Building Societies Bill, 1988: Second Stage (Resumed).

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

I shall be very brief. Before the Adjournment, I was saying that the Minister, in dealing with the extended powers that he gives himself and the Central Bank in relation to the functioning of building societies as encompassed within the framework of this Bill might usefully apply himself to ensuring that building societies at least introduce an element of consistency into the demands they place on depositors who are applicants for building society loans. In the past we have seen wide fluctuations in demands as requirements of building societies. It relates very much either to loss of revenue within the building societies or, as currently is the case, the bulging coffers caused by the numbers of people who have availed of redundancy terms, lump sum payments, severance pay and so on and have lodged such money with building societies. We have seen on the one hand, for a period of time a requirement of £1,000 for a minimum period of six months. On the other occasions, the applicant for a mortgage must have £2,000 deposited for a period of a year. This has put house building and loan qualifications outside the scope of many a depositor and many a mortgage at a particular time. I urge the Minister to use his powers to ensure consistency in relation to such requirements.

Again, in regard to the very expensive cost of bridging, this is an area to which the Minister might usefully apply his powers. Part III of the Bill extends the range of services and powers of building societies. It gives them the power to hold and develop land. Like many Members of this House, I would much prefer if it were possible to restrict the activities of building societies to the building of houses only. However, being realistic in view of the increased competitiveness, the need to expand and develop and particularly the onset of 1992, it is of vital importance that building societies be enabled to develop, to become more competitive and play a much fuller role in the area of financial services.

The societies' powers to invest in and acquire shares in bodies corporate, is again an extension of their powers to provide general financial services as done by the banks. This puts them on an equal footing with the other financial institutions, particularly with the associated banks. Conveyancing services, auctioneering services and operating outside the State greatly extend the role, the value and, indeed, the image of the building societies.

I should like to put a general query to the Minister in relation to one or two other aspects. One relates to the desirability of allowing building societies to diversify into some of these areas, bearing in mind that in many cases they have no particular expertise in such areas, having regard to the experience in the United States with the collapse of the American Saving and Loan Corporation. I would query the effectiveness of section 35 of the Bill under which building societies can offer a housing loan subject to a condition that the person utilises the new additional services such as conveyancing provided by the society. Does that provide the consumer with the necessary protection? Is it not luring and cajoling the consumer into using building society services in circumstances where he or she would be better off obtaining and would prefer to obtain independent advice?

Like many Members of the House, I have major reservations about a tiered loan system. As already indicated by our spokesman on the environment, we shall be looking at the possibility of putting down some amendments on Committee Stage in this regard.

In relation to the control and supervision of building societies by the Central Bank, section 38 deals with this matter. It is of some concern that it appears to envisage ministerial interference with Central Bank controls.

By and large this is a good Bill which addresses the reality of modern competition and the need to reinvigorate and revamp the building societies in anticipation of increased competition as deregulation is introduced and protective barriers are dismantled in the approach to 1992. The Bill is unclear as to who will benefit from the conversion of a building society to a plc. The Minister might clarify that point. We endorse the Bill, the thrust of which is good. We will be putting forward a number of considered amendments of Committee Stage which we hope the Minister will accept.

I welcome this comprehensive and coherent Bill which will allow building societies to build on their past success. The Bill will achieve a good balance between supervision and the commercial freedom of all interested parties, between the societies and their members, between the rights of investors and borrowers. It will also give a better deal to the house purchaser, to the building society investor and to various customers of these financial institutions. It can bring benefits to the housing area and the construction industry and I hope it will stimulate urban renewal. It is a progressive move in the development of the building society movement.

During the past ten years more than six out of every ten people who have financed the purchase of their own home have done so by means of a loan from a building society. Membership of these societies is now approximately 1.25 million, while the total assets of the societies are in excess of £3.5 billion. They hold almost 20 per cent of the total accumulated savings in the country. In 1976 total assets of the building societies were in the region of £350 million, scarcely one tenth of today's figure. While total assets have grown, the number of societies has declined from 17 in 1960 to ten today. Clearly building societies have grown in tandem with the rapid increase in the rate of home ownership. The existence of a healthy building society movement has been a major contributory factor to our having one of the highest rates of owner occupation in Europe. The present scale of the operations of the societies is a measure of the confidence which the investing public and house purchasers have come to place in building societies.

In 1987 the dismal condition of the national economy had driven mortgage rates up by three percentage points. Other countries had been modernising their legislation in regard to building societies. At that time the societies were feeling the effects of the termination of beneficial composite tax rates on investments and the introduction of the DIRT tax. The banks were for the first time offering aggressive competition in the contracting mortgage market. Other challengers have loomed much larger — continuing and rapid changes in the financial services sector, new technology and the imminence of competition from abroad in the EC internal market.

One of the first decisions taken by this Minister was to set up a working party involving the Government, the Central Bank and the Registrar of Building Societies. They reviewed the existing legislation and this Bill is the result of their deliberations. There is a need to remove the legal restrictions on societies by having this Bill passed into law. Building societies must be allowed to compete more effectively. There is scope for the societies to become involved in a broader and more direct way in the housing market and in the provision of services associated with it. Developments abroad, particularly in the EC, make it imperative that all sectors of the Irish financial services industry be in a position not only to defend their home markets but also to avail of the opportunities that will arise in 1992. A basic prerequisite for the development of societies to deal with these challenges is a modern legislative code. The main constraint will be their own capacity to broaden and intensify their business without prejudicing the funds of their investors.

The broad objectives of the Bill are to allow societies to compete and develop in the context of the internal market by offering new services and broadening the scope of their business. The Bill also seeks to establish a modern and effective supervisory regime for the societies. This will mean the replacement of the Registrar of Building Societies by the Central Bank, who will have a bigger input in the workings of the societies. The Bill is also designed to encourage societies to broaden the extent of their involvement in housing and to provide a satisfactory mechanism for conversion to company status.

The Minister referred to 1992. On 24 January 1985 the EC Commission adopted a proposal for a Council directive on the freedom of establishment and the free supply of services in the field of mortgate credit. This was submitted to the Council on 28 January. Following consideration by the European Parliament and the economic and social committee of that parliament and in the light of the recommendations made by these bodies, the Commission adopted an amended proposal in May 1987, which was submitted to the Council on 27 May. The proposal covers freedom of establishment, that is the right to establish a branch in another member state, and the freedom to provide services, that is the right to provide mortgage credit in a member state without establishing a branch there. The proposal is under examination at working party level in the Council. Progress has been slow so far, with many different viewpoints remaining to be reconciled. An amendment of the Commission's draft can be anticipated within the next few months.

Mortgage credit institutions already enjoy a right of establishment and to some extent a right to provide services by virtue of Articles 52 and 59 of the Treaty. These are legally enforceable by those institutions by virtue of the Treaty's provisions alone. However, the institutions which the Commission's present proposal is designed to benefit already come within some of the Council's directives. Directive 77/780 stipulates the minimum requirements for the authorisation to credit institutions in a member state and provides for the supervision to be exercised by the appropriate authority in that member state where the business is being carried out. National laws may not discriminate on the grounds of nationality. Nationals of other member states can establish a building society in Ireland by complying with the provisions of the Building Societies Act, 1976.

However, there is a wide difference between the methods of funding and lending employed by mortgage credit institutions throughout the EC member states and between national laws governing these institutions. The main beneficiary of the 1977 Directive has been the credit institutions which are engaged in general commercial banking while institutions specialising in mortgage credit have been confined to their national markets. Hence, according to the Commission, a need for a new directive arises.

The making of loans on security of a mortgage or property is common in all national systems but there is a wide variation between the savings and lending techniques employed in these systems. In Ireland and the United Kingdom building societies accept short term deposits at market rates and lend long term, also at market rates. In other countries, for example in the Federal Republic of Germany, a borrower from the bank may qualify for a loan but he must first save a substantial proportion of the sum required at a rate of interest below the market rate. The interest on the mortgage eventually granted by that institution to the individual is also below the market rate. Moreover, the provision in Irish and British building society mortgages, that the rate of interest is variable at the discretion of the building society, would be illegal under some of the continental systems.

In the area of mortgage credit the EC Commission has rejected harmonisation as being impracticable and commentators have accepted that it would be an enormous task, if indeed possible. The Commission has adopted for the mutual recognition of the financial technique operated in different member states so that if the proposed directive is adopted mortgage credit institutions will be free to operate throughout the Community in the same manner as they do at present in their home countries.

The question of exchange control also arises. Effectively the objective of the proposed directive will not be achieved unless obstacles presented by exchange control restrictions are removed in member states, such as Ireland, where those restrictions still exist. This problem has not been addressed in the present proposal but the Commission has indicated its intention to propose a new directive which will liberalise those capital movements and which are related to the operations mentioned in the present EC draft directive.

The credit institutions covered by the proposed directive are those which raise finance by taking deposits from the public or by issuing mortgages or other bonds or securities and which grant loans secured by mortgage for the purpose of acquiring or retaining property rights in building land or in existing or projected buildings. The amended proposal makes it clear that the directive will apply not only to specialised institutions such as building societies but also to institutions such as licensed banks whose activities consist, in part, of the foregoing activities. The Commission also stated that the activities covered by those constitute essentially the granting of mortgage credit for the purpose of building or acquiring residential property but they also cover commercial properties.

The key provision of the directive will enable credit institutions to operate mortgage credit business in other member states in accordance with the funding and lending techniques authorised in their home member states. The home and host member states will be obliged to amend or adapt their national laws to whatever extent may be necessary to secure these objectives. In this process the existing rights of institutions are not to be restricted and where the introduction of new techniques affects the competitive position of home institutions, they may be permitted to adopt these new techniques. However, by way of exception to the general rule and pending further consideration, the host member state may require the issue of bonds in its own territory to be subject to its own laws.

All branches of mortgage credit institutions whose head offices are in member states will, under the proposed directive, be under the supervision of the competent authority of the host member state and after this Bill is passed it will be the Central Bank in Ireland. This is in accordance with the national laws of the host country but close co-operation with the supervisory authority of the home member state will also be required. The credit institution which proposes to transact business in another member state must notify the supervisory authority in its own State indicating the type of business proposed and the conditions under which funds will be raised and loans granted. Unless it has doubts as to the financial soundness of the institution, the supervisory authority will send the information to its counterpart in the host member state but a refusal to forward the information will suspend the institution's right to provide the proposed services. Supervision will be carried out by the home country supervisor in consultation with its counterpart in the host country. There will be a greater emphasis on the role of the former supervisory authority in so far as supply of services is concerned.

The commercial implications of this directive are worth noting. If the directive is adopted in its present format it may provide an opportunity for house buyers in this country to borrow foreign currency in ECUs at attractive interest rates from continental institutions. However, exchange rate risks would be likely to be an inhibiting factor for most borrowers. Moreover, it is not anticipated that continental institutions are likely to be attracted by the relatively small Irish market. Many of them would find it difficult to compete if they had to adhere rigidly to the techniques employed here. It seems more likely that large British institutions might, from their home base, seek to provide mortgage credit facilities here. It is thought that such competition could create considerable problems for Irish institutions, building societies and banks.

The flexible techniques employed by Irish building societies could prove attractive on the European market provided, of course, that they are free to operate there as they do at home. Of course, they would have to develop the expertise to market their products, raise funds at competitive rates and minimise exchange risks exposure. They may well find it more attractive, at least in the short term, to seek entry to the British market if the proposed directive is adopted.

Irish banks already enjoy under EC law the right to establish branches in other member states in order to transact banking business, including mortgage credit, and foreign EC banks enjoy a corresponding right here. Banks, therefore, will be affected only to the extent that the freedom to provide services without establishing a local branch here is extended.

A new banking directive is proposed by the Commission and this will radically alter the position of the banks. The whole question of a supervisory authority is dealt with at great length in the Bill and the concept of the authorisation is now, to a large extent and in so far as societies are concerned, taken out of the hands of the register and put into the hands of the Central Bank. Under the new arrangements a society will be required to obtain the authorisation from the Central Bank before it can raise or solicit funds other than from its founding capital. The Central Bank will be able to impose whatever conditions it considers necessary on an authorisation which will correspond to a banking licence. The proposed approach brings the procedure for authorising societies to raise funds into line with the requirements of the first EC banking directive.

Part III of the Bill sets out the powers of the building societies. As well as restating existing proposals it contains extensive and important new powers which will enable societies to compete much more effectively in the marketplace. It will give them the chance to offer a better range of services to their members, house purchasers and the general public. These new powers will enable societies to develop and thrive in the rapidly changing financial services sector, and thus continue to be a major source of funding for housing through the provision of mortgage loans and direct investment in residential property. In addition to traditional lending secured by the mortgage of land, societies will be able to offer loans on second mortgage, bridging loans, loans for payment of deposit for the purchase of property and loans backed by other securities or guarantees as may be approved by the Central Bank. These provisions will also allow the building societies to offer more flexible types of house purchase mortgage, such as low start, index linked and equity type mortgages. This Bill will enable building societies to set up subsidiary companies or to take a stake in the equity of other companies. It will probably transpire that the best way to provide some of the proposed new services will be in the form of a partnership with an existing company or to set up a subsidiary of the society in question. It should be noted that the power to invest in companies is generally limited to the companies whose objects do not allow them to engage in activities outside of the powers of the society. This Bill will also permit societies to link up with and assist voluntary housing bodies. This is a very positive part of this legislation. The societies will also be able to offer a wide range of financial services to their members and to other persons, and to offer a range of services relating to the acquisition, development and disposal of land. This is a natural progression from the existing powers of societies based on their long experience in the housing sector. It is important that we should build on the experience the building societies have had in this area.

This Bill will enable them to provide conveyancing services subject to regulations to be made by the Minister for Justice. This is a new departure and I compliment the Minister for bringing this proposal forward. The Minister has stated that he will be very careful about this provision and that the Minister for Justice will be brought into the discussions on this matter.

This Bill will allow building societies to provide auctioneering and other services relating to property, such as valuation, surveying and management. Thus societies will be able to offer a package of services to the home buyer. The Bill has potential for conflicts of interests in these areas, and the need to prevent building societies from taking undue advantage of their position in the housing market must be of prime consideration for the Minister. He has acknowledged that fact. This is an area that will need to be monitored very carefully. The Bill contains a number of provisions aimed at avoiding these problems. In the case of conveyancing services, the provision of such services to both the vendor and the purchaser of the same property is prohibited, thus removing the greatest potential source of conflict of interests.

The regulations which have to be made before societies can offer conveyancing services will be able to make further provision in relation to conflict of interests, compensation for negligence, qualifications of persons providing these services, and so on. Similar regulations can be made in relation to other property related services if this is shown to be necessary.

Provision is also made in this Bill to allow societies to operate abroad. Even with this power a building society incorporated and authorised in Ireland could not under the present legal position, set up, for example, in the UK on the same basis whereas UK societies can set up subsidiary companies here without the authorisation of the Bank of England. However, with the implementation of the proposed EC second banking directive and mortgage credit directives, which I have already referred to, all this will change and the Irish building societies will be able to operate throughout the Community under the supervision of the home supervisor, the Central Bank.

There are disciplines in relation to the exercise of these powers. Basically all powers other than those relating to secured lending, must be adopted by special resolution and must have Central Bank approval. We must bear in mind that the diversification of societies into these new activities would involve new and different kinds of risk and raise prudential issues. Accordingly, the Central Bank will have wide powers to control the investment of societies in the provision of new services and to impose whatever conditions and requirements it considers appropriate. The Central Bank will be able to require societies to maintain specific ratios, and to impose requirements relating to the structure and composition of liabilities and assets, for example, liquidity requirements. It will also be able to revoke a society's authorisation in certain serious circumstances and to give direction to a society to suspend for a specific period the raising of funds or the making of payments.

Section 40 of this Bill outlines in considerable detail the circumstances in which the Central Bank may either revoke an authorisation or suspend the operation of a building society. The Central Bank will also have wide powers to carry out an inspection of a society's books and records, to obtain information relating to the activities of the society, to control the form and content of advertising by building societies and to call a special meeting to mount a formal investigation of a society's affairs. These are very wide ranging and detailed powers which the Central Bank as the regulatory body will have and the Minister is to be commended for giving the Central Bank these powers. The powers available to the Central Bank will be more extensive and flexible than those currently available to the registrar. It is important that they should have this extension of power.

It is in line with the completion of the internal market by 1992 that there be a common market in mortgage credit. In the area of mortgage credit for house purchase, there is a need for adequate supervision of the institutions involved in providing that credit so as to ensure the financial stability of those institutions and the protection of the customers of those institutions. Under the régime proposed by the EC Commission, institutions operating various techniques will be exposed to exchange rate risks and foreign financial systems of which they may have little experience. In my view, the supervision of the activities of these institutions should at least, in the first instance, rest solely with the host country. The supervisory authority of the host country should be entitled to satisfy itself regarding any mortgage credit institution seeking to establish or provide services in the host country. The commencement of such activities should be subject to the prior authorisation of the supervisory authority of the host member state which should also have the right to exercise supervision over these activities as long as they are carried out in the host country.

What constitutes a financial technique needs to be clarified. Article 10 of the draft directive before the Commission at present, enables a host member state, after certain preliminary stages to determine the provision of services by a mortgage credit institution which does not comply with local legal requirements. If the proposals for supervision are left unchanged it seems essential to know where the line is to be drawn between the provision of services through an intermediary and the exercise of the right of establishment. The Joint Committee on secondary legislation have been informed that for the purposes of the Council's working party the definition of mortgage credit being used is confined to loans secured on residential property. However, the definition of mortgage credit clearly indicates mortgages on commercial property. Presumably this type of business would be of more interest to the banks than to building societies.

I commend the Minister for bringing this Bill forward in such style. The working party set up by the Government did a fine job and this legislation is in everybody's interest. It brings the building societies into the 20th century. It is also of great benefit to the customers of building societies be they investors in the societies or people who have acquired mortgages from them. I wish the Bill a speedy passage through the Dáil and I hope it will not be too long before it is enacted.

This is important legislation which replaces the various existing Building Societies Acts and contains a number of new provisions some of which The Workers' Party welcome but some of which we have great reservations about.

The significance of the role of building societies in Irish society can be seen from the figures quoted in the explanatory memorandum to the Bill which shows that the combined assets of ten building societies operating in this State amounted to £3,500 million at the end of 1987 and they had approximately 165,000 mortgages in operation at the end of the same year. The vast majority of these would be held by families in respect of their homes, so the provisions of this Bill touch directly on the lives of a great many people. For very many families the purchase of a house is the single biggest expenditure they will ever incur. People who take out building society loans are effectively mortgaging their lives for a period sometimes as long as 30 years, so it is essential that borrowers have the maximum possible protection.

This Bill cannot be considered in isolation from the Government's overall housing policy. This Government have denied local authorities the money to play a significant role in local authority house building, and we are now regularly hearing claims from Fianna Fáil that the housing crisis is over. The reality is different. As local authority house building grinds to a halt housing lists are beginning to grow again and tens of thousands of dwellings are substandard. The Government first of all failed to ensure that local authorities met their statutory obligations to carry out a housing condition survey and then effectively removed the obligations on them to do so at all.

The difficulty in meeting mortgage repayments, largely as a result of long term unemployment, is causing an increased number of repossessions by the Housing Finance Agency, building societies and local authorities. Private landlords are still being allowed to charge immorally high rents for what is often substandard accommodation. Successive Governments have failed to come up with any coherent housing policy but have staggered on from one ad hoc decision to another, prodded on as often as not by the vested interests in the building industry. The close association between certain big builders and whatever Government are in power seems to have more impact on determining national housing policy than the needs of our people. In this regard we do not want to see the SDA loans system, which as we know has been operated very successfully by the local authorities, being eliminated as at present seems to be the case. From my experience of the time factor in getting approval it looks as though the finance is not being provided for the SDA loans.

In the past 30 years the physical face of Ireland has changed almost beyond recognition, with sprawling suburbs to our cities and erratic ribbon development in rural areas. Despite this we have not had a White Paper on housing for more than 30 years. As far as The Workers' Party are concerned, the housing crisis is not solved as long as there is a housing need in our society. According to present criteria for allocating public housing, the crisis may seem to have eased, but thousands of families remain living in poor, overcrowded conditions, and in the private rented sector many endure extortionate rents and substandard facilities.

The poor law mentality has dominated the approach of successive Governments to public housing. The belief that the only obligation on local authorities is to house people who cannot afford to house themselves is central to the 1966 Housing Act. It is an excessively narrow approach that seems to have its origins in out-dated, Victorian attitudes rather than in an understanding of the real housing needs in modern society. Every aspect of our housing policy from allocation systems, loans policy and structures, to housing design and estate lay-out and management, is dominated by this poor law approach. The view is outdated and unimaginative and totally incapable of meeting the complexities of the housing needs of modern Ireland.

Given the political realities of the present system with Fine Gael and the Progressive Democrats competing with each other to see who can propose the more extreme cutbacks, it is likely that the reduction in local authority housing will continue, with the result that more and more young families will end up in the clutches of the building societies. Against this background this Bill is more important than ever.

Theoretically seven out of the ten building societies operating in the State are mutual societies controlled by their members. The practice, of course, is very different. They are very big business controlled by a self-perpetuating clique and in living memory no ordinary shareholders have been elected to the board of any building society. People like Henry Murdoch who sought election to the board of the First National Building Society on a platform of mild reform were met with fierce resistance by the existing board and substantial amounts of money were spent and staffs of the societies used in a most unprincipled way to keep these people off the boards.

There is a major question mark over the way building societies spend money. Management expenses of the building societies here are consistently higher than in the UK. They are now well in excess of £40 million per year and management expenses rose from 1.6 per cent of mortgage assets in 1975 to 2.19 per cent in 1984. One of the greatest costs is in the massive duplication of the fancy offices around the country by the various societies. There is hardly a crossroads in any city or town that does not have at least two building societies staring across at each other. Building societies are among the biggest advertisers in the country. One society is rumoured to have had an advertisement on RTE television every night since the station was founded. As there is virtually no real competition between the societies such a level of advertising can hardly be justified. There is in some cases an unhealthy overlap between the boards of building societies and the boards of advertising agencies and PR companies with whom the societies deal.

Huge sums are paid out in fees and expenses to society directors. The payments made to directors are normally lumped together in one sum in the annual report, and no detailed breakdown is ever given. I understand that sums between £25,000 and £30,000 would not be unusual. In the case of non-executive directors this would be simply for attending a couple of board meetings and lunches throughout the year. The managing director of one society, the Irish Permanent, is reported to be paid more than £250,000 each year. There should be full disclosure of all amounts paid to all directors, whether by way of fees or expenses.

While the 1986 Act attempted to address some of the worst excesses of building society abuse, there is still much to be done. The societies, despite their alleged mutual status, have little respect for the rights of borrowers. Only recently in the newspapers there was a report of a case in the High Court of one society, the Irish Civil Service Building Society, being ordered to deliver up possession of a County Dublin home which it had improperly repossessed allegedly on the grounds of mortgage arrears. While the householder was in arrears, evidence was given to the High Court that the society had effected entry to the property while the householder was away, and that he and his family were now prevented from returning to the house. The householder was only four months in arrears with his repayments at the time. The same society made £1.2 million in profit last year.

I hope that this sort of activity will be tackled by the Central Bank who are being given new supervisory powers over the building societies in this Bill. The decision to give the Central Bank this role is good in principle, but we will have to wait and see how the practice works out. It has been clear for some time that given the growth of the building societies that the Registrar of Building Societies did not have the staff or resources to adequately monitor the societies. The registrar reported as far back as June 1987 that he did not consider that his staffing levels were adequate for the proper performance of his statutory functions.

The reservation we must have about the move is that the Central Bank have failed totally to exercise any real control over the commercial banks, and have failed to live up to the obligations placed on them by the 1942 Central Bank Act to ensure that they acted in the interests of the community as a whole. Given the predominance of the representations of private profit in general, and the commercial banks in particular, it has not been clear if the Central Bank have been supervising the commercial banks, or the Commercial Banks supervising the Central Bank. The claim made by the American economist, Milton Friedman, that regulatory bodies are generally captured by those they seek to regulate has certainly been true of the relationship between the Central Bank and the commercial banks. This is a matter The Workers' Party will be returning to in some detail when the Central Bank Bill is taken later this week. All I will say for the moment is that if a number of directors of building societies are now appointed to the board of the Central Bank, the exercise of giving the Central Bank a supervisory role will be largely self defeating.

One issue, which is of most direct interest to most householders, is not addressed in this Bill, that is the question of interest rates. This may not seem such a big issue at the moment as interest rates have declined, although why interest should still be running at more than three times the rate of inflation is not clear to me. The fact is that while successive Governments have been prepared to bring in regulations on this matter, the one area that has remained untouched is interest rates. Successive Governments have failed to take any legislative measures which would control interest rates. As far as the parties of the Right are concerned, interest rates are the great untouchable of economic life. In 1985 and 1986 when interest rates were going through the roof, neither the Government or the Central Bank were prepared to do anything to hold the disastrous trend for tens of thousands of families. So far as the parties of the Right are concerned the money market is to be allowed to do what it likes, irrespective of the consequences for society as a whole. Governments are prepared to take on the poorest and weakest sections of society. Workers' wages must be frozen where necessary and estimates for Health, Social Welfare and Education are cut, but the banks and financial institutions must be allowed a free hand for their anti-social activities.

Section 31 is to be welcomed. It gives the Minister for Justice power to make regulations, in consultation with the Minister for the Environment and the Central Bank, enabling societies to provide conveyancing in their own right. Section 58 of the Solicitors Act, 1954 restricts the preparation for reward of certain essential documents in relation to conveyancing to solicitors. When section 31 is in force it will prove a great help to those who are seeking mortgages. In this context I should like to refer to the system of providing bridging finance. Bridging finance in respect of house purchase is an unnecessary evil. It is payable by a house purchaser in the period between getting loan approval from the lending agency and the receipt of the cheque for the loan. The period involved can vary from six to 12 months, and that is no exaggeration. Loan approval is granted by the lending agency when it is satisfied that the house in question exists, is in sound structural condition, that the applicant for the loan has fulfilled the requirements of the lending agency and has adequate means to repay the loan.

Bridging loans are provided by the banks where the house purchaser has been approved for the loan but the rate of interest charged on such loans can be between 5 per cent and 7 per cent greater than the mortgage rate. Amounts paid on bridging finance are wasted as no capital is repaid and the period of the mortgage, be it 20 years or 30 years, does not commence until the bridging loan is cleared. There is no good reason the period between loan approval and payment of the cheque cannot be reduced and that the lending agency giving loan approval cannot provide bridging finance at ordinary mortgage rates as if the final legal technicalities had been concluded. The number of cases where there is any risk is minimal. The Minister should address that question in the interests of those seeking loans and seek to eliminate the need for such loans at very high rates of interest.

There is a number of other aspects of the Bill that need to be referred to. We are concerned at the provision which will allow building societies the option of investing directly in residential and other development. I understand that this is happening and that at least one building society is directly involved in the Custom House Docks area. If commercial development proves to be financially more attractive to building societies housing will suffer accordingly and young couples will find it more difficult to get loans.

We are concerned too about the provision to allow societies to convert from mutual status to private limited company status in certain circumstances. While the current mutual status of most societies is little more than a joke, a complete change of limited company status would make democratic accountability even more difficult to achieve.

We are particularly concerned at the provisions of section 4 which give the Minister sweeping powers to effectively change the terms of this Bill by regulation. If the Minister is being allowed to have the power to change the Bill by regulation there should be an obligation on him to come back here and seek the approval of the Dáil and the Seanad for such changes. To do otherwise is to give the Minister a blank cheque to change the Bill as he sees fit.

The provision to prevent staff members of the building society from putting pressure on members to vote in a certain way in the election of directors is welcome, but does it go far enough?

This is a very complex Bill and the detailed examination of it will be crucial. On Committee Stage we will be tabling a number of amendments aimed at strengthening the protection available to borrowers and depositors. The Workers' Party believe that everyone has a fundamental right to a decent standard of housing and until the Government provide sufficient accommodation people will continue to rely on building societies. The private enterprise nature of the business of lending money to people to put a roof over their heads has all the worst elements of moneylending or loan sharking. It must be properly and fully controlled.

I welcome this Bill which touches on the fundamentals of our society, the right of a person to own his own home. We have the highest rate of home ownership in Europe and this Bill seeks to underpin that and make it easier for people to own their own homes without having to pay extortionate rates for them. The original building society concept was that of people coming together in a mutual society for a specific benefit — to provide housing at reasonable rates for their members. This mutual aspect has worked very well over the last 100 years but a changing framework in the financial services sector has put building societies at a disadvantage when competing for funds with banks and other financial institutions. It is very important that building societies in so far as it is possible should be put on an equal footing with other businesses in the financial services field, while not losing sight of the benefits of mutuality.

The Minister in his speech set out six broad objectives which are hard to quibble with but I have a slight reservation about the sixth objective outlined. The Minister wishes to provide satisfactory mechanisms for conversion of a mutual society to a public or private company. Changing a mutual society, a society where members' saving are invested for the common good, to company whose purpose is to make profits for its investors, is a very big step.

Up to now building societies have had more than a fair track record in dealing with members who for one reason or another fall into arrears with mortgage repayments. That will change radically if the building society becomes a private company based solely on profit without any social dimension to its business. On Committee Stage the sections dealing with this proposal will be dealt with in greater detail. We in this House must remember that we are here solely to protect the interests of the ordinary people. These mundane considerations do not impinge too easily on those working in the building society when they are dealing with multi-million pound deals.

One of the great aspects in this Bill is that it will allow an element of competition into the house purchase marketplace. Anybody who tried to buy a house in the boom years of the sixties and seventies when the building societies alone were in control of home loans will remember how difficult many of them made it for people who were trying to borrow money to buy a house. Loans were granted but one had to use a particular solicitor and there was bridging finance extending over many months so that many married couples were put to the pin of their collar to survive until the loan came through. Those days are over now. One can walk into a bank, put one's case and get a quick answer. If one is acceptable for loan purposes one gets a letter of intent and on that basis one can go out and buy a house.

Until the passing of this Bill the only person entitled to make any inquiry into the running of a building society is the Registrar of Friendly Societies who has neither the staff nor the expertise to police the activities of what are now multi-million pound business. It was only when public spirited individuals stood up and started questioning the way these societies were being run that they got the full blast of publicity, not all of it to their credit as many of them were being run like private fiefdoms. The first blast of reality to hit the building societies was when banks and insurance companies started loosening the purse strings and went out looking for the business of the ordinary punter. I remember one insurance company in the house loan business opening to give house loans on Christmas Eve. That indicated to me that they were particularly interested in that business.

I am glad to note the Minister has gone out of his way to protect the ordinary members of building societies in that he has made provision for dealing with directorships of building societies so that dealings between the societies and their directors will be fully regulated with accountability to their members. I note also that directors of the building societies can be deemed to be liable and penalised for engaging in dealings that contravene the provisions of the Bill.

Another of the provisions of the Bill will allow the conversion of building societies from mutual societies to public limited companies. Such conversions can take place only after a special conversion resolution has been passed. I agree with the Minister that it is only fair that borrowers be given an equal say with shareholders in any decision to convert since any such conversion could have serious consequences for them.

The Minister says that the provisions of section 105 contain an important safeguard, in the form of recourse to the High Court, for individual members who may consider that the terms of conversion do not respect their rights. The Minister will be aware that recourse to the High Court is an expensive, time-consuming exercise, that an average borrower who may feel aggrieved would find the cost of any High Court action prohibitive. For example, if one has a £30,000 mortgage one would find it very difficult to meet the £1,000 or £2,000 that would be required daily to sustain a High Court action. Perhaps the Minister would consider on Committee Stage inserting a section to the effect that any member or borrower who takes a High Court action testing the conversion of a building society from a mutual society to a public limited company be recompensed the cost of such action if he or she, in the eyes of the Bench, raises legitimate or non-controversial points of law or principle. That is a safeguard that could well be written into the provisions on Committee Stage.

Another point that occurs to me — here I may be misreading the provisions of the Bill — to have clarified is: do the Central Bank have powers to send in rescuers to a building society that appears to be getting into trouble, or do the Central Bank have to wait until a building society is in obvious financial trouble before they can take action? In other words, is the sheriff sent in only when matters have gone beyond redemption? Perhaps the Minister could clarify that point for me.

There is also the provision which would enable the Minister to make regulations requiring building societies to set up, either individually or jointly, a scheme for the investigation and determination of complaints — a type of Ombudsman arrangement — by customers in relation to the services provided by societies. I welcome that provision. In the past people have felt very aggrieved with certain actions of building societies but had no recourse. There are actions that a building society or any other company can take that, strictly speaking, may not be deemed to be illegal but which nonetheless in the eyes of a member or borrower may be vexatious.

I suppose it is a commentary on changing lifestyles here vis-á-vis financial services, demographic changes, family numbers and so on that this will have been the fifth Bill since 1976 before the House regulating building societies' activities. The last such Bill was passed in 1986. No doubt, before the end of the century the Minister or his successor will have another such Bill before this House.

The provisions of section 31 deal with conveyancing so that building societies may have their solicitor act for one party in the conveyancing of a dwelling. It is my view that it is good practice that societies act on behalf of their borrowers. However, one must ask will this reduce costs? One must remember that in the case of an average mortgage of £30,000 a person's costs will amount to approximately 5 per cent. Does the Minister envisage that this will lead to a reduction in the overall costs of house purchase? There is a new provision contained in section 60 requiring the disclosure of business volumes between a building society and any company or firm which has as a director or partner a director of a building society. A building society will be required to maintain a register showing the aggregate amount of fees paid in respect of certain services provided to the society by companies or firms in the last financial year and in each of the preceding five financial years. The services involved will be conveyancing, surveying, valuation of land or property, insurance and advertising but one has been omitted, namely, building. For example, will builders or directors of building companies be included in the provisions of this section or is there a reason for their exclusion?

There are a few aspects of the provisions of this Bill I welcome in so far as they afford the House an opportunity of reviewing the operations of building societies which have given rise to much public concern and media comment in recent years. However, to be fair to the building societies, many people prominent in them have themselves made a major contribution to their development. Nonetheless lack of democracy within the societies has shown them up in a very bad light. The provisions of this Bill — which go some way towards rectifying that position — are to be welcomed.

I am concerned particularly about the provision which will allow building societies to convert to public limited companies. Deputy Dermot Fitzpatrick said that the percentage of home owners here is the highest in Europe. National statistical figures issued comparing countries in the 1970s show that Ireland had the highest proportion of home owners in the world, higher even than Japan, higher than the USA — the second highest — and higher than any other country in Europe. It should be remembered that building societies constitute very profitable business. They are no longer the mutual societies they once set out to be.

For example, if one examines the figures for return on gross assets in respect of the banks and building societies — I have the figures for the years 1981, 1982 and 1983; unfortunately I do not have the relevant figures for later years — it becomes very clear that all of the building societies are much more profitable than either the Bank of Ireland or Allied Irish Banks and that generally they have been hiding these profits in a proliferation of branch offices. For example, in my constituency at the Sundrive Road crossroads there are now five building society branch offices. It appears to me that much of their profits have been hidden in real estate. For 1982-1983 the return on gross assets ratio is as follows: Bank of Ireland the ratio would be 0.54 and for the AIB, 0.71. The only building society with a ratio of less than 0.71 is the EBS at 0.64 but that is even higher than the profit ratio for the Bank of Ireland. It goes on from there, to the First National, with a figure of 0.80, the Irish Permanent 0.89, the Irish Civil Service Building Society, 1.13, Irish Nationwide, 1.84 at the top of the scale. Therefore, it is very clear to me that what we are talking about here are no longer small, mutual building societies but rather very substantial vehicles for making profits which are not very democratically controlled.

We have to ask ourselves what is the best way forward at this time, particularly when reviewing this legislation. It seems to me that the building societies are going to continue along these lines. Not only that, there are very vague provisions in this Bill which I feel certain would allow the directors of the building societies to take over these mutual assets which the Bill itself puts at £3.5 billion to control and use for their own benefit. I have no objection to the directors of the building societies taking over the building societies if they are not going to remain as mutual societies, provided they pay for the assets they are taking over, provided the interests of the real owners, the account holders, the 165,000 mortgagees, are properly protected and that those who are no longer account holders but who have contributed over the years for the benefit of the building societies get something from it as well. That would not be possible in some cases because some of the people who contributed over the years will have passed on. There is a case to be made for the Government to compulsorily acquire building societies and to sell those building societies to the directors, if they want to buy them, or to anybody else who wants to buy them, and to use the funds so raised to the advantage of the mortgage holders, the account holders, the hard-pressed investors, and let us make an honest day's work of it. If that is what we want to do then let us do it.

The present provision which allows individuals to hold up to 15 per cent in building societies is a charter for a small number of people becoming millionaires and multi-millionaires at the expense of the assets which are not in the ownership of any small clique in building societies but in the ownership of the mutual investors. If the Minister wants to convert building societies into public liability companies so they can become like banks, let them become like banks, but let those who are gaining the advantage of controlling them pay for that and for the benefits that go with that control. Let us do it honestly. I hope the Minister will look at this question because nobody has consulted the mortgage holder or the account holder. The Minister has closetted himself away with the directors of the building societies and their legal and financial advisers and has come up with this very detailed and technical legislation of 127 sections without any consultation with the person who pays the mortgage or who has put money on deposit or otherwise invested in building societies. It is time that the case for the mortgage payer was put. This is the same mortgage payer who is now to be exposed again to tiered mortgage rates which Deputy John Boland, as Minister for the Environment, abolished, the same mortgage payer who has had his interest relief reduced, first to 90 per cent and then to 80 per cent. It seems to me that we are out to screw the mortgage payer. Nobody asked their advice on this Bill though there is an account holders' association which could have been consulted. Let me say in passing that it seems to me that the account holders' association of ACRA or anybody else concerned with residents associations and mortgage holders or anybody remotely in contact with them were not consulted before this legislation was published, and it is time they were. I hope, on Committee Stage, that the Minister will be able to give this House assurances with regard to the mutual holders of interest in building societies.

I feel strongly that the audit provisions of this Bill should be looked at. I am unhappy with the controls that, allegedly, are in this Bill. The Central Bank is mentioned as having a role similar to the role it has with banks. The role the Central Bank has did not prevent Allied Irish Banks from getting involved in ICI which nearly brought down the whole banking system. The provisions there are not strong enough. The Minister, in addition to the role given to the Central Bank, should take a hand in deciding who is appointed auditor of these companies.

I note that one of these building societies changed their auditors quite recently and since it was done outside of the AGM the building society board themselves nominated very reputable auditors in the interim; but there is a precedent for the Minister to involve himself in the process of appointing auditors and this was done under the Gas Acts where the Minister wanted to protect the interests of the shareholders and investors. The Minister should be consulted on the appointment of auditors to ensure that those who are so appointed are reputable, independent and primarily taking account of the interests of the shareholders and investors. I would ask the Minister to look at that provision before we come back on Committee Stage.

I am one of those people who feels that local authorities should be allowed compete with building societies for mortgage business. In fact local authorities are already in the building society business, albeit at the lower end, the risk end of the market, the end of the market which the building societies themselves have not displayed an interest in. They do already act as agents in lending money under the SDA provisions and the Housing Finance Act provisions. Building society legislation should allow local authorities, particularly large authorities like Dublin Corporation, the choice of competing for this very profitable business so that not only will they have the opportunity to take up the risk end of the market but also the end of the market where there is profit to be made which could be used to the advantage of the citizens of the city. There is no problem with Irish Life, which is owned by the State, competing with the private sector. I see no reason local authorities should not be empowered to compete with building societies for business. The legislation should be amended to give that power to local authorities who want to take it up.

I earnestly hope that more time will be devoted to the Committee Stage of this Bill than is devoted to most Bills so that all its provisions can be teased out. The Minister may feel that he has tied up the various areas of responsibility in this Bill and has safeguarded the public interest but I feel he has taken the building societies into his confidence, that they have written most of this legislation and have convinced him that this is in the public interest when in fact certain sections of the Bill are very vague. I am particularly concerned about the possibility of the building societies' assets getting into the ownership of a small number of people who make no payment for that ownership.

That is one of the vague parts of this Bill that needs to be addressed and considered in detail. I would ask the Minister to give it particular consideration and not be afraid to consider the suggestion I make regarding the possibility of the State compulsorily acquiring the building societies, selling them off and using the funds raised to the advantage of mortgage holders. I would ask the Minister also—he need not reply to this now— to at least take advice on that suggestion. He should find out if it is a viable suggestion because it seems that it is. It is something that should be considered, something that would bring the whole position of building societies into the open so that everybody could see precisely what is happening and nothing would be done by sleight-of-hand or in an under-hand way to the advantage of any individuals without primary consideration being given to the whole question of mutuality. I will leave my contribution at that because I want to put emphasis on this one point. I would ask the Minister to please take advice on this matter from some of the other financial advisers to see if there is a possibility of doing what I suggest. He may find to his surprise that it is a better way of approaching the matter than is this legislation.

This Bill is both welcome and timely because it is essential that legislation such as this should come before the House at this time. This is one of a series of Bills introduced in the past two years, a series that will continue no doubt in the next three or four years, and designed to gear the business community towards the realities of 1992. It also addresses itself to one of the areas we have given least consideration to in the past ten or 15 years, that of consumer protection.

The Bill will be welcomed by the consumers for two reasons. First, it will give them greater protection when dealing with financial institutions, particularly building societies, and it will also afford them a wider choice of financial institutions in which they can transact their business. All of us at various times in the past have been highly critical of the banking community where there has been a monopoly by virtue of the cosy arrangements among the big five banks. The legislation before us, if it does nothing else, will remove some of the complacency from the banks and will remove the monopoly that has existed in that area in the past ten or 15 years. Perhaps when the building societies get the powers that are being offered to them in this Bill and start competing with the banks in the area of cheques, current accounts and so on, the banks will take a more realistic attitude to their customers and not do as they currently appear to do, charge people for going in the door to withdraw or lodge money to their own account.

The legislation will also be welcomed by the building societies because, as Deputy Mitchell has said, it will allow them greater freedom and flexibility in the highly competitive financial services markets. The Deputy seemed to be critical of the Bill on the grounds that it is wide and flexible in relation to building societies. The phrase he used was that the building societies wrote the Bill or certainly had a large hand to play in it. Knowing the Minister as I do, I do not think the building societies would have written anything for him but he certainly would have consulted with them as would be good practice for any Government Minister. While I agree that the Bill is very wide and allows a great deal of flexibility, that is absolutely essential for the future. One could not come before this House with a Bill similar to previous Bills which attempted to fiddle around with legislation that was totally inadequate and out of date and expect to address the major problems that will face all institutions, whether financial or otherwise, over the next number of years.

I see the Bill as a very vital preparation for building societies and financial institutions in the open market that will result from the Single European Act, post 1992. Anybody who has read or is in any way familiar with the EC banking directives will know that the legislation is not just welcome at this time but is absolutely vital for the survival of our building societies. The societies have operated in a very closed segment of the financial services market. It is clear to anybody who is familiar with this area in a European context that without this legislation the building societies would not be able to survive and that would cause many more problems for mortgage holders and members of building societies than the matters mentioned by Deputy Mitchell in relation to the powers given to building societies under this Bill.

The Bill is very comprehensive, as has been mentioned. There are 127 sections which deal with all aspects of building societies such as their formation and authorisation, their various powers, the control and supervision of building societies, their management, meetings and resolutions, accounting and auditing, a new provision for a savings protection scheme and provision for amalgamation of societies. I would like to congratulate the Minister on the approach he has adopted to the legislation. He has introduced a Bill that is comprehensive and that meets the challenges of the changing scene. The key to the Bill as I see it is the flexibility that will allow changes to be made as circumstances change. It will prevent the laws from becoming out-dated as could happen very easily with the changes that are occurring at present.

The Bill is particularly welcome considering that although building societies have been in operation since the middle of the last century they were relatively small up to about 20 or 30 years ago. There are now ten major building societies with total savings in the region of £3.5 billion. There are 165,000 mortgage holders. Almost 70 per cent of those who finance the purchase of their own houses have done so by means of a building society loan. It is estimated that there are about 1.25 million members in building societies. If those facts and figures do not underline the necessity for introducing this kind of legislation to ensure that the consumer is adequately protected, I do not know what could.

The legislation under which building societies operate at present is the Building Societies Act, 1976, which is very restrictive. It provides the legal framework for societies to look after a particular segment of the market, that is, they were allowed to accept funds for shares and deposits and to lend that money to the members of their society. The amendment in 1986 for the first time ever allowed for unsecured loans for bridging and home improvement works. That was heralded as a major change at that time but experience has shown that, because of the other problems that face them, building societies have not taken on that extra power in a significant way.

The year 1992 is just around the corner and it is obvious that the building societies could not operate in the same way as they did in the past. We are all aware that the building societies have been actively seeking an extension of their powers and the facilities they could offer to customers. The passage of this Bill will give them probably even more than they campaigned for but the other side of the coin is that the legislation imposes obligations, statutory and otherwise, on the building societies which are long overdue.

The fears expressed by Members of the Opposition at various times were that the building societies would write their own charter. Indeed, Deputy Mitchell mentioned the fact that he thought they had done so. Any kind of objective reading of the legislation shows that the Minister has kept a very important balance between the needs of the building societies, the flexibility they need to compete, and consumer protection which is vital.

I refer in particular to the area of control of the Central Bank of building societies which will be running parallel in the Central Bank Bill. That is a welcome move and should lead to much tighter controls, and I have no doubt that with all the technical provisions in the Bill it will lead to tighter controls. It is a more fitting institution to monitor and control building societies, which are handling so much money, than the Registrar of Friendly Societies. In fact, I am not sure that the Registrar of Friendly Societies is in a position or is capable of keeping tabs on all the other friendly societies which he has to keep an eye on. In relation to building societies we are talking about vast sums of money and major investments, and it is a Central Bank function to look after moneys of that magnitude.

The benefit of the Central Bank control is that all institutions of a similar nature should have the same controlling body. This Bill will allow building societies to be a banking position and to provide full banking services. It would not be a good idea to have building societies controlled by the Registrar of Friendly Societies and banks subject to the control of the Central Bank. That would not be good for the banking system or the financial system generally and, based on past experience, it certainly would not be good for the consumers. The Central Bank has the power and the expertise in this area. I welcome the provision in the legislation that will result in control being passed over to the Central Bank.

The other important point about Central Bank control is that everybody will be on an even playing field in relation to the provision of financial services. That is very important not only for the financial institutions themselves but also for the consumer.

I welcome Part V of the Bill which contains provisions relating to the management of societies. Part V is concerned with the election and conduct of directors and there are a number of provisions spelt out in the legislation in relation to this, and not before time. Any institution or organisation that has over 1¼ million members needs to have its management looked at again.

The public perception of building societies is one of organisations that have remained remarkably aloof from any semblance of real democracy. They are seen as organisations where power has been gained by particular cliques or families and where ordinary members have little or no hope of having a major say. Over the past number of years, the activities indulged in at annual general meetings by the management and chairmen of various building societies have been extraordinary to say the least. If this legislation puts a stop to what appears to be a very autocratic system, which operates particularly in relation to the election of directors to the board of building societies or to AGMs, that will be a welcome move.

A cause of scandal over the past number of years has been the manner in which the election of directors to boards has been handled. Building societies send out the notice of the AGM with all the other paraphernalia about accounts, income and expenditure, and will virtually canvas for a particular person, normally a person already on the board or who is a close associate of those on the board. It would not happen in the most backward club or organisation in any part of the country that the management, or those in charge, would send out the notice saying this is the person one is to vote for at the AGM. It is extraordinary and it has been a cause of scandal. The requirement in this legislation, particularly that a poll be held as opposed to the present system of a show of hands in a contested election, is very welcome.

In relation to the appointment of directors to the board, there was open canvassing by members of staff of the building societies' branch offices around the country for particular candidates. As a member of a building society I was canvassed on a number of occasions by local branch managers. It is very important, not least for the image of the building societies themselves that the system which pertained should be done away with and that there should be seen to be a fairer and more democratic way of electing directors to the board. It has been argued that this Bill will not change essentially the top management or what happens, but it will certainly remove the cause of scandal in relation to the election of directors. I think the Bill will stamp out a great deal of the activities I have mentioned and will at least give some semblance of democracy to the overall image of building societies.

With regard to consumer protection, I particularly welcome the move for an investor protection scheme. The most important issue that will face building societies in the post-1992 era is that depositors can have confidence in the building society or financial institution with whom they deal. The investor protection scheme as outlined in the Bill will go a long way towards giving depositors that confidence so that they can put their money in the building society and the money will be there when they need it. It is a most welcome provision.

The building societies are getting a good deal. Most of what they want will be satisfied by the Bill. While the Bill provides that building societies will have greater flexibility, extra powers, and the freedom to engage in various financial services, it also brings extra responsibilities. While the building societies will have greater freedom, this is balanced to a certain extent by bringing openness into the accountancy practices and audit procedures of building societies. There is a provision in the Bill where fairly simplified accounts will be available to members so that they can see what is going on; whether directors are getting loans, and the relationship between directors and the shareholders. This balance between the extra powers and the openness in accountancy practices is welcome.

As a result of this Bill, the extra dimension which will be brought to the building societies should allow for greater competition in the financial and property services. However, I have mixed feelings about the move to allow building societies to purchase land and to provide their own houses. I think there are dangers inherent in this and this will have to be very carefully monitored by the Minister when the legislation is going through. There are dangers inherent in allowing building societies to become property speculators. We could then find that loans are only available for building society houses or for particular customers. I would hate to see the building societies going away from their basic rationale, that is the provision of housing. I would not like to see depositors being refused loans for housing, simply because the building society have spare capacity in the houses they have provided or because they are plugging a particular development they want to market because they have an interest in it. This is an inherent danger in the Bill. It is an issue which should be looked at again and if possible it should be written into the regulations or into the legislation that this type of thing cannot happen.

The reason I enter that caveat with regard to the Bill refers back to the 1986 Building Societies (Amendment) Act. At that time, the Minister felt it was important to end the building societies' monopoly in the provision of insurance and he introduced regulations so that a customer could take out insurance on a mortgage with whatever insurance company he wanted to and that if he wanted to move away from the insurance company that was tied up with the building society, he should have freedom to do so. While the regulations are in place, in effect what has happened is that the building societies have got around this by producing a document which must be signed by the insurance company and by the insured person, which absolutely and totally indemnifies the building society against every possible risk that might arise. No insurance company, not even the insurance companies that the building societies were using, would sign an indemnity such as the one that is being sought by the building societies. It was simply a device by which people would be put off using their own insurance companies. I know that in a number of cases the building societies threatened to call in loans from various people who held mortgages if they could not get the papers signed or if they changed their insurance company. I would not like to see that stick being wielded at a later stage with regard to the type of houses or particular developments that building societies would like people to buy. I would rather that things are left as they are so that people can get loans for any house that is suitable.

On a general note, after the legislation has been enacted, there is no doubt that building societies in common with all other financial institutions will face huge problems—if you want to take a negative view, or great opportunities, if you take a positive view — in the post-1992 situation. In the past there has been a great deal of competition between the building societies. Indeed, many people would argue that a great deal of depositors' money was wasted by the building societies on advertising and marketing campaigns. Leaving that aside, there always has been a very healthy competitive spirit between the building societies, and I do not think we should knock that.

However, after the enactment of this legislation, building societies— especially the major building societies— will have to start talking in terms of co-operation rather than competition. The competition will always be there but I do not think it will be feasible for each building society to operate a complete range of financial services on its own. It is not going to be possible for them to have separate clearing houses, as it were, if they go into the area of current accounts and so on. It will not be possible for them to provide such services as the ATM cash dispensers for providing money on a 24 hour basis. There are other areas where I do not think it will be possible for each building society to provide a full range of services to their customers. For that reason building societies should think in terms of co-operating with each other. There is provision in the Bill for facilitating building societies in mergers, takeovers and so on, but failing mergers and takeovers happening, the building societies should be sitting down and talking about provisions that will help to provide a full range of financial services for their customers. I do not think any building society will be strong enough or powerful enough to do it on their own. They should talk now to ensure that in the post-1992 era, when we will be covered by EC banking directives, they will be in a position to compete with those institutions that come in from outside.

Up to now building societies have been more interested in trying to get a proper legislative framework which would give them more powers. They will have these powers as a result of the introduction of this Bill and it is time for them to think about their customers, clients and depositors, whom they are supposed to think about at all times. They have to get together and co-operate in order to provide the best possible service for their customers and depositors. If they do not do this and stay separate and compete as separate entities they will not be able to provide the services they want to provide both economically and efficiently. If they do not do this the Bill will have been a waste of time because other companies will come in from outside and provide the services.

This is a complicated Bill and I have made some general points in relation to it. I will end my contribution by again appealing to the building societies not to waste the opportunities they are being given in this Bill. They have been looking for these powers for a long time and now that they have got them they should make full use of them and co-operate rather than compete with each other.

I do not think there is any doubt that this Bill is introducing major changes in so far as the building society world is concerned. I use the word "change" rather than "reform" because I am not totally convinced that the change will be for the better, and the word "reform" implies an improvement for the better. This Bill is moving building societies totally away from the original conception of mutuality — a group of people coming together, pooling their savings and making loans for the purposes of providing houses, which I understand was the original rationale behind the building society movement. They are moving a long way from that concept, and built into that concept was the understanding that the mutual movement would be conducted in the most economical and spartan way possible to ensure maximum financial benefit for the mutual investors.

I suppose it was inevitable that as the societies grew that the pressures of commerce and the introduction of sophisticated financial and commercial techniques would impel a movement away from that original spirit but we should recognise what we are now doing in this Bill: we are now saying goodbye to that original spirit and, by way of legislation, turning building societies into financial corporations no different in essence from the banking corporations which already operate in the State. I query whether that is a desirable development. It is common knowledge that there has been pressure on the Minister for the building societies to do this but I wonder whether the attitude of the Department and the Minister should have been to look at the fundamental nature of building societies to see if the changes needed in that area should have addressed more vigorously the essential nature of building societies.

It seems that a policy decision has now been taken to move away from the old concept of mutuality and to turn these societies into financial conglomerates, with all the financial and commercial advantages that would bring to the bottom line, but I wonder how much it will benefit the consumer, the ordinary person whom we are sent here to serve. The objective of mutuality was to provide the cheapest possible loan to the investor but when I read the huge range of sophisticated powers now being given to the building societies I wonder if the borrowers of modest means, who want to house themselves, will be forgotten about.

There is no doubt that in recent years building societies have expanded their businesses hugely. In the past decade or two some societies have grown from being small institutions into major financial houses. I would be invidious to name them but the fact that they have been able to do that and that the already existing large societies have progressed apace seems to suggest that there was nothing inherently wrong with the environment in which these institutions operated. This environment has enabled them to progress and grow rapidly and significantly while at the same time keeping the idea of mutuality as part and parcel of their ethos. The first sign that there was a movement away from the idea of providing the best possible value for the consumer was the introduction some years ago by a society or societies — I have forgotten how many were involved — of the tiered interest loan. That was the first crack in the concept of mutuality and "benefit of the consumer all the time". The bill is going to get bigger for some people. Undoubtedly there have been significant changes in this area during the past two decades. These societies have grown and there has been nothing in their legal framework which apparently has inhibited them because their rate of growth has been spectacular. That rate of growth has understandably fuelled the ambition of societies to grow even more and to put themselves on a par with other financial institutions. That ambition has now been answered by the Minister in this Bill.

The eight objectives of the Bill are set out in the Explanatory Memorandum. The first objective is to strengthen the competitive position of building societies by extending their powers so that they can provide a much wider range of services. If the basic role of a building society is to provide housing finance at the best possible price I should like to see written into the Bill some guarantee that the profits from the new range of services and powers being given to the societies will come in ease of the consumers, the people of modest means, who want to house themselves. I would like to see that concept put into the Bill so that the original concept of mutuality could be expressed through it.

The range of services that have been proposed for the building societies is extremely wide. The societies will now be able to operate as property developers, landlords, bankers and they could be behind the scenes in retail, wholesale, or even industrial business. In this Bill we are providing the potential for a level and extent of growth that I do not think we can foresee at the moment. I know that the Central Bank will be in the background as a controlling agent but, quite frankly, having read the Bill and having seen the reliance that the Minister is placing on the Central Bank to control the new bodies which he is creating— because they will be new bodies, have no doubt about that; they may have the same names but they will be significantly changed in essence — I wonder how the Central Bank will be able effectively to discharge the huge range of controls that they are being given to operate.

Certainly, the Bill is providing a wide range of extra services but I wonder if the object to strengthen the competitive position of the building societies will be achieved. Competitive with whom and for what? Certainly, competitive with other financial institutions. They will be placed in a much stronger position and will be able to compete for customers who want banking services. They will be able to compete with property companies. They may supersede local authorities in providing housing. I wonder to whose benefit, at the end of the day, will all these extra powers be? I have some doubt that it will benefit the small investor. I presume what he is paid will be subject to all the controls that are already there, statutory and commercial, on the rate of return on money invested. I doubt if his position will improve significantly, if at all. Likewise the person who wants to borrow money for his own house, is anything going to happen to his benefit?

Perhaps a property developer will be able to operate more efficiently with less bureaucratic controls through a building society, but I doubt that, because the need to make sure such investments are prudent will always imply the need to impose proper controls.

To get back to a point I made earlier about the growth of building societies in recent years, they have been able to grow because they have been able to compete for deposits and for borrowers, year by year in an ever increasing way. We have to question if that growth was not sufficient for the ambitions of the building societies and why do they want to grow even more? These are fundamental background questions that the Minister needs to address and to deal with in his reply. To talk about making the societies competitive vis-à-vis 1992 is not good enough. We will have to hear precisely why 1992 —if that is going to be the reason for it — and why that particular new régime will impose pressures on the building societies that necessitate giving them these extra powers.

Another objective of the Bill is to transfer the monitoring responsibility from the registrar to the Central Bank. I have already mentioned the huge range of specific powers being given to the Central Bank. If they are to be exercised in the way that I read the Bill envisaging the need to exercise them, the Central Bank will have to have a vast or quite substantial number of new personnel to devise the regulations and to oversee their implementation, pretty well on a continuing basis in a whole range of areas. I have no doubt the Central Bank will have the capacity to do this but it does seem that if the Minister is so apprehensive about the child he is creating in this Bill that he has to provide this sophisticated and complex monitoring system, he should perhaps have another look at his creation. I welcome the changes proposed with regard to the running and management of the societies, their accounts and audits and the very practical provision whereby a layman's balance sheet can be issued. That is a good development.

To pick up a point made by Deputy Dempsey on the election of directors, the Deputy seems to think that what is proposed here will be a change for the better, the better being contrasted with the past when we had unseemly annual general meetings arising out of the efforts of the members of societies to become elected to the boards. There are obviously two views on this. One view must be that societies of the magnitude of a building society or public companies of that size need continuity in their directors. They need personnel with experience as directors. It should not be open to every member who has the personal ambition to be a director of a building society to be able to become a director. I think that is commonsense. I wonder how much of the motivation behind the controversy over the directorships of building societies is due to the simple and basic human feeling of envy. It may well be. It must be said that building societies, because of their responsibility and the amount of assets that they control — the destinies of so many people involved in the prudent management of those assets — there must be continuity at directorship level. That is not to say that there should not be change and that appropriately qualified people should not be entitled to be elected to the building society.

What is proposed in the Bill may make the matter somewhat different but I do not think it will make any significant difference, for the simple reason that, speaking as one having to go through the process of election, there is only one way to be elected and that is to get the votes. If people want to become directors of a building society or a public limited company, they must first have their shareholding qualification and must then get the votes of their fellow members or their fellow shareholders. In the nature of things, shareholders and members are not organised in homogeneous groups that are very easily contacted and mobilised to vote in a particular way. The shared administrative task of doing that will ensure that what is proposed in this Bill will not make any significant change.

So far as building societies or public liability companies are concerned, the directors will, when all is said and done, have the direct means of communication with their shareholding fellow members and will be able to advise them that it is in their interest and in the interest of their company or institution that A, B, C or D should be re-elected or elected, as the case may be. Most shareholders, looking at their funds and knowing that the safety of those funds will depend on the collective wisdom of the directors, will be conservative and will go along with the recommendations of the board. I do not think we will see anything significantly different. People who think this Bill will provide a ready-made and easy means of ousting present boards of directors will have to think again. There are good reasons why that should be.

The provision whereby members of staff will be prevented from canvassing is possibly a good one, although I do not think there is anything altogether wrong in such cavassing. Would there be anything wrong in a bank manager talking to shareholders if there was a controversy about the election of a director of the bank and suggesting that their interests as customers and shareholders and the interests of the bank would best be served by complying with what the directors wanted? I do not see anything obnoxious in that. I do not see anything wrong in the staff of a building society canvassing at the behest of their directors, even less so if the building societies were mutual associations of people to form a common cause for their mutual benefit. It would be entirely appropriate for that to happen. It is possibly even more appropriate, now that we are putting the building societies into the raw world of commercial competition and international banking, that their staff should be mobilised to protect the interests of the society at corporate level. I regard the provision in the Bill as a cosmetic gesture in response to matters which received a fair amount of publicity during boardroom and AGM battles in the past couple of years.

Deputy Dempsey referred to building societies investing in residential schemes of houses. Naturally if they do so they will sell the houses and if a person in that town or suburb seeks a loan from that building society there will be a great temptation to direct him or her towards the building society scheme. I know that controls are to be provided but I wonder, having regard to the nature of things, how effective such controls would be. Deputy Dempsey gave the well known example of the controls to provide competition in insurance having been got around by the building societies in a most reprehensible way. They did not like that control and I think there was a personal animus behind that dislike. Nevertheless the Bill was passed by this Parliament and should have been observed in the spirit and the letter. I echo what Deputy Dempsey has said. The building societies have got around that control, which was designed to ensure competition and better value for the consumer. One is disappointed at the lack of public spirit displayed by the societies in ignoring not just the wishes of Parliament but the law of the land as expressed in the 1986 Act. If that is an indication of the attitude of the building societies to controls imposed by this Oireachtas, I must pose a cynical question about the effectiveness of the various measures scattered throughout the Bill to ensure competition and to ensure that a service provided by a building society will be voluntary for the consumer or member. I am apprehensive that many of these things will turn out to be if not compulsory certainly verging on that.

The power to enable building societies to invest in residential development may provide a ready-made conflict of interest in a significant number of areas. A particular building society scheme of houses may be slow to sell because the location or design may not be right and there must be a great temptation on the part of a society to nudge people looking for loans in the direction of their own scheme. This is an inevitable consequence of making these societies commercial conglomerates rather than mutual societies existing for the benefit of their members. It is well to know the consequences of going down that road. I am somewhat saddened that this seminal change is being made without a detailed thought being given to its consequences.

One of the objectives set out in the Explanatory Memorandum is to enable societies to invest in commercial development. I had the impression that building societies already made loans for commercial development and perhaps even invested in commercial development themselves. Possibly in providing a new headquarters they might have had surplus space available for such development. I should be glad if the Minister would deal with that aspect of the present activities of societies. I suppose it is essential to give the societies this power if we are to allow them to move into the general area of commerce and financial services. It arises inevitably from the logic behind the Bill but it is a far cry from the concept of mutuality which is being buried by this Bill.

Another objective is to help keep down the transaction costs associated with house purchase. I do not know what that refers to in particular. I suspect it may refer to the new power being given to the building societies to provide conveyancing and auctioneering services, but I do not see how a society will be able to provide those services at a significantly cheaper rate than that charged already. I have to declare a vested interest as a country attorney. I recognise the momentum for breaking the conveyancing monoploy of my profession, but I regret that because it raises very basic questions as to the role and place of an independent legal profession in a democratic society. People are cynical about lawyers and say that talk about the place of an independent legal profession in a democratic society is window-dressing by solicitors trying to protect their vested interests. However, it is not as simple as that, it is more fundamental and serious because any citizen—hopefully, the fewer the better — who comes into conflict with the bureaucracy of the State or another citizen must have an independent remedy available to him.

I cannot over emphasise the need for independent advice, assistance and support. If the profession who offer that are unable to continue commercially a serious gap will emerge in our democratic structures. If the commercial viability of their profession is interfered with by taking away what is very much a bread and butter part of their commercial existence, there are downstream consequences, maybe not immediately visible or apparent, but they will be apparent in a couple of decades. I do not want to go on at undue length about the role of small practices in rural areas but they serve an important social, legal and commercial function in the communities in which they operate. I do not know where the push for this power came from, I do not think it was from the societies because I am sure they have enough to do in getting on with all the mainstream activities in which they want to engage without being involved in setting up conveyancing departments. Having regard to the way the Bill envisages tight regulations in that area I hope that many of them will decide to pass that particular cup and I encourage them to do so.

I do not see the point in providing auctioneering services and how it will put the societies in a more competitive position if the services are at arms' length from the main activities of the societies. They will have to be at arms' length from the main activities because, arising from the power to provide auctioneering and conveyancing services, there must be a danger of a conflict of interests. In that conflict of interests, Mr. Strong will inevitably benefit at the expense of Mr. Weak. The strong person in such a conflict will be the society and the weak person will be the individual of modest or limited means. There is a danger of a conflict of interests and it would be altogether in the interests of the societies, their reputation and their status as they go into the financial banking world to be different from those already in it. They can get a first here by ensuring that there will never be a conflict of interests between the interests of the corporation or society and the interests of the customer. I ask the Minister to again look at those two provisions and I certainly expect him to spell out in some detail his justification for the statement in his explanatory memorandum about improving competition. I suppose power to provide an extra service makes one more competitive but if that extra service will not result in reduced costs or bring with it a conflict of interests —or the impression of a conflict of interests — I wonder if it is a good power to give. The Minister must tell us in some detail his thinking behind the conferring of these two powers on building societies.

The other matter to which I want to refer is the power to give societies the right to charge tiered interest rates. This is a contentious power and I regret its arrival in statutory form because it is the final nail in the coffin of mutuality. I am not totally inconsistent in regard to this idea but if mutuality was to procure the best possible deal in the most economical and spartan way, providing for tiered interest rates totally conflicts with that idea. Obviously it would enhance the profitability of the societies because they would be able to charge higher rates to certain levels of their borrowers with a consequent impact on their final profit figure. Competition from the banks, who are now heavily into house mortgages, may inhibit the growth of tiered lending. On the other hand, the introduction of the power here may well start a lobby on the part of the banks for something akin to tiered lending. If that happens, none of us could then say that the consumer had been well served.

The consumer is the person for whom we should all be concerned, not the bottom line of mutual societies or the banks. competition between lending agencies to get in a charge here and there and higher interest rates in vulnerable cases is not a good development and I very much regret it. It shows how much influence the building societies have been able to exert on the Minister that this pet project—indefensible in social and commercial terms—has been so readily taken on board by the Minister and written into the Bill. If that is the way the Minister wants to use his power, fair enough, that is his prerogative but it is a pity because the Minister and all Members have a responsibility, not to financial conglomerates and anonymous corporations, but to our fellow citizens, particularly our weaker fellow citizens of modest means. We should never introduce legislation which gives a position of dominance to strong financial corporations as against the ordinary individual citizen. That may be wheeling and dealing but there is a fundamental, philosophical objection to it and it is an obnoxious development. I regret it coming from a party like Fianna Fáil with their origins of support from the man with no seat to his breeches, which used to be the proud boast of Fianna Fáil. The party opposite have gone a long long way from that concept exemplified by the introduction of the power to charge tiered interest rates.

The Bill represents a fundamental change in the whole concept of building societies and mutuality. I have doubts as to whether a change of this magnitude is necessary. The societies have been able to grow at a significant rate in the past two decades. They do not seem to have suffered competitively vis-à-vis other financial institutions and are still attracting a high level of investment and making a significant number of loans. Deputy Dempsey had the statistics which were impressive in spite of the fact that the banks are now heavily into the mortgage business. Is the answer then to put the building societies into the banking business? I do not think it is because building societies were never intended to be banks. Building societies were intended to be mutual associations for people of modest means to provide building finance at the lowest possible level. That was the concept, but we are living in changing times. This is the era of the ad-man and sophisticated commerce. Building societies now feel that they have to keep up with the Jones' in the banks. The Minister obviously agrees with them, but I have some regrets about this.

Before my colleague speaks, I would like to give notice of my intention to raise on the Adjournment the Dún Laoghaire marina project.

The Chair will arrange for the Ceann Comhairle's office to contact the Deputy on that matter.

Having listened to Deputy Cooney's contribution I must say that there were parts with which I agree and parts with which I did not agree. I re-echo one of the points he made, that is, that we have a moral obligation to ensure that any legislation enacted in this House protects the person of modest means. That has to be our first priority. I would like to think that the Bill before the House contains as many protections as possible. If we find loopholes in the legislation which was introduced with the best will, to protect society, we should ensure with all urgency that amending legislation is introduced.

Deputy Cooney pointed out that building societies and co-operatives were set up by small groups to provide support for persons of modest means who wanted to purchase their own homes or to sell their produce to the co-operatives at the best possible rates. In fairness, the building societies have achieved that objective.

The question has been asked why we have to put so much of our earned income into bricks and mortar given that in many other countries people are into the renting and leasing of more modest dwellings. I will not take up the time of the House trying to find reasons for this. The Minister indicated that we probably have the highest rate of house ownership in Europe and he indicated that over the past ten years more than six out of every ten persons who purchased their own homes did so by way of a loan from a building society. This Bill is of fundamental importance to the majority of those living in this country. Therefore, we must ensure that this legislation, which we hope will work to the benefit of the consumer, will be mentioned. I would like to think that this Bill will lead to more competition in the marketplace and will work to the benefit of the house purchaser.

Deputy Cooney wondered why we had to move from the more comforting image of mutual building societies to that of conglomerates, but times are changing and with the breaking down of barriers between this country and others in regard to all types of lending transactions and the harmonisation of standards, by 1993 at the latest, it is probably worth reminding the House that this is probably the first of a series of legislative measures which will have to be introduced. As I said previously, and I am sure other Members have also pointed this out, we must try to ensure that we enact the most just legislation possible for our own citizens.

There are a number of queries I would like the Minister to answer. A number of other speakers have also raised these queries. Without going into too much detail as a legislator and a protector of the consumer, I would like to say that I share the fears expressed about the introduction of tiered interest rates and the proposal to give building societies the option to change their status and become public liability companies with all that that entails. An assurance would have to be given that there would no creaming off of profits at management level to the detriment of the shareholders in the building society.

We have to guard against the emergence of cartels or conglomerates who would enter into arrangements to suit themselves while still claiming to be competitive, especially in the area of advertising. In the transport area we have several examples of cartels being established and price agreements reached with the result that smaller companies were shut out. We have to ensure that there is fair competition and that smaller companies are not shut out.

The Minister is well aware that one of the objectives of the Treaty of Rome which established the European Community is to prevent multinational companies from becoming too big and too powerful and to ensure that they do not threaten the sovereignty of countries. Up to now we have not succeeded in controlling this. While I am not claiming that building societies would grow to such an extent, there is an underlying fear that in introducing legislation which would allow companies to become bigger and more powerful, they would become monopolies with the result that not alone would they be uncompetitive but the consumer would suffer as a result.

Debate adjourned.
Sitting suspended at 1.30 p.m. and resumed at 2.30 p.m.