Dáil Éireann debate -
Wednesday, 17 May 1989

Vol. 390 No. 2

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

Sections 7 and 8 agreed to.

SECTION 9.

Question proposed: "That section 9 stand part of the Bill."

Mr. Shatter

This is a general section and states that a building society may have as its objects the undertaking of any of the activities permitted by or under this Bill and shall have as one of its objects the raising of funds for making housing loans. When we come to Part II of the Bill we will take a look at the various new powers which it is proposed to confer on building societies. There are some matters of concern which the Minister may wish to respond to at this stage. Can the Minister explain the need to say expressly in section 9 (1) that a building society should have as one of its objectives the raising of funds for making housing loans? Does this mean that the raising of funds for making housing loans would have a special position in the future given that the newly constituted building societies are going to be something of a legal hybrid? They are neither going to be mutual nor have the normal shareholding component which a company would have.

Concern has been expressed that in broadening the powers and objectives of building societies, which as I have said in the past my party broadly supports, that building societies providing loan finance in other areas and engaged in a variety of other activities, such as building developments, may considerably reduce their involvement in the housing finance area and that housing finance could become a good deal more expensive in that building societies may regard it as more profitable to make moneys available for industrial and other types of loans at a higher interest rate when a higher return can be obtained. Can the Minister tell us what steps he envisages being taken to ensure that adequate finance will be made available for housing loans following the coming into operation of the Bill?

Minister for the Environment (Mr. Flynn)

In effect, this section refers to the objectives which a building society may have. Like a company, a building society under this Bill would have to have objectives which determine the extent of its powers. A society may have as its objective the undertaking of any of the activities referred to by Deputy Shatter but one of its objectives would have to be the raising of funds for making housing loans. That is the important element. Therefore, a society would be restricted in its objectives to those expressly contemplated in Part III of the Bill but these are of course very wide-ranging. They are to be contrasted with the comparatively narrow purpose of a building society in the 1976 Act, namely, the raising of funds by subscription from the members and the acceptance of deposits and loans for making loans to members secured by the mortgage of the freehold or leasehold, estate or interest. This was broadened somewhat in the 1986 Act to admit the making of unsecured loans for bridging and house improvements in accordance with ministerial regulations.

The continuation of housing loans as a mandatory objective of every society is to ensure that societies continue to fulfil a major role in the provision of mortgage finance for house purchase and to maintain a distinct identity as a financial institution. The short answer to the Deputy's question is yes. The raising of funds for making housing loans will have to have a special position. It is the only mandatory objective; all of the other powers are optional.

Mr. Shatter

What proportion of the moneys available does the Minister envisage being reserved for housing finance and will there be any flexibility in this area to ensure that the building societies do not overreach themselves, given that they would have other powers under the legislation which would enable them to hold and develop land and get involved in other activities such as conveyancing, auctioneering and so on? Is the Minister satisfied that the controls included in this legislation will not jeopardise the general availability of housing finance at reasonable interest rates?

Mr. Flynn

The answer to that question is that no rigid percentage has been included in the Bill but, of course this would be controlled in any event by the Central Bank. I am satisfied that there is no need to apply a rigid percentage.

Mr. Shatter

Is the Minister saying where a building society see greater profitability in the commercial lending sector, rather than in the housing market sector, following the enactment of this Bill it will be possible for that building society, or building societies, to opt out of the house purchase area altogether or to say that only between 5 per cent and 10 per cent of its lending will be in that area with the remainder in the industrial and commercial sector? I want to tease out this matter at this stage.

Mr. Flynn

The answer to that question is no. There is a mandatory obligation on them to provide mortgage finance.

Mr. Shatter

At what percentage?

Mr. Flynn

It is not stated. There is no rigidity in the legislation as to the level; that would be controlled by the Central Bank. It works both ways. They may find that because of the amount of money available in the marketplace they would have surplus funds available and it would give them an opportunity to use them to the best advantage of their members by going elsewhere. However, should the case arise that there is a shortage for any reason the Central Bank would say that they had to have so much money available for that. It is a mandatory objective and that is why it is written into the legislation. If it had not been there would have been no obligation to provide any mortgage finance. It is the only mandatory objective they have, everything else is optional and can be utilised as they see fit with permission from the Central Bank.

Mr. McCartan

It is worth mentioning one aspect with regard to the provisions that this section will bring into play, that it must be taken in conjunction with the Second Schedule laying down the content of the memorandum and articles of association to be registered and laying down the rules for the conduct of the society. One aspect which has recently been drawn to our attention yet again is that under the rules it is provided for the right of a member to demand a poll, the manner in which it will be taken or the right of a member to appoint a proxy. These are important aspects of the conduct of a building society because it is certainly clear to me that the current rules exercised by the building societies for the election and appointment of directors give the strong impression that they are designed, run and utilised to ensure and preserve status quo members on the boards. We have seen the almost gargantuan task undertaken by a woman, a member of a building society, who tried to break through the whole network of conservatism. It is clear that major issues have been raised in regard to the method by which notices are issued and votes collected.

Will the Minister indicate whether, in the passing of this section, he intends activating the rules laid down in the Second Schedule? Will he advise, direct or consult the Central Bank about the fairness of these two rules? Will they be implemented? Has the Minister given any regard to what seems to be almost the impossible position of a person outside the existing order of directors to break into the board and to muster the number of votes necessary? At present there seems to be huge obstacles in the way of an ordinary member of the public breaking in and I wonder if the Minister has given any thought to this problem in view of the fact that it is a matter of public concern.

Mr. Flynn

This is not relevant to section 9. Part VI of the legislation refers to the matter. Indeed, there are very important safeguards as to the level of democracy in building societies. However, as it is not relevant to this section I will not waste the time of the House in dealing with it.

An Ceann Comhairle

Deputy McCartan's remarks were in anticipation of sections to come.

Mr. McCartan

The Minister indicated that section 9 is the enabling section directly linked with the Second Schedule.

Mr. Flynn

Section 9 deals with the objects of the society.

Mr. McCartan

It also refers to their general powers.

Mr. Quinn

I am trying to be relevant to a Bill with 120 sections and I should like to see this legislation enacted because it is already a year late. Many people have been second and third guessing it and I do not intend to try to reinvent the wheel, with all due respects to the experts inside and outside the House, some on the gallery. This is a fundamental section because it is transferring in a very formal way the role and the powers currently enjoyed by the Department of the Environment in relation to the regulations of building societies to the Central Bank and, consequently, to the Minister for Finance. What residual role, if any, does the Minister see for the Department of the Environment as a consequence of section 9? In other words, can the Minister indicate in relation to the objects and general powers of a building society and their regulations now to be governed under this section what manner of intervention or policy formation does he see the Department of the Environment having consequent on this section being enacted?

Mr. Flynn

The short answer is that the role of the Legislature does not change, it remains with the Minister and the House. The powers of the registrar transfer to the Central Bank. It is a fine distinction.

Mr. Quinn

Perhaps my question will be accused of being anticipatory in relation to subsequent sections but it seems that the Central Bank will now have a major role in determining the way in which housing loans are formed or could take these powers on itself. Does the Minister envisage that the Department of the Environment in the implementation of their housing policy will be able to communicate from time to time with the Central Bank——

Mr. Flynn

Yes.

Mr. Quinn

The point is that building societies are not banks; they have a specific function in relation to the provision of finance for housing loans. They will be enabled — which is not the case at present — to directly participate in the provision of residential accommodation and the holding of development land, etc. Will the Minister indicate now or at a later stage where and how he proposes to ensure that the Central Bank in the execution of their powers under section 9 will have regard as well to housing policy that the Minister from time to time may determine from the Department of the Environment?

Mr. Flynn

Without cutting the Deputy short, section 38 deals with the point referred to by him in so far as the consultation that must exist between my office, other Ministers and the Central Bank in determining mortgage finance which exists.

Question put and agreed to.

SECTION 10.

Mr. Shatter

I move amendment No. 7:

In page 14, subsection (4), lines 14 and 15, to delete "of the date of receipt of such other information as it may require" and substitute "within two months of the date of receipt of such other information as it may require".

This is a very small amendment of a technical nature. This section deals with the formation, registration and incorporation of societies. Subsection (4) says that when the Central Bank decides to refuse to register a memorandum and rules, it shall, within six months of the date of delivery of the rules and memorandum or of the date of receipt of such further information as it may require, notify the signatories of the memorandum and the rules of its decision and of its reasons for it. Under this subsection it seems that the Central Bank are obliged, within six months of the date of delivery, to make a decision. It appears that in the fifth month the Central Bank could raise a query, get further information and, following the date of the receipt of further information, a further six months would apply before they need notify a decision. I suggest that is not necessary and my amendment is merely to the effect that when a decision has to be made when the Central Bank seek additional information, they must make a decision within six months of receipt of the memorandum and rules but that if they seek additional information, for example, in the fifth or sixth month, following receipt of the further information their decision should be communicated within two months. In other words, it should not take a year for the whole process to evolve. It is purely a technical measure to facilitate the working of the Bill. I should like to ask the Minister to consider the amendment in the context of Report Stage, if he does not wish to accept it today. I am anxious to ensure the efficient workings of the subsection.

Mr. Flynn

I considered the amendment and found great difficulty with it. If the amendment was accepted it would result in the Central Bank's discretion to deal with applications for registration of new societies being seriously constrained. It would, for example, mean that the Central Bank would have to make a decision within three months of receiving an application if they asked for additional information within a few weeks of receiving the original application. The amendment would demand that of them. It would require the Central Bank to give a decision within two months of receiving the additional information. If one month after an application was received additional information was sought by the Central Bank they would have to give a final decision within two months. I do not think it is the Deputy's intention to put the Central Bank into the position of having to make a hasty decision about what I would regard as an important matter of whether to register a building society.

Section 10 (4) strikes a reasonable balance between the needs of the Central Bank as regulator and the rights of a group of people trying to establish a society. It obliges the bank to make a decision within six months of the receipt of the application or, where further information is required, within six months of the date of the receipt of the information. I am saying that if they seek further information after one month they will have to give a decision within six months and that is reasonable.

It should be noted that the Central Bank must be satisfied in respect of a large number of matters before they can register a society and, therefore, one does not want to tie down the Central Bank completely with short time limits which might lead to them having to refuse to register a society which they might be able to register if they have adequate time to deal with the application. I do not want to put such an imposition on them. The Central Bank is a highly respected institution and can be relied on to give good service and to act in good faith in the matter at all times. I cannot accept the amendment and I should like to ask the Deputy to withdraw it.

Mr. Shatter

Unfortunately, the Minister has misread the amendment. His reply is clearly based on a misunderstanding. The amendment seeks to delete the words, "of the date of receipt of such other information as it may require" and to substitute the words, "within two months of the date of receipt of such other information as it may require". The effect of the acceptance of that amendment would be that the section would read: "Whenever the Central Bank decides to refuse to register a memorandum and rules it shall, within six months of the date of delivery of the rules and memorandum or within two months of the date of receipt of such other information as it may require, whichever is the later, notify the signatories ..." In the course of his response the Minister seems to have lost sight of the fact that the section states that whichever is the later is the time to apply. The Minister is suggesting that the Central Bank would have to make a decision within two months of receipt of additional information but that is not correct. The amendment, as drafted, ensures that whichever is the longer time is made available to the Central Bank. In effect, the six months rule would apply or, if the information was sought in month five or month six, another couple of months would be added on from the date of the receipt of the information. It is unfortunate the Minister, in his reply, ignored the fact that the words "whichever is the later" are left in the subsection. Clearly, the Minister responded from the advice he had been given. I do not wish to delay the House on this issue because of the number of sections we have to deal with but I must point out to the Minister that his response to me was not accurate in the context of my amendment. I should like to ask him to consider the amendment between now and Report Stage. I will not press the amendment further at this stage.

Mr. Flynn

I cannot accept the Deputy's reasoning in regard to this.

Mr. Shatter

The response given by the Minister was inaccurate.

Mr. Flynn

It was not. It is fair to say that a six month period is a reasonable time.

Mr. Shatter

The six months will still apply.

Mr. Flynn

Putting a limit of two months on the Central Bank in any circumstances is unreasonable because it may work against a society seeking registration. Consequently, we might be doing a disfavour to such a society. The Central Bank from our experience act expeditiously in such matters. The registering of a new society is a very serious business and the Central Bank will have to investigate many matters before they are satisfied that a society should be permitted to operate in the public market place. I would not like to place a restriction on them or rush them if they have good reason not to rush the registration of any society. There is a principle involved and the Central Bank in good faith will do a good job expeditiously for us.

Amendment, by leave, withdrawn.

Sections 10 to 15, inclusive, agreed to.

SECTION 16.

Question proposed: "That section 16 stand part of the Bill."

Mr. Shatter

I should like clarification of one or two matters concerning the section which raises the question of who are to be shareholders. Apparently, a building society can restrict the issue of shares in its memorandum and rules but surely the position should be that a building society must allow any of its borrowers to become shareholders. To do so would entail an amendment of subsection (2) and a changing of the word "may" to the word "shall." I deliberately did not table an amendment to this subsection but I was anxious to draw the Minister's attention to it.

Another question arises in relation to the provision concerning jointly held moneys. In relation to subsection (6) will the Minister clarify what procedure will apply following the death of a person who has money on joint deposit? What procedures will apply if the person with the initial name dies? What notification will be given under subsection (6)? What will happen, if, for example, one person becomes mentally ill and unable to manage his or her affairs? Does the Minister consider that there is a need to amend the section between now and Report Stage to deal with that problem which does not appear to be addressed in the section?

Mr. Flynn

Subsection (3) is the same as section 17 (3) of the 1976 Act. Its interpretation or implementation has not given any difficulty over the years. It provides that two or more persons may jointly hold shares in a society. We do not see any reason to change it at this time.

Mr. Shatter

I am referring to subsection (6) under which various notifications have to be given to the person whose name first appears on the joint account.

Mr. Flynn

That subsection is a reenactment of section 17 (6) of the 1976 Act. In the case of joint holders of shares, it makes provision in respect of which of the joint holders may exercise the rights attaching to the shares or to which of them notices must be sent. The basic premise of the section is that the rights attached to membership under the Bill, such as the right to vote, etc., are exercisable only by one of the joint holders in order to avoid confusion in the case of a dispute. This provision has stood since 1976 and has not caused any difficulty. Did the Deputy raise a question on subsection (2)?

Mr. Shatter

I raised the issue of whether, if you are a depositor in a building society, you should automatically be a shareholder rather than the building society having a discretion as to whether depositors are or are not shareholders.

Mr. Flynn

I understand that a depositor is not, by definition, a shareholder.

Question put and agreed to.

Section 17 agreed to.

SECTION 18.

Mr. Flynn

I move amendment No. 8:

In page 22, subsection (5), lines 17 to 19, to delete "including, subject to any regulations under subsection (6), the approval of the Central Bank and the terms of the mortgage," and substitute "including (subject to any regulations under subsection (6), the approval of the Central Bank and the terms of the mortgage)".

This is simply a drafting amendment. The insertion of the brackets as proposed will clarify the interpretation of the provisions so that the use of the society's mortgages as security for money borrowed is understood to be subject to any regulations made, the approval of the Central Bank and the terms of the mortgage. It is purely a drafting amendment.

Amendment agreed to.

Section 18, as amended, agreed to.

Section 19 agreed to.

SECTION 20.

Mr. Shatter

I move amendment No. 9:

In page 23, between lines 14 and 15, to insert the following subsection:

"(3) The Central Bank shall be notified by the Society of its intention to acquire or provide itself with additional premises as provided for in subsection (1) of this section.".

This amendment seeks to insert a new subsection (3) in regard to premises.

Mr. Flynn

I regard this amendment as unnecessary for the following reason. The Central Bank already have sufficient powers under the Bill, for example, under section 17 (4), to regulate the branching policies of the societies. The Deputy will be aware, of course, that the Central Bank in their role as supervisor of the banking system, exercise control over the branching of banks also. This is done as part and parcel of the licensing system. In much the same way the Central Bank will have the same power to impose similar requirements on the building societies under section 17 (4), if they see fit to do so.

Mr. Shatter

I suggest to the Minister, in the context of section 17 (4), that the rationale in having this provision in the Bill is to provide an express duty on building societies to give the Central Bank a formal notification. I suggest that this provision would run in tandem with what is in the Bill and with the intent of the Bill and would simply ensure that all relevant information is made available to the Central Bank so that they can properly exercise their supervisory function.

Another point in putting down this amendment is that some people believe that the expenses incurred by building societies are unnecessarily large and that there has been an element of empire building in the massive growth of offices. It seems to be the case in every corner of the city of Dublin or Cork that if one building society opens every other building society, like lemmings, feel the need to rush in and either rent or acquire premises adjacent to their competitors. There is a very real argument to suggest that the members and shareholders of building societies have had no real control over the management of building societies over the years with regard to the massive growth of unnecessary sub-offices. It seems to me that building societies could be a good deal more efficient in the area of administrative and office expenditures if they took a more realistic view of their needs. Indeed, this requirement has been forced on banks. Banks were of a similar mentality 20 years ago but a rationalisation has been imposed on the banking community.

To ensure the continued financial security and viability of our building societies this subsection would have a particular relevancy in focusing their minds on the true necessity of opening as many offices as are being opened and to make the supervisory role of the Central Bank a little bit easier. I assume we are all anxious to ensure that the Central Bank can truly play that role. It is no harm if Members use this debate to express some reservations as to the need for all these sub-offices which appear to be opening all over the country at a great rate. Certainly there is a need for building societies to expand, but one would query at this stage the effectiveness, efficiency and the costs being incurred in opening these offices and in the general running of building societies.

Mr. Flynn

Much of what the Deputy says may have a certain element of truth in it. A major expansion programme was undertaken by some societies over the years, but the Deputy will have noticed that in recent times this programme has not escalated. Perhaps these building societies have reached the climax of their expansion programme so far as the opening up of branches and appointing agencies are concerned.

The Deputy made the case, as I have been saying, that there is need for a strengthening of the supervisory power. That power is now in the hands of the Central Bank and, of course, it also includes the supervision of the branching attitude of societies. I sympathise with what the Deputy has said but I do not think it is quite as relevant in the context of what has been happening in recent times. At least the same system will now apply with regard to the supervision of building societies as it does to banks.

Mr. Quinn

I have a number of points on this section which the Minister might be able to clarify for me. First, there is no clear definition in the interpretation section of what constitutes a premises. I raise this point for the following reasons. An ATM — an automatic telling machine — could for the purposes of the business of a building society constitute a premises. Since building societies are clearly going to get into that business — indeed they have commissioned a very expensive study in relation to a pooled ATM system — perhaps it would be useful if a definition of premises was included on Report Stage in the interpretation section. I suggest this to avoid ambiguity at some future date. I will come back to the question of ATMs later.

I want the Minister to take me through sections 20 (3) and (4). Without anticipating section 21, I want to draw to the Minister's attention something which seems to be contradictory. Section 20 (4) states:

Subsection (3) (b) does not require a society to sell any premises if the society may hold it under section 21 and elects to do so by a resolution of the board of directors.

In what way does subsection (4) contradict subsection (3) of section 21 which states:

A society shall dispose of land held under this section ...?

This refers to land rather than premises but premises may constitute land as well. I am trying to tighten up that interpretation. This provision should be looked at from the point of view of clarification because without a clear legal definition in the Bill of what constitutes "premises", at some date in the future the banks could say to building societies that they had far too wide a range of physical holdings and far too large a number of properties. This is not a substantial point. I am simply drawing the Minister's attention to something which has raised much comment in the past, that is the large number of premises owned by building societies and the way in which they are open to interpretation under section 20(3)(b). Therefore, on Report Stage, it might be no harm to have a definition of "premises" incorporated in the definitions section.

An Ceann Comhairle

I would prefer that we disposed of the amendment before getting down to discussion of the section proper.

Mr. Flynn

I thank Deputy Quinn for having brought that matter to my notice. I should say that "premises" does constitute land.

Mr. Quinn

That is what I thought.

Mr. Flynn

Yes, it does. Was that the question the Deputy wished to have clarified?

Mr. Quinn

It was. I think the Minister should clarify it so that it is not a contradictory provision.

Mr. Flynn

I understand that, in the Interpretation Act, 1937 — I have not got the precise reference but we can get it —"premises" does in fact include land.

Mr. Quinn

This Bill is in a sense a consolidation of building society legislation. I have looked through this section here and I do not see the word "premises" included in the interpretation section, that is section 2. If it is provided elsewhere in other legislation——

Mr. Flynn

Yes, it is in other legislation.

Mr. Quinn

——it might be no harm to incorporate it in this Bill on Report Stage.

Mr. Flynn

I am advised that the Interpretation Act, 1937, covers all legislation, including this, and that it would be superfluous. I will think about it. If something further occurs in the meantime requiring additional clarification, I will consider it. I believe that the provisions of the Interpretation Act, 1937, satisfy the Deputy's point. Nonetheless, I am pleased that he has brought it to my attention.

An Ceann Comhairle

May I ask Deputy Shatter how stands his amendment now?

Mr. Shatter

I am not pressing it.

Amendment, by leave, withdrawn.

Section 20 agreed to.

SECTION 21.

Question proposed: "That section 21 stand part of the Bill."

Mr. Quinn

May I ask a question, again by way of clarification? This section begins:

1. Subject to section 36, a building society may acquire, hold, dispose of, and develop or participate in developing land where the land is to be used ....

As we have just heard "land" also includes "premises", or "premises" includes "land". I believe that the building societies should concentrate on the provision of residential housing rather than compete with the banking institutions here. I would be anxious to ensure that the interpretation of the word "participate" be a comprehensive one that would enable them to take and retain a long-term interest, either by way of shared equity in residential property with individual property owners, groups, cooperatives, or whoever, right across the whole range of the different types of housing ownership. I want the record to show that the word "participate", in its fullest sense, will enable building societies to do this. They have argued in the past that previous legislation precluded them from so doing.

Mr. Flynn

The answer is "yes", if that helps the record, to show what is the interpretation of "participate". As the Deputy quite rightly said, at present building societies cannot do that. The provisions of this Bill are intended to allow them do so.

Mr. Shatter

In the context of teasing out this section would I be correct in saying that, under the provisions of this section, building societies can involve themselves, as societies, in any type of commercial or residential development, that it will be open to building societies to develop large housing estates if they so wish and that it will also be open to them to build major commercial properties?

Again, for the record of the House, could the Minister set out what procedures will apply in the following context. Let us assume that a building society — as the provisions of section 36 of the Bill allow them — engage in a major commercial development and then acquires a major site in the city of Dublin and decides they are going to develop that site themselves. The building society may then get into the business directly, using their estate agency powers, of selling off parts of the building or indeed renting them out. Perhaps the Minister would clarify for me: if a building society intends to make a very large financial investment of that nature, what sanctions, if any, will be required? Is it sufficient that the objects of the building society's memorandum and articles of association merely set out that this is part of the functions in which they can engage? What clearances, if any, will be required from the Central Bank or otherwise?

Mr. Flynn

I might revert to Deputy Quinn's question about the land. It is defined in the Interpretation Act, 1937, and includes, to quote paragraph 14 of the Schedule:

The word "land" includes messuages, tenements, and hereditaments, houses and buildings, if any tenure.

So the word "land" does include any buildings and all works situated on it. That might satisfy the Deputy's point raised on the previous section.

In reply to the point the Deputy raised about section 21(1), I should say the short answer is "yes", under certain conditions, of course, because that subsection confers the general power on building societies to acquire, hold, dispose of, and develop land for residential and commercial purposes. Of course it would all be under the strict control of the supervisory authority of the Central Bank. In all the circumstances they would have to maintain prudential ratios that would have been laid down by the Central Bank, but the Deputy's interpretation is correct.

Mr. Shatter

In the light of unhappy experiences in other countries is the Minister quite satisfied that, when financial institutions have been given powers that have allowed them to involve themselves in areas of activity in respect of which they may have believed they had an expertise which it subsequentally transpired they had not, the controls in place will ensure that a building society will not engage in a major commercial or industrial building venture that could undermine the financial stability of that society? Is he satisfied that the provisions of the Bill will ensure that the Central Bank's supervisory role will guarantee that it will get all advance information of such activities to ensure that it is satisfied that they will not pose any threat to the financial viability of the society? Or is the supervisory role merely one which will allow building societies an autonomy to get on with whatever their objectives allow them and leave the Central Bank in a position of trying to pick up the pieces if a disaster occurs?

Mr. Flynn

The powers referred to are subject to the provisions of section 36, which requires a building society to formally adopt the power by special resolution. Section 36 is a most important section.

Mr. Quinn

It is potentially very cumbersome.

Mr. Flynn

Yes, but it is necessary to ensure the kind of control and safeguards to which Deputy Shatter refers. It might be cumbersome but it maintains the stability and solvency of building societies. Of course, the provisions of section 36 require a building society to formally adopt the power, by special resolution, and to secure the approval of the Central Bank, a very important element as well, and to exercise those powers in accordance with the requirements and conditions imposed by the Central Bank. That is the critical provision the House wishes to see implanted in this Bill. There will be that very tight control ensuring that anything done will be done to benefit the building society's members, shareholders and so on.

Mr. Quinn

We will eventually come to section 36, which has 14 subsections. It constitutes the gear box of this provision in relation to how the powers will be exercised under section 21. Therefore I will withhold my questions in relation to the manner in which the provisions of section 36 will be exercised until we reach that section. However, I want the House to note that it is inter-connected with section 21 because the opening clause of section 21(1) reads:

Subject to section 36, a building society may acquire, hold, dispose of, and develop or participate in developing land where the land is to be used——

and so on. But if section 36 is so construed and interpreted, it may very well seriously curtail the flexibility or recklessness with which a building society may function. I want to give the Minister notice, when we reach section 36, that I will be raising questions relative to section 21 because they are inter-connected. As I read it in plain English — and I am not a professional lawyer — subsection (3) of section 21 seems to contradict subsection (4) of section 20. Subsection (3) states:

A society shall dispose of land held under this section if the Central Bank so directs.

We have now passed section 20 (4) which states:

Subsection (3) (b) does not require a society to sell any premises if the society may hold it under section 21 and elects to do so by a resolution of the board of directors.

I am not clear as to whether that is a contradiction in terms or is a catch-22 situation.

Mr. Flynn

I do not think so. Subsection (3) to which the Deputy refers allows the Central Bank to direct a society to dispose of land it has acquired and is holding under that particular section. We regard it as prudential power to ensure that the society does not over extend itself, particularly in a high risk area, or does not proceed with an overly risky development just because it has acquired the land. The Central Bank would then have the prudential regulatory authority to seek the disposal of that land. It is a prudential power that should be left there in case something happens in a risky situation that they would wish to attend to. Does that satisfy the Deputy?

Mr. Quinn

I will let it pass.

Question put and agreed to.

SECTION 22.

Mr. Shatter

I move amendment No. 10:

In page 24, lines 19 to 22, to delete subsection (4).

Section 22 deals generally with housing loans available to members. I find subsection (4) quite extraordinary. I am not sure why subsection (4) is contained in sections 22. It reads:

A society shall not make a loan under this section on the security of any freehold or leasehold estate or interest which is subject to a prior mortgage unless the prior mortgage is in favour of the society.

To take the point that it is expected that this Bill is designed to allow societies to compete, generally speaking, in the financial markets in a position of equality with banks I find it very difficult to understand why this subsection is in the legislation. I could understand why it was included in previous building society Acts when we were dealing with a different philosophy and a different era. If, say, one has a loan from another financial institution for a house valued at, say, £50,000, the loan amounts to £10,000 and the building society wish to make available a further loan of £10,000, I do not see any particular reason why the building society should not be able to advance a second loan, or why they should not be able to provide a subsequent mortgage to a prior one. It makes even less sense when one looks at section 23.

Under section 23, generally speaking, a building society can provide unsecured loans simpliciter. Presumably the building society will check the financial reliability of the person seeking the loan but, generally speaking, section 23 contains a number of subsections, particularly subsection (1) (e) and (f) which allow the building societies to provide a series of unsecured loans. If we take the man whose house is worth £50,000 and the £10,000 mortgage to the Bank of Ireland, for argument sake, and if he comes along to the building society and says he wants an unsecured loan of £10,000, for a variety of reasons — he can even run up an overdraft facility with the building society — the building society can provide that loan. There is no security, they are relying on the promise to repay and on the financial reliability of the individual concerned. It totally escapes me why the building society should not be allowed to provide a second mortgage to ensure the security of that loan. It seems to me it is contrary to the interests of the members of the society if the society is not allowed to do so. It seems to put building societies in a different position from banks in this area where a bank will be allowed to get such security.

I would suggest that subsection (4) of section 22 is merely in the Bill because a similar provision was in earlier legislation which dealt with a concept of a building society different from the new concept that will come into play following the enactment of this legislation. I would ask the Minister to agree to the proposed amendment. It seems to me that subsection (4) should be deleted. I do not think it is of assistance to borrowers, to the building society or to members of the society. It does not seem to fulfil any particular function that is of advantage in allowing building societies to compete for a position of equality and to provide loans with necessary security where such security should be obtained.

Mr. Flynn

Section 22 contains the power for building societies to continue their traditional lending activity, that is, making loans for house purchase fully secured by the first mortgage. This activity must remain an object of every society and is differentiated from other forms of lending which are provided for in section 23. That section contains the power in subsection (1) (a) for societies to make loans secure on second mortgages. Subsection (4) of section 22, which the amendment seeks to delete, does not prevent the society from making loans on second or subsequent mortgages regardless of whether the society holds the first mortgage. I was hoping that that would enable the Deputy to withdraw his amendment. Section 23 releases the building societies to make second mortgages. I think that is what the Deputy would require us to do.

Mr. Shatter

In one section we are saying that the building societies cannot make loans on second mortgages and in the following section we are saying they can. It seems to me that the whole thing is completely contradictory and makes no sense because, with due respects, section 23 (1) (a) simply refers to loans fully secured by the mortgage of freehold or leasehold estate or interest and paragraph (b) refers to loans to members, before the mortgage has been created. It would seem to me that the only reasonable interpretation of sections 22 and 23, when taken together, is that subsection (4) will rule in the sense that a building society will have a legal difficulty in making loans subject to second mortgages. If the intention is to allow building societies to make loans subject to second mortgages it would seem that the only sensible approach is simply to delete subsection (4). I fail to understand the rationale behind including subsection (4). If your intent is to allow building societies to make loans subject to second mortgages it would seem that it is a totally contradictory subsection. It is included on the basis that a similar subsection was in a similar provision in an earlier building societies Act which sought to allow building societies make funding available only for the acquisition of homes. The building societies were not seen as financial institutions that should be providing funds for other purposes. Consequently, the kind of provision contained in subsection (4) made complete sense in previous legislation. It makes no sense in this legislation.

Mr. Flynn

The underlying reason for all this is that housing loans have a special status as distinct from other loans. The reason a distinction has been drawn between housing and other loans relates essentially to the fact that they are different in nature, are subject to different requirements and will probably be treated differently by the Central Bank for their prudential purposes. What we are talking about here is the status of a housing loan as distinct from the status of loans for other purposes. That is the reason we do not see any difficulty with the provision.

Mr. Shatter

Can the Minister indicate where, in legislation relating to banks, there is a similar provision? With due respect, may I suggest that the response the Minister is giving on this subsection is the classical example of how, when on occasions Opposition Deputies come up with something that should not in any way be contentious and is designed to improve legislation, a Minister has to dig deep into his brain to try to discover some vaguely understandable reason for a particular amendment not being accepted. It would seem to me that there is no reason this amendment should not be accepted. At the very minimum the Minister should consider tabling a similar amendment in his name for Report Stage, that is, if he feels that it casts any aspersions on him to accept an amendment in my name.

It is my contention that this subsection adds absolutely nothing to the role that building societies will play in the house market. It is utter nonsense to say that it does. Section 22 is only a discretionary section anyway, which says that building societies "may" make money available for housing finance. It does not say that they "shall". I do not see how subsection (4) adds one whit to the capacity of building societies, or anything to guarantee to the person who wants to raise the loan that money will be made available. It is a simple banking matter, whether the members of the society are entitled to have their society seek security on a loan raised by way of a second mortgage. With all due respect, unless membership of this House for so many years has so dulled my brain that I can no longer understand ordinary English, the Minister has not said anything to me that is understandable as to why he cannot accept this amendment.

Mr. Quinn

Perhaps the Deputy may get a reply.

Mr. Flynn

Subsection (4) states that a loan under this section must be secured by a first mortgage. It may not be made on the security of an estate which has already provided security for another mortgage unless the mortgage is in favour of the society. This is essentially a prudential requirement to ensure that there is no change in the standard of security for housing loans. Societies may, under section 23, make loans on the security of a second mortgage but such loans would be treated differently by the Central Bank in their prudential supervision of societies. The first mortgage is a different category of security. This refers only to loans made under this section. I do not see why it causes the Deputy that difficulty.

Mr. Shatter

I do not want to delay the House unnecessarily. With all due respect to him, the Minister has now descended to the depths of gobbledygook that one hears on that excellent television programme "Yes, Minister". This is a classic example. I suggest that the Minister might send the script to Mr. Jay who writes the script for that excellent programme. I have no doubt that he would be able to use this exchange, with some added witticisms to amuse the public in both Britain and Ireland. If the Minister is allowing building societies to provide loans on the security of second mortgages——

Mr. Flynn

That is what section 23 does.

Mr. Shatter

——under section 23, it makes no sense to have subsection (4) of section 22 which says that building societies cannot allow loans to be raised by way of second mortgages. None of the explanations given makes any whit of sense in a legal framework, or as a political response. They certainly are in the "Yes, Minister" category. I formally put my amendment.

Question "That the words proposed to be deleted stand" put and declared carried.

Amendment declared lost.

Section 22 agreed to.

SECTION 23.

An Ceann Comhairle

Here we have amendment No. 11 in the name of the Minister. I observe that amendment No. 12 in the name of Deputy Shatter is an alternative. I suggest, therefore, that we discuss amendments Nos. 11 and 12 together, by agreement. Is that satisfactory? Agreed.

Mr. Flynn

I move amendment No. 11:

In page 25, subsection (1) (d), line 1, to delete "10 per cent." and substitute "15 per cent., or such other percentage as may be prescribed by the Central Bank,".

The purpose of amendment No. 11 is to increase the size of the loan which a society can make for the payment of a deposit for the purchase of a property which is intended to be mortgaged by the society. Under section 23 (1) (d), the size of such loan is limited to 10 per cent of the purchase price. This amendment will allow the loan to be made up to 15 per cent. It will permit the Central Bank to vary it by regulation if they see fit at any time in the future. Whilst the vast majority of private treaty and public auction sales are now transacted on the basis of a 10 per cent deposit, I am informed that higher deposits may be required in some instances. In order not to create unnecessary difficulties, it makes sense to increase the limit provided for in this subsection to 15 per cent and to give the bank the flexibility to change the practice if experience demands it in the future. I would ask that Deputies accept that.

Mr. Shatter

There is no practical difference between the amendment tabled now by the Minister and my amendment. I am quite happy to accept the Minister's amendment and to withdraw my own.

Amendment agreed to.

Amendment No. 12 not moved.

Mr. Shatter

I move amendment No. 13:

In page 25, between lines 23 and 24, to insert the following subsection:

"(4) The Central Bank may determine from time to time the interest rate applicable to loans made under paragraph (b) of subsection (1) in so far as such rate may exceed the interest rate applicable to housing loans made by a building society."

There is, on occasion, a difficulty in effecting completion of purchases of properties and when someone raises an issue of finance as is provided for in this section, it is important to ensure that the interest rates that can be applied as referred to in section 23 may from time to time be determined by the Central Bank in so far as those rates exceed the interest rates applicable to housing loans. This amendment deals with loans made under paragraph (b) of subsection (1). These are loans to members before the mortgage has been created, not exceeding the amount that the society have agreed to lend by way of a housing loan.

In a sense this is allowing building societies to provide what is commonly known as bridging finance. In the old days bridging finance was a different operation altogether; it was something you might have got from your bank until your building society had ensured that all the title documents were in order, then you got your building society loan through, you paid off your money to the bank and your building society loan then operated. The interest rate you were paying on your building society loan would normally be less than the interest you would be paying to a bank on bridging.

In years gone by complaints were made on occasions that building societies had unduly delayed making loan finance available. On occasions the building society administratively may not have been all that efficient. On occasions lawyers acting for building societies have not been all that efficient and unnecessary delays have occurred in processing the legal paperwork. Indeed, the delays may very often have been through no fault of the proposed borrower or his lawyer. The building society lawyer may have had a whole series of legal titles of property to look at in checking the position. There are certain changes now in the procedures dealing with title and in bringing to a finality the legal process. So nowadays matters should be somewhat speeded up. Nevertheless delays occur and some of them can be unnecessary.

If building societies are in a sense to be allowed to provide two types of finance, bridging finance and ultimately the housing loan, and if the rate of interest payable on bridging finance is higher than the rate of interest payable on a housing loan, on occasions house purchasers may be stuck on paying higher interest rates by way of bridging to the building society from whom they are getting the ultimate loan. Indeed, that could be in the interest of the building society. They could in effect benefit from their own inefficiencies either at administrative level or legal level. There is a need to ensure that the rate of interest building societies can charge on bridging loans should be clearly supervised and the Central Bank should play a role in this. Hence I have tabled an amendment to insert a new subsection (4) in section 23 to provide that:

"(4) The Central Bank may determine from time to time the interest rate applicable to loans made under paragraph (b) of subsection (1) in so far as such rate may exceed the interest rate applicable to housing loans made by a building society.".

Mr. Flynn

This amendment would give the Central Bank the power to determine the rate of interest payable on bridging loans from building societies where the rate of such loans from the societies exceeded the general building society mortgage rate. That is what the Deputy wants. I do not really believe he has given this amendment full consideration.

Banks have been the main, almost the only, providers of bridging finance over the years and I am not aware of the Deputy or anybody else suggesting that bridging loan interest rates be controlled, yet the prospect of building societies getting into this in future prompts him to seek controls over the rates. I do not understand that type of discriminatory thinking. Interest rates in general are determined by market forces in our economy and different rates are charged for different purposes depending on such matters as the cost of money, the risk involved and so forth. Why should one segment of lending be controlled as suggested? Surely building societies in the context of the competitive environment in which they operate should be allowed to make their own commercial decisions and the State should not make those decisions for them. It should also be noted that bridging loans are by definition unsecured, and it is somewhat naïve to say, as this amendment implies, that the rate should be the same as that for fully secured mortgage lending.

The final point is that the result of the type of control on rates suggested here would be that societies would not accept the bridging facilities at all. We cannot discriminate against the building societies in this area. It comes down to this that if I were even to consider accepting Deputy Shatter's amendment, and that is not the case, there would be no building society bridging finance at all. It would not exist. There is no similar amendment in so far as banks are concerned. If there had been or if it was intended by the Deputy's party to bring in this new restriction, why had they or their spokesman not an amendment down on the Central Bank Bill to do the very same thing as far as the banks are concerned? I cannot accept this amendment. I do not think its promoters are pushing it.

Mr. Quinn

My understanding of this complex Bill is that it purports and proposes to remove the restriction whereby under the present arrangements building societies are prohibited from advancing mortgages until the efficient, or otherwise inefficient, legal process has been completed and the need for bridging finance and bridging loans which was characteristic four or five years ago will no longer apply. My interpretation, for example, of section 23 (1) (b) is that the building society can grant the full amount of money to enable somebody to purchase a house, enter into it and occupy it pending the completion of any documentation that might be needed and that there might be, for reasons stated by the Minister, some variation in the rate of interest for the first two to three months which would then transfer the loan into a mortgage. Am I interpreting that correctly?

Mr. Flynn

Building societies could give bridging finance since the 1986 Act but have not been doing so.

Mr. Quinn

They claim they could.

Mr. Flynn

I know, but this settles it finally one way or another. The thrust of Deputy Shatter's amendment is that he wants the rates controlled for unsecured lending. That would be certainly at variance with the situation that exists in the banking world. It would simply discriminate against the building societies. Therefore, I have to ask the Deputy to withdraw the amendment.

Mr. Shatter

It is designed to deal with the situation Deputy Quinn referred to where, when I purchase a house, the building society say they will give me all the money but if their lawyers have not been able to do all the necessary——

Mr. Quinn

Six months bridging at double the interest.

Mr. Shatter

——work within a certain time because they are a bit overstretched, they will give me the money now but they will charge me an interest rate 1, 2, or 3 per cent higher than the rate on the house loan. You are dealing with a consumer, a borrower who is depending on the society and who believes they are going to treat him fairly and efficiently. The lawyer representing him might also be the lawyer acting for the building society, and one of the problems with this Bill is an interlinkage here which is going to create difficulties that are not necessarily apparent when you are dealing with just an individual section. Let us assume, using the powers of this Bill, that a borrower has employed the building society's lawyer to do his conveyancing work, that the building society's lawyer has not been able to get round to sorting out the legal end of these things and so they make available finance, called "bridging" for want of a better word, as we know it today though it is a different idea of bridging from what we had in the past. In the past bridging was normally provided by a financial institution different from the one providing the loan. When that happens, normally the people providing the loan have a vested interest in processing their end of it quickly because they will gain no interest and no moneys will be coming in to them until the work has been completed and the loan made available.

Here we have a completely different animal. Here the building society who are providing the loan are also providing the same amount of finance but calling it "bridging" and charging a higher rate. The borrower is being represented by a solicitor who is acting for the building society and who is up to his neck in work and does not regard it as priority that this borrower has his house purchase processed. Maybe there is a minor defect in the legal title. This guy is employed by the building society; he is the building society's solicitor and there is no great incentive for him to spend half an afternoon working on a technical problem on a legal title when maybe he could process three or four other simpler conveyances through his office. Therefore, the borrower is left four, five, six or seven months on bridging, paying a higher interest rate, until the building society's solicitor gets around to completing the work. Then the borrower is told, "you can now pay us a lower interest rate". He has no different sum of money. The money he has borrowed remains the same from day one. The delay has not occurred due to his fault. It might occur because the building society's solicitor is inefficient or overworked or because the administrative machinery within the building society is cranked along slowly in processing it from bridging operation to full loan. In those circumstances this Bill provides no protection for the consumer.

The Minister was arguing a few moments ago the need for the special provision in section 22 (4) and I was arguing that this put building societies in a different position from other financial institutions. The Minister did not accept the amendment. He is now saying, however, that if this is put in place it will put building societies in a different position from other financial institutions. That is not the case. We have a different type of operation from the norm, an operation whereby the society who will provide the loan will provide the bridging. There is need for some protection for the borrower, who will be powerless in dealing with a society and may not even have his own independent lawyer to ensure that his rights are fully protected.

Possibly the amendment I have tabled is not the most appropriate for dealing with this problem, but the problem needs to be confronted before the Bill goes through Report Stage. There should be some provision, a time limit or some curtailment on the level of interest that can be charged.

Let us assume that this borrower has been on bridging for six months while the legal processes have been going on. He has been living in the house and he has the advantage of the sum of money. The legal process continues, the mortgage document is complete and the building society have their full security. If they wanted to be efficient, perhaps the building society could have had their full security within a week of receiving all the legal documentation. In those circumstances there is an argument that no higher interest rate should be recoverable to the building society for the period during which they provided bridging and that if higher charges were levied on the borrower during that period he should be credited for the difference between the ordinary home loan rate and the bridging rate. The building society ultimately have their security. It involves the same sum of money, the same borrower living in the same house. There is no valid reason for not giving a credit for the sum of interest paid over and above the normal house loan rate. At the very least, there is no valid reason for not setting a time limit imposing a duty on the building society to have the legal work complete within two or three months of the documentation being furnished and to make the loan available. Alternatively they should furnish a document to the borrower setting out clearly the reasons for any delay and what the problems are.

I tabled this amendment to tease out this problem. It derives from the fact that we are allowing societies not simply to provide bridging and the ultimate house finance loan but also to do something which we are not allowing banks to do, namely to use their own lawyers to carry out conveyancing on behalf of the borrower to whom they are lending money.

Mr. Keating

The Deputy said that 20 minutes ago.

Mr. Quinn

I appreciate that Deputy Shatter is exercising his rights as a legislator to scrutinise this Bill in great detail. His skill and professional expertise are not doubted. We in the Labour Party regard this legislation as having been delayed for over a year. It contains enormously important and fundamental safeguards and guarantees for consumers and depositors and will protect the operations of building societies from external predators who are hovering around this market. If a general election is called within the next two weeks this legislation will lapse and it will be a year or longer before it is brought forward again. Subject to clarification in relation to a number of sections the Labour Party intended to complete the Committee Stage of this Bill by 7 o'clock this evening to try to facilitate the Minister.

Mr. Keating

I second that. This is a very important Bill. We admire anyone's diligence in going through 125 sections section by section, but we are less than one-fifth of the way through the Bill. Without being unduly pedantic, there are fundamental questions we should like to raise later in the Bill. I urge us to cooperate in getting the Bill through by 7 o'clock.

Mr. Shatter

This important legislation has a variety of schedules and about 125 sections. It is fundamentally changing the legislative basis on which we deal with building societies. We had a two-hour Committee Stage debate the last day. Perhaps it was three hours in total. The fact that the Labour Party and the Progressive Democrats have not had the wit to table a single amendment will not curtail me as a legislator, acting on behalf of the Fine Gael Party, in teasing out the implications of this Bill for the consumer, the members of building societies and the financial institutions and their workings.

Mr. Keating

We are all concerned about this.

Mr. Shatter

I am entitled to so do. If Deputies Quinn and Keating believe that a Bill with 125 sections should be passed on the nod in a one-day debate, so be it. That is not my view or my function in this House. There are a variety of further issues to be discussed which are of importance. We have already discussed a number of earlier issues of importance and it is noteworthy that in respect of one important issue the entire Labour Party absented themselves for a vote. We take this job seriously and Deputies with the experience of Deputy Quinn should accept that we have a role to play in the context of processing this legislation. I will not have the frighteners put on me as a legislator by a veiled threat from the Taoiseach that there might be a general election and as a result abdicate from all involvement in legislation.

Mr. McCartan

Having been at the receiving end of some acerbic comments from my colleague in the Labour Party when I intervened in this matter, I support fully Deputy Shatter's approach. We all agree that it is very important legislation which is long overdue, but we also have a duty to look at the legislation as carefully as possible. On the previous day very important amendments in the name of Deputy Shatter and The Workers' Party were dealt with. It was an important debate. We have a job to do. Let us get on with it.

Acting Chairman (Mr. Wyse)

We are supposed to be dealing with amendment No. 13.

Mr. Flynn

On amendment No. 13. Deputy Shatter is not taking any notice of the competition that exists among financial institutions in providing finance for mortgages. A whole range of options are available to those seeking mortgages. He is not taking any cognisance of subsection (3) which provides that the society will take all reasonable steps to ensure that the mortgage is created as soon as may be after the making of the loan under the said mortgage. That subsection imposes a duty on the society to expedite the procedure when the borrower is on bridging.

Mr. Shatter

Who will police that duty?

Mr. Flynn

It is intended to reduce further the period during which any borrower would be paying at the higher rate. The building societies will say that it is in the best interests to have the loan secured as quickly as possible. I want to get bridging loan finance available through the building societies on the same terms and without restrictions. I am asking the Deputy to withdraw his amendment or put it to the vote.

Mr. McCartan

I wondered if the Minister would refer to subsection (3) as a basis for justifying the position. It is a legislative declaration on the problem which does and possibly will exist. We seek to include in a section a pious legislative declaration that building societies shall move as quickly as possible in this area. All kinds of problems can arise on title in settling a conveyancing transaction. In regard to Deputy Shatter's suggestion, who polices the subsection in question and who will be able to decide when all reasonable steps are not being taken, there is merit in what he is trying to do by way of his amendment No. 13 because when similar legislation was provided in Great Britain it became apparent that there was potential for abuse. People who have not been involved with a building society have no alternative available to them but to play the market. I would be concerned that a person would be disadvantaged by being left unduly long on a premortgage loan from the building society.

I support what Deputy Shatter said. Perhaps this is something the Minister should look at again and if, as has been indicated, simply giving the Central Bank control in certain instances is not the most satisfactory way of dealing with it, then perhaps the Minister should look at this matter before Report Stage to see if we can come up with an alternative suggestion. Subsection (3) will not help the situation.

Mr. Flynn

As far as I am concerned, the solicitors acting for the building societies will have to take note of subsection (3) and if they do not comply with them, then anybody who feels offended will have the right to take the matter elsewhere. I am not accepting the amendment.

Mr. Quinn

The bank has power under subsection (13) of section 36.

Mr. Shatter

I am concerned to ensure that the Central Bank have a power and play a specific role in this area. I am looking for assurances in that regard. I suggest that in that context the Minister might come back to this issue on Report Stage.

Amendment, by leave, withdrawn.

Question proposed: "That section 23 as amended, stand part of the Bill."

Mr. Quinn

Could the Minister clarify a lay person's interpretation of section 23? I have some sympathy with the point made on the previous section by Deputy Shatter. Are we to understand that building societies can make loans to individuals in the manner in which the bank can make loans to individuals?

Mr. Flynn

Yes.

Mr. Quinn

And that these loans would be independent of the mortgage that a building society may have on a property?

Mr. Flynn

Yes.

Mr. Quinn

And that consequently the argument in relation to section 22 put forward by the Minister stands?

Mr. Flynn

Yes, the building societies have the power to fund deposits on the purchase of houses just as banks do.

Mr. Quinn

Could a member of a building society go into that society and raise money for school fees, or, as they may very well have to do now, for a medical operation?

Mr. Flynn

Yes.

Mr. Quinn

And that that would be independent of the mortgage — that the building society would take the view that they hold a mortgage to the value of 30 per cent of that person's property and that they would enter into a loan to accommodate whatever the purpose was which would constitute, say, in value terms another 20 per cent of the total value of the person's property and the building society would hold the deeds?

Mr. Flynn

Without going into the specific details, the answer is yes.

Mr. Quinn

That is why I had some sympathy with what Deputy Shatter was arguing. To what extent is the flexibility of section 23 constrained by subsection (4) of section 22? Is it the argument that it would not be a mortgage, but a loan?

Mr. Flynn

It would not be constrained at all.

Mr. Quinn

A building society give a loan, like a five year term loan, which is different from the mortgage per se. Is that the argument?

Mr. Flynn

Yes, that is the situation.

Question put and agreed to.

SECTION 24.

Amendments Nos. 14 to 16, inclusive, not moved.

Acting Chairman

I understand it is proposed to take amendments Nos. 17 and 18, together.

Mr. Shatter

I move amendment No. 17:

In page 25, subsection (1) (b), lines 28 to 33, to delete from and including ", unless a tiered rate" down to and including "Central Bank".

Section 24 of the Bill makes provision for the charging of tiered interest rates by building societies. I am not raising any objection to the charging of tiered interest rates other than in the context of housing loans.

There seems to be no rational basis for introducing this provision. It also seems that because of the other roles building societies are given there is no basis for providing for tiered interest rates — and I want to emphasise that building societies are not just placed in a position of equality with banks but in some areas are put in a special position and allowed to play roles that the banks are not playing.

In 1986, some building societies tried to retrospectively apply tiered interest rates to home loans and they tried to apply them to borrowers who had never been informed that there was any possibility that tiered interest rates would so apply. The 1986 Building Societies' Act prohibited building societies charging tiered interest rates to previous borrowers and prohibited the creation of new tiered interest rate loans. In section 24 the Minister is conferring power on a building society to again charge tiered interest rates. In his original press release dealing with this issue when the Bill was published the Minister suggested that if tiered interest rates were charged it would mean that borrowers of large sums of money, £60,000 to £70,000, would be charged higher interest rates than people borrowing between £20,000 and £35,000. The Minister moved away from that argument on Second Stage and briefly touched on the provisions of the Bill regarding tiered interest rates.

The Minister sees the central role of building societies as providing house loan finance, and all the other powers are adjacent and additional. I believe the charging of tiered interest rates poses a threat to mortgage finance and could result in borrowers having to pay unnecessarily high interest rates on housing loans, and could require the smaller borrower to pay a higher interest rate than the borrower of a larger sum. The first time house buyer who wants to borrow £25,000 or £30,000 from a building society may have no track record in the payment of mortgages or repaying loan finance. Because of that he may be seen by a building society as a higher risk than someone who has already established a track record and possibly borrowed £20,000 or £30,000 for his first home and is now into the £50,000 or £60,000 borrowing stakes.

There is nothing in this legislation to ensure that only those who borrow very large sums from building societies for the purpose of house purchase will be charged higher interest rates under a tiered interest rate system. There is nothing in the Bill to ensure that what the Minister suggested in his original press release will be adhered to.

There are no protections in the Bill for the house purchaser borrowing between £20,000 and £35,000 against tiered interest rates, and in the city of Dublin one buys a relatively modest house with borrowings of £20,000 to £25,000. There is nothing in the Bill to ensure that it will not be the borrower in that bracket who will pay the higher interest rate rather than the borrower in the higher bracket.

We all know the way banks work. If one has a triple A credit rating one may get a concessionary interest rate as opposed to someone who for example, has not, been involved in business for many years and who never got such a rating from the banks.

So, there is an inherent danger in all this. First, I see no public demand for the provision of tiered interest rates. I have never in all my years in public life had a single member of the general public coming to me and asking that powers be provided for building societies to charge tiered interest rates on housing finance. I see no merit in providing for it. The only demand for it is from some building societies, and we have a job to ensure that housing loan finance is made available at reasonable interest rates and that those interest rates are kept as low as possible within the type of market economy in which we operate.

I am mystified as to why the Minister feels there is a need to provide for tiered interest rates and how the Minister thinks the provisions contained in this Bill will ensure that it is only those who borrow large sums who will pay interest at the higher rate. I invite the Minister to point to a specific section or subsection in the Bill which so provides.

I am worried about this for other reasons, and this is where we head into the new powers that building societies have. Building societies are going to be allowed to build housing estates, to act as estate agents and as lawyers. Let us take the simple question of building societies building housing estates. If a building society build a major housing estate of hundreds of houses in a suburb in Dublin they would want to sell those houses and provide loans on a tiered interest rate system. With that system, if you buy a building society house you pay a lower interest rate than if you buy a house built by a different developer. Is there any protection in the Bill to ensure that will not happen? I would ask the Minister to clarify that.

In the context of commercial loans might it not be the case that the building society would provide housing loans at a lower rate to those to whom they have provided a large commercial loan? The tiered interest rate system may work in such a way that you get a concessionary housing loan if you have done business with the society in a commercial area but a higher interest rate is payable on housing loans to everyone else. I do not see the demand for the provision of a tiered interest rate system for building societies. The previous Government banned the creation of tiered interest rates on housing loans by building societies. Deputy John Boland, the Fine Gael Minister at the time who dealt with this matter, prevented building societies from providing for tiered interest rates for exising or future housing loans. I see no reason the house purchaser should be required to pay a higher rate than is desirable and I see no means of ensuring that if you provide tiered interest rates it would only be the large borrower who would be, in a sense, penalised and required to pay a higher sum.

I formally propose amendment No. 17 which states: "In page 25, subsection (1) (b), lines 28 to 33, to delete from and including ", unless a tiered rate" down to and including "Central Bank"." I formally propose amendment No. 18 which states:

In page 26, between lines 3 and 4, to insert the following subsection:

"(3) If a member of a society to whom a housing loan has been made is charged by the society a tiered interest rate in contravention of this section the following provisions shall apply, namely—

(a) the member shall not be in breach of the terms of his mortgage if he does not pay to the society the amount by which any payment due on foot of the tiered interest rate exceeds any amount due on foot of the lowest rate of interest applicable at that time to loans made by the society to members generally and the society shall not, by reason only of such failure to pay, be entitled to exercise any remedy against the mortgagor which is otherwise conferred on it by the law, and (b) the member shall be entitled to recover from the society any such excess paid by him as a single contract debt in any court of competent jurisdiction.

These amendments tabled by Fine Gael would effectively prohibit the creation of new tiered interest rates.

This provision is seen as another assault by the Government on the borrower and the house purchaser. The Government have already reduced the tax allowance on mortgage interest rates from 90 per cent to 80 per cent. The Minister is now presiding over a situation where mortgage interest rates are being increased by 1 per cent and are likely to increase even more. At the same time he is allowing building societies to create a tiered interest rate system which may directly impinge not simply on the large borrower but on the first time house buyer. I would warn the Minister to tread very carefully in this area. Recent statements made by him in this House on the housing area generally indicate that the Government have in mind to further reduce in the next budget the mortgage interest rate allowance made available to house purchasers. I would invite the Minister to tell the House that, if this Government are still in office next February, they will not further reduce the interest rate allowance available to home owners on mortgage repayments.

The Minister has clearly signalled in this House implicitly in comments he made some weeks ago that the Government are now intent on a further attack on the mortgage interest rate allowance. It is my prediction that, if they are still in office at the next budget, they will reduce the mortgage interest rate allowance from 80 per cent to in the region of 60 per cent. With inflation now rising, interest rates increasing and with the Minister trying, by legislation, to create tiered interest rates, the approach by the Government is a direct attack on home ownership and on those who have arranged their financial affairs in such a way that they rely on the fact that they have certain legislative protections and tax allowances to allow them meet their mortgage repayments.

Mr. Flynn

I do not wish to be seen to be confrontational in responding to the last few remarks of Deputy Shatter. We are not here to discuss what might or might not be elements of a future budget statement by a Minister for Finance. If the Deputy thinks his amendment, as it is framed to deal with tiered interest rates, will deal with the question of mortgage interest relief or with what mortgage rates might be in 12 months time, it really is a joke. The amendments that are down provide effectively for the re-enactment of sections 4 and 5 of the 1986 Act under which the charging of tiered rates by building societies is banned. I can appreciate that Deputies might have a genuine concern in this matter and hold strong views on the whole question of tiered rates but circumstances have changed so much since the 1986 Act that I could not justify the continuation of the absolute ban in respect of future loans for reasons on which I went into detail in my Second Stage speech. The whole mortgage market has changed dramatically since 1986 and that at least was recognised by everybody on Second Stage.

There is now a wide choice of housing finance sources offering mortgages on very competitive terms. Any prospective house purchaser can now shop around and they do so. There are institutions which suggest how people can shop around for the best mortgage to suit their own particular needs and circumstances. It is a whole new ball game in so far as house mortgage finance, its availability and the options available to mortgage seekers are concerned. I do not think it is appropriate, in an economy where interest rates are determined by market forces, to interfere with the setting of interest rates in one sector of the economy and by one type of institution. It is also discriminatory in that it does not apply to the banks. There has been much talk about making the same provisions for building societies as for banks and then changing them to accommodate other situations that do not affect the banks. Deputy Shatter's suggestion does not apply to the banks or other lending institutions that are now competing very strongly in the mortgage business. Nor has the ban done anything to help the small borrower. The section as it is drafted is reasonable and provides that tiered rates cannot be introduced for existing loans.

Mr. Quinn

Which is the main point.

Mr. Flynn

That is the important element in this. They cannot be introduced even to top up loans under existing mortgages. The measure provides protection for future borrowers by requiring that a society must secure the written acceptance of the borrower to the charging of a tiered rate. Deputy Shatter talked about the track record of people looking for loans or of first time borrowers. I put it to him that building societies and banks are not benevolent societies. They take on board the question of whether a mortgage seeker has the capacity to repay the loan. They have to be prudent in the making of all their loans. Even with the cut-throat competition that exists at present, they still have to ensure that the people they are giving the loans to will be in a position to make the repayments. That applies to first-time mortgage seekers and to people seeking their second or third mortgages.

Different circumstances exist now than existed when tiered rates were banned by the last Coalition. Certain circumstances at that time made the Coalition Government go down that road. We do not know if they would have gone down that road had those circumstances not existed. It has not worked and it has not helped the small borrower in any significant way. In creating the level playing field that will enable the building societies, the banks and other institutions to play on the same pitch with the same restrictions, the same prudential supervisory cover by the Central Bank and to operate in the competitive climate that now exists, this is not in any way disadvantaging anybody who already has a loan and anybody getting a loan in the future will have full knowledge of what is involved.

If Fine Gael wanted this to be applied across the board to all the lending institutions, why was not a similar amendment put down to the Central Bank legislation before the House? I am trying to bring about a situation in which the building societies will have the same opportunities and difficulties as all the other institutions. We have received no objections from members of the public or from representative consumer groups, to the removal of the ban on tiered rates.

The Consumer Association of Ireland made a detailed submission to us on this Bill and did not refer at all to the removal of the ban. Let nobody trot out something in support of the consumers as a reason for this change not being made, because the consumers and their association have no problem with this. It is better that tiered rates be left to competition in the marketplace than to have some kind of artificial statutory intervention as suggested by the Deputy. There is plenty of competition. It is not disadvantaging those who will be seeking loans, and protection is specifically written into the Bill for existing borrowers. New borrowers will know exactly what they are doing if they want to get involved in this new form of mortgage.

Mr. Quinn

In relation to amendment No. 14 to section 24, do I take it that the reference to the two specific dates, 1 August 1986 and 23 October 1986, is covered as far as the Minister is concerned by section 24 (1) (a)?

Acting Chairman

I should inform the Deputy that amendment No. 14 in the name of Deputy John Boland was not moved.

Mr. Quinn

Are we on section 24?

Acting Chairman

We are dealing with amendments Nos. 17 and 18 to section 24.

Mr. Flynn

I think what the Deputy is saying is relevant.

Mr. Quinn

I will wait until the section is being dealt with.

Mr. Shatter

When building societies unilaterally sought to impose tiered interest rates in 1986, colleagues of the Minister were opposed to tiered interest rates. It now appears that they favour tiered interest rates. The Minister said that the ban does nothing to protect the consumer and referred to the Central Bank Bill. The ban on tiered interest rates has meant that in a competitive market both the banks and building societies have acted cautiously in this area. The fact that tiered interest rates were banned in the context of building societies has meant that banks have had to compete in that context.

The Minister put forward an argument in a press release and then dropped the argument, so I invite him to explain how this provision to reintroduce tiered interest rates will work so as to ensure that first time house purchasers who borrow modest sums of money — in the region of £20,000 to £30,000 — will not find that they are paying a higher interest rate than people who borrow larger finance. The Minister has dropped that argument because he knows it does not apply.

Neither has the Minister addressed the problem I raised of a preferential interest rate applying simply to the sale of houses built by the building society. I invite him to respond to that.

I also note that the Minister has not denied that it is a developing Government policy in continuous budgets to reduce the mortgage interest allowances and that in the next budget this Government, if still in office, will further reduce the mortgage interest allowance. At a time when the Minister is planning to pass legislation to provide tiered interest rates which may well result in increased interest being payable on home loans, he has a duty to the general public to indicate his Government's thinking on mortgage interest allowance. If this provision is enacted the Minister has a duty to those home purchasers who may borrow under this tiered interest rate system, and pay interest rates at a higher level, with the resultant changes in the Finance Bill having the effect that they will get less mortgage interest allowance and the whole thing will be a great deal more costly than it is today. The Minister has a duty to clarify the Government's thinking on that issue.

Mr. Flynn

The Minister has no notion of giving an indication to Deputy Shatter of what might or might not happen, either by Government action or by outside forces in the future. It is extraordinary that the Deputy should be pursuing that here, unless it is for some other less honourable political reason to which I will not subscribe. Why the Deputy pursues this issue on this amendment is beyond me. I am not going to get into competition as to the differences between the Deputy's amendments and his colleague Deputy Boland's amendments. The Deputy does not want me to go down that road, does he? What was going on on that side of the House in the tabling of these amendments was very obvious to this side of the House. I deliberately refrained from making any references to it.

Mr. Quinn

Uncharacteristically.

Mr. Shatter

Deputy Boland and myself are completely ad idem on the issue.

Mr. Flynn

That is not the way it seems in the amendments put down by Deputy John Boland who is not here to push them because if he was Deputy Shatter would have to disown him, would he not?

I have not made this a confrontational piece at this stage because I subscribe to what the other two parties as represented by their spokesman here subscribe to. This is serious legislation and there is a lot to be done. If we continue at this pace it will not be out of this House before the end of this session. It will drag on with considerable difficulties and disadvantages to those who wish to benefit from it. The Deputy is not being browbeaten and he should not feel threatened when I say he is making a meal of every single line of this Bill and that it is unnecessary.

If building societies begin favouring their own members with special arrangements, that can be dealt with, as the Deputy knows, under the restrictive practices legislation. That is not at issue here. What is at issue is that there is plenty of competition in the marketplace and that circumstances have changed since that ban was implemented in 1986. The Deputy knows what facilities are available to those seeking mortgages at this time. They are being very well catered for and they have the advantage not only of readily available mortgages but of receiving preferential treatment from those who seek a greater share of the mortgage market. As the Deputy well knows, there are new players in the mortgage market every week. We are returning the situation to the level of competitiveness that exists in other financial institutions. I think it is reasonable to do so.

Mr. McCartan

I think the issue of tiered interest rates is being passed over too glibly by the Minister. I believe the drafting of the Bill highlights in some respects the fact that tiered interest rates were not popular and that the system was sometimes — I use the word advisedly — abused. The Minister by his own provision has tried to address two of the problems: first, to ensure that the borrower has clear notice in advance of agreeing to the mortgage that a tiered interest rate will be charged; second, the borrower has to sign an acknowledgement form to be agreed by the Central Bank. These provisions are not there for nothing. Many people found themselves unexpectedly paying punitive interest rates because they were not fully advised. There was abuse of the system.

Before we agree to reintroduce tiered interest rates we should be satisfied that the building societies will not devise some other means to get around the two simple provisos the Minister has introduced. I accept that there is an element of equity in tiered interest rates especially from the viewpoint of small borrowers, but on balance tiered interest rates were not popular and the previous Government's action in banning them was welcomed. The Workers' Party view is that we would be as well off without tiered interest rates because they are punitive. The building societies are in business for profit. We should recognise the vast assets of the building societies and the enormous profits they make, there is more competition now than in 1986, there is a captive market. Given the cost of housing, especially in Dublin, if the old system of tiered interest rates were to be reintroduced, I would say that approximately 80 per cent of mortgages, will carry punitive tiered interest rates.

We would prefer the ban to continue and for that reason we support the amendment that Deputy Shatter has advanced. I do not think things have changed that much, and perhaps the Minister would be agreeable to defer this provision to see how the market settles down after the legislation has been enacted. At a later date he could listen to the case the building societies make for tiered interest rates. I do not think we should bring in this measure now as the Minister is doing in this innovative and fundamentally changing legislation. We should reserve this for another day and another debate. I am opposed to the reintroduction of tiered interest rates and I support the amendment.

Mr. Flynn

If we were to consider putting a provision that discriminated against building societies there is no doubt that it could lead to building societies being pushed to contemplate their change of status to get away from the discrimination. They might not wish to do so in the conversion to plc. if we were to continue discriminating against them in as far as tiered rating is concerned.

In our system, interest rates will always be determined by market forces and artificial interventions of the type the Deputy suggests ultimately act to the detriment of a good mortgage market that serves to meet the needs of the various types of borrowers. To prove the point, competition over the past year or more — Deputy McCartan accepts that competition has created a new set of circumstances — has enabled many borrowers who were legally liable for tiered interest rates predating the 1986 Act to renegotiate their mortgages at a lower rate of interest. That situation has existed because of changing circumstances and increased competition.

Mr. McCartan

I say it is too soon.

Mr. Flynn

Deputy McCartan has said it is too soon but I say now is the time to take that on board in this comprehensive legislation. Let us not do anything that discriminates between one institution and another, as this only leads to an imbalance in the availability of mortgage finance. For that reason I am not accepting the amendment.

Question put: "That the words proposed to be deleted stand."

The Committee divided: Tá, 68; Níl, 38.

Tá

• Abbott, Henry.
• Ahern, Bertie.
• Ahern, Dermot.
• Ahern, Michael.
• Aylward, Liam.
• Barrett, Michael.
• Brady, Gerard.
• Brady, Vincent.
• Brennan, Matthew.
• Browne, John.
• Burke, Ray.
• Byrne, Hugh.
• Calleary, Seán.
• Collins, Gerard.
• Conaghan, Hugh.
• Connolly, Ger.
• Coughlan, Mary T.
• Daly, Brendan.
• Davern, Noel.
• Dempsey, Noel.
• Dennehy, John.
• de Valera, Síle.
• Ellis, John.
• Fahey, Frank.
• Fitzgerald, Liam.
• Fitzpatrick, Dermott.
• Flood, Chris.
• Flynn, Pádraig.
• Foley, Denis.
• Gallagher, Denis.
• Gallagher, Pat the Cope.
• Geoghegan-Quinn, Máire.
• Haughey, Charles J.
• Hilliard, Colm Michael.
• Hyland, Liam.
• Jacob, Joe.
• Kirk, Séamus.
• Kitt, Michael P.
• Kitt, Tom.
• Lawlor, Liam.
• Leonard, Jimmy.
• Leyden, Terry.
• Lyons, Denis.
• McCreevy, Charlie.
• Mooney, Mary.
• Morley, P.J.
• Moynihan, Donal.
• Nolan, M.J.
• Noonan, Michael J. (Limerick West).
• O'Dea, William Gerard.
• O'Donoghue, John.
• O'Hanlon, Rory.
• O'Keeffe, Batt.
• O'Keeffe, Ned.
• O'Leary, John.
• Power, Paddy.
• Reynolds, Albert.
• Roche, Dick.
• Smith, Michael.
• Stafford, John.
• Swift, Brian.
• Treacy, Noel.
• Tunney, Jim.
• Wallace, Dan.
• Walsh, Joe.
• Walsh, Seán.
• Woods, Michael.
• Wright, G.V.

Níl

• Barnes, Monica.
• Barrett, Seán.
• Birmingham, George.
• Carey, Donal.
• Connaughton, Paul.
• Cosgrave, Michael Joe.
• Creed, Donal.
• Crotty, Kieran.
• Crowley, Frank.
• Deasy, Austin.
• De Rossa, Proinsias.
• Doyle, Avril.
• Dukes, Alan.
• Durkan, Bernard.
• Enright, Thomas.
• Farrelly, John V.
• Flaherty, Mary.
• Flanagan, Charles.
• Griffin, Brendan.
• Boylan, Andrew.
• Bruton, John.
• Bruton, Richard.
• Hegarty, Paddy.
• Higgins, Jim.
• Lowry, Michael.
• McCartan, Pat.
• McGahon, Brendan.
• McGinley, Dinny.
• Mitchell, Jim.
• Naughten, Liam.
• Noonan, Michael. (Limerick East).
• O'Brien, Fergus.
• O'Keeffe, Jim.
• Shatter, Alan.
• Sheehan, P.J.
• Sherlock, Joe.
• Taylor-Quinn Madeleine
• Yates, Ivan.

Tellers: Tá, Deputies V. Brady and D. Ahern; Níl, Deputies J. Higgins and Boylan.

Question declared carried.

Amendment declared lost.

Amendment No. 18 not moved.

Question proposed: "That section 24 stand part of the Bill."

Mr. Quinn

I wish to clarify something referred to in the course of Deputy Shatter's comments on amendment No. 17. I want confirmation that the interpretation is correct. Is it correct to say that this section would not prohibit a building society which was financing a particular development — and as part of its participation in a building development was offering mortgage facilities to prospective purchasers — from providing a tiered interest rate, the lowest tier of which would be below the same type of interest rate being applied by the society to members generally? In other words, in case I have not made myself clear, could a building society in the execution of its powers generally under this Bill and with specific reference to this section, offer a tiered mortgage to prospective purchasers where the lowest tier was below the general market rate of interest?

Mr. Flynn

Is the Deputy asking if a building society could charge a lower rate than the normal rate?

Mr. Quinn

Yes.

Mr. Flynn

They could.

Mr. Shatter

The Minister earlier referred to the Consumers' Association of Ireland. In a submission which the Minister and I received — I presume other Deputies also received it — the association made the point that building societies may change their approaches. They said that a borrower must be notified in writing that a tiered interest rate is operating. However, when you make a deposit with a building society — it is not necessarily the case at the moment as there are so many competing — you may not necessarily get a loan. Societies can change their rules from time to time. The Minister indicated what information societies will have to make available. At a time when depositors place money with a society, possibly having in mind that they may seek a home loan in six months or a year, what information will have to be supplied at that stage as to whether tiered interest rates are in place? The consumers' association made the point that they found it very difficult to get information from some building societies regarding the manner in which they operate.

Mr. Flynn

I do not quite understand what the Deputy is getting at. In regard to tiered rates, the important thing is that existing borrowers are protected and that new borrowers will have to acknowledge the fact that they will be charged a tiered rate. This acknowledgement must be in writing so that they are fully aware of the position.

Mr. Shatter

Will they be notified at the time they apply for a loan?

Mr. Flynn

Before the transaction is concluded they will be fully aware of all aspects of the rate being charged and the tiers involved. A specific form to accommodate that will have to be cleared by the regulatory authority.

Mr. McCartan

Currently many building societies require you to be on their books for a period of six months, a year or longer. Even if it is not a requirement a person may find that although he or she has money invested for a year they learn only then that the building society is obliged to notify them of the tiered interest rate and they are asked to sign the specified form. However, at that stage it may be too late for them to go elsewhere and shop around because building societies require you to be on their books for an agreed time before they deal with you.

Mr. Flynn

Some do but that practice has been diminishing because of competition. Shopping around is now done in advance, you get the whole range of options and you know exactly what you are getting into. We should not refer to practices which were normal years ago as all that has changed.

Question put and agreed to.

Section 25 agreed to.

NEW SECTION.

Mr. Flynn

I move amendment No. 19:

In page 27, before section 26, to insert the following new section:

26.—(1) Where any estate or interest in land mortgaged to a building society is sold by the society in exercise of a power of sale, the society shall ensure as far as is reasonably practicable that the property is sold at the best price reasonably obtainable.

(2) Where a society decides to retain any estate or interest in land mortgaged to the society in exercise of a power under the mortgage, the value of the property shall be determined by an independent and competent person appointed by the society and agreed to by the mortgagor and any other mortgagee and the value so determined shall be treated as if it were money received by a mortgagee arising from a sale.

(3) Where the society is unable to obtain the agreement of the mortgagor or other mortgagee to the appointment of a person under subsection (2), the society may apply to a court of competent jurisdiction to appoint an independent and competent person to determine the value of the property and the costs incurred in such application shall be defrayed equally by the applicant and the persons who do not agree to the person proposed for appointment by the society under subsection (2).

(4) To the extent that any agreement relieves (or may have the effect of relieving) a society or any person from the obligation imposed by subsection (1) or (2) the agreement shall be void.

(5) Where property to which this section relates is sold or its value determined in accordance with subsection (2), the society shall send a notice by registered post to the mortgagor and any other mortgagee at his last known address within 21 days after the completion of the sale or the date on which the report on the value of the property is received by the society, as the case may be, containing particulars of the sale or the value of the property, as the case may be.

(6) Nothing in this section shall affect the operation of any rule of law relating to the duty of a mortgagee to account to a mortgagor.

(7) In this section, ‘mortgagor' means a person to whom a loan is made by a society, and includes the successor in title of that person.".

This section has been redrafted mainly because subsection (1), although it follows a similar provision in section 82 of the 1976 Act, could have the unintended consequence of interfering with the rights of a second mortgagee who would in fact be entitled to be repaid moneys due to him before the mortgagor is paid anything. I am also taking the opportunity, in the situation where a society opts to retain rather than sell property coming into its possession under the terms of a mortgage, to provide that in the event of failure to agree on a suitable person to value the property, a valuer may be appointed by the courts. That is an additional precaution.

The amendment clarifies the position of all parties involved when a building society sells or retains a property in the event of the borrower not being able to keep up the payments. The requirement that the society achieve the best price reasonably obtainable is, of course, being maintained but the apparent requirement that the mortgagor then be paid without reference to other mortgagees is being amended to reflect the actual position as it obtains in practice, that is, section 21 (3) of the Conveyancing Act, 1881, will apply as a matter of course.

Amendment agreed to.

Section 26 deleted.

Section 27 agreed to.

SECTION 28.

An Leas-Cheann Comhairle

We now move to amendment No. 20 in the name of the Minister. Amendments Nos. 21 and 23 are related and it is proposed, with the agreement of the House, to take amendments Nos. 20, 21 and 23 together for discussion purposes.

Mr. Flynn

I move amendment No. 20:

In page 29, lines 5 to 18, to delete subsection (2) and substitute the following:

"(2) (a) Subject to paragraph (b) a society shall not, under this section, invest in a body corporate whose objects enable it to—

(i) carry on activities which are outside the powers of the society, or

(ii) invest in other bodies corporate,

but this shall not prevent a society from investing in and supporting a body for a period of 3 months, pending the alteration of the objects of that body.

(b) Where the Central Bank considers it expedient to do so, it may on application by a society grant a dispensation from paragraph (a) to such extent and on such terms and conditions as it considers appropriate.".

Section 28 (2) (a) as drafted would, as a general rule, prevent a building society from setting up a subsidiary and taking a shareholding in a banking company in Ireland, but it would have permitted a society to set up a subsidiary or invest in a banking company abroad. The purpose of the restriction was to prevent a building society transferring its main business to a subsidiary and possibly circumventing some provisions of the Bill. However, I am now satisfied that the provision would create some problems in an EC context and would not sit well with the banking directives. It could well prove to be ineffectual as a society could establish a banking subsidiary in another member state and this subsidiary, when licensed in that state, would then have the right to establish branches or provide services back into this country. There is also the fear that it could make it very difficult for a society to operate abroad by means of a subsidiary since it is a generally accepted principle of EC law that one's right to operate abroad should correspond to one's home operations.

In view of these considerations I am proposing by these amendments to drop the provision at subsection 2 (a) and replace it with a new subsection which is designed to give the Central Bank power to limit or restrict the business of a banking subsidiary in order to ensure that a building society does not make use of a banking subsidiary to get round any of the provisions of the Bill.

Amendment agreed to.

Mr. Flynn

I move amendment No. 21:

In page 29, lines 23 to 26, to delete subsection (4) and substitute the following:

"(4) Where a body corporate in which a society invests or proposes to invest is, at the time of any such investment or proposed investment or at any time thereafter, engaged in the business of accepting deposits or other repayable funds, the Central Bank may specify such limits or restrictions on the business of the body corporate as it considers appropriate in the interests of the orderly and proper regulation of building societies.".

Amendment agreed to.

Mr. Flynn

I move amendment No. 22:

In page 29, subsection (5), line 29, after "1988" to insert "or a society registered under the Industrial and Provident Societies Acts, 1893 to 1978, or under the Friendly Societies Acts, 1896 to 1977, or a voluntary group provided, in the case of any such society or group, that the support is given for the purpose of providing housing".

Amendment agreed to.

Mr. Flynn

I move amendment No. 23:

In page 29, subsection (5), line 30, to delete the definition of "banking business".

Amendment agreed to.

Section 28, as amended, agreed to.

SECTION 29.

An Leas-Cheann Comhairle

Amendment No. 24 in the name of Deputy Shatter. Amendment No. 25 is an alternative and I propose that amendments Nos. 24 and 25 be discussed together.

Mr. Shatter

I move amendment No. 24:

In page 30, subsection (2), line 16 to delete paragaraph (n).

Section 29 outlines a variety of services which a building society may provide Subsection (2) (n) extends to building societies the possibility of carrying out executorships, including the drawing and preparing of wills. It seems to me that there is no particular reason for extending such powers to building societies. I think I am right in saying that the only reason the provision is in the Bill is that the section is a direct copy of the 1986 Act introduced in Great Britain which listed a number of additional powers. I do not think there is any great public demand to get building societies to prepare wills.

I note that the Minister has tabled an amendment similar to mine and I should like to ask him to clarify the reason he wants to leave building societies in a position to exercise executorships. I wonder why the Minister wants to delete the provision relating to the drawing and preparing of wills. I suspect that there is no a great deal of difference between what we are trying to achieve in our amendments.

Mr. Flynn

The purpose of amendment No. 25 is to remove any ambiguity vis-à-vis section 58 (1) of the Solicitors Act, 1954, which restricts the preparation of certain legal documents, including wills, to solicitors when the preparation is done for award. While the subsection, as drafted, was intended only to give societies the capacity to prepare wills if and when the restrictions in the Solicitors Act were relaxed or removed, I consider it desirable in the interests of clarity, and to remove any doubt about the Solicitors Act, to delete the words “including the drawing and preparing of wills”. Any legislation in the future that derestricts wills can include the necessary provision permitting societies to undertake the activity.

Mr. Shatter

Will the Minister address the difference as regards executorships?

Mr. Flynn

Banks have been involved in executorships for many years. I am posing the question: why not the societies which provide a financial service dealing with property? As the Deputy will be aware, it is only bringing into effect what we have done so far. I am making the playing pitch the same for both institutions.

Mr. Shatter

I am happy to accept the Minister's amendment and withdraw mine.

Amendment, by leave, withdrawn.

Mr. Flynn

I move amendment No. 25:

In page 30, subsection (2) (n), line 16, to delete "including the drawing and preparing of wills,".

Amendment agreed to.

Mr. Flynn

I move amendment No. 25a:

25a. In page 30, after line 41, to insert the following subsection:

"(6) Section 30 of the Succession Act, 1965 (which relates to the power to grant representation to a trust corporation), is amended by the insertion in subsection (4) (b) of that section of the following additional subparagraph—

‘(v) a building society authorised under the Building Societies Act, 1989; or'.".

This amendment is necessary to put building societies on the same footing as associated banks in relation to the provision of executorship services. Under section 29 (2) (n) of the Bill, a society which adopts the power to provide financial services will be able, subject to Central Bank approval, to provide executorship services, that is, to carry out the duties of an executor. However, section 30 of the Succession Act, 1965, limits the circumstances in which the High Court may grant probate to bodies corporate to cases where the executors appointed are "trust corporations" as defined in that section. As things stand, a society would not be a trust corporation within that section and this amendment is designed to overcome that by including building societies in the list of corporations to which the High Court may grant probate.

A corporation aggregate, such as a building society or a company, which does not qualify as a trust corporation, cannot take a grant of representation in its own name but could do so by means of a nominee taking the grant for the use and benefit of the corporation. A trust corporation, which is defined in section 30 of the Succession Act, to include the Associated Banks, public and private companies with paid up capital in excess of £100,000 and certain other types of corporations, does not have to proceed in this fashion, that is, it can take a grant of representation in its own name. This amendment will allow building societies to do the same.

Amendment agreed to.

Question proposed: "That section 29, as amended, stand part of the Bill."

Mr. Quinn

In the section we are moving to allow building societies to engage in a wide range of activities. They will be using their position in the marketplace by virtue of the trust that depositors have placed in them for years. I should like to give the Minister, and his advisers, notice that I intend to question the scrutiny which will be exercised by the Central Bank in respect of the operation of section 29.

My concern essentially is that with the vast resources and deposits building societies have they are going to be tempted to get into a market which is very specialised and currently very substantially serviced. With the spectre of the ICI in the background, which at one stage caused the financial institutions and indeed this House to tremble because of the financial implications for all of us, I would like the Minister to be on notice that when we come to section 36 he might indicate the way in which the Central Bank will review applications for the operation of either this section or the other sections which will have to be given prior approval by the Central Bank before the building societies get involved. As I said before, section 36 is the gear box under which all these sections will be operated. We are now enabling building societies, which up until very recently used to take in deposits and give out mortgages, to get into a very specialised range of services. Without providing safeguards to ensure that there is the necessary expertise to carry on this business in building societies we could put at risk large amounts of depositors' savings. That is my concern.

Mr. Flynn

They were, in fact, single product institutions to a very large degree.

Mr. Quinn

Precisely.

Mr. Flynn

This will be more appropriate under section 36.

Mr. Quinn

I just wanted to give notice of my intention to raise it.

Question put and agreed to.

SECTION 30.

Mr. Flynn

I move amendment No. 26:

In page 31, lines 6 to 48 and in page 32, lines 1 to 5, to delete subsections (2) and (3) and substitute the following:

"(2) This section applies to any bond or any contract of suretyship or guarantee which is given, or is entered into, as surety or guarantor by a society in the course of its business or which is in the course of his banking business given or entered into, as surety or guarantor, by a person resident outside the State to satisfy, and only for the purposes of, a requirement which is both—

(a) a requirement of a society, and

(b) made solely for the purpose of securing financial facilities to be made available by that society.

(3) For the purposes of this section—

"banking business" has the same meaning as in the Act of 1971.

"the Insurance Acts" means the Insurance Acts, 1909 to 1989, and regulations relating to insurance business made under the European Communities Act, 1972.".

The purpose of this amendment is to bring section 30 into line with section 2 of the Insurance Act, 1978, as amended by section 27 of the Insurance Act, 1989, which was recently passed by the House. Section 30 is based on the Insurance Act, 1978, the purpose of which is to allow banks to issue bonds, sureties and guarantees in the course of their banking business. Under the Insurance Act, 1936, persons other than insurance companies cannot effect, among other things, guarantee insurance business. This prohibition was regarded as raising doubts about the capacity of banks to issue bonds, sureties and guarantees, such as performance bonds, export guarantee bonds and payment guarantees. Accordingly, the Insurance Act, 1978, was brought in to make it clear that banks could issue bonds and similar instruments in certain circumstances. I understand that the main purpose of the amendment to the Insurance Act, 1978, contained in the Insurance Act, 1989, is to remove limitations on the circumstances in which banks can issue such instruments.

The proposed new subsection (2) will put societies on the same footing as banks both in regard to the giving of bonds, sureties and guarantees by them and the giving of bonds by foreign banks where the bond is required by a society and is for the purpose of securing financial facilities to be made available by a society. Societies providing financial services under section 29 will thus be able, for example, to issue bonds for travel or for tour operators, performance bonds in relation to the completion of contracts and payment guarantees, without running foul of the Insurance Acts. The proposed new subsection (3) defines banking business as it is defined in the Central Bank Acts, and it also defines Insurance Acts.

Amendment agreed to.

Section 30, as amended, agreed to.

SECTION 31.

An Leas-Cheann Comhairle

We come now to amendment No. 27. Amendment No. 31 is cognate and, therefore, for discussion purposes amendments Nos. 27 and 31 may be taken together.

Mr. Flynn

I move amendment No. 27:

In page 33, subsection (12) (b), line 45, to delete "executive," and substitute "executive and".

This is a simple drafting amendment which proposes to clarify the existing intention that the statement should be signed by the chief executive and two directors, that is, by three different signatories.

Amendment agreed to.

Mr. Flynn

I move amendment No. 28:

In page 33, lines 47 to 50, to delete subsection (13) and substitute the following:

"(13) References in this section to ‘conveyancing services' are references to the preparation of transfers, conveyances, contracts, leases or other assurances in connection with the disposition or acquisition of estates or interests in land.".

The purpose of this amendment is to make some minor changes in the definition of "conveyancing services" by removing the words "other documents" and the reference to ancillary services and inserting the words "leases and other assurances". As drafted, it may possibly be argued that the definition of conveyancing services extends to other matters such as the preparation of wills, which is not the intention. I want to clarify that point. I am advised that "assurances" is a recognised legal term for a conveyance of assignment of property and is the appropriate word here. This means that the section, as amended, will cover the conveyancing of land within the normal meaning of the term.

Amendment agreed to.

An Leas-Cheann Comhairle

Amendment No. 29 in the name of Deputy Shatter: amendment No. 30 is consequential and amendments Nos. 32 and 33 are related. It is proposed, therefore, to take amendments Nos. 29, 30, 32 and 33 together.

Mr. Shatter

I move amendment No. 29:

In page 33, between lines 50 and 51, to insert the following subsection:

"(14) The draft of the regulations the Minister proposes making pursuant to this section shall be laid before each House of the Oireachtas by the Minister and the regulations shall not be made until a resolution approving the draft has been passed by each House.".

Amendments Nos. 29 and 30 relate to the new powers which section 31 confers on building societies to provide conveyancing services and amendments Nos. 31 and 32 deal with the new powers societies may exercise in providing auctioneering services.

Amendment No. 30 proposes:

In page 33, between lines 50 and 51, to insert the following subsection:

"(15) This section shall not come into operation until three months after the regulations provided for in subsection (14) have been made.".

I regard amendments Nos. 29 and 30 as being of particular importance and of similar importance to amendments No. 32 and 33 which would have the same effect as regards auctioneering services.

Section 31 confers for the first time on building societies a power to provide conveyancing services. This will result in a fundamental change in our legal procedures and law as up to now conveyancing services had in effect to be undertaken by solicitors under the Solicitors Act, 1954. There are a great number of worries in this area. It has been suggested that building societies in taking on the role of conveyancing may provide a more efficient service to a house purchaser and that in some way the undertaking of conveyancing services by building societies may reduce the cost incurred by way of legal expenditure by a house purchaser. I want to say, without any ambiguity from this side of the House, that we would favour any measures which could be put into place to reduce the cost to the home buyer of purchasing a home. The difficulty with this section is that it is not clear to what extent, if any, these provisions will reduce costs. Perhaps when we deal with the substance of the section at a later stage we will cover that aspect.

The section does recognise one thing of considerable importance: it recognises that a serious incidence of conflict of interest may arise as between a building society and a house purchaser. While allowing building society solicitors to act in the purchase of a home for the borrower of mortgage finance from the building society and also acting for the building society, it seeks to put in place a number of protections to try to get over the problem of conflict of interest. The possible conflicts of interest which can arise can be very easily listed. I do not want to detain the House by going through all of them but some are worth referring to.

For example, someone seeking to buy a house who is getting independent legal advice may get the type of advice the Minister was talking about earlier with regard to shopping around for mortgages. When a person goes to his solicitor, the solicitor should have the expertise to provide him with the necessary backup information as to the different types of mortgages available from different types of societies and banks. The solicitor is performing a role in carrying out a conveyance and also in encouraging a person to shop around in order to get the best deal possible. Knowing the legal background to a person's situation a solicitor may be able to advise him as to whether he should take out an endowment policy or a straight mortgage loan. A solicitor will do that in the context of having no particular axe to grind on one side of the argument or the other. A building society might have a vested interest in selling to you an endowment policy because of the pay back of commission the building society will get from an insurance company. In fairness to the Minister, I think he recently sounded a warning to house purchasers in this area.

Progress reported; Committee to sit again.

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