There is a correction in amendment No. 1 in the names of Deputies Mac Giolla and De Rossa. The word "that" should read "than".
Private Members' Business. - Building Societies (Amendment) Bill, 1986: Committee Stage.
Sections 1 and 2 agreed to.
SECTION 3.
I move amendment No. 1:
In page 2, subsection (1), lines 26 and 27, to delete "(other than conditions in relation to the rate of interest chargeable on a loan)".
As amendment No. 9 is related both amendments can be taken together. Is that agreed?
Are you suggesting that they should be discussed together? Will they be voted on together?
They will be decided on separately.
Section 3 of this Bill enables the Minister of the day to make regulations permitting building societies to advance bridging finance. I understand that the building societies are unhappy with the broadness of the section. They feel that the powers the Minister is taking are too broad simply to enable them to advance bridging finance but that is not the point with which I am concerned. What I am concerned with is that nowhere in this Bill is there power taken by the Minister to control the rates being charged by the building societies. In fact, in one particular section the Minister specifically excludes himself from controlling such rates. That is the section we are talking about at present. In this section it says that the Minister may make conditions other than conditions in relation to the rate of interest chargeable on a loan. If we are serious about controlling and regulating the activities of the building societies the question of the rates they charge is one of the key areas with which we should be concerned.
It seems extraordinary that in the Bill before us the Minister is not taking that power and that in relation to the advancing of bridging loans is specifically excluding himself from taking power to control interest rates. If one were to ask any persons who have a mortgage what was their greatest concern about building societies they would say that it is the amount of money which they have to pay out every month and the substantially increased amount of money which they are going to have to pay out from now on as a result of an arbitrary increase in rates by the building societies. That is the reason I have tabled this amendment. It is to delete the proposal that the Minister may not take power to control the rates the building societies may charge on a bridging loan or other types of loans — power which he might be able to give them under this section as it stands. After all the hullabaloo about this Bill and the row kicked up by the building societies and by the Minister about what he was and was not going to do to trim their sails it is extraordinary that the Minister is excluding himself specifically from controlling the interest rates the societies will charge.
I am not prepared to accept either of these amendments. Their effect would be to assign to the Minister of the day direct control over the rates being charged by building societies. As the House knows that would be contrary to the long established policy of successive Governments and contrary to the practice which has been engaged in normally in relation to financial institutions. If these amendments were to be accepted the effect could be to seriously undermine savers' confidence in the building societies in that they might feel that the Government of the day might for whatever reason move to control rates. What one must hope for is that the societies will act responsibility and cast their rates in accordance with the market forces rather than in any other way.
Were the House to accept these amendments it would mean that the building societies would be put in a different position vis-à-vis their competitors in the deposit market. It has been long established and a practice accepted by the House in different debates in relation to the societies that it would not be in the best interests were the Government to seek to control directly the rates of interest being charged.
I have to disagree with the Minister. The amendment in no way tries to restrict the market forces. It would require a much more extensive Bill and a much larger change of face in this House to achieve that kind of amendment. What my amendment seeks to do is simply to exclude the Minister's own statement in the Bill that he can make conditions for the advancing of bridging loans other than in relation to the rates being charged. As the legislations stands there is no obligation on the Minister to make any conditions in relation to the advancing of loans. If he so chooses he does not have to introduce any conditions whatsoever. Simply by deleting the proposal I am talking about the Minister would have the option that if at some time in the future the building societies were acting in a way which he or the Government of the day considered to be contrary to the common good, he would have the power to say "no", that he wanted to restrict the rates they were charging.
Amendment No. 9, which is being discussed with this amendment, would give the Minister the power to set conditions in relation to the rate of interest being charged by a building society on a loan. It is not a power which he would have to use. Presumably, it would not be a power which a Fine Gael Minister or perhaps a Fianna Fáil Minister would want to use but it is quite conceivable that conditions may arise in the future where the existence of such a power alone would encourage the building societies to act responsibility and not dip their hands too deeply into the pockets of the people who have mortgages with them.
I press this amendment because there is no reason the Minister should not accept it. There is no obligation on him to operate it if he does not wish to do so, but it would be an important power for the Minister, the Government or any future Government to have. This is the least this House can do when householders are faced with massive mortgage increases over the next few weeks. If we are to be seen as being relevant to what is happening or to have any control over running this country, this is the least we can do in relation to the building societies. At the end of the day the question is: who runs the country, the financial institutions or this House?
The most important power the Minister has under the section is that he may prescribe conditions and the types of loans, secured or unsecured, which the societies may from time to time be allowed to offer. If there were to be widespread abuse by certain societies of the powers which might be extended to them by a Minister from time to time by regulation made under this section, it would be open to the Minister to amend the regulations or, perhaps, to withdraw the facility made available to the society to advance that type of loan.
In their submission on the Government discussion document the Irish Building Societies Association 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 housebuyer." In that connection they were referring to bridging finance. I do not want to enter into a wider discussion of the section, but it is wrong for the Deputy to suggest that this section is included to allow the societies to make available loans for bridging finance purposes. The section, as drafted, allows the Minister to make regulations after consultation with the Minister for Finance and the registrar in relation to different categories of loans for different purposes which the societies might be allowed make available to their members.
I indicated that it was my intention that bridging finance should be the first of those facilities which might be made available to the societies, that I would carefully monitor how the societies would operate that new power and that, in turn, would influence any further regulation or extension of the range of loans which might be made available by the societies. In that way the Minister has adequate control mechanisms available to him. For the reasons I gave in my initial reply, I do not think it would be prudent to accept these amendments.
It is very interesting to note that in the first response the Minister makes to the first amendment to this legislation, he does a complete climb down on all the reasons he gave for the introduction of this legislation. This legislation was introduced as part of a posturing by the Minister. He said what he was going to do with the building societies; he said they had been big bad boys who were misbehaving and that he, Mr. John Boland, TD, Minister for the Environment, was going to control them.
Yesterday many mortgage holders were told they would have an extra 3 per cent to pay. This happened since rates could not be controlled because of market forces. Market forces have caused this 3 per cent increase. These market forces are the direct result of the mismanagement of the economy by this Government. Because of this mismanagement we have a current budget deficit of nearly £1,500 million. These market forces are the reason Government borrowing is running at £24 billion. Approximately 250,000 people are unemployed and more than 10,000 people are emigrating — the flower of our youth literally walking the streets of London, New York and the cities of Australia.
It is interesting to note that the Minister's first contribution on Committee Stage was that he was not taking any power onto himself to control these market forces. I accept that. I believe it would not be possible. I agree with the Minister's position on the amendment proposed by The Workers' Party, because as well as the mortgage holders we all want to protect, we must also protect the interests of the one million savers in building societies. We cannot control the interests rate paid by mortgage holders without affecting the interest rate being paid to savers, the ration between savers and mortgage holders being 7:1. I accept the Minister's position on this.
It would be nice if this were possible, but it would depend on the type of society in which we lived where everything was controlled, but we do not live in such a society. We live by choice in a society where there are regulations but not total control. If the Irish people at some future stage wish to go for total left wing ideology, that will be a different kettle of fish but, as long as market forces prevail, the rights of the savers have to be protected. It was interesting that in his first response on Committee Stage the Minister recognised the limitations and the powers he has as Minister for the Environment.
The Minister mentioned my reference to the fact that this section proposed to enable building societies to advance bridging finance. I made the point that I understood the section was broader than that, but I understood that was his primary purpose in introducing this section into the Bill. I am aware that the section is broader than that and that there may be other forms of finance which, under regulation, the Minister may allow them to engage in, but that is not the point of my amendment.
The point of my amendment is that the Minister should have power in relation to the advancing of bridging finance and, under section 9, in relation to the rates chargeable by the building societies in general, and that he should have power to control those rates. I wish it were possible to introduce left wing ideology by a simple amendment like this — it would make life very easy — but it is not. This is far from being a left wing ideological proposal. The proposal is simply that the Minister should not deny himself the right to control interests rates if he feels or his Government or any future Government feel it necessary to do so. I want to remind the House that this Government operated price control until very recently. When price control was abolished the Fianna Fáil Party shouted loudest about its abolition. Price control is an interference in the market mechanism. There can be all sorts of debates as to how effective it was or was not. I know that, for instance, the Consumers Association of Ireland are quite concerned about the manner in which prices have been affected as a result of the abolition of price control. What I am talking about here is simply that the Minister should not exclude himself from having the power to control rates if he or his Government so wish and that, under the provisions of amendment No. 9, they would have that power if they wished to exercise it in relation to interest rates in general.
I do not think that is unreasonable. I do not think anybody other than the wildest of right wing Tories, or radical Tories as they like to call themselves nowdays, on which sections of the Fine Gael Party like to model themselves, would argue for complete and unbridled competition in any area of life because it has been shown to lead to the most atrocious abuses and poverty in many areas. This Government, in line with their declared social democratic image — in relation to bridging loans or other types of loans the Minister may decide should be allocated by a building society — should retain the right to control interest rates when necessary. Furthermore, in relation to the provisions of amendment No.9, they should take the power to control the rates building societies will charge in the future. That is a reasonable request: there is nothing extraordinarily radical about it. It has been done in other areas of life. There are restrictions all over the place on the free market here and in other capitalist countries. This is not seeking to introduce anything more than price control in another form.
For that reason I would urge the Minister to accept the amendment and urge the Fianna Fáil Party to support it. There is much screaming and shouting when a building society announces a mortgage rate increase, yet when there is an opportunity afforded under the provisions of this Bill to give power to the Minister to control those rates, or at least have that power hanging over the building societies, I find it extraordinary that the Government on one side and the Fianna Fáil Party on the other refuse to grasp that opportunity. I find it inexplicable.
In my opening remarks on the introduction of the Bill I outlined its purposes. I said they were to deal with a number of matters relating to the operations of building societies which have given rise to some dissatisfaction with the societies on the part of the general public while, at the same time, enabling societies to expand their services by permitting them for the first time to engage in lending other than by way of mortgage. That is the basic purpose of the Bill.
At that time I went on to criticise the level of increase that had recently been announced. I still adhere to those views. I was asked in public several times in relation to those increases whether I envisaged taking on the power, on behalf of the Government, directly to control interest rates. I said clearly at that time that would not be my intention. It is appropriate, as the Bill provides for it in a later section, to deal with the vexed question of tiered interest rates. In relation to rates chargeable generally, rates on offer to depositors, I do not consider it would be prudent to endeavour to control that end of the market when financial institutions do not have the rates which they offer controlled by them. It would distort the market unnecessarily. We must take into account the fact that building societies constitute an important instrument in housing policy and in the provision of housing finance. What this Bill seeks to do is to control some aspects of the operations of building societies which have given cause for concern among the general public for a number of years.
In relation to interest rates generally, I repeat the views I expressed some weeks ago when the building societies announced the scale of the increase, that it was my belief that sanity and reason would return to the financial market place in a relatively short space of time and that by early in the New Year we would see a sharp reduction again in interest rates charged generally, not just by building societies but in the financial marketplace — rates on offer and rates charged. I felt it was particularly unfortunate and inappropriate that the level of rate increase — which was led by one society and in relation to which others followed — was pitched at the level it was. I know a number of the other building societies were not happy with the level of that increase. Be that as it may, it would not be prudent for me or the House to react to the intemperate size of that increase by being intemperate enough in return to take on the control of interest rates generally, which is what these two amendments seek to do. It is a little disingenuous of the Deputy to say he is merely suggesting the exclusion of this set of words. Implicit in the acceptance of the exclusion is the acceptance of the inclusion and I am not prepared to accept the inclusion of those powers for the reasons I have given. It is perhaps inappropriate to speculate as to which of the other speakers the Deputy was referring to when he began to draw political comparisons with radical Tories and other groupings in this House. In relation to all of these ideological matters I should prefer — as I have endeavoured to do in the Houses over quite a number of years — to rely instead on pragmatism and common sense.
We could enter into a nice debate on ideology, pragmatism and what they are but I do not propose to enter into such debate at this stage.
I hope I did not give the impression of being disingenuous. If the Minister says I did I accept that I may have but it was not intended. My point in relation to section 3 is that the Minister is specifically excluding himself from having the power to control the rates on bridging finance or other kinds of finance that the building societies may be enabled to advance under the provisions of that section. The Minister, in specifically doing that, is denying himself the power. The deletion of the words I propose to delete leaves it open to him to control rates if he or his Government so desire, taking all of the circumstances into account. In any event amendment No. 9 seeks to give the Minister power to control interest rates, again, if he so desires. It is not mandatory on him to do so. It is a question of the circumstances prevailing at any given time, so that he have the power if required.
In one sense the Minister has strengthened my case in his last remarks about the panic reaction on the part of the building societies in recent months in relation to world financial markets, that it is his belief that in the New Year interest rates will level off, that in his view there was no need for them to apply the increases they did. Surely it makes sense that, if the Minister had power to control interest rates he could, at the same time as expressing his view, say to the building societies: "Look, I have this power to control these rates if I choose and, unless you agree either to a reasonable increase or none, depending on the circumstances, then I will use that power".
Why should the hundreds of thousands of mortgage holders of this State be subject to the vagaries and panic of directors, comprised of a clique of people who run these building societies virtually as private enterprise companies? Presumably the Minister has a wider view of world markets and the way the economy is developing or not developing and therefore he should have the power to say that an increase should not be more than 1 per cent, 2 per cent of 3 per cent. It is not unreasonable to ask the Minister to take that power. If Deputies refuse to accept this amendment, surely they are displaying the phoniness engaged in a month ago when everybody was shouting about the poor mortgage holders who were being held to ransom by the big bad building societies and we had to do something about them. Now when we have the opportunity to do something about them, we funk it.
I will take up the last unparliamentary comment made by Deputy De Rossa. I ask him to clarify how he would see his amendment operating? If we give to any Minister the right to control the interest rates at which a building society can loan money, we also give him the right to control the deposit rates. I do now know whether he would like to see a society where both controls would prevail. If building societies were operating in isolation in the money market, I could see some merit in what Deputy De Rossa seeks to achieve. He knows as well as I do that in the free society in which we live that is not the position. However insulting he may appear towards building societies — I am not here to defend building societies — they can provide an attractive proposition to any worker who wishes to invest any surplus money he may have and get a dividend from it. I do not see anything anti-society in the service which they give.
If as a result of people depositing moneys we have a situation — and there is plenty of evidence of it — which is in direct opposition to that which obtains in countries in the east, and people can have attractive homes built almost to their own specification, surely that is desirable rather than having the situation which obtains in other countries which I visited where people live in boxes — chest-of-drawer living I call it. I have not come across any worker in a eastern country who could afford the type of house which we have here. Where is socialism in that? What are we hoping to achieve by introducing controls on deposits and loans? People would be forced to live like people in countries with those controls.
I see no reason why anybody who is seeking a loan should have to seek a bridging loan. Local authorities and building societies should be able to provide loans when approval is given. Deputy De Rossa cannot make a case against the situation that obtains in our country. Nobody is forced to put money on deposit with a building society. People have been encouraged to do so and as a result they have helped their neighbours to invest in attractive houses. They could not have done so if this scheme did not operate. I reject the right of any Minister to control interest rates on loans in the same fashion as I would reject his controlling the rates at which deposits are made.
I support the views of my colleague, Deputy Jim Tunney. It was interesting to hear the Minister again trotting out his hoary old chestnut of the big bad wolf of one society leading the way with an announcement and the innocents in the remaining societies, despite their best wishes, having to follow in regard to an increase in interest rates. The reality which is well known is that the increase in interest rates is not a result of any of the societies, of their own free will, wanting to increase them. It is a result of the market forces which the Minister spoke about, the market forces caused by the Government and the mishandling of the finances of the State by the Government. That is what has driven interest rates up not only for mortgage holders but for all sections of the community. Interest rates are now over four times the rate of inflation.
I hope the Minister's prediction that interest rates will drop soon after Christmas is accurate. However, it does not seem to be borne out by the predictions of Coopers & Lybrand and other organisations who are predicting that the present rates of interest will continue because of the mismanagement of the economy. Far from being a panic reaction of the societies, as the Minister described it, it is a reaction brought about because of the market place in which they have to operate to get in funds so that they can lend them on to people who want to buy houses.
As a result of the introduction of DIRT the Government have chased over £1,500 million out of this country. That has had a traumatic effect on the flow of funds to building societies. They are not in a position — and the Minister recognises this when he talks about market forces — to sit back and offer to investors a rate of interest which is lower than that of their competitors. They need funds from investors so that they can lend that money to people who want to buy houses. It is interesting to look at the size and the scale of the organisations with which we are dealing.
Recently fact sheets were made available on the societies and the membership of the four larger societies, the Irish Permanent Building Society, the First National Building Society, the Educational Building Society and the Irish Nationwide Building Society. For the year ending 1985 their total assets amounted to £2,638 million with 932,000 investors and 135,000 borrowers. The money which is made available on loan to those people does not belong to the building societies; it belongs to the people who invest with the building societies at competitive interest rates. The investors, numbering in excess of one million, make their money available so that 135,000 people can have a roof over their heads. It is worth reflecting on that figure. It was wrong to describe the reactions of the societies as panic or to create the impression, like Deputy De Rossa, that by the stroke of a pen it is possible to restrict the mortgage rate. It is wrong to convey the impression that the mortgage rate can be restricted in isolation from the investment rate. I wonder if Deputy De Rossa is aware that life is not like that. I disagree with the view of Deputy De Rossa that we were prepared, to use what Deputy Tunney described as an unparliamentary word, to funk the opportunity to trot behind him in support of his vote-catching amendment.
The Deputy's amendment reads well and, undoubtedly, it will read well in the handouts of The Workers' Party. I have no doubt that those handouts will try to portray how well The Workers' Party TDs tried to defend mortgage holders. We are here to defend mortgage holders and we are doing that by trying to change the Government and bring in an administration that will create an economic climate that will lead to interest rates falling to European levels. There is little point in Deputy De Rossa posturing and telling us that by tabling his amendment he will be stopping interest rates going any higher for mortgage holders. That is not the way life is. I am sorry the Minister got back to the hoary old chestnut of creating the impression that when one society lead the way others are dragged behind them. That is not the position, and the Minister knows that.
I am not aware that the word "funk" is an unparliamentary term.
It is from 15 minutes ago.
Who says so?
The former Leas-Cheann Comhairle.
He may have the right to say so in the future but today he does not have that right.
I should like to thank the Deputy for the kind thought.
The sooner we get the Deputy out of Dublin north west the better for us.
The trouble is he will be staying in that constituency for the next Dáil, and probably the Dáil afterwards.
I am arguing for the right of the Minister to control interest rates if he, or his successors, choose to do so in whatever circumstances may arise in the future. That could arise tomorrow. Unfortunately, those who have spoken against this amendment have painted the picture of the choice being between unbridled rate increases by building societies in response to what they perceive to be the market conditions or what Deputy Tunney sees as a totally unsatisfactory housing stock such as he saw in eastern Europe. It is not that simple. The State has all types of controls on the free market forces that operate here. The simplest comparison is price control which we had up to recently. The country did not become a socialist State or a socialist society in the years when price control existed. The introduction of price control represented an attempt by a free market government to control the free market in such a way that those who sought to make excessive profits at the expense of the common citizen were controlled.
I presume the Minister, and his successors, will control interest rates if given the power, in the same way that price controls operated, as a means of preventing excessive profit-making and profit-taking by the building societies. The building societies like to portray themselves as non-profit organisations or as mutual societies acting in the interest of the savers and mortgage holders but building societies in 1985 made a profit of £30 million. They may not describe that as profit but as a surplus. Nevertheless, it represents a profit on the amount they took in from investors and lent out. In a bookkeeping sense they made a profit of £30 million.
The building societies will argue they need that money but the Minister and the Government have a wider responsibility than to the investors or mortgage holders of any company or building society. The ordinary man and woman in the street have to pay interest to create those large profits. It is for that reason I am suggesting that the Minister should have this power. He should be able to control excessive mortgage rates. Deputies Tunney and Burke are arguing the Minister's case very well but it is not a choice between dropping interest rates on the diktat of the Minister and, therefore, affecting the income investors may get from building societies. It is a question of ensuring in our type of economy that no company or building society has the free power to exploit at will mortgage holders or anybody else who has to avail of their services. The Minister should have power to control the activities of building societies. Where necessary, he should be able to control their interest rates. There is nothing revolutionary involved in that.
Those who are referring to the power building societies have and the way mortgage holders are at the mercy of building societies but refuse to support this amendment should in future keep their mouths closed when the issue of building societies increasing their interest rates unreasonably comes up again.
I should like to thank the Deputy for his advice which was interesting. The various provisions of the Bill do more in real terms to help and protect the interests of the borrower than the Deputy's amendment. That amendment could have most serious consequences for the long term viability of societies. Implicit in it is an effort to assign to Government greater power, the power to control interest rates on the financial markets generally.
In that connection I suspect the Deputy has taken the opportunity of the passage of this Bill to express views which he might feel more at home expressing in relation to legislation dealing with the Central Bank or on a Finance Bill. The amendment would have as much relevance if the Deputy had sought to assign to me the power to control international interest rates or the value of sterling on the London market. The Deputy obviously has unlimited confidence in my ability to be able to interpret the most appropriate rates that might be charged in the context of Irish market conditions. The simple fact is that we are an open economy and despite all the political statements we have heard this afternoon, our interest rates are affected extraordinarily by the prevailing rates in our nearest neighbouring country. If a Government were to seek to control interest rates here in regard to societies it could only do so after consideration of the rates payable on the London money market and we all know how ridiculous a proposition that would be. There is no point in a Government taking on powers which they could not exercise in the way the Deputy presumes.
Question put: "That the words proposed to be deleted stand."
I am putting the question.
Vótáil.
Will those who are demanding a division please rise in their places?
Deputies De Rossa and Mac Giolla rose.
As fewer than ten Deputies have risen, in accordance with Standing Orders I declare the question carried. The names of those demanding the division will be entered in the journal of the Proceeding of the Dáil.
Question put and agreed to.
Amendment declared lost.
I move amendment No. 2:
In page 3, between lines 9 and 10, to insert the following subsections:
"(4) The Registrar may, whenever he considers that—
(a) it is expedient in the interest of the orderly and proper regulation of building society business, or
(b) a society has carried on business in a manner prejudicial to such regulation,
issue to any society or, as the case may be, to that society, a direction prohibiting or restricting, as he considers proper, the making of loans pursuant to subsection (1) of this section to members, and any such direction shall have effect in accordance with its terms.
(5) The Registrar may, at any time as circumstances may demand, revoke a direction under subsection (4) of this section."
This provides for a situation where, following the making of regulations by a Minister allowing for certain types of loans to be made available by societies, the registrar is of the opinion that the making of those loans not secured by a mortgage may be prejudicial to the ordinary regulation of building society business. That would confer on the registrar the power to issue a direction to the society prohibiting and restricting the society in making loans under section 3 (1), that is, loans other than those secured by way of a mortgage. The registrar would be able to invoke that power where he considered it expedient to do so, or where a society had carried on business in a manner prejudicial to the regulations. The criteria of orderly and proper regulation are referred to a number of times in the 1976 Act from which the registrar would take a particular interpretation.
Could the Minister give us an illustration of the type of situation under which this amendment would operate?
It is always somewhat dangerous to provide illustrations, as I have discovered to my cost. An example would be where a relatively small society is engaging in the making of unsecured loans to such an extent as might, in the opinion of the registrar, render the extent of making those loans prejudicial to the operation of the entire society.
Amendment agreed to.
Question proposed: "That section 3, as amended, stand part of the Bill."
Here we come to the interesting powers the Minister is taking unto himself, the purpose for which loans can be made. This is apparently designed specifically to enable the societies to provide bridging loans. But the Minister himself does not specify this in the section. He merely gives himself powers in relation to loans. I am anxious that bridging finance would be included as distinct from the manner in which the Minister has it drafted at the moment.
I find this suggestion somewhat extraordinary. The building societies generally have been expressing a great interest in being allowed to carry on other activities and engage in the provision of a wider range of services than they have been confined to traditionally. I indicated several times that I considered the making available of bridging finance for house purchase purposes a most suitable addition that might be taken on by building societies. Societies generally have been calling to be allowed make other type of loans available as well.
When I had the Bill drafted I considered it more appropriate that the section should be cast wide enough to allow the Minister to make regulations from time to time with regard to the types of loans, secured or unsecured, which might be made available by societies so that, if it was felt that the societies were in a position to do so, the Minister could progressively expand the range of loans which societies might make available. I had in mind in particular that the initial loans to be considered would be home related loans of one sort or another. It was indicated to me that societies were interested in becoming involved in making loans available for other purposes relatively far removed from the broad definition of home related. I am taken aback to discover that some societies are now saying they wish to be confined merely to the making available of bridging finances. This seems to be totally at odds with all of the previous submissions made by the societies generally.
I am glad the Minister has clarified that because if it is as broad as the Minister is now outlining, I see no difficulty whatsoever and would welcome it. It is important that the societies should be in a position to offer loans on items other than homes. The societies are such a major financial arm of the State now that they have a role to play in the development of the State. I, therefore, go along with the section as it stands.
I should say that at a recent meeting which I had with the non-IBSA societies they outlined the range of loans and I asked them to indicate in descending order of priority the types of loans they were primarily interested in. I am in broad agreement with their scale of preferences. It would be unnecessarily restrictive and unfortunate if the House were to confine the Minister to the power to make regulations to extend the additional activities of the societies only to this area of bridging finance.
I take if from what the Minister has said that he recognises the flexibility of the societies and the options that should be available to them to ensure they can operate to their maximum potential and compete with the other financial institutions. I hope the Minister and future Ministers will make regulations to ensure that the other services and facilities can be made available through building societies in competition with the other institutions.
One of the primary effects of this section, if it is used wisely, will be to allow the societies, by engaging in a wider range of loan activity, to make sufficient money to more than offset any loss of income they might experience as a result of the implementation of some of the provisions in later sections which are designed to protect the borrower, particularly at the time of purchase. I am totally at a loss today to discover that in a very recent submission made by IBSA they have suggested that this section should be amended so as to confine the right of the Minister to extend their powers solely to bridging finance. Yet in a response which they made in May of this year to the Government's discussion document on building societies, whilst they spoke about bridging finance, they also went on to suggest that home improvement loans were another area where the interest rates charged by banks were particularly heavy. They said that the building societies would be happy to offer similar finance at a substantial reduction on the banks' interest rate. Now it seems as if for some reason the IBSA societies want to confine themselves solely to bridging finance. In the context of legislation and the making of subsequent regulations I do not think that would be appropriate now.
We agree.
Question put and agreed to.
SECTION 4.
Amendments Nos. 3 and 4 in the name of the Minister are related and if the House is agreed they can be discussed together. Is that agreed? Agreed.
I move amendment No. 3:
In page 3, subsection (3) (a), lines 29 and 30, to delete "made or (as the case may be)" and to substitute "made, or".
The purpose of these amendments is to tighten up the definition of "tiered interest rate". The original definition reflected the traditional meaning behind the term, that is, charging of higher rates on higher amounts, but it is advisable to prohibit societies from introducing tiered rates under any other name by relating the interest rate, for example, to the income of the borrower.
We discussed this on Second Stage. I will accept the amendments and then we can get on to my amendment.
Amendment agreed to.
I move amendment No. 4:
In page 3, subsection (3) (a), line 31, after "loan," to insert "or to the income of the member to whom the loan is made, as the case may be.".
Amendment agreed to.
I move amendment No. 5:
In page 3, between lines 33 and 34, to insert the following subsection:
"(4) That the effect of subsections (1), (2) and (3) will not be that by removing the premium rate, the lowest rate of interest applicable can be increased on mortgage holders,".
On Second Stage we made it clear on this side of the House that, unless the Minister could guarantee us that the borrower would not suffer as a result of a change in these tiered rates, we would oppose this section on Committee Stage. My amendment ensures that the effect of subsections (1), (2) and (3) will not be that by removing the premium rate the lowest rate of interest applicable can be increased on mortgage holders. My worry about this proposal of the Minister's——
Are amendments Nos. 5 and 6 taken together or separately?
Amendment No. 6 is relevant, Deputy Burke. If the House is agreed, amendments Nos. 5 and 6 can be discussed together.
No, amendment No. 6 is different. I will take amendment No. 5 on its own. It is dealing with section 4.
I am afraid the Minister is walking into a situation where he says that he is against tiered rates because that is increasing interest rates on some mortgage holders. Working on the assumption that by removing tiered rates or premium rates all loans will be brought down to the level of the low interest rate or standard interest rate, our worry and concern on this side of the House are that by removing the premium rate, rather than reducing all rates down to the lowest you will have an equalisation up from the lower interest rates and the lower interest rates will be increased. We are not prepared on this side of the House to accept that threat and we want this amendment written into the Bill so that the effect of the removing of the premium rates will not be that the lowest rate will be increased on mortgage holders.
The Minister works on the basis that tiered rates are unique to the building society movement, but all financial institutions use systems of tiered interest rates. For example, banks charge at least three different rates to their A, AA and AAA customers and in such case the effect is that the smaller the borrower the higher the interest charge. As a consequence, small domestic bank borrowers tend to subsidise large commercial and industrial borrowers. The reverse happens with the building societies. They charge a tiered rate to the high borrower, the large borrower, who is subsidising the man on the standard mortgage. My worry and the concern of Fianna Fáil are that in removing the tiered rate the Minister will increase the mortgage interest rate for those on the standard mortgage. I ask the Minister to accept this amendment.
I am afraid that, apart from any other considerations, the amendment in the form presented would have no real effect. I must point out that the term "premium rate" for example, occurs nowhere else in the Bill. Furthermore, I do think the House can legislate that the effect of A, B and C will not be D. I do not think the amendment could reasonably be included in the Bill for those reasons if not for others.
The only practicable way to give effect to what the Deputy is seeking would be to have accepted the amendment proposed by Deputy De Rossa earlier which would give the Minister power to control interest rates, and this amendment in another form seems to be suggesting that very course of action which the Deputy has rather categorically turned down and rejected on behalf of his party already. As I mentioned when speaking on section 3, the Bill is well balanced. The intention of the Bill is to ensure that the additional powers to advance loans which might be made available to societies under section 3 would enable them to make sufficient additional "profits"— societies are not expected to make profits as such — sufficient additional surplus in order to offset any reduction in income which might be experienced through any of the later provisions.
For a long number of years now the largest of the societies traditionally have not operated tiered interest rates, yet that has not in any way inhibited them from both growing to the size they are today and offering their loans generally at the basic rate. As I mentioned on Second Stage, the trends in other places have been away from tiered rates and I would have hoped that at this time, bearing in mind the market conditions and the likelihood of additional competition moving into the Irish home loan market, the trend would have been away from tiered rates generally rather than towards them. For that reason I thought it appropriate to introduce section 4 into the Bill.
Let me point out to the House that the surplus which building societies have, rather than profits, after meeting their outgoings by way of interest payments and their investments and their management expenses including advertising, is reflected by way of increased reserves. It is important that the societies keep their reserves at a reasonably high level, but it seems through close examination of some of the expenses incurred by the societies that by judicious application of the extended provisions of section 3, the societies will be more than in a position, assuming prudent management, to meet any opportunities which this or subsequent sections may bring about for them.
I am sorry the Minister will not accept this amendment because I have no doubt that the proposal in the bald terms in which it is made by the Minister to abolish the tiered interest rates will have the effect of driving up the interest rates for the small borrower and lowering them for the largest borrower. That is not something we want to see achieved in this House. That is asking the small man on the standard rate to subsidise the interest rate of the fellow who can afford a £60,000 or a £70,000 mortgage. I do not support that. Whether he likes it or not, that will be the effect of the Minister's decision. Unless the Minister can guarantee that will not happen I am going to push this amendment to a vote.
I am very apprehensive about giving illustrations but there has been no uniformity or sanity in the way in which the tiered rate has developed over the years. The tiered rate regime is very unfair mainly to the average house purchaser. Two of the larger societies have until recently traditionally operated without any tiered rate and they have been very successful. Three societies have commenced their tiered rates at loans above £20,000 while one of the main societies commence their tiered rate on loans above £21,000. Two further societies commence tiering at £25,000. The average loan is £24,000 and loans taken out by people on relatively modest incomes are often above that level. Considering that fact, it is obvious that certain societies are operating a tiered rate at a level below that of the average loan. One society operates a premium rate of 1½ per cent above the standard for loans in the range of £20,000 to £25,000. Two other societies have a similar premium on loans from £25,001 in one case and £26,001 in another case, up to £30,001. Those illustrations clearly show the discriminatory treatment of house purchasers. Bearing in mind that the average house purchaser has little choice when he goes to take out a home loan because he will have been saving with a society for a number of years and has little option but to seek to obtain his home loan from them it is obvious that the tiered rate is unfair as it often commences at a level below the average loan and at a premium of as much as 1½ per cent above the basic.
It is obvious the Minister is not prepared to accept our amendment. The Minister knows that it is not possible to have a stable financial rate of interest for money at any level. If the tiered rates are abolished people borrowing the smaller amounts will be asked to carry those who can afford a bigger loan. That is obvious discrimination against the less well off. I question the Minister's figure of £24,000 being an average loan. All the loans which the building societies give are not for house purchase. They are often for renovations or extensions to existing houses. The average loan would be in the region of £20,000.
I am surprised at the Minister's failure to grasp the principle of the building society movement. The Minister talked about people having to deal with one society in order to get a loan. If one wants financial stability, to encourage savings and to create a situation where loans are available, there must be some system that will protect the institution. Surely the Minister would not agree that people investing in building societies should be able to withdraw their money overnight and move somewhere else and create total disruption in the financial markets.
The Minister must accept our amendment or give us a firm guarantee that those on the bottom rate will not in effect have to carry those on the upper end of the market. The Minister should recognise that the associated banks, the Housing
Finance Agency and the local authorities all have a fixed tiered rate. We have the 12 per cent rate and the 9¾ per cent rate which are fixed rates. That could be termed discrimination against the people who borrowed at 12 per cent who would like to have their money at 9¾ per cent. At the moment in some cases farmers are paying 5½ per cent while in other cases they are paying 17 per cent to financial institutions and banks. Unless the Minister can give a clear guarantee to protect the people at the lower end of the market, we will have to press this amendment.
We should remember that there are one million investors in the building society movement, that there are about one million people living in houses mortgaged to the building societies. The Minister should recognise that fact and the fact that every other institution operates a tiered interest rate. He should give us a clear guarantee that the people at the lower end of the market will not have to carry those who can offord to pay the rates. The Minister must recognise that in order to get funds to the building societies they must be able to pay a tiered deposit interest rate on investments. In order to protect the liquidity of the societies they must lend at a tiered rate.
I cannot do more than again refer to the most recent discussion I had with a number of societies. It was made clear to me that if a reasonable extension of their lending powers were made available under section 3 the increased income which that would generate would offset or more than offset whatever reductions to the income they might experience as a result of the provisions of this and subsequent sections. The tiered interest rate regime has no logic or sanity to it. The tiering starts in different societies at different levels and involves different premium sums. The most telling thing of all is that the two societies who represent 60 per cent of the entire mortgage market have traded with considerable success over many years without ever having to resort to the introduction of tiered rates. If those societies who have shown their ability to grow on the basis of charging a single rate to their borrowers can do so successfully there is no reason why other societies cannot adjust their operations so as to make all their loans available at the basic rate.
In the context of the most recent discussion which I had with that group of societies, I am quite satisfied that the overall provisions of the Bill will strengthen the building society movement and ensure that the borrowers will have removed from them, particularly at the time of purchase and also on other occasions, additional charges which they find objectionable and unacceptable. The provisions of the Bill should have no effect on the basic rate charged to borrowers.
The Minister on two occasions referred to recent meetings he had with societies outside the IBSA and who are not members of that association. He considers that their views should be the final word in the building society movement. It is interesting to note that the major member is also a subsidiary of the Bank of Ireland, a bank which charges tiered interest rates. Indeed, their entry to the building society movement has distorted investment patterns within building societies. The Minister also said that the building societies represented 60 per cent of mortgage holders who are not charged tiered rates. That, of course, was pre-DIRT and the distortion it has had on the inflow of funds to the societies. We will not oppose the Minister's decision in regard to tiered rates if he can guarantee that the person with a mortgage of £80,000 or £100,000, for which he or she is charged a tiered rate, will not be subsidised by the person who has a mortgage of £20,000 or £25,000. If tiered rates are to be introduced, the interest rates should not be pushed up for the small borrower.
The Deputy referred to the fact that building societies who never charged tiered rates have now changed their policy as a result of the introduction of DIRT. I presume he is referring to the larger society in particular because, of the two I mentioned, only one sought to change their policies in relation to borrowers in recent months. The Deputy is quite wrong. At a meeting which I had with IBSA members, we were informed that the largest society had taken a decision six or seven years ago to impose tiered interest rates on their borrowers. That was an extant board decision which had not been implemented over the past six or seven years because of the policy of management not to charge tiered interest rates to borrowers. However, they informed us that in recent times the management had decided to implement the board decision taken some years ago.
That, of course, raises the most serious question in relation specifically to those who borrowed from the society between the taking of the board decision and the announcement by the society of their intention to impose tiered interest rates on their existing borrowers. It shows quite clearly that, while the society have traded very successfully during that period and expanded their activities, they had taken a decision — on the information made available at the meeting which took place between the IBSA members and civil servants from my Department, the Department of Finance and myself — at board level six or seven years ago to introduce tiered rates but had not implemented it until late summer this year.
That is incredible and unacceptable and, when one compares the performance of the society, during that period and earlier, with the board decision one can only speculate that it is quite clear the society did not need tiered rates during that period. Building societies in Britain have removed the practice of charging tiered interest rates over the past few years and all the indications are that increased competition in the home loan market will make the charging of tiered interest rates impossible for any society in the foreseeable future because of market forces.
The provisions in the Bill are balanced and additional incomes will be available to societies which respond properly, employ proper management techniques, technology and marketing strategies. They will be in a position to gain sufficient additional income from the extension of their powers under section 3 to more than offset any change in their income pattern resulting from the provisions of this or subsequent sections of the Bill. I have no hesitation in personally guaranteeing that I am satisfied that societies which operate under a proper management structure will not suffer any reduction in their surplus as a result of the implementation of the Bill. I cannot, of course, give the House any undertaking in relation to the management performance of any individual society.
Amendment put.
The Committee divided: Tá, 65: Níl, 72.
Tá
- Andrews, David.
- Aylward, Liam.
- Barrett, Michael.
- Brady, Gerard.
- Brady, Vincent.
- Brennan, Mattie.
- Brennan, Paudge.
- Brennan, Séamus.
- Briscoe, Ben.
- Browne, John.
- Burke, Raphael P.
- Byrne, Hugh.
- Byrne, Seán.
- Calleary, Seán.
- Geoghegan-Quinn, Máire.
- Harney, Mary.
- Haughey, Charles J.
- Hilliard, Colm.
- Hyland, Liam.
- Keating, Michael.
- Kirk, Séamus.
- Kitt, Michael.
- Lenihan, Brian.
- Leonard, Jimmy.
- Leonard, Tom.
- Leyden, Terry.
- Lyons, Denis.
- McCarthy, Seán.
- McEllistrim, Tom.
- Mac Giolla, Tomás.
- Molloy, Robert.
- Morley, P.J.
- Moynihan, Donal.
- Collins, Gerard.
- Conaghan, Hugh.
- Connolly, Ger.
- Cowen, Brian.
- Daly, Brendan.
- De Rossa, Proinsias.
- Doherty, Seán.
- Fahey, Francis.
- Fahey, Jackie.
- Faulkner, Pádraig.
- Fitzgerald, Gene.
- Flynn, Pádraig.
- Gallagher, Denis.
- Gallagher, Pat Cope.
- Nolan, M.J.
- Noonan, Michael J. (Limerick West).
- O'Connell, John.
- O'Hanlon, Rory.
- O'Keeffe, Edmond.
- O'Kennedy, Michael.
- O'Leary, John.
- O'Malley, Desmond J.
- Ormonde, Donal.
- O'Rourke, Mary.
- Reynolds, Albert.
- Treacy, Noel.
- Tunney, Jim.
- Wallace, Dan.
- Walsh, Joe.
- Wilson, John P.
- Woods, Michael.
- Wyse, Pearse.
Níl
- Allen, Bernard.
- Barnes, Monica.
- Barry, Peter.
- Begley, Michael.
- Bell, Michael.
- Boland, John.
- Bruton, John.
- Bruton, Richard.
- Burke, Liam.
- Carey, Donal.
- Cluskey, Frank.
- Collins, Edward.
- Conlon, John F.
- Connaughton, Paul.
- Coogan, Fintan.
- Cooney, Patrick Mark.
- Cosgrave, Liam T.
- Cosgrave, Michael Joe.
- Coveney, Hugh.
- Creed, Donal.
- Crotty, Kieran.
- Crowley, Frank.
- D'Arcy, Michael.
- Deasy, Martin Austin.
- Desmond, Barry.
- Desmond, Eileen.
- Dowling, Dick.
- Doyle, Avril.
- Doyle, Joe.
- Dukes, Alan.
- Durkan, Bernard J.
- Enright, Thomas W.
- Farrelly, John V.
- Fennell, Nuala.
- FitzGerald, Garret.
- Flaherty, Mary.
- Glenn, Alice.
- Griffin, Brendan.
- Harte, Patrick D.
- Hegarty, Paddy.
- Kelly, John.
- Kenny, Enda.
- L'Estrange, Gerry.
- McGahon, Brendan.
- McGinley, Dinny.
- McLoughlin, Frank.
- Manning, Maurice.
- Mitchell, Gay.
- Mitchell, Jim.
- Moynihan, Michael.
- Naughten, Liam.
- Nealon, Ted.
- Noonan, Michael (Limerick East).
- O'Brien, Fergus.
- O'Brien, Willie.
- O'Keeffe, Jim.
- O'Leary, Michael.
- O'Sullivan, Toddy.
- O'Toole, Paddy.
- Owen, Nora.
- Pattison, Séamus.
- Prendergast, Frank.
- Quinn, Ruairí.
- Ryan, John.
- Shatter, Alan.
- Sheehan, Patrick Joseph.
- Skelly, Liam.
- Spring, Dick.
- Taylor, Mervyn.
- Taylor-Quinn, Madeline.
- Timmins, Godfrey.
- Yates, Ivan.
Tellers: Tá, Deputies V. Brady and Browne; Níl, Deputies F. O'Brien and Taylor.
Amendment declared lost.
Section 4, as amended, agreed to.
Section 5 agreed to.
SECTION 6.
I move amendment No. 6:
In page 4, subsection (1), line 1, after "Registrar", to insert "and provided that any consequent loss of income to the Societies will not be passed on by way of increased interest charges to mortgage holders".
Section 6 (1) reads as follows:
The Minister may, after consultation with the Registrar, prescribe rules in respect of any one or more of the following matters, either generally or by reference to a specified class or classes of rules or societies, denoted by reference to such matters as the Minister may consider appropriate:
(a) the prohibiting or restricting of the charging of redemption fees;
(b) the making available to a member to whom a loan is to be made of the report made under section 79 (1) (b) of the Principal Act relating to the value of any security for the loan;
(c) removing or restricting the right of a society to require a member to effect insurance on any security for a loan with an insurer directed by the society;
(d) precluding or restricting a society from requiring a member to pay its costs of legal investigation of title to any such security; and
(e) the arranging by a society through an insurer nominated by it for the provision of mortgage protection insurance.
We can live with these provisions but have reservations regarding paragraph (a) which deals with the prohibition or restriction of the charging of redemption fees. The argument is made that this will mean greater movement of members from one society to another and will have a detrimental effect on societies generally. However, as far as the common good is concerned, I go along with it.
As in the previous amendment, I want to ensure that in removing the charging of redemption fees, whatever losses the societies incur resulting from these changes in their operations will not be passed on to mortgage holders. I want this amendment written into the Bill so that mortgage holders will be guaranteed that the loss of income will not be passed to them. That is the nub of my amendment.
I do not know how effective it is for me to give any guarantees to the House because in the debate on the last amendment the Deputy said he wanted me to guarantee that the amendment would not have the effect of increasing rates to borrowers generally. He said if I was not in a position to give that guarantee he would be obliged to call a vote. I gave the guarantee but he immediately called the vote.
I understood amendments Nos. 5 and 6 were being discussed together. The points I wanted to make on amendment No. 6 I have already made on amendment No. 5 but I will go through them again if the Deputy or the House so desire.
If we are writing into the Bill the abolition of the charges and the making available of valuation certificates and changes in the legal fees, I see no reason why we should not also write into the Bill my amendment which will provide that any consequent loss of income to the societies will not be passed on by way of increased interest charges to mortgage holders.
As I have explained already I am quite satisfied that a combination of the increased scale of activities which would be made available to the societies by regulations made under section 3, together with a more careful examination of the management expenses incurred by certain societies, will more than offset any loss of income to the societies through engaging in those practices which are regarded — I think the House generally would accept — by the public in general as being unacceptable and objectionable. If Members care to read down the list of items set out in subsection (1) it will be clearly seen that many of these are charges which fall on a borrower either at the time of initial purchase or redemption of a loan in order to change home and obtain a new loan. For that reason in particular it is important that the costs to be incurred by a borrower at that time should be kept to a minimum.
I am satisfied that the additional income which can be generated through the availability of additional loan facilities to the societies — through ministerial regulations under section 3 — and a more careful husbanding of the management expenses of societies, so as to ensure that there is still a reasonable level of surplus income over outgoings, will result in there not having to be any additional rate charged to the borrower in any other way. It would defeat much of the purpose of this section were the societies to engage in the lazy course of finding some other method of passing on these charges to the borrower. That is not the intention of the section.
The intention of the section is that it should be read and examined in conjunction with the provisions of the Bill as a whole and in relation to what we are trying to do in regard to the future operation of the Irish building society movement. I am quite satisfied that the operation of the regulations under this section should not have the effect of increasing interest rates to borrowers. All of what I have said is on the assumption that the management of the societies operate reasonably and in the interests both of their investors and borrowers.
It may not be the Minister's intention that the effect of this proposal to abolish redemption charges, the making available of valuations, changes in the insurance option and legal fees will be extra costs to the societies which will be passed on to mortgagees. But its undoubted effect will be that societies' income will be reduced. Our fear on this side of the House is that that reduction in income will be passed on to the mortgage holder. The abolition of redemption charges constitutes an abolition of a source of income to the societies — at the stroke of a pen by way of ministerial order — and that reduction must be made up somewhere else. I do not want it made up at the expense of mortagage holders.
The Minister says that if the societies use the provisions of section 3 properly they will be able to increase their income from other areas and operations. That may be so. If that is its effect I welcome it. But I want it written into the provisions of this Bill that people who are redeeming their mortgages, who will be saved a redemption fee as a result of the provisions of this Bill, will not do so at the expense of their neighbours who may have a mortgage with the same society. I do not want a situation to evolve in which valuation fees will be increased because of bonding and other operations, or because of the implications of the valuation being made available to the mortgage holder. Those involved say this will increase the fees of valuers and that those increased fees must be passed on to somebody. I do not want to see them being passed on to the mortgage holder.
The Minister says it is not his intention that that should happen, that it is his intention that the provisions of section 3 would give the societies larger income and that he would hope also for more efficient management of the societies which would save funds. The only way we can guarantee the direct co-relationship between the abolition of redemption fees, the making available of valuations and so on, is to write into the Bill that it will become the law of the land that the Minister may, after consultation with the registrar and provided that any consequent loss of income to the societies will not be passed on by way of increased interest charges to mortgage holders, prescribe rules in respect of any one or more of the following matters, and so on. It is vitally important that mortgage holders be protected in this House as far as we can possibly do so. Consequently I ask the Minister to accept this amendment. It may not be his intention that, in removing redemption fees, he will increase the mortgage interest rate on those remaining within the societies holding mortgages but that will be its undoubted effect.
I support the amendment in so far as it goes. Indeed I am slightly surprised that its effect would be much the same as that I was endeavouring to achieve in amendments Nos. 3 and 9 where the Minister would have the power to control increases in interest charges to mortgage holders.
This is general.
I appreciate that it is general and I support the amendment in so far as it goes. The one quibble I would have with it is that it reads:
... and provided that any consequent loss of income to the Societies will not be passed on by way of increased interest charges to mortgage holders.
Does that mean that if the Minister wanted to make regulations in relation to redemption fees and so on, but the building societies said they could not do this without increasing the interest charges, under the amended section the Minister would then have to back off making the regulations because it says "provided that any consequent loss of income of the Societies will not be passed on..."? That is the problem with the amendment.
Yes, the situation has been put very succinctly by Deputy De Rossa. It would be ironic if the House adopted an amendment the effect of which was to thwart the intention of the section. May I say, in the politest way possible, that I am afraid Deputy R. Burke is adopting a rather schizophrenic approach to this amendment.
If that is the Minister's politest way of doing it, I would hate to hear him if he were being insulting.
Implicit in the Deputy's contribution on this amendment is the suggestion that the management of the societies intend to or would act totally irresponsibly and, as a result of regulations made under this section, seek to recover any change in income through an increase in interest rates. Yet, when we commenced discussion on Committee Stage, the Deputy was advocating very strongly reliance on the responsible attitude which would be pursued by managements of building societies.
I will not follow the Minister down that road. What I am proposing here is related directly to the abolition of the redemption fees, the making available of valuations, the insurance option, legal fees and the effect that they will have in a loss of income to the societies resulting from the changes proposed in this section. This has nothing to do with the general question of market forces, mortgage and investment rates that the societies offer. If the Minister implements the provisions of this section their effect will be to abolish redemption fees. If he abolishes redemption fees there will be a loss of income to the societies. If those societies suffer such loss of income I do not want that being passed on to the mortgage holders. I do not want two neighbours — one selling his house prematurely being saved a redemption fee on that transaction — and the other remaining in his home and suffering an increase in his mortgage interest rate resulting from the loss of income on the abolition of these redemption fees. We are not prepared to go along with that and consequently we are pushing our amendment.
I want to endorse what Deputy Burke has said. The Minister must recognise that what he proposes here is contrary to the system which operates right across the board. Every institution offering a mortgage goes through the same legal proceedings. They have their own solicitors who check out titles, the applicants have their solicitors and if the mortgage is to be redeemed there is a redemption fee. Unless the Minister is prepared to recognise that in changing the whole system dramatically it will have a major effect on the income of societies and unless he guarantees that he will protect the borrowers in what he proposes to do so that they will not have to carry the extra charges that will be needed in order to make up for the loss of income, then he must accept our amendment. Consequently, we have no option but to push the amendment.
I have already explained that in discussions with one group of societies, albeit the smaller societies, they expressed the view that the additional income which the operaton of section 3 would generate for them would at least offset, and quite likely more than offset, any change in their income profile through the implementation of the provisions under section 4 and section 6. Once again, I invite the House to address itself to the size of the management expenses charged by some of the societies. With a combination of the additional income to be generated through the operation of section 3 and a judicious approach towards management expenses generally, bearing in mind the inevitable changes that will come about in the marketplace in relation to the provision of finance for house purchase loans, it is eminently possible and reasonable to assume that the societies will be more than in a position to be able to accept the regulations made under section 6 without any loss of income to them to such an extent that would turn their minds towards an increase in interest rates charged to borrowers or a reduction in rates to investors. We must remember that from now on the most important thing a society has is its customer base. Its market will be customer driven. The societies that do best will be the ones who accept that basic philosophy and respond to it.
If the Minister can give the assurance that building societies will increase their income by so much as a result of section 3, that they will be so efficient in relation to their operation and their management expenses, will he not accept that the wise way to proceed is to write into the Bill that he will abolish the redemption fees and the other restrictions to make sure that the societies do not pass them on to the existing mortgage holders?
Perhaps the Deputy will explain how the provisions of that amendment, if it were incorporated into the section, would operate.
We will put the amendment at this stage.
The reply says it all.
Amendment put.
The Committed divided: Tá, 58; Níl, 69.
Tá
|
Andrews, David.Aylward, Liam.Barrett, Michael.Brady, Gerard.Brady, Vincent.Brennan, Mattie.Brennan, Paudge.Brennan, Séamus.Briscoe, Ben.Browne, John.Burke, Raphael P.Byrne, Hugh.Byrne, Seán.Calleary, Seán.Collins, Gerard.Conaghan, Hugh.Connolly, Ger.Cowen, Brian.Daly, Brendan. McCarthy, Seán.McEllistrim, Tom.Morley, P.J.Moynihan, Donal.Nolan, M.J.Noonan, Michael J. (Limerick West).O'Connell, John.O'Hanlon, Rory.O'Keeffe, Edmond.O'Kennedy, Michael. |
Doherty, Seán.Fahey, Francis.Fahey, Jackie.Faulkner, Pádraig.Fitzgerald, Gene.Flynn, Pádraig.Gallagher, Denis.Gallagher, Pat Cope.Geoghegan-Quinn, Máire.Harney, Mary.Haughey, Charles J.Hilliard, Colm.Hyland, Liam.Kirk, Séamus.Kitt, Michael.Lenihan, Brian.Leonard, Tom.Leyden, Terry.Lyons, Denis. O'Leary, John.Ormonde, Donal.O'Rourke, Mary.Reynolds, Albert.Treacy, Noel.Tunney, Jim.Wallace, Dan.Walsh, Joe.Wilson, John P.Woods, Michael. |
Níl
|
Allen, Bernard.Barnes, Monica.Begley, Michael.Bell, Michael.Boland, John.Bruton, John.Bruton, Richard.Burke, Liam.Carey, Donal.Collins, Edward.Conlon, John F.Connaughton, Paul.Coogan, Fintan.Cooney, Patrick Mark.Cosgrave, Liam T.Cosgrave, Michael Joe.Coveney, Hugh.Creed, Donal.Crotty, Kieran.Crowley, Frank.D'Arcy, Michael.Deasy, Martin Austin.Desmond, Barry.Desmond, Eileen.Dowling, Dick.Doyle, Avril.Doyle, Joe.Dukes, Alan.Durkan, Bernard J.Enright, Thomas W.Fennell, Nuala.Flaherty, Mary.Glenn, Alice.Griffin, Brendan.Harte, Patrick D. |
Hegarty, Paddy.Kelly, John.Kenny, Enda.L'Estrange, Gerry.McGahon, Brendan.McGinley, Dinny.McLoughlin, Frank.Manning, Maurice.Mitchell, Gay.Mitchell, Jim.Molony, David.Moynihan, Michael.Naughten, Liam.Nealon, Ted.Noonan, Michael (Limerick East).O'Brien, Fergus.O'Brien, Willie.O'Keeffe, Jim.O'Leary, Michael.O'Sullivan, Toddy.O'Toole, Paddy.Owen, Nora.Pattison, Séamus.Prendergast, Frank.Quinn, Ruairí.Ryan, John.Shatter, Alan.Sheehan, Patrick Joseph.Skelly, Liam.Spring, Dick.Taylor, Mervyn.Taylor-Quinn, Madeline.Timmins, Godfrey.Yates, Ivan. |
Tellers: Tá, Deputies V. Brady and Browne; Níl, Deputies F. O'Brien and Taylor.
Amendment declared lost.
I move amendment No. 7:
In page 4, line 14, subsection (1) (c) after "society" to insert, "or through the agency of the society or of any intermediary directed by the society".
Amendments Nos. 7 and 8 are related and may be taken together. There is a mistake in amendment No. 8 as printed on the amendment sheet. The amendment states:
In page 4, line 18, subsection (1) (e), after "insurer", to insert "or and intermediary".
It should read after "insurer", to insert "or an intermediary". The "and intermediary" is incorrect.
The purpose is to ensure that the borrower will have freedom not only to choose the insurer with whom he may wish to insure the mortgaged property but the intermediary, if any, through whom he or she may wish to arrange the insurance. It is in keeping with a recommendation by the Restrictive Practices Commission in regard to an inquiry about societies in relation to insurance for mortgaged properties. It clearly would be a limitation on the choice of a borrower if, having been permitted to choose his insurer, he discovered that he was forced to place the business through an intermediary or agent of a society.
I do not like the thrust of the amendment but I do not think we can change the Minister's mind on it because the voting strength of the Government would be used against us as on other occasions.
Amendment agreed to.
I move amendment No. 8:
In page 4, line 18, subsection (1) (e), after "insurer", to insert "or an intermediary".
Amendment agreed to.
Amendment No. 9 not moved.
I move amendment No. 10:
In page 4, subsection (1), between lines 19 and 20, to insert the following paragraph:
"(f) restricting the amount of money a society may spend on advertising".
This amendment seeks to add a paragraph to the section. It seeks to restrict the amount of money the Minister would allow a building society to spend on advertising. I suggest that we could take amendment No. 11 with amendment No. 10. The second amendment seeks to restrict the amount of money a society may pay to directors in relation to fees, expenses, pensions and other emoluments.
Basically, the amendments seek to deal with two matters apart from interest rates. Most mortgage holders are extremely concerned about both. There is little doubt that building societies are the largest advertisers in the State — perhaps Guinness might outdo them in some respects. Building societies' advertising budgets would run into millions each year. I am led to believe that the Irish Permanent Building Society have had an advertisement on RTE every day since the station was established. One could understand this, perhaps, if building societies were in direct competition with each other, but in fact they are not. By and large they operate a cartel, certainly in relation to interest rates for depositors and mortgagees.
As the Minister said earlier in relation to my first amendment, when the Irish Nationwide decided they would increase their rates by 3 per cent the other building societies felt obliged to do the same. That is a clear indication of a cartel in operation. At the same time they spent huge amounts of money, apparently to compete with each other, on advertising. Apparently they compete with each other in the establishment of branches at every crossroads. For instance, the EBS have their HQ in Westmoreland Street but they spent a substantial amount of money opening a branch office directly across the street. That is not acceptable and it does not indicate that the free market which has been praised from both sides of the House today is operated to any great extent by the companies.
In relation to directors' fees and expenses, we have vast amounts of money designated as expenses payable to building society directors, though strangely enough, the moneys designated are not broken down as between one director and another. We can only estimate what they are getting by dividing the amount of money by the number of directors involved. It would appear to vary between direct payments to directors of between £7,000 and £10,000 or more, and other emoluments of one kind or another of up to £30,000 each per year. Directors attend about a half dozen meetings a year and the figures I have mentioned seem an extraordinary amount of money.
I have put down these two amendments to offer the Minister an opportunity, which he has not taken in the Bill so far, to restrict such operations by building societies in a way that would make sense to the vast majority of mortgage holders who are concerned about the massive expenditure of those societies in mock competition with each other but who at the same time operate cartels in relation to interest rates.
I do not consider that amendment No. 10 in its present form is necessary. Under section 76 of the 1976 Act the Minister already has this power. He is empowered by that section to make, on the recommendation of the registrar, such regulations as he considers necessary or expedient for the purpose of securing proper and efficient management of the societies and for promoting the orderly and proper regulations of building society business. The regulations may provide, amongst other things, for limits on expenditure arising from its operation and management, including limits on advertising expenditure, so that if it were considered appropriate to introduce these controls the legislative provision is already enshrined in the 1976 Act.
In relation to amendment No. 11 I would like to draw the attention of the House to Government amendment No. 12 which provides for a faster procedure for the implementation of rules which already exist under section 10 (3) on the 1976 Act in so far as they relate to the appointment and removal of the board of directors. I understand that we are not debating amendment No. 12. I just want to draw the attention of the House to the similarity between amendments Nos. 11 and 12. I would suggest to the House that the course set out in amendment No. 12, which provides among other things for appeal to the courts which it is considered prudent to have included in the legislation, is a better way of dealing with the matter than that set out in the Deputy's amendment No. 11.
It may well be as the Minister states, that amendment No. 12 is better. I am not competent to judge as between one and the other. The purpose of placing amendment No. 11 under this section was that the Minister is taking the power under this section to make particular regulations and specify certain conditions for the building societies to operate under. If the Minister is satisfied that the power I am asking him to take under amendment No. 11 is taken by him under amendment No. 12 then I will be happy to withdraw amendment No. 11.
But in relation to amendment No. 10, the Minister says he thinks he already has that power under the 1976 Act. The Minister may have quite a lot of powers under the 1976 Act which do not appear to be implemented. If for no other reason, we should draw attention to the fact that the societies appear to be a law unto themselves in a whole range of areas and the amount of money spent on advertising, the amount of office space taken up by building societies and so on is nothing short of a scandal, and they do not appear to bear any relationship to the business of getting investment and providing loans. It does not make sense. One would assume if the open market were operating in this area that efficiency alone would call for the closing of many of these branches. We know, for instance, that the banks, who are no great friends of mine nor I of theirs, are closing branches down all the time in attempts to rationalise their operations, while at the same time we have this mushrooming of building society branches. Perhaps the Minister could repeat the point he made in relation to amendment No. 10 and where he feels he has the power in the 1976 Act to restrict the advertising.
The powers that I referred to are contained in section 76 of the 1976 Act and those give the Minister power to make regulations, after consultation with the registrar, for the purpose of securing the proper and efficient management of societies and promoting the orderly and proper regulation of building society business. Those regulations could provide for limits on expenditure which arise from the operations and management of the societies, including limits, if it were considered wise to do so, on advertising expenditure. The House will recall that in relation to this general question of the provisions of the 1976 Act, which the Deputy has raised, I indicated my intention on Second Stage to use some of the powers available to me under the 1976 Act in conjunction with making regulations following on the enactment of this legislation.
There is some merit in Deputy De Rossa's point in regard to the amount of advertising on radio, television, and in the national and local newspapers. In the event of excessive advertising the Minister is satisfied that he has the power to limit it. The societies also should examine this question and be prudent in their spending on advertising at this time.
Deputy De Rossa also referred to the number of branch offices springing up around the country while the banking institutions are closing down offices. It is true that a number of bank branches have closed in different areas but there is a difference between banking institutions who own the premises and have permanent staff and the building societies which in many cases, while owning the properties and having permanent staff in the larger towns, use offices which they do not own and which do not employ permanent staff but whose staff are paid on the basis of some form of commission. There are quite a number of building societies in the medium and larger towns and I see some merit in that. Perhaps it is different in Dublin but, as a Deputy representing a rural constituency, I see some merit in offering the people a choice as between banking institutions, credit unions, building societies and post offices. People have enough commonsense to be able to decide which area to go to in regard to finance. The credit unions provide a service for the smaller borrowers, borrowing sums which would not normally be large enough to purchase houses. That may be what Deputy De Rossa has in mind when he talks about the expansion of credit unions. It is good that people have a choice. I understand that when an office is opened up a certain amount of expenditure and costs are allowed and then a particular person works on behalf of the society in the area. I would rather see a progressive building society in a town in a shop premises that would otherwise be closed down and where a couple of people are employed. It is not a black and white situation. There are some merits in having building societies so that people have a choice in regard to where they wish to do business. In regard to advertising I see some merit in the societies being prudent.
I do not want to delay the House on this, but perhaps the last Deputy misunderstood my point in regard to rationalisation in the banks and the expansion of building society branches. I was simply drawing an analogy as between one financial institution operating within the open market and the building societies which we are told are operating within the open market. People are rationalising and presumably expanding their costs in relation to the provision of these branches whether they be owned, leased or whatever. That was the point. I am not arguing for the withdrawal of building societies from towns. I am talking about restricting the proliferation of building society premises. The EBS have their headquarters at one side of Westmoreland Street and a branch office on the other side of the street. It is ridiculous.
Are you withdrawing amendments Nos. 10 and 11?
Yes.
Amendment, by leave, withdrawn.
Amendment, No. 11 not moved.
Section 6, as amended, agreed to.
NEW SECTION.
Before we proceed, there is a slight error. On page 2 of the list of amendments the heading "SECTION 7" should appear before amendment No. 12. The heading "SECTION 6 — continued" on pages 3 and 4 should read "SECTION 7 — continued".
I move amendment No. 12:
In page 4, before section 7, to insert the following new section:
7. —(1) Notwithstanding the provisions of the Acts or the rules of a society, whenever the Minister prescribes rules, pursuant to section 10 (3) of the Principal Act, such rules, in so far as they relate to the appointment, remuneration and removal of the board of directors of societies, shall, if the regulations by which such rules are prescribed so specify, be rules to which this section applies.
(2) Where rules to which this section applies have been prescribed, and the rules of a society to which they are declared to be applicable by the regulations by which such rules have been prescribed are not in the opinion of the Registrar substantially in accordance with the rules as so prescribed, the Registrar shall notify the society of his opinion within one month after the commencement of the regulations, and in such a case the prescribed rules shall, with effect from three months after the commencement of the regulations, be part of the rules of the society and shall have effect notwithstanding any existing provision of the rules of the society.
(3) (a) A society may, before the expiration of the period of three months specified in subsection (2) of this section, appeal to the Court against the opinion of the Registrar.
(b) Where an appeal under this subsection is upheld, the rules of the society may remain in operation.
(c) Where an appeal under this subsection fails, the rule prescribed shall, with effect from one month after date of the Court's decision on the appeal, be part of the rules of society and shall have effect notwithstanding any existing provision of the rules of the society.".
Let me ask your permission. Sir, and the permission of the House to insert the word "the" in two places in paragraph (c) at the top of page 3 in the list amendments. The amendment should read "(c)" Where an appeal under this subsection fails, the rules prescribed shall, with effect from one month after the date of the Court's decision on the appeal, be part of the rules of the society and shall have effect notwithstanding any existing provision of the rules of this society." The word "the" should be inserted between the words "after" and "date" in the second line at the top of page three of the list of amendments, and again the word "the" should be inserted between the words "of" on the third line and "society" on the fourth line. They are both errors in printing.
Is that agreed?
Agreed.
This amendment provides for a faster procedure for the implementation of rule changes in so far as they relate to the appointment, remuneration and removal of the boards of directors of societies. Under section 10 (1) (3) and (4) of the 1976 Act this question is dealt with. The registrar must within six months notify any society whose rules are not in accordance with the prescribed rules laid down in regulations and specify a date not earlier than a year from the commencement of the regulations for the coming into force of the rules. There is also a right of appeal to the High Court within three months.
Essentially this amendment is to shorten the time span involved. While I indicated to the House that I intended using the provisions of section 10 of the 1976 Act, on further reflection I feel it is better to insert this provision specifically into this legislation while retaining the role of the registrar and the right of appeal of a society to the courts. This amendment would have the effect after the making of regulations for providing the registrar to notify his opinion within one month of the making of the regulations and for the rules to come into effect three months after the commencement of the regulations, but with right of a society to appeal to the court before the expiration of that three-month period and in the event of the court upholding the regulations for the rules to come into effect within a further period of a month after the court decision.
Amendment agreed to.
There is a slight error in amendment No. 13 also. In subsection (6) the phrase "shall be construed as reference" should be "shall be construed as a reference".
I move amendment No. 13:
In page 4, before section 7, to insert the following new section:
7.—(1) The Minister may appoint a body which shall be known as the Building Societies Consultative Council and is in this section referred to as "the Council".
(2) The Council——
(a) may advise the Minister on any matter affecting the operation of building society business, and
(b) shall advise the Minister on any matter relating to building societies referred to it by the Minister.
(3) The Council shall consist of so many persons appointed by the Minister, and any person so appointed shall hold office for such period as the Minister may specify.
(4) The Minister shall, from time to time, nominate one member of the Council to act as chairman thereof.
(5) The Minister may, at any time, remove any member (including the Chairman) from office.
(6) The reference in section 76 of the Principal Act to the Building Societies Advisory Committee shall be construed as reference to the Council.
(7) Section 96 of the Principal Act is hereby repealed.".
This is merely a change from what is in section 96 of the Principal Act.
This amendment is to provide for the setting up of a building societies consultative council to replace the previous provisions in the 1976 Act for an advisory council which never came into practice.
Why did the Minister drop the bodies in the advisory council such as the Central Bank, a representative of the IBSA, a representative of the Department of Finance and a representative of the Department of the Environment? Why change?
The intention in this section is to allow the Minister to draw from whatever groups are considered appropriate to give a representative opinion in relation to the future development of the building society movement.
Amendment agreed to.
I move amendment No. 14:
In page 4, before section 7, to insert the following new section:
7.—Section 12 of the Principal Act is hereby amended by the substitution for subsection (3) of the following subsection:
(3) Where copies are forwarded to the Registrar in accordance with subsection (2) and he is satisfied that——
(a) the alteration is in accordance with this Act and substantially in accordance with any rules prescribed under section 10(3), and
(b) registration would not be prejudicial to the orderly and proper regulation of building society business,
he shall return one of the copies to the secretary together with a certificate of registration in the prescribed form, and shall retain and register the other copy.".
This amendment and the following amendment relate to the changes which were originally set out in the Housing (Miscellaneous Provisions) Bill, 1985. In the event of this amendment being accepted by the House I intend in due course in the future when Committee Stage of that Bill is being discussed to withdraw the provisions contained in that Bill in relation to this amendment and the next amendment.
I will withdraw it when we are in power.
Amendment agreed to.
I move amendment No. 15:
In page 4, before section 7, to insert the following new section:
7.—Section 22 of the Principal Act is hereby amended by the substitution for subsection (3) of the following subsection:
(3) A society may borrow money (including, where the Registrar with the consent of the Minister for Finance so authorises, money in a currency other than the currency of the State) and, for this purpose, may accept deposits or loans at interest, to be applied for the purpose of the society."
Amendment agreed to.
Section 7, as amended, agreed to.
Title agreed to.
Bill reported without amendment.
Agreed to take remaining Stage today.