in that the association does not represent those smaller societies. In order to get a balanced approach it is important that their views should also be heard. In that context I am pleased to say I recently had a meeting with the smaller societies who came together under the Confederation of Irish Industry and I found that meeting very useful and informative.
I referred to the balance that is provided for in the Bill. Section 3 will give the Minister power to make regulations regarding the types of loans, whether secured or unsecured, which societies may advance. I have already indicated here in the House and elsewhere that it is my intention to make regulations which would allow societies to make what is known as bridging finance available. The enabling provision of the section means that if it is considered appropriate in the light of the monitoring of the operation of societies to allow them to become involved in other areas, the Minister may make regulations in that regard. I am quite satisfied that the balance between section 3 and the additional functions which might be assigned to societies would, with the attendant revenue to the societies therefrom, more than offset any loss of income through the abolition in other sections, notably section 6, of some of the practices which are regarded as unacceptable by the general public.
I should like to refer briefly to the contribution made by Deputy Yates. It was a most interesting and thoughtful contribution which merits close study and attention. The Deputy referred to the role of the registrars of friendly societies and commented on the powers and resources available to them. There is no doubt the registrars have a very heavy workload. As I previously indicated, I am considering further legislative proposals on building societies and in that context the question of supervisory arrangements will receive attention. That will be all the more important if that legislation is to enable the societies to move into areas of the provision of further services.
Deputy Yates also commented on aspects of the election procedure of societies. That matter was referred to in the discussion documents on building societies and I will certainly look at ways in which improvements can be introduced into that area. We are probably all in agreement that there is no doubt that there could be improvements introduced into the method of election employed by some of the societies.
However, I would like to ask the House, in the context of the remarks of Deputy Yates, to consider carefully section 10 of the Building Societies Act, 1976, and to note powers which are conferred on the Minister. I concluded my opening statement on Second Stage of the debate by saying that, in conjunction with the making of regulations following the enactment of this Bill, I intend to use those powers in that connection.
A number of Deputies, including Deputies Yates, Allen, Seamus Brennan, De Rossa and McCreevy, referred to the building society management expenses and some emphasis was placed on the level of advertising. I note that concern has been expressed from time to time on that matter.
The discussion document which was published earlier this year referred to the question of whether there should be direct control imposed on the expenses of societies. I should like to hope that in general enhanced competition and the conditions in the market place, some of the changes which will be brought about through the enactment of this Bill, and the further legislation which I have promised will result in a general improvement in that area. In that context, however, I should, in reply to Deputies' suggestions, again refer the House to the Building Societies Act, 1976, and in particular to the powers which are vested in the Minister in section 76 of that Act.
I was taken aback at the contribution made by Deputy Noel Treacy because he seems to be opposed to just about every part and section of the Bill. I find it extraordinary that Members of the House could find in this legislation nothing that appealed to them or which seemed to them to be in the interests of their constituents. I certainly do not think that was the general view of Deputies who spoke. Neither does it seem to represent the view of many other people who have expressed an interest in this area. For example, the Deputy suggested that redemption fees were necessary in order to prevent borrowers from switching their loans to other institutions. My reason for setting out to give the Minister power to prohibit the practice of charging redemption fees is that from the point of view of the individual borrower and the general public that is an inherently unfair charge. I can see no merit in the case argued by the Deputy.
Deputy Wilson expressed the hope that the societies would find it possible when they were allowed to make bridging finance available to charge a rate for that finance which would not be far in excess of the mortgage rate. I share that hope and have noted the comment of the Irish Building Societies' Association in a submission to me some months ago in which they said: "There is no reason why this finance should not be offered within the building society system and at a substantial cost saving to the home buyer." In proposing to allow the societies to provide this type of finance following the enactment of this Bill, I am more than hopeful to do so on the basis which promoted that part of their submission. I am sure the House and the public will watch with interest how the societies approach that new area.
I thank Deputies generally for the welcome which the Bill has been given and for the variety of points which they made regarding other matters which are not addressed specifically in this legislation. As I have said several times, I can assure the House that my intention is to return to the House with further legislative proposals on building societies as soon as possible.
The question of addressing legislation in this area is quite difficult. A debate has been ongoing for some time regarding the activities of building societies and the need perhaps for redefinition of their role. There is no doubt that societies have changed very much in the scale and type of their operations from the time when the building society movement originally set out and many of them are now very large and they are essentially financial institutions. From that point of view the further legislation will need to examine what precisely should be the future role of the building society movement.
Other things are happening also which I referred to at the outset of my contribution in this debate. There is the draft EC directive which I suspect will not come into force for some years but other moves are afoot at EC level which may bring about greater access to markets at an earlier date.
The change in the British legislation from a relatively early date will allow British societies to establish abroad and that brings with it the possibility that some of them may seek to establish here. There is increased competition in the marketplace and within the existing Irish market there is evidence of growing interest on the part of the banks becoming involved in the provision of home loans. The example in the neighbouring island in recent years has shown that increased competition by other financial institutions into the home loans market has brought about radical changes, all of which have resulted in a better package and range of measures being offered to the borrower at more attractive prices. I had hoped it might have been possible for some of those changes to have been introduced into Irish conditions either by the building society movement acting collectively or through individual societies leading the way in that regard, but that has not happened and, partly for this reason, some of the provisions in this Bill are now being introduced. However, it is of fundamental importance, bearing in mind the proportion of home loans that are funded and provided by building societies, that we wet out to ensure that the building society movement is examined carefully and is provided with legislation and with controls to ensure it can continue to play a positive and important part in helping towards the very high aspirations of Irish people towards home ownership.
Naturally, when new proposals of this nature are introduced they are of particular interest to the principal persons involved in that area. As the House will know, in relation to much legislation the interest groups involved will express their views, sometimes very forcefully, and that is as it should be. It is an important part of our democratic process that people who have views or involvement in relation to legislative matters should be able to express those views publicly whether they are critical or not of the proposals.
In conclusion let me say, however, I have been dismayed that in recent days part of the response in relation to this Bill has been translated into personal vilification of me and untrue accounts of meetings which I had with the Irish Building Societies Association. I regret that that unhappy element should have been introduced into the debate — not in this House I hasten to say — and I feel it incumbent on me to refer to it in passing. I wish to say that in my continued consideration of this and the further legislation I do not intend to allow that campaign of vilification to influence me in any way in my approach or the approach of the Government towards the introduction of orderly and progressive legislation regarding the future operations of the building society movement.
Question put and agreed to.
When is it proposed to take the next Stage?
Next Tuesday, 25 November, subject to agreement between the Whips.
Committee Stage ordered for Tuesday, 25 November 1986.