Dáil Éireann debate -
Tuesday, 7 Feb 1989

Vol. 386 No. 7

Private Members' Business. - Building Societies Bill, 1988: Second Stage (Resumed).

Question again proposed: "That the Bill be now read a Second Time."

Mr. Durkan

When I moved the Adjournment I had just begun to refer to a period which I regarded as being very difficult from the point of view of prospective house purchasers, that was the period up to 1986 starting in 1979 or 1980. At various times, because of ebbs and flows in the marketplace, house purchasers found it very difficult to obtain finance from building societies, finance which they intended to put to the very important use of providing themselves and their families with a home. During that period there were many changes in relation to the criterion applicable with regard to having a requirement to have savings with the society for, in some cases, six months, sometimes a year and, in some cases even longer and to such an extent that the unfortunate borrower would find himself or herself in a position whereby their determination and their anxiety reached such a pitch that very often they threw in the towel and decided to look elsewhere. It was then they decided to go to the local authority and the Housing Finance Agency.

I know that many of the building societies did not have a high opinion of the Housing Finance Agency and probably had an even lower opinion of the local authorities in their ability to finance house building but were it not for the existence of the Housing Finance Agency in a long period the number of houses bought or built in this country would be dramatically lower than they were up to about 1985-86. By the same token were it not for the benign attitude of the local authorities in relation to the lower end of the housing market we would have had a situation where a far greater number of people in Ireland would still be living either in rented accommodation or in totally unfit accommodation.

Those of us who are members of local authorities have countless experiences of dealing with cases where very good compassionate reasons could be trotted out as to why a particular loan applicant should receive favourable consideration and could not possibly meet the usual guidelines laid down regarding savings etc. to obtain a loan from a building society or a bank. The Minister can say, and rightly so, that in the last couple of years because of his arrangement with the banks and the building societies that has changed somewhat. It has changed because, as I mentioned earlier, the climate is different but if the climate changes again we will be back to a situation where, as in the past, it may well fall to central Government to offer subvention in relation to interest or whatever the case may be.

While the Minister may refer us to his speech, we should also give equal recognition to the vital role played by the two agencies in relation to the provision of finance for urgently needed housing for many people in this country over a number of years. Under this new Bill the opening up to competition is desirable and attractive in many instances. It has many facets which are helpful, useful and progressive and will, we hope, sharpen everybody in relation to the role, function and efficiency of the operation of financial institutions. However, I must harp back and repeat that I hope we do not have a similar situation as obtained in the past.

When I was somewhat younger I remember the banks decided to rationalise or merge. There were a number of smaller banks throughout the length and breadth of the country offering a variety of services — they were fairly benign in those days — and many people were very grateful for them. Then, rationalisation, computerisation and various other changes took place and in order to become more competitive and effective they decided to form themselves into groups. I am not sure today whether the formation of those particular groups has served the purposes for which they were intended. If you look at the sequence of events which I have mentioned before the Adjournment and what happened in relation to the availability of money to buy property during the seventies and the eighties where the various lending institutions competed with each other the only determining factor in reaching a value on a property was the ability of the borrower to have sufficient collateral to raise from his or her financial institution, the kind of money they were prepared to bid at an auction or whatever. I am not sure that the rationalisation was effective in that sense. Likewise, we are now facing into 1992 and all that goes with it and much stiffer competition from Europe. I wonder whether we can eliminate the peaks and valleys that have taken place with this legislation.

Perhaps the Government and public may think we are in a new era and that the financial world began only two years ago. I would hate to dissuade anybody or to dash their hopes or to suddenly indicate that everything might not be as indicated through rose-tinted glasses but difficult and turbulent times in the financial world will come again. When they do I hope that the kind of competition for which this Bill is intended to provide safeguards will be beneficial to the institutions themselves and to the small investors and the borrowers.

The origin of the building societies sprang from the need in the first place to provide a system whereby savings could be made on an ongoing basis and become the basis of an application for a loan which ultimately would be favourably received and granted and, as a consequence, the particular borrowers would meet their own housing needs. If that does not happen or if there is a movement towards the upper end of the market, into the more lucrative end of the market and into the more expensive house range, then we could have other problems in a couple of years time.

We in this House — and I am sure the Minister would be the first to recognise it — have a responsibility to everybody whether they be at the top or the lower end of the market scale and it is a matter for us to ensure that those at the lower end of the scale, as well as others, are catered for. I might also say that in recent times as a result of the developments which I mentioned earlier regarding the provision of loans more readily through the building societies and the banks to borrowers at the lower end of the market that is now being taken in certain quarters as an indication that the housing position is catered for because the local authorities are not building houses. For those in the income bracket between, where they would expect to be housed by the local authority, and those eligible for a building society or bank loan, there is a certain amount of unease simply because the people in that bracket are finding it harder to qualify for loans. Anybody who looks at the processing of loans through local authorities will know that the numbers applying for loans and having them approved, in the past 12 months in particular, have dropped dramatically.

Mr. Farrelly

They have all emigrated.

Mr. Durkan

It can be said with a certain amount of justification, that if the 70,000 people who have left the country last year were here, we would have a much more lucrative market and we would be able to generate a certain amount of buoyancy in the market, which is very desirable.

The purpose of the legislation, as the Minister has said, is to broaden the scope and remit of building societies and to bring them under the guidance of the Central Bank guidelines. When things are looking good, the sun is shining brightly and everything in the garden is rosy, things may be all right but my worry is what will happen in less favourable conditions. I hope we do not see the development of a monopoly, where the cosy arrangements that existed in the past between the banks, having regard to their rationalisation, could be extended to the building societies and that they would have their own cosy arrangements where, on the one hand, competition is the order of the day, and on the other, it could be competition to ensure that they compete with each other only to the extent that they can protect their own interests. I sincerely hope that that does not become a feature of their operations in the future.

I would like to make the following point as an aside. I know that computerisation has done a great deal for all financial institutions in the past few years, but one of the problems with computerisation and centralisation of control is that the human face, which is very important, is inclined to disappear. It has long gone in the banks and the financial institutions, because a little machine taps out a certain message, produces a certain picture and the decision is then taken whether the local management like it or not.

This will also probably apply in the case of building societies to a greater extent than it has in the past. I know that individual building societies have had access to new technology and efficiency creating procedures in the past number of years, and rightly so, but I hope we do not see technology taking over. The person going into their local building society expects to be greeted by a friendly face. We all know from the advertisements we see on television or hear on the radio about the friendly face. These advertisements are very attractive and sound delightful to a prospective borrower who is thinking of buying a house. However, if people were very naive, they would believe what they see, but of course things are not that way. It is essential that the human element prevails, that the relationship between the manager of a building society and the borrower would be such that the manager would have a fairly good idea of the customer's track record over the two or three years he was investing with them. That would be of tremendous importance and I hope this will not disappear with the application of this legislation.

I mentioned earlier, and I know other speakers have referred to the costs imposed on borrowers — for instance, legal fees, certificates of compliance, valuation reports and so on. The Minister in his speech referred to this generally and said that provision could be made available through the building societies for deposit loans of a short term nature. I think this is ideal.

I have often wondered about building societies and financial institutions which claim that 90 per cent or 95 per cent loans are available. When you tot up all the charges, you find that only a 75 per cent loan is available and the unfortunate borrowers have to delve as deeply as they can into their pockets to ensure that, first, they have the deposit, then the money for various legal fees together with the first instalment. These people could damage their credit rating before the end of the first six months simply because they had not got a chance to prove themselves, they have had to dig too deeply into their pockets to obtain the finance and they then find they have no reserves. They then go down a different road trying to fend off the evil day which they brought upon themselves because of their requirements in the initial stages being too great. This applies not only to building societies but to banks and local authorities.

For a long time I have felt that there is absolutely no reason in the wide world a person who is saving with a building society or a bank over an agreed period, cannot be granted loans commensurate with their ability to repay them, taking account of their income, beyond 80 per cent or 90 per cent of the total. This would solve a great many problems for people, particularly those in the lower income bracket because they could get off to if not a flying start, at least to a reasonable start and get an even break.

As I mentioned earlier, the increased competition which is envisaged will come about as a result of this Bill, is desirable and progressive. We all welcome competition, particularly in the context of 1992. However, I hope that competition will not only make building societies more efficient but that they will be much more efficient in the presentation of services to the customer. To my mind, the customer, and particularly the small investor, must and should come first. They are the people for whom the building society concept was introduced, and under no circumstances should we see any erosion of their rights, their role and their interests. Anything that is done in this House, and subsequently by the Minister, which would undermine their rights should be looked at very carefully.

I do not want to detain the proceedings of this House for the very good reason that I have the flu which I hope to get rid of in the next few days. The measures in the legislation are without doubt progressive and bring our legislation into line with what is required in Europe. The various directives on banking, etc. emanating from Europe at present bring about this requirement in any event.

Mr. Flynn

You may congratulate the Minister now.

Mr. Farrelly

The Minister missed what the Deputy had to say earlier, it was far from congratulatory.

Mr. Durkan

I congratulated the Minister during the early part of my speech and I am sorry that he was remiss in not congratulating his predecessor. Incidentally I find it lacking in Ministers——

Mr. Flynn

There is nothing lacking in the Minister.

Mr. Durkan

——that sometimes they do not congratulate their predecessors and acknowledge the work they have done. In this instance the role of the Minister's predecessor was a very difficult one in very hard times. He had to change a trend which had been sliding in a particular direction for a number of years. It is unfortunate that the Minister did not give due recognition to the work that had to be undertaken by his predecessor. We all know that in order to turn a ship which is going at full speed in a particular direction it takes a while before one can slow down the momentum to such an extent that it is safe to turn it. When the present Minister took over that Department I can honestly say that the momentum had been sufficiently slowed down to make it possible for him to proceed along the lines he is now proceeding.

Mr. Farrelly

I welcome the Bill. When we first saw the Bill many people said that it was more like a manuscript than a Bill, and there is no one better than the Minister at bringing a manuscript into this House. The building societies will remember that the Minister introduced a manuscript, not a Bill, 122 pages long.

I can speak with some authority on building societies and how they work because I was an agent for a number of years and had the opportunity of dealing with people seeking loans to buy their own homes. Certainly things have changed over a period of eight to ten years. One of the most important provisions in the Bill is the one which allows building societies to compete with the banks. I do not think any Member of this House would disagree with such a provision so far as the area of bridging finance and the extension of the societies' facilities are concerned but I have one question to ask in this regard. We are all aware that a number of building society offices throughout the country are run by agents who give a service in rural areas which banks were not prepared to give. When this legislation is passed will the provisions which apply to the building societies apply also to these agents? In other words, will the agents down the country have the same facilities as the building societies? If this is not the case it will be a retrograde step because as I have said these agents provide a service to individuals in rural areas who wish to invest their money and to people who wish to save so that they will be eligible to obtain loans to buy their own homes. If this legislation is passed I would like building societies to ensure that the agents down the country are on the same level as their societies.

There is another aspect of the Bill I am concerned about, that is the provision whereby building societies can go into the auctioneering business, build housing estates, get involved in conveyancing and employ solicitors in their offices so that all the work can be carried out in one office. This brings us back to the situation which obtained before the 1986 legislation was introduced whereby anybody who took out a mortgage could not get insurance from any society other than from the society with which they had their mortgage. I wonder if it is right to put all our eggs into one basket, which is what this legislation is doing, and allow building societies to employ solicitors who will do all the work in their offices. I would be very wary about that provision.

There is another point I should like to make in this respect. Many firms of solicitors throughout the country employ a lot of people and a certain amount of their business is involved in the transfer and sale of houses. If this aspect of their business is taken away completely and the building societies are given a cartel, two or three of the staff in many of these offices will be made redundant because the work will not be there. We have to be realistic about the effects of this provision.

Some auctioneering firms act as agents for building societies while others do not. If building societies can sell properties — I am not saying that this will be the case in every town, but building societies may be very interested in this area — a percentage of the income of many family firms may be done away with. I wonder whether we should go down the road of giving a cartel to the building societies in those two areas. This aspect of the Bill will be teased out during the debate on the remaining Stages.

We are all aware that with the advent of 1992 there will be competition from building societies in England and from other parts of Europe. Irish companies will have to develop in a businesslike way and, if necessary, companies will have to amalgamate in order to ensure that Irish companies are not taken over by foreign companies. I welcome that aspect of the Bill.

There was the development during the year of getting rid of the provision of loans by local authorities. Those at the top end of the scale, 60 per cent, who would have no problem in obtaining loans were hived off to building societies. There is nothing wrong with that arrangement. It saves the State financing and subsidising low interest rate mortgages. The remainder who are looking for local authority loans find them quite difficult to obtain. My colleague mentioned that for the past year there has not been a large number of applicants. We are aware that this is so, taking into consideration the large number who have left the country, those who should be living on the housing estates, council or whatever. They are not here in the numbers that we would like to see. If they were houses would be required, money would be spent in the economy and the building industry would be in a far better position than at present.

We must take note of the overall effect of putting all our eggs in one basket. The emphasis is in getting away from the local authority area, or any area with which the Government have anything to do, and into the private area. We all know that there are many who at present find it very difficult to obtain loans or mortgages. There is no problem with mortgages if the criteria regarding the individual are as near right as makes no difference. The money is easily available.

Mr. Roche

That is due to the success of the Government's economic policies.

Mr. Farrelly

I would not put all the success down to that. Thank God the situation has changed with regard to an applicant having to have money deposited with the society for a specific time. That is a very welcome change. It has changed for the following and no other reason: one of the building societies were taken over by one of the banks a couple of years ago. That society was number 4 in grading. The surplus funds of the bank were available and loans were made available on demand through the society. Immediately there was competition and the other building societies competed on the same basis, giving out mortgages on demand. That was the main reason for the change.

Mr. Roche

Not at all. The main reason was the success of the Government's economic policies.

Mr. Farrelly

I happen to know because I was and am involved in this area. I know of two different cases in two societies. I am telling exactly where the competition came from.

It is important that the good parts of this legislation be introduced forthwith to get us organised for the competition that lies ahead. In 1986 there was a lot of talk about redemption fees causing problems. When people wished to cash in mortgages, they were charged one month's or two months' repayment. If you pay off a mortgage in any other finance company there is no charge. Legislation should not be allowed into this House that would reintroduce redemption rates. One of the largest building societies in this country wish this arrangement to be reintroduced, but I appeal to the Minister to ensure that this is not allowed to happen.

Also, we should not reintroduce tiered rates for differing amounts of loans. In the vicinity of Dublin over the last while the price of property has been increasing. Half of the property being sold at present is being bought with money from abroad because property here can be bought much more cheaply than similar property in London or other parts of England. People are selling properties there, coming over here and inflating the price somewhat. For people who genuinely want houses and have to take out mortgages, there should not be tiered rates. A person will not get a mortgage unless he is eligible for it. I hope it will not come to the point where the average mortgage will be taken as £20,000 which will be given at the present rate but a £30,000 mortgage would be up 1 per cent and a £40,000 mortgage would be up 2 per cent. This is discrimination against the individual within the State. Having got away from the tiered system, it should not be allowed to be reintroduced.

In this legislation, we are giving the building societies the power to compete with the banks. On the other hand, we are giving them an opportunity to charge a tiered rate of interest. That has never been the case with regard to loans for one item, and that item here is a house mortgage. We would be contradicting ourselves if we were to go down that road. Quite substantial amounts of extra money can be made. People thinking of buying property must take account of nearness to their work and if people have to get mortgages of 70 per cent or 75 per cent of the value of the house they find that amounts to a considerable sum on a house valued £50,000 or £60,000.

The Minister in his speech mentioned 165,000 mortgages being taken out over the last 12 months. A substantial number of people in my area have been changing from their existing mortgages and taking out endowment mortgages instead. This accounts for the large number of mortgages taken out during the past 18 months. It is a pity this is the case because new mortgages usually mean buoyancy in the building industry and more employment. The current trend seems likely to continue.

I compliment the building societies on having helped large numbers of farmers during the past two or three years who found themselves in difficulties due to serious debt problems which arose when interest rates were as high as 20 per cent some years ago. The building societies provided mortgages on the family home and played no small part in the overall refinancing of people who found themselves in difficulties. The professional people involved are well aware of the important part played by the building societies. The current interest rate is at a manageable level, which is a great help to many of these families. Were it not so, many more family farms might have to be sold.

The Minister spoke about the uncertainty felt by the building societies when he came into office in 1987. I must take him to task on that issue. I was not aware of any uncertainty. During the past ten years all financial institutions have been making large sums of money. The mortgage rate increased by three percentage points at the end of 1986, but during previous years rates had been slowly going down to an acceptable level. In a period of four years they went from 16.25 per cent to about 9 per cent and then back to 12 per cent.

When people ask for advice about taking out a mortgage I always work out the figures based on an interest rate of 12 per cent. That will not always be the exact rate but it is a fair yardstick and people will not come back complaining two or three years later. We must have control over the people who are making the decisions. As a result of that control they are reducing rates to a very acceptable level. I do not think anyone would deny us credit for the important part we played.

The Minister also mentioned the effects of the DIRT tax. Does he not realise that it was not DIRT until it was introduced to the banks? A retention tax was always applied to the building societies. The rate was increased from 27 per cent to 35 per cent. People who invested in building societies always paid a retention tax. There were loud cries from the then Opposition that the DIRT tax was cruel and causing hardship, but there was not a word now about doing away with it, as Fianna Fáil promised when in Opposition.

Mr. Carey

The present Minister promised it.

Acting Chairman (Mr. M. Kitt)

The Deputy should stick to the Bill.

Mr. Farrelly

I could not let the occasion pass without putting it on the record of the House. Everywhere we went we were told that the DIRT tax would be abolished the moment Fianna Fáil came into office. We still have it, although it has been reduced by 2 per cent. Some economists said it should not have been reduced but that is the position at present.

The section relating to the development of land and property is very important. What overall involvement will the societies have in regard to this? My reading is that they will be in a position to get involved in buying developed land for housing or commercial use. It is also stated that loan financiers would be in part ownership and I do not disagree with that. They might as well be involved in it as well as the banks and it would provide more competition. However, it makes me wonder if we would get to the stage where the societies would be involved to too great a degree and would be short of ready cash for mortgages for the numbers mentioned earlier in the debate. There will be competition in this area from the banks, building and other societies in 1992. I should like to ensure that the small investor who saves his money to buy a house would always have money available to him. I would not like building societies to compete with one another for tracts of land in the main centres of population, developing the property and leaving applicants who badly need it short of finance for housing. In that case there could well be a lengthy waiting list for loans. I hope that will not be the case and indeed it should not happen because of extra competition. However, I had to mention it because of the large amount of money tied up when one develops property on any type of site. One only has to look at the St. Stephen's Green centre to know what I am talking about.

It was mentioned that building societies could employ their own solicitors to do all the work connected with buying and selling houses. If that is the case, there would not be one penny for anybody else in that line of business. It is also the case that 90 per cent of the different deals and transfers of property have a problem in regard to maps. I accept the point about a fee being paid to solicitors for this work but, when legislation of this kind is passed, I should like to ensure that nobody would buy a property which had not been thoroughly checked. Incorrect maps can cause horrendous problems and we should be very careful in dealing with this section.

As I said earlier, there are many favourable points in the Bill and I have outlined my reservations in regard to others. Different Members have spoken from experiences and highlighted the fact that the people who drew up the Bill might not be au fait with all the problems involved. I must tell the House about the night I went into an establishment where many legal people were gathered. It was around Christmas and they asked me if I had a copy of the Bill. I told them I could get a copy and one of them remarked that it had serious consequences for the legal profession. He added that he never thought he would see the day when the rural family business would be under threat from legislation. I retorted that, knowing the Minister, he would not make a decision to bring in damaging legislation. The person to whom I was speaking made the point that the Minister had good friends in the building societies and that they were the people who influenced the Bill. He said he did not blame the Minister and I said I would convey his remarks to Minister Flynn. We now know that many people spent a lot of time drawing up this legislation and it would be remiss of us not to give it the attention it deserves because it will have far reaching effects for everybody in the services that will be provided.

When the building societies get the go ahead I hope that every town will have the same facilities vis-à-vis agents or society members. My reservations are that the cartel would take over the area of the work involved in the auctioneering end and deal with all the work involved in the sale of a house. Everything will probably go smoothly until someone gets a monopoly. We only have to look at what has happened today regarding the sale of bread in supermarkets to know what can happen the small trader. That is one example and I am sure that no Member of this House would like to see a monopoly in this area. The prices offered by the supermarkets will be of benefit to the consumer until such time as their smaller competitors close down. We will then find out what price we will have to pay. The same will apply in this case. What we are doing is putting legislation in place that will take us into the year 2000. I doubt if another Bill such as this will be presented to this House for a considerable period of time. Having said that, I hope that we can come to some agreement on the matters on which we disagree and, if so, I believe good legislation will be put in place.

Mr. Roche

At the outset I would like to say that this is welcome legislation. I am glad to have the opportunity of being able to speak after Deputy Farrelly as it gives me the opportunity not just to deal with the specifics of the Bill which he avoided but to dispel the mythology which he sought to propagate. I apologise for interrupting earlier but I was provoked into doing so. The point I tried to make was that the present interest rates arise because of confidence in the economy and in the activities of the Government and not from the fact that one building society was taken over by one of the larger banks. Indeed the Deputy gave the answer to the present problems when he spoke of the time when funds were not available, and I will deal later with the provisions contained in this Bill which will encourage the making available of funds. Because of the healthy state of the economy funds are being made available, not because one of the banks sought to pass on surplus funds and it was disingenuous of the Deputy to seek to suggest otherwise. I am not suggesting he deliberately sought to do this but merely that he misunderstands the way in which the market works.

Mr. Farrelly

I do not.

Mr. Roche

By suggesting that there are some mythological reasons for the present healthy state of the mortgage market he undermines confidence in the economy which everyone in this House should promote.

Mr. Farrelly

The Deputy's colleague tried for four years to do so.

Mr. Roche

The most important objective of this Bill is to expand competition. The Deputy made the point that an extension of competition would be welcome. Building societies in the past operated like independent mediaeval fiefdoms controlled by small cliques and groups of families, and it is important, therefore, that the building societies, which are basically 19th century institutions, be dragged into the 20th century. That is what this Bill aims to do. The building societies have thrived because we have a segmented financial system but this system is undergoing very radical change. Therefore, the environment, or the milieu to use the Minister's own word, in which the building societies operate is changing and it is only right that we should introduce radical changes. While the building societies find themselves in a favoured position the present arrangements, particularly the arrangements in regard to the way in which they utilise their funds, act as a strait-jacket. It is important, therefore, that the removing of this strait-jacket would lead to the building societies becoming more progressive in their operations.

This is important legislation in the sense that it deals with a segment of the financial sector that over the years has been subjected to a good deal of criticism. The Minister indicated that in drawing up this Bill he had a number of broad objectives in mind and I cannot see any foundation for the criticism of the Minister's approach. First of all, he said he wished to allow the building societies to compete and develop in the context of a growing internal market. That is the central thesis in the Bill. Secondly, the Minister said he wished to take a look at the supervisory system as it applies to the building societies. We are all too familiar from past mistakes with the problems that can arise. The system of supervision being proposed in the Bill would allow the building societies to operate in a more flexible way while, at the same time, putting the balancing controls in place. The statutory provisions in relation to the building societies are archaic. The Minister has aimed to re-examine these provisions so as to put more flexible and more logical provisions in place. In fairness, I believe the Minister has achieved the right mix.

In regard to savings protection, the Minister wishes to put the building societies on the same footing as the banks, and it is only right and proper that he should do so. It is also important that we harmonise the relationship between the banks and building societies as savings institutions. The Minister also wants the building societies to become more actively involved in the housing market and in the development market. I did not hear Deputy Farrelly refer to this objective of the Bill but I am sure the Deputies on the other side of the House would agree with it. It would be a welcome fillip for the construction industry and a healthy development if they were to do so. The Minister also proposes the creation of a proper mechanism whereby building societies would be able to convert to company status. A great many sections of the Bill deal specifically with this issue.

As one would expect, the first part of the Bill is fairly technical but the second part contains some new and important innovations. In particular I am referring to the concept of authorisation and the proposal to allow building societies advertise for funds. This is an issue that was touched on by Deputy Farrelly who spoke about the need to create a more competitive environment. These provisions will help in that regard. Important safeguards have been included in the Bill. The Minister proposes some controls in regard to the nature and quality of the advertisements. The Central Bank would be allowed to impose conditions in respect of the authorisation within the building society. He has promised that these conditions will be extensive and I think we will all welcome the provision which states that the Central Bank may, if necessary, remove a director or another officer of the building society if it felt that any advertisement goes beyond what is acceptable. That is welcome and worthwhile.

The heart of the Bill lies in Part III which deals in great depth with the powers of building societies. Part III aims at achieving what we have been talking about for the building societies for a long time, that is, a truly competitive market which will undoubtedly create on the one hand a better environment for home owners or people who wish to borrow for the purchase of their homes and at the same time a competitive market which will allow Irish financial institutions to gear themselves up for open competition from 1992 onwards. That is an important side effect of the major elements in Part III. In particular we can welcome the provisions relating to secured and unsecured lendings which are dealt with in sections 22 and 23. In addition to the traditional lending secured by mortgages the societies, under these provisions, will be able to offer to their clients second mortgage loans, bridging loans and a variety of other financial packages. This will help to tidy up an area of the financial services much used by young people coming into the house market or wishing to change houses. It is an obvious improvement which is long overdue.

The direct involvement of the societies in the development of land for residential and commercial purposes is an obvious adjunct to the activities of the building societies. It is a logical extension, as the Minister has said, to the societies' present activities and will create an additional source of funding for building and construction activities.

The technical provisions relating to equity and subsidiary and other associated bodies represent a change in the present law which is welcome and worthwhile in that it allows the building societies more flexibility from the point of view of setting up subsidiary bodies.

The main thrust of sections 28 and 29 will be to allow the building societies to extend their general activities in what we call the financial services area. In this set of provisions the Minister's proposals complement general Government policies in the financial services area. These provisions, which the Minister has described as flexible, are worth while in that they provide yet another area of activity for the building societies in which it is generally accepted they should be involved.

Of particular interest to me is the fact that the Minister will, in Part III, section 31, allow the building societies to provide a conveyancing service. I am not sure of what was the main thrust of the point made by the previous speaker about this. Conveyancing has been treated as if it was some sort of medieval rite. For far too long there seems to have been a monopoly in this area. Conveyancing is a relatively simple procedure, yet solicitors seem to get it wrong with distressing frequency. I welcome the movement of the building societies in this area because it breaks a monopoly that has existed. In the recent past I have had the distressing duty of dealing with constituents who have conveyancing problems where solicitors have been derelict in their duties though sometimes more venal than derelict. I expect other Members have had the same type of experience. I hope the degree of additional competition that will be introduced will help people like the Law Society to take a long, hard look at how they handle conveyancing and at the sort of fees charged for it.

The requirement of societies in relation to the valuation or assessment of freehold and leasehold estates is important. Section 18 contains a wide range of powers for the societies to raise funds on Irish or foreign markets. That is an important step forward. Deputy Farrelly sought to rewrite history and invert the facts. The facts at the moment are that there is a great deal of confidence in the Irish economy and that all the financial institutions should be allowed to capitalise on that confidence which is helping to keep interest rates down to historically low levels. Those benefits are passed directly on to the people who buy houses through building societies. It seems right and proper that the building societies should at this stage in their development be allowed to widen their power to raise funds. The existing arrangements are restrictive and create peaks and troughs in the mortgage market. Deputy Farrelly said that some short time back it was a practical impossibility for a young couple wishing to buy their house for the first time to raise the necessary funds from building societies. The societies themselves introduced very restrictive clauses and arrangements before they made funds available. They sought to insist that people who would borrow from them had deposits of a certain level lying with the society over a time. In part the building societies could do that because of their near monopoly operation, but in part they had to do it because of the fluctuations in funds for mortgage purposes. Section 18 allows the building societies wide powers to raise funds and will help them to so structure their funding that they can avoid those peaks and troughs. The societies will be allowed to look at the wholesale market, use their mortgages perhaps as collateral or even sell them off as a way of raising funds.

This is important legislation. It introduces competition into an area where competition has been eschewed. At the same time the Minister has very wisely put into the legislation well chosen instruments for the control of building societies. He has begun to codify the operations of the societies. He has put into operation mechanisms which can help us in future to avoid any excesses on the part of the building societies and at the same time refrain from strait-jacketing them as happened under the laws which exist.

The Minister is noted for his flexibility. No doubt he will be conscious of some of the points that have been made. This is highly technical legislation which obviously is long overdue so I cannot see why elements of it have been criticised as they have been by previous speakers. I welcome the legislation and commend the Minister for introducing it.

Mr. Carey

The Minister for the Environment is welcome to the House. When he was on this side he contributed very frequently on all subjects and I can see from his speech that he has put a good deal of interest and thought into this Building Societies Bill. This is a comprehensive piece of legislation and its introduction in the House affords me an opportunity to make a general comment on the behaviour of building societies in recent years. It is disturbing to hear of building societies paying substantial sums of money for buildings in prime locations in our main towns and cities. It is also disturbing to hear of them investing substantial sums of money in office blocks and other related projects. Building societies were established to provide money for those anxious to build their own homes but in recent years they have moved from that objective.

The Minister was generous in the course of his speech when referring to the growth of building societies and the extent of their assets. However, the big societies have accumulated most of those assets to the detriment of the smaller concerns. The Bill is timely in that we have reached the stage when societies should be turned into real financial institutions. The provisions have been brought about as a result of the behaviour of societies down the years. The Minister is making an effort to control them but it appears that their main purpose from now on will be financial rather than providing funds for mortgages.

The four main building societies are family concerns. I am sure other Members are pleased that interest rates have been kept under control because they will recall the parade in and out of the Member's dining room by the chief executives of the societies prior to announcements of an increase in rates. One got the impression as they paraded around the House that they had some largesse to distribute. In the last ten years the visits by those executives to the House sparked off speculation about the possibility of a rise. It must be said that those executives enjoyed their power and played it to the very end. I am pleased that the Minister is strong enough to take them on. He is his own man. In recent days the independence of Mayo and Knock has been well illustrated to the cost of the airport in my constituency.

Mr. Flynn

If the Deputy looks behind him he will see his colleague from my constituency.

Mr. Carey

I am being generous to both Deputies. The Minister and others got away with their bullying in regard to the airport in Knock. The Minister may be nice to the building societies but he will prove to be a hard task master. In complimenting the Minister I should like to warn building societies that they should not be too pally with him. Some building societies have been ruthless in the past in pushing up interest rates when such a move was not necessary. That caused great hardship to many people. One must comment on how they can put their case across to the media, and how they can make long range forecasts about interest rates on RTE. That was not their role. I have no doubt that things will be different when banking institutions take on the building societies. We have all noticed the change that has taken place since banks went into the mortgage market.

There are 127 sections in the Bill, an enormous production from the bunker of the Custom House.

Mr. Flynn

Many people thought it would never happen.

Mr. Carey

I give credit to the Minister for that and I am sure he did not expect to get praise from me.

Mr. Flynn

I hear that the Deputy praises me regularly in Clare.

Mr. Carey

In sections 4 and 5 the Minister seeks power to modify provisions contained in the original Act in particular circumstances. Does the Minister envisage some difficulties arising under a future Minister for the Environment? In my view all regulations should be brought before the House for approval. Any amendments should be dealt with here rather than in the Custom House. The Minister is going too far in taking those powers.

The Bill deals with the formation, objectives and authorisation of building societies and there is no doubt that they have a crucial role to play in society. The Minister went out of his way to stress the extent of home ownership here but I wonder if it is necessary for people to have all their money invested in their home. There is a need for funds to create employment for our young and for that reason I hold that we are tying too much money up in our homes. I appreciate that a lot of employment is created when houses are being built but little money is circulated afterwards. The Minister's views on home ownership are those of a person of the right and I wonder if that represents a change in policy by Fianna Fáil.

Section 18 (1) states that a building society may raise funds including, with the approval of the Central Bank, funds in a currency other than the currency of the State, to be used for the objects of the society. It appears from that that the Minister is attempting to bring us into line with the various EC directives and is preparing us for the harmonisation of VAT rates in 1992.

I hope the provisions in this Bill will enable us to quickly meet our objectives. Part III of the Bill gives new powers to a building society to hold and develop land, to invest and acquire shares in bodies corporate, to provide general financial services as provided by banks, to provide conveyancing services, to provide auctioneering services, to operate outside the State and to have power to hedge. Some of these provisions are giving rise to consternation amongst the professions. Some solicitors are rather anxious to get into foreign building societies and this will lead to more and more British and other building societies offering their services in this country. Solicitors here are rather alarmed about this interference in conveyancing. I want the Minister's assurances that the conveyancing system will be improved.

The building societies also hire solicitors and the system will not change by itself. There is no doubt that very slow progress in this area is causing substantial problems. A problem has arisen for instance in relation to Barrington's Hospital which was closed by the Fianna Fáil Government. The solicitors for the vendors of that building are not in a position to locate the deed which apparently is very old. As Deputy Roche said, all Members of the House have been approached in relation to conveyancing problems.

I had a case in which there was a three-and-a-half year delay because of a query by a building society solicitor and the amount of land involved was 10 ft. by 5 ft. in the back yard of a house. Apparently the previous vendor's solicitors overlooked the original estate from which this land was taken and certain searches had to be made. One search involved getting a family document which had been drawn up in the late sixteen hundreds or the early seventeen hundreds. The document had to come from the bowels of the Department of Agriculture and Food and that caused some headaches.

The Minister's Bill as it is drawn up will not expedite conveyancing. We need a fundamental review of the system. I very much regret that the Government did away with a group of people who were examining the ownership of land in this country. What can one do when faced with a problem such as I have outlined in relation to tracing old documents, especially when one gets a letter such as the one I got today from the revesting section of the Department of Agriculture and Food in which the principal officer told me that due to cutbacks and a shortage of labour he was afraid my query could not be answered and would have to wait until another day? The man involved in that case wanted to build six houses. The delay has resulted in his losing interest and now he will not invest. Thus, the Exchequer has lost a little spinoff and some conveyancing business and taxes have been lost.

By introducing this Bill the Minister has shown that he wants reform in this whole area and I give him credit for that. The Minister should tackle the people in the other Departments, in the Department of Justice, the Department of Agriculture and Food and so on and get the whole thing straightened out. If all these functions could be brought together surely some progress could be made. As things are now the system is archaic and preventing progress.

Some people on the continent experience long delays in conveyancing as well. For instance, a successful German company established in County Clare said that he established in County Clare because all the documents and grants were completed in less than six months. However, in my parish a pharmaceutical company that has given substantial employment had a problem in that establishing the ownership of the land took eight years. I sold a part of that land and enjoyed the benefit of eight years interest, and that is why I know so much about it. Is that not a sad commentary on our system? If that pharmaceutical company wanted to sell to another company they would have been inhibited because we could not transfer the property. I suppose I am digressing from the Bill.

An Leas-Cheann Comhairle

The Deputy's anticipation is good. I was going to ask the Deputy to relate to the 127 sections in the Bill.

Mr. Carey

What did they say about the village school master?

(Interruptions.)

Mr. Carey

The Minister has been brave in introducing this Bill and I suppose we should be grateful to him but there is a need for greater consultation between the members of the Law Society, the auctioneers and the building societies about the contents of the Bill. From the correspondence I have received, I gather there is a lot of dissension and doubt about the Minister's final intention. In his opening speech the Minister seemed to be saying that everything is in order and that there is no need for these consultations but that perhaps a meeting would be beneficial. The auctioneers and building societies should notify their members and branches about the proposals as quickly as possible.

Why does the Minister need power to amend provisions contained in the Bill following its enactment?

Mr. Flynn

I will deal with that in my reply.

Mr. Carey

How does the Minister envisage a conflict of interest arising in the provision of conveyancing and auctioneering services by building societies? He suggests that rules and regulations to provide for protection against conflict of interest would require the express approval of both Houses of the Oireachtas before such services could be provided by building societies. That would appear to be a reasonable approach. Would the Minister be worried about the building societies having a dominant position in the market by virtue of the powers being given to them to develop estates, provide loans and undertake conveyancing? Part IV deals with the control and supervision of building societies by the Central Bank. The provisions of section 38 appear to envisage ministerial interference with the Central Bank. How does the Minister envisage that happening? Surely the Central Bank should have total control in that they deal with substantial matters of importance to our economy? Is that not what is defined in the Central Bank Act as being what is required of the board? I note that Part VI deals with meetings, resolutions, voting and so on. There have been reported abuses of voting at annual general meetings, or claims to that effect. Apparently some collusion arose because staff members, by putting small deposits in savings accounts, were dominating voting results at meetings. This begs the question whether such staff members should be allowed vote at such meetings.

Part VII deals with provisions relating to the accounts and audit of building societies. Part VIII, section 92, provides that the Minister may make regulations requiring societies to set up, individually or jointly, a scheme for the investigation and determination of complaints by customers about the services provided by societies. That is a welcome provision. Could that provision include the services of the Ombudsman to investigate general complaints about matters over which the Central Bank would not have jurisdiction or supervisory powers? The staff in the Ombudsman's Office are readily available to deal with complaints and some contacts between that office and the Department of the Environment have been successful in regard to minor matters such as house improvement grants, grants for the development of houses and so on. Perhaps the Minister would consider that suggestion.

Part XI deals with the conversion of building societies to public limited companies. It is clear that the Minister envisages building societies converting to public limited companies. In practice the principle of mutuality has ceased to have a great deal of relevance. It appears that the provisions of the Bill envisage building societies engaging in banking services.

An Leas-Cheann Comhairle

It strikes the Chair that the Deputy may be searching into the provisions in such detail that his remarks might be more appropriate to Committee Stage.

Mr. Carey

This Bill is worthy of considerable examination on the part of all Members of the House. However, it has been noticeable this evening that not very many Deputies appear to be particularly interested in its contents which is to be regretted. I would hope that Members of the House will give its provisions greater consideration as it progresses through its remaining Stages and that the Minister will accept some reasonable amendments tabled by my party.

Mr. Ellis

There appears to be general agreement among Members that this Bill is long overdue. Indeed the Minister is to be complimented on its introduction and, in turn, the parliamentary draftsmen on its efficient preparation. It is probably one of the lengthiest Bills ever introduced in this House by a Minister for the Environment comprised of approximately 120 sections, rendering its provisions more appropriate to Committee Stage consideration. Indeed the changes proposed will be fundamental to the operations of building societies within this State and, after 1992, within Europe.

In his wisdom the Minister has decided to open up new areas in which the building societies can play a major role. Had this Bill not been introduced then building societies here would fold up in 1992 when faced with the competition from their counterparts in the United Kingdom and Europe. Being unprepared for such competition would have led to their being devastated. Indeed I believe that, after 1992, there are a number of building societies here in danger of being taken over by some of their larger counterparts outside this State. The provisions of this Bill will afford building societies an opportunity to put their houses in order, giving them a wide range of additional powers which, in turn, will allow them play effective roles in dealing with land development and the transfer of property and title, which is to be welcomed.

While Members on the other side of the House may have expressed fears about the possibility of building societies' solicitors engaging in a one-house operation, I believe that the competition from outside solicitors will not allow them a monopoly. Many Deputies have expressed reservations about various sections of the Bill but I believe the Minister is bringing the Irish building society legislation up to a standard so that the institutions concerned will be able to compete in 1992. The fact that the Central Bank will have a regulatory position as far as the building societies are concerned is important because at the moment they are more or less free agents and the Central Bank is the ideal institution to deal with them. The fact that they will be allowed to carry out secured and unsecured lending is of importance because those whom they will be competing against after 1992 can do this. If they wish to expand outside this country to mainland Europe or to Britain they could not do so without this legislation.

The fact that they are allowed to take equity in investments is also of great importance. It means they will be able to provide a wider range of services and to be of greater benefit to society and the general public. They will be in a position to deal with regard to land development and this could be of great benefit because it may bring about a situation where they will be able to help to control the price of the houses built on the lands they have developed. They will also be able to build at a more competitive rate than builders are doing at the moment. In many cases, builders have not been in a position to develop land. They have been in a position to provide the necessary capital but when one takes into account the amounts of money involved in land development and development charges it has often meant that rather than developing a full site at the initial stage it has been put down to stage development which everyone knows is very costly.

In bringing forward this Bill, the Minister is putting our building societies on a firm footing going into the nineties. It gives them new opportunities and I have no doubt that the building societies will grasp these new opportunities. On Committee Stage everyone will have an opportunity to express any reservations they may have.

Deputy Carey mentioned earlier the question of the rights of individuals to vote at meetings. The fact that the Minister has increased from £10 to £100 the minimum amount one must have invested in order to vote at an annual general meeting will do away with any abuses that may have occurred. Increasing the limit to £100 is a very good move and of importance to people who might have feared that building societies were becoming internally controlled and that the rights of investors were being downgraded.

I do not want to delay the House any longer. I believe this Bill will enable the building societies to face the nineties on a firmer footing than they had before. The Minister is to be complimented again on the way the Bill has been presented to the House because when it becomes law it will put into effect a new set of rules and a much wider spectrum of activity on the part of the building societies.

Mr. J. Higgins

I would like to join with Members of all sides of the House in welcoming this legislation. In terms of magnitude and of the number of provisions it rivals other mammoth pieces of legislation, some of which have gone through the House and a number of which are going through the House, for example, the Companies Bill and the Insurance Bill.

I welcome the basic thrust of the Bill which is to increase the competitiveness of the building societies to allow them to compete more openly and effectively on the open market and to allow them a wider role than that accorded to them thus far.

On going through the smaller towns of rural Ireland, one realises the extent to which the whole financial services sector has grown in the past number of years. Small towns in provincial Ireland with populations of little more than 2,000 or 3,000 people have not only the main associated banks but also the full range of building societies, the big five. The visibility of the building societies in these towns is a good thing. It has taken them out on to the open market, to stand on their own feet, to operate as building societies per se, as financial institutions per se, without necessarily having some kind of supporting appendage such as other property interests to keep them viable.

I welcome this measure because it gives the building societies a chance to compete. It removes the shackles and allows the internal dynamic of the building societies to be unleashed to play a full role in the financial services sector. One of the things that has characterised the buildings societies is that they have managed to present a softer approach in terms of their relationship with the consumer. Banks have been seen to have a more cutting edge than the building societies. With the banks it is very much a case of giving somebody an umbrella on a fine day and taking it away on a wet day. Perhaps it is the limited range of activity of building societies in providing house loans that has enabled them to have a more benevolent approach.

Building societies themselves should be the last to adjust their haloes because they have not, in fairness, been without blemish. They have not been slow to push up interest rates when the pressures of the marketplace began to apply and were very often lethargic in passing on the benefit to the consumers by reducing interest rates when there was downward pressure on the market. In addition, we have seen a marked lack of consistency in the operations of building societies, particularly in regard to the changing conditions for obtaining loans. At one period the basic requirement was £1,000 over a six month period and at another it was £2,000 over 12 months. There should be some control and some element of consistency in this aspect of building society operations.

Debate adjourned.