Dáil Éireann debate -
Wednesday, 8 Feb 1989

Vol. 386 No. 8

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

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

Mrs. Barnes

Like other Members of the House who have spoken already on Second Stage of this Bill, I was raising some caveats regarding the extended powers and extended business being given to building societies in the Bill. I was making the point that with the extra powers goes corresponding responsibility. The size of house mortgages, their length of term and the property value of the house itself are directly linked with the cost of building land. The direct involvement of societies, according to the Minister, in the development of land for residential and other commercial purposes is a logical extension of the traditional business of these societies, namely the provision of loan finances for such development while the new power to own and develop land will, he hopes, be the basis for a new departure on the part of building societies in the housing sector. I certainly hope it will be a new departure and I shall talk about that subject presently.

Meantime, with extra competition and very well-funded building societies now being able to trade and compete for building land, I am afraid that prices may be even more exaggerated. Members of this House are aware that at times the cost of the building land alone is comparable with what the house should cost fully built. The site represents a tremendous portion of the house purchase price. We must be very careful about trying to control building land. It has always been a matter of amazement to me, even in a free market such as ours, that overnight, building land can represent such a tremendous profit by being zoned, or through local authority services making it building land. It is the purchaser of the land and the house purchaser later who pay the price for that. The entrance of building societies into his competitive field may it is hoped ensure that building land is kept more reasonably priced than some of the escalating prices we have seen recently. Such escalation would put the land out of the range and residential choice of a great many people. All of us socially would hope for, and believe that we should have mixed housing and not ghettoes of high value and of low value houses but that is something we can explore further.

I very much welcome Part VIII of the Bill which contains the promise of regulations by the Minister, if necessary, with regard to dealing with complaints of customers or abuses in the services being provided to consumers by building societies. I take the Minister's point that an Ombudsman-type arrangement could apply in relation to consumer complaints about services provided by the societies. The Minister suggests that perhaps the societies should set up a voluntary arrangement for dealing with these complaints, although he has rightly held the power to bring in statutory regulation in this context. All of us like positively to encourage people to set up self-regulatory machinery but if these voluntary arrangements are not seen to work or if one or two of the building societies are reneging on their obligations, the Minister can act promptly to bring in regulations to ensure consumer protection. Perhaps if the building societies publicised arrangements for dealing with complaints in their widespread advertising householders whould be aware of their rights in this respect. Too often the consumer who most needs protection is not fully informed.

I welcome the whole thrust of the Bill with regard to mortgages. There is an attempt to ensure fairness and justice for everyone. During his speech the Minister said it is vital that societies should be seen to be run in the interest of their members. All of us would applaud that. He also said it is important that the law should protect the rights of the ordinary members of building societies as mutual bodies and should give them a democratic say in the running of affairs. There is a tremendous striving for representation and democracy and consumer rights running through this Bill.

Up to now we have not had that sense of democracy with regard to directorships and decision-making in building societies due to the lack of representation of half the population, namely women. I am referring to women as shareholders and house purchasers. It is astonishing that in 1989 we can look at the boards of the various building societies and see either no women or the one token woman. Since family homes are, on the whole, jointly owned, one of the joint owners is a woman. Many single women are economically independent and can purchase houses in their own right. It is of vital importance that women should be involved in the decision-making areas of these companies. I particularly ask that affirmative action should be taken by the building societies to ensure fair representation.

I would refer the building societies and anybody else interested in highly qualified, skilled women to the Women in Management Directory 1988-89, compiled by Network. It is introduced by very successful and highly qualified women and contains over 600 names. This is merely the first edition. The glib reply that we do not have suitably qualified and experienced women is no longer acceptable. We cannot believe that any organisation is run in a democratic or representative fashion as long as the exclusion of women continues.

I want to highlight another point which will require further legislation because of the loophole in the Family Home Protection Act, 1976. On being tested in court it was found that a judgment mortgage had priority where a loan was defaulted upon in respect of a family home. Women found, very often without knowledge of this legal precedent, that the family home had to be sold. Up to 1976 the breadwinner was traditionally the sole owner of the house and the woman found herself in a totally unprotected and vulnerable situation without any legal entitlement to the house once the sale was forced. We have been asking that the Bill dealing with the property of married couples should be introduced as quickly as possible to deal with this matter.

The building societies have been more than just business organisations. They have been mutual societies, almost extended credit unions, which have given opportunities to people who, through their personal saving, would not have been able to raise the price of a house. The building societies have enabled a high level of home ownership and of security. We must however, protect fundamental rights so that the family home does not come under threat from the building societies or the banks, if they engage in lending for house purchase. Judgement mortgages should not take priority over the central unit of society as they do at the moment, where property is more important than people.

As chairwoman of the Joint Committee on Women's Rights I have received letters from many women all over the country who, as single people with a career and economic independence, have been turned down in regard to mortgages from house building or lending agencies or have been treated less fairly to the extent that when a sister and brother in comparable circumstances applied for a loan he got a mortgage and she was turned down. That is obvious discrimination and if we are bringing in legislation to ensure justice and protection for consumers, we must demand fairness. I know there have been improvements in some of the building societies, which I acknowledge. However, there is room for improvement and perhaps an Ombudsman-type tribunal could be set up to deal with the matter. If further legislation is needed it should be introduced and debated here to ensure that there is justice for everyone.

Mr. M. Higgins

I will be very brief because our general attitude towards this legislation has already been expressed by our spokesperson on the Environment, Deputy Quinn. There are, however, two or three small points in the Bill on which I seek further clarification. I am encouraged to do so by the rather ambitious opening sentence in the Explanatory Memorandum at which I looked this morning and which states that this Bill proposes to reform substantially the law on building societies and to replace with one comprehensive Act all existing building society legislation, namely, the Building Societies Acts, 1976, 1980, 1983 and 1986. I certainly welcome that spirit of adventure which informs people in approaching an area like this.

However, the ambition of the legislation having been expressed so generously, I was encouraged to reflect on some things which have not been clarified and which need clarification in relation to building society legislation. Some of these have been touched on indirectly already by Deputy Barnes. One point that seems to be still unresolved is an attempt to reconcile both the spirit and effect of some of the judgements based on the Family Home (Protection) Act, 1976. The thinking behind that Act — I remember it very clearly — was that it was an early and simple attempt to try to protect the family home. Obviously it was not able to deal in an extended way with the concept of family property. I was a Member of Seanad Éireann in 1976 when this matter was debated. What emerged was the concept of the contribution of both spouses to the home and so forth. At that time there was a debate about the tremendous importance of the family and the enormity of their being dislodged from a home.

In recent judgments based on the 1976 Act the concept was amplified and someone who was married to a person whose actions clearly damaged the family property could go to court and seek a certain kind of protection, that the asset, the family home, could not be endangered or eroded. It went much further than that in relation to a number of cases. I am thinking in particular of one judgement in which the judge spoke about the different efforts being made by the spouse to retain the house after the defaulting spouse had disappeared. The judge gave a clear indication that we were straying into the area of building societies' legislation.

This Bill aims at amalgamating many different Acts and it is unresolved whether the legislation is founded on the concept that the building society and the person taking out the loan, have a central, contractual relationship. I can make what I am saying very much simpler by giving a practical example in my own constituency. It arose in the case of a couple who entered, in their joint names, into an arrangement with a building society. Then the husband lost his job and made several attempts to find another in different occupations. Automatically, I am raising another issue; we are facing into a situation concerning employment where this will become much less rare. How protected is such a person in relation to changing income standards? However, that is not the nub of my argument. Later, the marriage of the couple to whom I referred got into difficulties and the woman was soon entirely reliant on social welfare. She proceeded to make the payments to the building society and when the entire issue came to court the argument was made by the society that the contributions by the woman, because they were made from social welfare from her deserted wife's allowance, were not payments from income as envisaged in the original contractual relationship between the building society and the two spouses in better times when they had a single main income. This crux as to whether money received through State subsidy constitutes an income in the same way is a problem in reconciling the spirit of the Family Home (Protection) Act, 1976, and the building societies' legislation. It is an unresolved dilemma for me. That does not mean that a building society would not be reasonable with a client. That is not the point. The anomalous relationship between a society's relationship and their client is brought further by the difference between that and a new tenant purchase scheme being administered with the widespread recommendation of the Minister and the Department of the Environment. The Minister for the Environment said yesterday in the Dáil that he was encouraging managers not to refuse any applications on the grounds that the person was not employed and was receiving social welfare. However, I look in vain at the building society legislation to see where it is stated that an income derived from social welfare would be accepted as an adequate guarantee for a mortgage.

That is not as simple a problem as the one of changing circumstances. What is the position in relation to both spouses when they start? Let us say that he has an adequate income, a secure job. You can take it in different stages as jobs are disappearing. He then falls on more difficult times and perhaps the payments can be kept going. However, let us say he abandons his responsibilities altogether and his wife is in receipt of the deserted wife's allowance. Let us say she can manage some of the time. What is the position in relation to what constitutes income in terms of what will be stated in court? I am making a legal point, that a statement as I understand it can be made that while she has made payments to the society they are not instalments within the definition of that word in the original relationship between a society and its member. There is no point in imagining that that legal difficulty does not exist. I would welcome the Minister of State commenting on the difficulty I have described and perhaps tackling it through the use of a simple form of words. Maybe I am misconstruing the matter. I am not a legal person but I am dealing with the interpretation of the words, as I understand it, in the Bill.

There are one or two other points I would like to make. The provisions contained in many parts of the Bill are welcome. Above all else, the purpose of this Bill is to create a level playing field on which the banks and the building societies can flake away at the public for their benefit and the benefit of their shareholders and I am sure that this will appeal to the primitive sense of equity which informs such people who pursue profit. With reference to the origins of the building societies, I think we would all be living in the land of illusion if we thought that their origins were philanthropic.

I am intrigued, and other speakers have referred to this, by the use of Central Bank in such a wide role. This to some extent is welcome provided we also retain control over the Central Bank.

We may need, however, to amend the Central Bank Acts so as to make them more amenable to the credit policies of the Government. A very interesting set of circumstances arises in this land of the absurd. Effectively the rate of credit, as constituted by a housing loan, a mortgage or whatever one may wish to call it, is fixed by the marketplace and relates to the price of money at a particular time. It is as if people then have an afterthought and start to operate a system of mortgage interest relief which, as we know, is massively regressive. Its regressivity is not entirely mitigated by the lowering of the ceiling, as occurred in recent budgets.

If we are to create such a relationship between the Central Bank and the building societies, referred to so comprehensively in so many sections and expressed so minutely that it would be able to act as an advertising standards agency, we may also be able to whisper to them in relation to the overall rate for housing finance. The public might welcome this. The bundle of assets, as constituted by the housing stock of a country, is quite different in its character from all other kinds of assets. One of the appalling failures of the Irish banking system is that it has been unable to establish any discriminatory levels, in terms of risk, in interest rates. The only thing we know about the Irish banking system, apart from its deep dependence on a British model of banking, is that it has a limited concept of collateral. Traditionally, the Irish banking system has required more collateral and required it in an asset form defined in a very limited way. It does not accept long term risks or technology's patents as collateral for investment and so on and its interest rates are also sloppily high as a result of high administrative costs.

The money of the banking system is now going into the financing of housing. Many say that this is a good thing, perhaps it is but that is an argument for another day. I want to be very straight-forward about what is happening. At present we are living with a statistical fallacy that because of the decline——

An Leas-Cheann Comhairle

The Deputy should relate his remarks to what is contained in the Bill.

Mr. M. Higgins

I am disciplining myself entirely even without your assistance. The point I am trying to make——

An Leas-Cheann Comhairle

I was not hoping to assist the Deputy but rather to remind him that he must relate his remarks to what is contained in the Bill.

Mr. M. Higgins

The point I am trying to make is that this legislation will be directed more and more at the total volume of homes that will be occupied in the decades to come. We are moving away from a position where the State provides a certain component of housing. The invitation to the banking system to become involved in financing the provision of homes cannot be understood outside of the context of the retreat by the State from the provision of housing. People have justified the State's retreat on what has been suggested is a decline in population. But that misses the point that even though we have a declining population, the age at which people marry is lower, there are more marriages and couples have fewer children, with the result that there are more households. Therefore, the market for houses is getting bigger and this will be serviced by the building societies. If the State is to play a smaller role, the conditions we define for the marketplace will have to take into account the conditions of the larger society and that society will be characterised by a decreasing long term security of employment. In the United States, for example, the average person holds three different occupations during the course of his lifetime. A number of insecurities may also have to be addressed by way of transfer payments and a different kind of social provision.

I am now back at the point where I started: how useful is the principle of simple contract in informing the relationship between the client of the building society and the society without taking into account the responsibility of meshing this legislation with the other types of security that are offered in social legislation, however narrow it may be, such as the Family Home Protection Act? I quoted only one model case, I could think of many others, but I would like the Minister when replying to state what would be the position of those in receipt of transfer payments.

Mr. Enright

I have listened with great interest to the contributions of Deputies Higgins and Barnes. I have also read the contribution of the Minister for the Environment.

Some of the provisions of this Bill are welcome, but there is a necessity for our building societies, banks, financial institutions, insurance companies and so on to gear themselves up to face the challengers which they will be confronted with on the advent of open competition in 1992. The relaxation of exchange controls has meant a greater flow of money, both into and out of this country, for investment purposes. During the next few years it is quite likely that British building societies and those of other European countries will establish in this country in direct competition with our building societies, who need to gear themselves to face this competition.

I put it to the House that we may face a number of dangers. We are gearing ourselves towards the American, British and European economies, all of which have been geared in large measure towards affluence and what on occasions can be regarded as enterprise and sometimes as greed. The building societies are profit making organisations at present but they were not originally designed for making profit. The concept of building societies was of a group of people coming together with the objective of setting up a society to provide for purchase of their own homes. Entrepreneurship is wonderful, but the main business of building societies is to provide mortgages for families who are setting up their own homes. That is the basic line of business of these societies, but they have strayed. It is all right to stray a little bit but they should not lose sight of their original objective. Look at section 29 in the Bill — financial services. Section 30 is in regard to bonds and sureties. Section 31 provides for conveyancing services and section 32 for auctioneering services and other services relating to land. It appears now that a building society will provide you with the finance to buy your home. It seems too they will provide you with the funds to take out life insurance on yourself and your wife, carry out conveyancing in regard to your house, and finally will be able to action your house. That must seem like utopia for many people, but let us see what lies behind it.

A young couple of 22 to 24 years of age marry and they may be innocent about what is involved in setting up home. They know little about finance. They go to a building society and are told there to get their fire insurance in whatever company the building society recommend. They are told to go to another insurance company to take out life assurance and to an auctioneer if his services are required. The building society will say they are doing the conveyancing too. That could be very dangerous.

Let me give the Minister an analogy related not to his Department but to the Department of Industry and Commerce. It is as near as I can go to drive home the point. The PMPA were set up originally with one objective, to provide motor insurance at a reasonable price for the Irish motorist. That seemed simple, beautiful and ideal and everybody moved towards them. Everything was going well and then they started to go into different areas. The bought numerous garages in which they carried out repairs to cars. Then they bought a Sunday journal — they were into the newspaper business. Then they presented their own magazine which the could circulate to motorists. If the Minister will excuse me for saying so, around election time they were an excellent propaganda machine for a political party of which he happens to be a member. I do not say that in any disrespectful way, but that happened to be the facts of life at the time. The Sunday Journal was not a success for them, but they went on from there. They bought McBirney's and property in Wolfe Tone Street and other properties — you name it.

The PMPA were good when they were dealing with car insurance alone but they strayed from their objective and wandered all over the place. Who now is carrying the can for their mistakes? Poor Sean Citizen right across rural Ireland and in Dublin is carrying the can for people who lost sight of their original objective.

The Minister is here with his advisers from the Department of the Environment, and they are most welcome. As a humble backbencher I want to ask whether the building societies have lost sight of their original objective. I think they have. I will give an example. Tiered interest rates were to be done away with; they are back. No fee was to be levied on the borrower by the building society. That was provided when Deputy John Boland was Minister for the Environment. In regard to any couple buying a house no legal fees were to be paid to the building society. Perhaps some societies are not charging fees, but I have proof of two who are doing so. I have that proof here in black and white and I can show it to the Minister. I do not intend naming any people involved. However, it is time this was highlighted.

In regard to a building society here in Dublin the society's solicitor's fee — which they say is restricted — is £80; stamp duty on the purchase deed is £330 — that outlay is understandable. The Land Registry fees on the mortgage are £50. The Land Registry fees on the transfer are £100. The land Registry fee on vacate is £10 and the cost of the Land Registry folio map is £6. Those are all outlay, but the fee for attending, closing, stamping and registering the deeds is £25, postage, telephone, printing, forms and sudries £15 and stamp on policy £5. The total for the solicitor's fee, stamping etc. of deeds and postage etc. comes to £120 plus VAT at 25 per cent, £30, a charge of £150. There was to be no charge by building societies on loans. Charges were to be absorbed. The other items I have given total £501. The total due from that poor young couple was £651. That is a mountain of money, a huge headache for them.

I have another bill here from a different building society to prove, as the saying is, "They are all out of step except my son John". In my view they are all in step. This is going on across the board. Stamp duty on the mortgage is £25; the stamp duty on the deed of variation is £5; Land Registry fees and transfer, £150; fee for attending at closing of purchase, stamping and registering deed and completing registration in Land Registry, where necessary, £8; requisition for land certificate, £10; postage and incidentals, £10, making a total of £208. There is a further bill for the same couple on the following lines: fee for stamping and registration of purchase deed £50; outlay not chargeable to VAT, which included a considerable amount of stamp duty on the deed, £1,280. Between outlay, VAT and so on the bill came to £1,587.

I was under the impression that those charges would be done away with but that does not appear to be the case. The real danger is that building societies will act for the auctioneer, the vendor and the purchaser. We must all remember that once legislation is passed by the Houses of the Oireachtas it is very difficult to have it amended. There is no doubt that the road the Minister is travelling is filled with land-mines. People are in danger of having the independent and objective advice that has been available to them until now whittled away.

Members will have read the story in yesterday's national newspapers under the heading, "Building society ordered to give home back". In regard to that story I should like to quote from a deed of mortgage for the information of the House. The Minister of State, as an auctioneer, has dealt with many of the issues being raised in the course of this debate down the years and he will be familiar with the points I am raising. The deed of mortgage states:

(A) Notwithstanding the covenant hereinbefore contained for payment of the principal sum and interest by monthly subscriptions the whole of the principal sum, interest and other moneys payable under this mortgage shall immediately become due and payable by the borrower to the society and shall be recoverable by the society with interest thereon at the current rate (as well after as before any judgment) from the time of the same so becoming payable and the power of sale and other powers and authorities conferred on mortgagees by the Conveyancing Acts, 1881 to 1911, the registration of Title Act, 1964, and the provisions of the said Acts except in so far as the same are hereby varied and extended may (subject to any order of the court thereby required and subject to the provisions contained in section 20 of the Conveyancing Act, 1881 restricting the powers of sale) be exercised without notice to the borrower in any of the following events——

An Leas-Cheann Comhairle

I presume the Deputy will relate his quotation to what is proposed in the Bill or to what is not covered in it.

Mr. Enright

I am referring to the conveyancing powers and so on that it is intended to give to building societies. My concern is that when building societies are given total control of conveyancing young couples will not be in a position to get independent advice.

An Leas-Cheann Comhairle

Is it the Deputy's intention to point to a weakness in the proposed legislation?

Mr. Enright

That is correct. The deed continues:

(i) If the borrower shall fail to comply with the convenant for payment on his part contained in clause 2 (A) hereof;

(ii) If default shall have been made for three months in the payment of some monthly subscription interest or other money hereby secured;

That deed entitles a building society to enter the property. In the High Court in Dublin on Monday the Irish Civil Service Building Society were ordered to deliver up possession of a County Dublin home which it had repossessed because of mortgage payment arrears. In that case Mr. Colm McCormack of Shenick Lodge, Skerries, County Dublin, borrowed £38,000 in 1980 and had made sizeable repayments between then and 1988. The arrears due, including interest, was £1,879 and, without notice or a court order, the building society entered into possession of his home. According to the report of the court proceedings, Mr. McCormack had left his family possessions in the home. In my view there is a danger that we will give too many powers to building societies. If we allow them into auctioneering and conveyancing I have no doubt that the next thing that will happen is that they will get involved in life assurance. That will be a minefield.

I wonder what will happen if a building society runs into financial difficulties. As far as I am aware, the existing societies are financially sound and I accept that there is a proposal in the Bill to bring them under the control of the Central Bank, but if something goes wrong there is no doubt that the taxpayer will be asked to take up the tab. The Department of Industry and Commerce were responsible for supervising the PMPA; yet that company ran into financial difficulties.

I do not want to be told in years to come that I am being wise after an event. We are asking the Central Bank to undertake a huge task when we are making them responsible for the control of building societies. It is dangerous to give them that responsibility. In the event of mistakes arising it will be the taxpayer who will have to pay the bill and that is not good enough. I suggest to the Minister that the majority of the big societies are not seeking the powers he is conferring on them.

The Minister was pressured by a select number of building societies to pursue this measure. The Minister should hasten slowly as he is entering into a very dangerous area. Family homes and farms are near to the hearts of Irish people. We have had a most difficult history. There is plenty of money to be had from building societies at the moment, but I would not like to see people make the mistake that the farmers made, by over-borrowing. Radio, television and newspapers are constantly advertising for building societies. Those advertisements are paid for with investors money. I fear that many people will borrow too much and the advice given to people will be very limited. Difficulties will arise for many people. In the future the High Court will not give possession of a house to a person like they did yesterday in Dublin. In a lot of instances peoples' homes will be repossessed. That is not a desirable development.

We have to gear ourselves to cope with the entry of foreign finance companies and building societies to Ireland, but we have to be careful in granting new powers to building societies. We should ensure that we put a curb on any foreign society conducting business here. In the long run families who are unable to pay their loans will be in most difficulty. Because of the availability of building society money and the limited number of local authority houses being built I would urge people to exercise caution.

The south of England is the boom area in Britain and many of the rich people in the south are buying houses in Wales and Scotland. They are buying holiday homes and second homes and so on in the seaside resorts. Many of the local people do not accept this trend. I am sure the Minister and people in the Department of the Environment are aware, although it has not been publicised to a great degree, that there is a widespread arson campaign in parts of Wales and Scotland due to the fact that people in the middle income brackets who have lived in those seaside resorts all of their lives are not able to buy homes at a reasonable cost. An ordinary house worth £30,000 in these areas is now selling at £60,000 or £65,000, double the market value, to people coming from the south of England. A number of houses bought as holiday homes and second homes have been burned. That fact can be checked and verified. If house prices here become too high and if local authorities do not provide the necessary houses there will be a shortage of houses coming on the market. In that climate it is likely that young couples will over extend themselves in borrowing. While some of this legislation is necessary it is going too far and the Minister would be wise to re-assess it.

We need to take greater care in dealing with building societies. An inordinate amount of money, investors money, is being spent by the building societies on advertising and on building huge office blocks. I have criticised some of the measures and I have criticised the building societies but I take this opportunity to acknowledge the contribution of the building societies to Irish society. We have the highest percentage of home ownerships in Europe. We are way ahead in that field. Building societies have contributed enormously to this and we owe them a debt of gratitude.

Many in the building society movement are not anxious to expand into the fields being opened up in this legislation. Some of the senior people in the building society movement will have great reservations about this Bill. The Minister would be wise to re-examine the Bill and to withdraw some of the sections. The building society movement has served us well but let us be careful with regard to the powers we are granting them. These powers have been requested by only a limited number of building societies.

This is the first opportunity I have had to speak in the House since Deputy Connolly was appointed Minister of State. I wish the Minister continued success in his Department and I compliment him as a hard working and sincere man.

Mr. McDowell

Mine will be a two minute contribution arising from the fact that I came here proposing to speak on the Central Bank Bill. While waiting and listening to some of the interesting contributions my mind strayed to the substance of the Bill. My two worries are that the control on advertising provided for in the Bill does not seem to extend to actually controlling the proportions of money to be spent on advertising. Is there not, particularly in the case of the building societies, a good ground for giving the Central Bank the right to control in gross terms, or in proportionate terms or in some form of ratio relative to assets, the amount of money that can be spent on advertising in any given year? Secondly, I noticed when reading a book on the Central Bank and its role, that it has required of the banks over which it has control that they must seek permission before they open any new branches. This was done in 1981 on the basis that the Central Bank believed at that time that there was a superfluity of branches and that this was an unnecessary cost in the banking system. I get the feeling that a lot of money has been invested in building society branches, that there is an enormous number of these branches. I wonder if the Central Bank will have the same power — this does not seem to me to flow from anything contained in the Bill — to say to building societies that they must get permission before they start opening up additional branches or whatever.

One of the problems with regard to building societies is that they are not really accountable to their shareholders in the sense that shareholders do not look to them for a dividend income in any real sense of the world. Therefore, there is a tendency on the part of the controlling group, the board of directors of a building society, to spend more than I think is a justifiable amount on competition with other building societies and in endeavouring to increase their share in the marketplace, which is not really in the interest of their members. That is not an absolute interest for building society shareholders in the same sense as it is for competing banks' shareholders. I am worried sometimes, looking at the buildings bought by societies in Dublin, at the amount of money spent on them, the amount of money ploughed into their branches. For instance, in Rathmines there was a very elaborate branch built recently on the corner of Rathmines Road and Castlewood Avenue. I wonder whether it was a financially prudent investment, just from the look of it, and the amount of money it appeared to consume in its construction. Indeed I wonder whether the investors' interests were being looked to first or whether it was not in that case — which is only representative of every building society; I do not want to single it out — indicative of a desire to empire build, with a huge cash flow, a huge set of assets rather than provide money for house purchase and property-related finance.

I wonder whether the Central Bank have sufficient powers under the provisions of this Bill to really direct building societies to keep their costs down, to keep down their management costs, cost of investment in offices, in advertising and cost of competition between building societies. I wonder whether it is right or wrong in such circumstances that, for instance, Barry McGuigan's fight in Las Vegas should have been sponsored by a building society. One wonders whether a bank would sponsor a fight in those circumstances if there were shareholders going to an annual general meeting who really felt the loss of dividend. I wonder, too, whether there is the same degree of accountability. Because I do not believe there is the same degree of competitive pressure on building societies to minimise their costs there is a greater case to be made for giving the Central Bank the right to force building societies to behave themselves in relation to the expenditure of money on promotion advertising, infrastructure, management and the like. There is an element of waste there I would find difficult to justify. Indeed the volume of television advertising sometimes frightens me.

In that context, and because shareholders' interests are not as strong a force in the building society movement as they are among the commercial banks, should there not be some pressure from the Central Bank to stop competition among building societies because the societies are not there to compete with each other? It does not matter to the average investor in a building society whether his society grows or contracts, or has three-quarters of the market or one-quarter at the end of any given year. He has not invested in the building society to gain an increased market share. In that sense it concerns me that there does not seem to be, within the provisions of this Bill, a controlling power on the part of the Central Bank to keep down those costs and ensure that building societies — which are not at present commercial concerns, unless they turn themselves into public limited companies under the provisions of this Bill — are not really expected to operate on commercial grounds. Therefore, I wonder whether it would not be right for the Central Bank — at any rate as long as building societies remain mutual societies as opposed to public limited companies — to put huge pressure on them to keep their costs down. Their shareholders — and probably every Member of this House is a shareholder in a building society — never really are consulted to the extent to which their moneys are used to advertise for an increase in market share, or whether their moneys are really necessary to double the size of the branch network. I should like to hear the Minister's views in relation to those issues.

Mr. Naughten

I join previous speakers in welcoming many provisions of this Bill. Overall it is to be welcomed. I am convinced that the powers of building societies should be extended because it is my firm belief that, in recent years, they have been operating somewhat within a strait-jacket. After all, they have played a major part in the development of the private ownership of houses here. We have the highest number of privately-owned dwellings anywhere in Europe. That progress is to be welcomed. It is also important that the building societies be in a position to compete with the Central Bank in the marketplace because competition is healthy. Therefore, it is only right and proper that their powers be extended in this regard.

There are a couple of points which concern me and which have been raised by each of the last two speakers. One has to do with the question of advertising for funds. One's attention is drawn regularly to such advertising whether on the part of the commercial banks, the building societies or any other financial group seeking funds. There appears to be tremendous competition for those funds without any reference whatsoever to shareholders. I have never known of any shareholder to be consulted about this type of advertising campaign.

When one travels through any town or city today one cannot but notice one premises bigger and better than another owned by one of those different financial groups. One cannot but ask if there is any need for this type of empire building, these massive office blocks to be seen in the capital and other towns throughout the country. For example immediately funds became available, when the money market freed up why was it necessary for building societies to switch over to investment in such large office blocks? Such investment is questionable. We all witnessed what happened the ACC. This took place in my county, as it did in the Minister's, when some ten years ago the ACC built and staffed a chain of offices across the country, many of which have had to be sold resulting in the loss of vast amounts of money. It has been clearly stated that the same body lost a lot of money on account of the depression in agriculture. However, what was never emphasised was the amount of money they lost because of their efforts to build those office blocks throughout the country. These are matters the Central Bank should have power to control — what I might describe as empire building — also the competitive element and advertising for funds.

The point has been well made about the level of sponsorship. We witnessed one building society becoming involved in a very expensive sponsorship. One must ask whether that was the purpose for which the building societies were established and whether it was necessary for them to have become involved in such sponsorship. Was it necessary for them to have expended such huge amounts of money on a particular sponsorship? It is my belief that it would never have been the wish of their members that they should have become so involved. Again one wonders how often the wishes of their members are taken into consideration.

We need to be extremely careful about the conveyancing of property and about the possibility of introducing amendments, because the system that has obtained to date, has served the country and its people well. I do not think that handing these powers over to building societies will improve the speed, efficiency or effectiveness with which conveyancing can be carried out. Deputy Enright has already outlined the charges being imposed by building societies for it. We should be very careful about extending the powers of building societies in that regard.

I find that the major difficulties in conveyancing lie with the Land Registry where registration is held for months or years, leaving people on bridging finance at very high interest rates. We all know what happened some years ago when interest rates were high and people were crucified paying the interest on bridging finance because deeds were held up in the Land Registry.

The Minister also referred to the question of building societies getting involved in the property market, in building apartments and so on. Some 12 or 14 months ago the Minister expressed the wish that building societies would get involved to a greater degree in funding mortgages for those building houses privately, so much so that the SDA loans scheme was practically closed down because, to get a mortgage from the county council under the fixed interest loan scheme, one had to have a letter from the building society and the bank stating that one had been refused by them. That has extended to a very large degree the number of mortgages granted by building societies over the last 12 months.

There were also a number of people who changed to endowment mortgages. I wonder is the suggestion that building societies get involved in the property market another step from the removal of SDA loans from private individuals by and large, to the handing over of responsibility for local authority housing? Are we going to find building societies building local authority housing which would be rented out at subsidy? The Minister said he sees building societies getting involved in this market. I wonder if he envisaged transferring to building societies some of the responsibility which prior to this lay with the Department of the Environment? Perhaps the Minister would refer to this when he is replying.

Deputy Barnes talked about the cost of sites. That is probably something the Minister and I, because of the part of the country we come from, are not very conscious of. I wonder if the building societies getting involved in development and building land will fuel the price of these lands so that we will end up eventually with higher cost housing than we have today. This is something we need to avoid.

I believe the new powers in this Bill will eliminate the peaks and valleys in the way building societies get their finances and will leave them in a position to get a greater flow of funds throughout the 12 months of the year. Healthy competition is a good thing, and these new powers will help to create that. I hope that in the years ahead building societies will be able to compete with the commercial banks for the business of county councils, health boards, vocational educational committees and the like and provide a service at a keen rate. Nowadays all these bodies are paying considerable charges to the commercial banks which, when they were set up, were trying to get business and there were no complaints about charges. However the boot is on the other foot now and they want to charge for every service. I look forward to the day the building societies will be able to compete and provide a better service at a cheaper rate than some of the commercial banks are doing at present. In addition banking hours at present are from 10 a.m. to 3 p.m. and I have no doubt that the competition created by the building societies will eliminate that.

Another area for concern is tiered lending. It is envisaged that it will be reintroduced. I object to it. I do not agree with the principle and I believe we should keep as far away from it as possible.

I have already referred to the delays in the Land Registry and I would ask the Minister if there is anything either he or his colleague, the Minister for the Environment, can do to eliminate the long delays in that establishment. People are often held up on bridging finance for quite a long time, unable to get their deeds out of the Land Registry. This has caused major hardship for many young families starting out. I hope the Minister will be able to use his good offices to have that cleared up as soon as possible.

In conclusion, I welcome the Bill. I have the reservations I have already outlined and I hope the Minister will introduce amendments on Committee Stage to prevent my worst fears coming to pass.

Minister of State at the Department of the Environment (Mr. Connolly)

First I would like to thank all the Deputies who contributed to the debate on this important Bill. I found their contributions generally useful and constructive. I am glad to note that there is general support in the House for this new legislation. Nevertheless, quite understandably, many Deputies raised questions and had suggestions to make. I will try now to respond to as many of these as possible. I can assure Deputies that all their suggestions have been noted and will be considered in detail prior to the Committee Stage.

Deputy Shatter expressed some concern about the regulation making powers contained in sections 4 and 5 of the Bill. I do not see that this will have the feared effects. Section 4 gives the Minister a limited power to remove, by regulation, difficulties in bringing any provision into effect. This applies to other legislation also, namely, the Farm Tax Act, 1985, the Canals Act, 1986. As has been said already, this is a complex Bill but we will be able to tease out all these matters on Committee Stage.

Many of the provisions in the Bill correspond to provisions in companies and banking legislation. Section 5 simply provides the mechanism by which the building societies legislation can be kept in line without the need for amending primary legislation. Deputy Shatter was very concerned about tiered rates. As was mentioned in the Minister's opening speech, section 24 will ensure that existing loans will not be affected and that future borrowers can only be charged a tiered rate where such a rate is charged from the day the loan is drawn down, the mortgage provides for a tiered rate and the borrower accepts in writing that he will have to pay a tiered rate. When section 24 is brought into force societies will have the choice of charging tiered rates but this is no more than other financial institutions have at present. I firmly believe that to maintain the ban on tiered rates would not be to anybody's advantage. Whatever justification there may have been for it in 1986 there is none for continuing the ban on future loans having regard to the substantial changes in the market conditions since then and to the whole thrust of the Bill which is to allow societies to compete on an equal basis. It is open to the person who is applying for the mortgage to decide if he is prepared to pay a tiered rate.

Deputy Shatter indicated that he thought the Bill was unclear as to the respective responsibilities of the Minister for the Environment, the Minister for Finance and the Central Bank. Briefly, under the Bill the Central Bank will be the regulatory and supervisory authority in relation to societies. It will regulate and supervise societies on a day to day basis and is being given many powers for that purpose including the power to make regulations in relation to certain key matters such as rules to be adopted by societies. The bank will exercise its power as an independent authority. Neither the Minister for the Environment nor the Minister for Finance will be able to tell the bank how to do its job. The Minister for the Environment, in addition to being responsible for legislation in relation to societies will also have the job of making regulations in a limited number of key areas such as securitisation under section 18 (6) and in regard to the application of the deposit protection scheme under Part IX. The power to make regulations in these areas is being reserved to the Minister for the Environment because they involve issues of policy extending beyond the regulatory and supervisory responsibilities of the Central Bank. The same argument applies to the even more limited number of areas where regulation making is reserved to the Minister for Finance — conversion regulations under section 108 — and the Minister for Justice and regulations on conveyancy and auctioneering under sections 31 and 32 respectively. Regulations to be made by the Minister for Justice on conveyancing or auctioneering or by the Minister for the Environment on securitisation will not be confused with or undermine the job of the Central Bank but will complement it. It will be a matter for the bank to decide on prudential grounds whether a society should undertake a particular activity. In doing so the society will have to comply with any regulations that may apply. It should also be noted that ministerial regulations must be prepared in consultation with the Central Bank.

Mr. Shatter

I do not think that clarifies the position.

Mr. Connolly

Many Deputies spoke about the new powers that would be given to building societies. It is a matter for them as to how they will transact their business in the future. Deputies can take it that under the supervisory powers being given to the Central Bank a close eye will be kept on the Societies' operations.

Deputy McDowell raised the point about advertising by the building societies. That is a matter for the societies. If any member of a building society is not happy with its advertising and the amount that is spent in that way, it is open to that member, at the annual meeting of the building society, to question it and to put forward a proposal. As Deputies know, all the financial institutions engage in high powered advertising. Many people say this is a good thing because it is freeing up the market.

We are dealing here with housing in which I am directly involved. It gives the house purchaser a greater opportunity to see what is available to him or her and then it will be a matter for him or her to decide.

Deputy Quinn referred to the need for a wider range of mortgage products to cater for specialist needs in the housing market. I agree that there is scope for a range of mortgage products tailored to the needs and circumstances of certain categories of people. This is recognised in the Bill. I appreciate the point made by Deputy Quinn on the scope for mergers between societies. I am not too sure, however, that there is much that a Minister for the Environment can or should do in this area except provide a sound statutory basis for mergers. The provision on mergers and transfers have been updated.

Deputy Farrelly expressed concern about the implications of the Bill for family firms in areas such as conveyancing and auctioneering services. If societies choose to get involved in these areas it will give rise to additional competition. On the other hand, it should be noted that at present there is no restriction on who may provide auctioneering services provided they obtain a licence under the Auctioneering and House Agents Acts. The provisions for these and other services in the Bill are logical extensions of the existing functions of societies. There is no good reason why societies should not be enabled to provide these new services.

Existing businesses in the areas in which societies choose to become involved have nothing to fear if they are providing a service efficiently and, of course, at a reasonable price. That must be taken into consideration also. On this subject I would like to say — and I am not in the legal profession — that what I have noticed of late and for the past few years is that those who are purchasing homes are shopping around, even in the legal field, to see where they will get it at the best price. That is the reality. They are coming to me and I am sure so many members of the House also and saying that there has been a difference in the price. That is how life has now become. Provided the work is carried out well and according to the regulations laid down that must be welcome also. The purchasers have a choice now and that is something we all welcome.

Deputy Carey suggested that the Ombudsman should be assigned the job of investigating complaints against societies. The Office of the Ombudsman was set up to deal with complaints against public sector bodies and is fully occupied in that respect. The best approach, as the Minister suggested in his opening speech, would be for societies to voluntary establish their own scheme. I hope that societies will act on this and become the first sector of the financial services industry to establish a formal arrangement for the investigation and determination of complaints against them and their associate bodies. If they do not do so and it becomes clear that a scheme is necessary, then the Minister will have no hesitation in exercising the powers available under section 92 to require the establishment of a scheme.

I should like to say that many people have requested that this Bill be brought in. Some say it has gone too far but when we were putting this Bill together all organisations with an interest in housing were asked for their comments; some gave them but others did not.

The past year, 1988, was an excellent one for mortgage lending. The total lending increased from £657 million in 1987 to £894 million last year. That was almost £900 million that was being loaned by the financial institutions, which was an enormous amount. We are very grateful to the building societies and to the banks and other financial institutions for lending that amount as it gave house purchasers a marvellous opportunity. That has been of enormous help and no doubt has been greatly appreciated.

Deputy Enright asked some questions about legal and other charges involved in the preparation of the title. As the House is aware most of these charges were for legal work. I now find, and many people have called to me for advice, that before they enter into any legal commitments in regard to a mortgage of any kind, they are finding out from the person who is legally representing them what the total cost will be. They are making that up in the purchase price of their house. When they go purchase that house they know exactly what the legal fee will be. As I have said earlier, they are having a look around in the market and that applies to auctioneers and all the others involved. Of course different societies have different rates.

Last year saw a big swing over to endowment-type loans. Almost 50 per cent are now endowment-type loans. This shows the remarkable change that is taking place and I am very glad of that. I would point out here that I have been advocating for some time that anybody taking out a substantial mortgage with a financial institution should have an endowment insurance policy to cover it in case of mortality. That is the logical thing to do and it can be done at a very low cost.

In conclusion I want to say that, as the Minister is present now, any amendments being put forward on the Bill will be given very careful and favourable consideration within reason and we will be as co-operative as we can. I am pleased with the debate which has taken place during the past two days. It brought to light many of the matters about which we are all concerned. The Bill will give building societies more authority and I hope that some of the urban renewal schemes operating throughout the country will get some assistance in the areas of in-fill housing, etc. I look forward to the co-operation of the building societies in that regard. Once again I should like to thank everybody who took part in the debate.

Question put and agreed to.

Acting Chairman (Mr. Byrne)

When is it proposed to take Committee Stage?

Mr. Connolly

Next Tuesday, subject to agreement by the Whips.

Acting Chairman

Is that agreed? Agreed.

Committee Stage ordered for Tuesday, 14 February 1989.