Central Bank and Financial Services Authority of Ireland Bill 2003: Report Stage (Resumed).

I move amendment No. 43:

In page 30, line 27, after "providers" to insert the following:

", but the Council shall not impose any levies or fees until such time as the Consultative Industry Panel has been established pursuant to section 57DA of this Act".

This amendment deals with the Ombudsman's council, one of the functions of which is to impose fees for the cost of the completing its work. As matters stand the council can proceed to introduce those fees. My amendment proposes that this should not occur until the consultative panel has been established so that the views of the industry can be heard before the fee structure is introduced. Concerns have been raised by, for example, the credit unions about the cost of these procedures. They have expressed the view that the Ombudsman should only rule after provisions internal to the credit unions have been exhausted. As there are concerns as to how this should work and given that the Minister is establishing a consultative industry panel, it would be prudent to get the views of industry before introducing fees.

As set out in section 13, the function of the industry and consumer consultative panels is to advise the regulatory authority. The industry consultative panel has a specific mandate to provide the authority with comments on the levies and fees imposed by the authority to fund its activities. Neither panel has any role in respect of the financial services ombudsman, which has its own council drawn from industry and consumer interests. Under section 57BE, the council has the function of prescribing the fees and levies to be paid by financial service providers to fund the Ombudsman's bureau. Since the Minister envisages that approximately half of the members of the Ombudsman council will be from the financial services industry, this should provide a sufficient input on such levies and fees. I hope the Deputy will revisit his amendment on that basis.

While the Minister of State makes some valid points, I would like to be provided with assurances that the industry membership of the council will include representatives of credit unions which are significant players in the financial sector. The membership should not consist only of the usual suspects from the hardcore financial services providers. It should represent a broad base within the industry.

I give that undertaking to the House with regard to the credit union movement.

Amendment, by leave, withdrawn.

Deputy Boyle asked me to explain that he has had to attend a committee meeting but will return as soon as he can. Is it within the bounds of permissibility that his amendment can be moved by another Deputy?

An amendment must be moved by the Deputy in whose name it was tabled.

Amendment No. 44 not moved.

Amendments Nos. 45 and 46 are related and can be discussed together, by agreement. As Deputy Boyle is not in the House, amendment No. 45 cannot be moved.

Amendment No. 45 not moved.

I move amendment No. 46:

In page 38, to delete lines 3 to 9 and substitute the following:

"57BS.—(1) Within 3 months after the end of each financial year, the Financial Services Ombudsman shall publish a report containing——

(a) a summary of all complaints made to that Ombudsman during the preceding financial year and of the results of the investigations into those complaints, and

(b) a review of trends and patterns in the making of complaints to that Ombudsman.”.

This amendment arises from an amendment tabled by Deputy Boyle on Committee Stage which he tabled again as amendment No. 45. In fact, it reflects the amendment Deputy Boyle is not in a position to move. Amendment No. 46 provides that the ombudsman's report on complaints received must include a review of trends and patterns in complaints as well as a summary of those complaints. I have not adopted Deputy Boyle's amendment in its entirety as it is not the ombudsman's role to provide an overall commentary on the state of financial consumer protection. That is a function of the regulatory authority. I have, however, sought to address the concerns expressed by the Deputy.

Among the issues which have caused the public increasing concern as various scandals have unfolded has been the low priority given to consumer protection by financial services operators. Deputy Boyle's amendment offers a better version than that offered by the Minister of State. We will want to hear the views on consumer protection of the council which I hope will be a significant player in the financial services framework and of the ombudsman to whom it reports. Recently, we have seen instances of the mis-selling of products, overcharging, failure to notify and failure to observe obligations under consumer credit legislation. Consumers are not being told in layman's terms exactly what they are signing up to. They are not being provided with an opportunity to consider what is involved and there is no explicit sign up as was clearly the case with the mortgage protection policies which were doubly sold with the extending of loans.

We want to see more than a list of complaints. A well-informed council of the financial services ombudsman should bring new thinking and good practice from elsewhere to bear and express strong views in its annual reports on whether or not we are moving towards where consumers ought to be in the system. The Minister for Finance's amendment provides simply for a tight reportage on specific complaints and what was done with them. Deputy Boyle's amendment has the advantage of providing the council and the ombudsman with the opportunity to provide a more general, state-of-the-nation commentary on whether or not the regulatory authority is succeeding in putting consumers into an important position in the regulatory structure. That is something they have never had in the past.

I apologise for being unable to move amendment No. 44. A meeting of the Committee on Procedure and Privileges is taking place at the moment. I wish to move amendment No. 45.

We are on amendment No. 46.

Are the amendments not being debated together?

The Deputy will have to speak to amendment No. 46. Amendment No. 45 has fallen.

I regret that also. While I acknowledge that amendment No. 46 takes on some of the substance of amendment No. 45, it leaves out key elements. I ask that the provisions be reconsidered even at this stage. While the review of trends and patterns will be incorporated in the report of the financial services ombudsman, 57BS (1)(a) refers only to a summary of all complaints the ombudsman receives in the proceeding financial year. This involves a philosophical difference between the Minister for Finance and me. It is one we have had on earlier legislation, particularly the Freedom of Information (Amendment) Act 2003.

I tabled amendment No. 45, which has regrettably passed into the ether, on the basis that we had a very good example of where an authoritative commentary by an ombudsman has been made. The Information Commissioner offered a considerably authoritative commentary on the Freedom of Information (Amendment) Bill. If we are serious about financial regulation and consumer confidence in it, we should provide the financial services ombudsman with a similar right to produce an authoritative commentary on trends and activities within the financial services sector. This should include the right to comment on proposed Bills and legislative changes to add to the powers of IFSRA and of his or her office. On those grounds, I regret that the Minister has not travelled fully in the direction I proposed. The Bill will be much weaker as a result.

While the Minister has gone half way to meeting the amendment tabled by the Deputy, he cannot go the full distance. Much of the difficulty stems from the Deputy's insistence on the use of the word "authoritative" in his amendment. The ombudsman can make comments and recommendations on financial consumer protection in the State in the context of any investigation he or she carries out. Nobody is taking away from that. The ombudsman could include those comments in his or her annual report and I am sure the Minister would not seek to censor or limit what he or she might wish to say. The Deputy insists in his amendment on including the word "authoritative" but authority must be earned by an ombudsman as with a politician. Authority cannot automatically be bestowed by an Act of Parliament. That said, the review of trends is provided for in the Government amendment. What the Deputy seeks in the balance of his amendment is something the ombudsman might well do in the proper course of his or her functions.

The Minister of State is hung on the word "authoritative" which I am prepared to put to one side. The more important word in my amendment is "commentary". The important part of my amendment dealt with the effect of a commentary by an independent person with a vigilance role on legislation and, particularly, the activities of the Government. I regret that the Minister chose to look at an adjective rather than a noun when considering my amendment.

The adjective qualifies the noun. The ombudsman is not in a position to provide an authoritative commentary. The authoritative character of an ombudsman's report stems from its character and the eloquence and ability with which the point is written up.

Amendment put and declared carried.

Amendment No. 48 is an alternative to amendment No. 47 and amendment No. 49 is related. Amendments Nos. 47 to 49, inclusive, may be taken together.

I move amendment No. 47:

In page 40, to delete lines 41 to 43.

This amendment relates to the circumstances in which a consumer is not entitled to make a complaint to the financial services ombudsman. It sets out in section 57BX(3)(a) that a consumer is not entitled to make a complaint if the conduct complained of is or has been the subject of legal proceedings before a court or tribunal. I share the concern expressed that this allows a much more resourceful institution than the consumer complaining of a practice to issue proceedings in order to prevent a case being heard by the financial services ombudsman. This is a power that should be qualified. In amendment No. 49 I have offered a way in which it could be qualified. It sets out that if the conduct complained of is or has been the subject of legal proceedings before a court or tribunal, the financial services ombudsman may decide that it shall not investigate or shall defer its consideration of the matter if it believes that this would best serve the ombudsman’s procedures. Under my amendment we would give the financial services ombudsman discretion to decide if such a matter were something which despite the proceedings having been issued, the ombudsman should nonetheless proceed to investigate because he or she felt it was in the best interests.

What I envisage is that if the Minister is agreeable to my proposal, the ombudsman would make a judgment call. If the ombudsman found that a financial services institution was using this part of the Bill in an obstructive way by trying to prevent fair procedures or trying to prevent a case being adjudicated upon, the ombudsman would then take the action outlined and would decide to go ahead with the investigation notwithstanding the proceedings having been issued. If there was another case where it was felt that the proceedings were well founded and that there was a case which should properly go to the courts for a hearing, the ombudsman would then take the opposite view.

My amendment meets the Minister's obvious concern in inserting this in the section but also prevents any abuse occurring, particularly abuse by a very resourceful financial institution compared to an individual who would not have resources at his or her disposal and could not anticipate taking on a large financial institution in a legal battle over an issue of perhaps relatively small sums of money, or even if a large sum was involved.

Amendment No. 48, which is tabled by Deputy Ó Caoláin and I, seeks to insert the phrase "brought by the consumer" into this section of the Bill. I mentioned it earlier to the Minister for Finance and I now mention it to the Minister of State because he seems to be continuing the custom that the Minister for Finance has adopted in this Bill. At no point on Report Stage has the Minister accepted any amendment that mentions the word "consumer". He has proposed only one amendment with the word "consumer" in it, and that was to delete the term elsewhere in the Bill. That is curious in a Bill which is meant to promote the concept of consumer protection. There are references to consumers throughout the Bill, but when we as the Opposition propose amendments which seek to strengthen the consumer role in this process and the area of consumer protection, it is curious that this Government is unwilling to accept the arguments.

Deputy Bruton noted that this is an area which involves legal difficulties. We cannot charge agencies with being parallel courts or with contesting legal proceedings which are already in place. However, there is also the question of scales of justice in terms of the levels of remuneration being sought and the monetary cost to the individual in any particular instance. We must have flexible procedures to allow this to happen. On the other hand, if consumers were following legal actions through the courts system that would forbid them from taking an action with IFSRA or the financial services ombudsman, it is also open to financial institutions to frustrate, delay and deny justice for consumers by taking legal proceedings against them. For those reasons we need to look very closely at this matter and allow the flexibility the consumer needs to make sure that his or her rights can be enforced quickly and efficiently in a way this section of the Bill will not allow. It will further frustrate consumers to be caught up in the legal system at larger personal cost and at very little inconvenience to the financial institutions which very often should find themselves compensating individuals who have been wronged by the way in which those institutions have been providing their services.

In tabling amendment No. 48 along with Deputy Boyle, my main intention is to emphasise that the only debarment to making a complaint by the consumer in this instance is where the consumer has initiated legal action or complaint, and the due process is either attending to or has already addressed the issue involved. The concern relating to the construction of section 57BX(3)(a) is that the financial institutions would see this as an “out”, an opportunity to initiate legal action as a means of debarring a complaint by the consumer. Examples could be given where that risk exists. This Bill should be primarily devoted to protecting the interests of the consumer. This particular phrase, “the financial institutions for whom legal action poses no financial concern”, would close off that avenue to consumers. The proposed amendment provides greater precision in the construction of subsection (3)(a) under this particular section of Chapter 5. The clause would then read, “is or has been the subject of legal proceedings brought by the consumer before a court or tribunal”. It is clearly intended to specify that it is where the consumer would have initiated the legal action but that the opportunity for the financial institution to do so, thereby closing off the consumer’s right of referral of the issue, would no longer apply. I appeal to the Minister of State. This is a sensible proposition and one which, as I can see by his nod of assent, he understands and agrees with. The problem is whether he will be allowed to assent to it.

I have a question which the Minister of State might put to his officials. When this legislation was introduced some months ago, we were not aware of what we have been made aware of in the past two weeks. Yesterday we heard a statement by the former managing director of AIB, Mr. Scanlan, who said that his wife had made a substantial investment in 1989 and passed it to Allied Irish Banks Investment Managers. He and his wife subsequently added to the investment. Mr. Scanlan's statement said he could take legal action but would not do so because of his good relationship with the bank. I assume Mr. Scanlan's wife was not an employee of the bank but simply a customer, despite being related to the chief executive of the bank by marriage. What is the situation now? Is she entitled to make a complaint? She entrusted money to AIBIM and it ended up in the Virgin Islands. They have only found this out now, many years after the investment was made and many years after it was repaid with an extraordinary amount of growth — it was a very lucky investment for them. Mr. Scanlan's wife would not rank as an employee but as a customer. If Mrs. Scanlan is faced with questions from the tax authorities, under this legislation she is effectively disbarred on a time basis and may also be disbarred because there have been proceedings before a court or tribunal.

I do not have a problem with what is suggested by the Minister in regard to ordinary, everyday cases. However, I have a problem with the independence of the financial services ombudsman. We have heard in recent months and will hear more of a number of people who were persuaded by dint of advertisements in banks or the persuasiveness of bank staff that they should put their money into overseas deposits and sign up as non-residents. The point they are making is that they did this, like Mr. Scanlan and his wife, on the advice of this very powerful institution, the bank. In most cases, they appear to have been non-compliant and in the wrong from a tax point of view. Some time later, the Revenue Commissioners correctly sought an appropriate sorting out of their tax positions.

This legislation would copper-fasten the banks from having to answer to individual customers. In other words, as with AIB, a bank could make a settlement with the State. However, this would not be the case for individual customers, who in their tens of thousands of cases were misdirected by unknown persons, perhaps bank counter clerks but not the directors, to put their money into bogus non-resident accounts or vehicles in the Virgin Islands. They have no recourse under this legislation to the financial services ombudsman.

While I accept that in regard to banking the primary advice must be caveat emptor and that people are responsible for their own financial decisions and investments, nonetheless, there is a significant disproportion in terms of power in this regard. On one side is a very large bank with over 20,000 employees all straining to one purpose — to make money and sell products — and, on the other, individual customers who may not be particularly knowledgeable in this area but who want to make as much money as possible. The bank acts as a salesperson for schemes which may be dubious from a tax perspective while the customer is anxious to earn significant returns. However, the schemes have gone belly-up for many people, including many of the elderly who feel they were at the least mis-advised or misled by the banks. We witnessed yesterday the outrage of Mr. Scanlan, the chief executive of the bank, on behalf of his poor wife who put her money into AIBIM only for it to end up in the Virgin Islands. They are also without recourse.

This is one of the reasons I suggested that this legislation needs more thought. It contains a financial services ombudsman structure designed by the banks to channel run of the mill complaints, for which the legislation will be fine. However, when there is extraordinary behaviour by a powerful organisation such as a bank, its customers are reduced to single individuals and their right of complaint is severely constrained. In the context of fairness and equity, there is an imbalance in favour of the banks as institutions and against the rights of individual customers. This also applies to business people who may be negotiating loans, and we heard from Ms Dowling about the practice of the negotiation of insurance policies where top-up loans are involved. In the context of what we have heard over the past few weeks, this legislation seems fine for the simple, straightforward cases but not for the kind of activity that our banks, our biggest bank in particular, seem to be heavily involved in.

To deal with the particular amendments proposed by Deputies Richard Bruton, Ó Caoláin and Boyle, subsection (3)(a) which the Minister introduced on Committee Stage already addresses the danger which the Deputies have raised. It means that if a financial institution acts in bad faith by commencing legal proceedings in order to frustrate the actions of the ombudsman, the ombudsman can still deal with the complaint. This provision goes as far as we can reasonably go without risking a legal challenge based on the constitutional prerogatives of the courts.

I refer Deputies to the precise wording of subsection (3) of section 57BX which states, "A consumer is not entitled to make a complaint if the conduct complained of — (a) is or has been the subject of legal proceedings before a court or tribunal...”. To some extent, this answers the point raised by Deputy Burton.

To take the example of a financial institution which takes court proceedings to recover an amount allegedly due from a customer, nothing in the subsection suggests that this should prevent the customer from complaining to the ombudsman that, for example, the institution had mis-sold the financial product concerned. That said, there is a six-year limitation of time backwards in the legislation. However, I hope Deputies can accept that subsection (3) addresses the concerns they have raised.

To which subsection did the Minister refer?

Subsection (3). An amendment by the Minister on Committee Stage brought in the new section 57BX(3)(a).

The Minister's point refers to "the conduct complained of".

Therefore, if they take an action--——

The consumer is not entitled to make a complaint if the conduct complained of has been the subject of legal proceedings.

Does that mean that one complaint about such conduct blocks every single person who is so affected from pursuing his or her case to the ombudsman?

In the context of overcharging, if one person who lost a lot of money pursues a case, does that mean that everyone else who might have a similar complaint, and hopes the ombudsman will give them relief at low cost, will be blocked?

Subsection (3A), as amended on Committee Stage, states:

Despite subsection (3)(a), the Financial Services Ombudsman may accept a complaint against a regulated financial services provider who has begun legal proceedings in relation to a matter to which the complaint relates, but only if that Ombudsman reasonably suspects that the regulated financial services provider has begun those proceedings in order to prevent the making of the complaint, or to frustrate or delay its investigation.

That was inserted on Committee Stage and that is as far as the Minister feels he can go in the matter.

I listened to the Minister of State's response to Deputies' arguments with interest because I believed with some justification that he understood and was sympathetic to those arguments. Deputy Richard Bruton, however, has correctly focused on the point of the plurality of the words "the conduct" complained of. It is no longer the central hook on which the Minister of State hangs his argument, it no longer refers only to the individual experience. If the Bill refers to "the conduct" complained of and that can apply to a multiplicity of people and if there is one court action on the conduct complained of, does that debar others seeking redress?

This is not just word play, there is an important point here that must be examined. A consumer is not entitled to make a complaint if "the conduct" complained of is subject to legal proceedings before a court or tribunal — that is not specific to the individual consumer's case but it can refer to the experience of that consumer applying to 1,000 consumers, any one of whom could have taken a case. That would close off the opportunity of referral to the financial services ombudsman. This must be teased out. I ask the Minister of State to re-examine this and allay the fears now being expressed as a result of the Minister of State's response.

I do not share Deputy Ó Caoláin's fears because I referred to the phrase "the conduct complained of" in ease of the jurisdiction of the ombudsman, not in restriction of it. We are debating a restriction on access to the ombudsman and a provision that a consumer cannot make a complaint if the conduct complained of is or has been the subject of legal proceedings before a court or tribunal. Legal proceedings are proceedings in an individual sense. Any legal proceeding bears a record number and has a distinct party and clearly, therefore, the conduct complained of takes its colour in the Bill from that expression — it must relate to particular parties. The conduct complained of must be individuated to the particular legal cases involved.

Will the Minister of State reassure us of that?

I reassure the House that this clause cannot be used to exclude a person. The clause which excludes the jurisdiction of the ombudsman will always receive a strict construction and any fair reading of this provides that a person cannot make a complaint if that person is or has been the subject of legal proceedings before a court or tribunal. That is the clear sense of the provision and it does not bear the interpretation placed on it by Deputy Ó Caoláin.

If the Minister of State is assuring us that the conduct complained of cannot be a single action that removes an entire group of people who might be hoping for such a judgment, I must accept his wisdom on the matter.

Amendment, by leave, withdrawn.

I move amendment No. 48:

In page 40, lines 41 and 42, after "proceedings" to insert "brought by the consumer".

Amendment put and declared lost.
Amendment No. 49 not moved.

I move amendment No. 50:

In page 41, line 5, to delete "services" and substitute "service".

Amendment agreed to.

I move amendment No. 51:

In page 41, lines 9 and 10, to delete "services" and substitute "service ".

Amendment agreed to.

Amendments Nos. 129 to 131, inclusive, are related to amendment No. 52 so they will be taken together by agreement.

I move amendment No. 52:

In page 41, line 32, after "it" to insert the following:

"and in the case of a Credit Union has made reasonable efforts to use fully the dispute resolution options which are available to the consumer as a member of the Union".

This arose on Committee Stage when we discussed the complaint system within the credit union and the point at which a complaint being pursued within the credit union structure should move on to be considered by the ombudsman. The Irish League of Credit Unions expressed the view that there should be a requirement that before a member had recourse to the financial services ombudsman, he or she should use the procedures available to him or her as a member of the credit union.

The crucial words in the amendment are "made reasonable efforts". It is open to the financial services ombudsman to take the view that while he or she may not have exhausted every avenue, the member has made some reasonable efforts to have his or her case dealt with internally. It seems a reasonable way to proceed. Most ombudsman services require a person to exhaust the internal complaints procedures before moving to the next level. The credit union movement felt this would be a better way to deal with the matter since people are members and mutually supportive and should avail of the rules available to them before going outside the credit union.

Amendment No. 129 is similar, it relates to the scheduled amendments the Minister will make to the Credit Union Act. Does the Government agree that in seeking to place the credit union movement under the control of IFSRA, which primarily deals with large financial institutions, some of the requirements for the movement do not reflect its ethos? It is voluntary, collective and its members are the controllers of the movement. It is a different organisation from a commercial bank. Some credit unions are small and localised while some reflect large-scale public service employment.

My amendment No. 129 proposes that a complaint by a credit union member should first be dealt with through the credit union's internal complaints procedure. The reason for that is that in the previous Bill, which established the Irish Financial Services Regulatory Authority, the Minister introduced an amendment promising that the ethos and the nature of the credit union movement would be respected. Deputies are concerned that the impact of the Minister's approach, particularly on small-scale credit unions, lacks due process in terms of the history and style of the credit union movement. If a member makes a complaint, it ought to go to the committee of the credit union, which should seek to address it. As in other voluntary organisations, there are arguments and disputes within credit unions. The type of regulation now being introduced by the Government is enormously onerous and detailed, far more so than the comparative regulation of banks and for-profit financial institutions. In order to respect the ethos of the credit union movement I suggest it would be good to encourage it to have its own complaints procedure utilised by members who are unhappy with its services. That in turn would support the accountability of the management committee of the credit union and the resilience of the credit union movement in being accountable to its members.

Some of the legislation relating to the credit union movement will prove to be particularly onerous, particularly for small credit unions. The Minister should encourage the ethos of the credit union movement, of the membership acting collectively, of the management committee of the credit union reporting to the members and, where there are complaints, of the credit union itself taking responsibility to address the complaints.

The financial services regulator will be busy drawing up codes of practice relating to complaints. So will the financial services ombudsman. I am quite sure they will be advising credit unions on how a complaints procedure should operate under this Bill. The credit unions already have a complaints procedure. The purpose of the Labour Party amendment is to ensure it is utilised and that the regulator is not the first recourse. That is similar to what is being offered to the banks whereby a customer must go first to the bank or financial institution to make a complaint. We are suggesting that the same rules should apply in the case of our very important and very valued credit union movement.

I have tabled amendments Nos. 130 and 131. They seek to have written into the sections identified that the complainant must have exhausted all dispute resolution options available under a credit union's rules save the referral of the matter to arbitration or to the District Court for resolution. These amendments, with the earlier ones already mentioned, are a further safeguard and recognition of the special position of the credit unions within the overall configuration of financial services delivery in this jurisdiction. They recognise that credit unions are voluntary bodies with their own rules and established dispute mechanisms that are deserving of full respect. The basic thrust of the argument presented by earlier speakers and by me is that this is about ensuring that we reflect the position of the credit unions in line with the recognition they already have in the Act of 2003. We wish to see this restated, renewed, reaffirmed, and the concerns of the broad credit union sector addressed substantively. These amendments will do that. They are realistic in so far as they recognise, as did the earlier set of amendments which we have discussed, that referral to the court would not be a suitable action in advance of referral to the office of the financial services ombudsman, nor equally would arbitration, but that under all the other rules governing credit unions, normal procedures should be adhered to before the financial services ombudsman would take on any case referred. That is a very reasonable proposition. I commend amendments No. 130 and 131 where they specifically impinge on the text of the Bill as presented. I support the amendments already tabled by my colleagues, Deputies Bruton and Burton.

In this Bill and in the Act of 2003 the Minister for Finance seems to have adopted a babushka doll attitude to credit unions with the Central Bank being the largest doll, underneath which there is the Irish Financial Services Regulatory Authority, and underneath which again there is third doll which is the office of the credit union regulator. That analogy might make credit unions seem very secure, being protected by two larger and wider bodies. However, it is also very claustrophobic and suffocating for credit unions which, quite deliberately, through representations of the larger financial institutions, have been put in this legislative position to discourage their further growth. It has for long been argued, in both the 2003 Act and in this Bill, that credit unions were being treated unfairly, that they represent a different approach to banking, an approach that, particularly given recent events, should be looked at far more kindly. It is all about economies of scale, local access to services and, in particular, a voluntary ethos that is all too obviously lacking in larger financial institutions. In particular the Minister seems to have a philosophy that professional, meaning people who are paid large amounts of money to adopt attitudes that we see are far from professional, is different from voluntary, which is seen as amateur and shambolic. By refusing to accept these amendments the Minister is making a bad situation worse for a movement that is badly needed as a viable alternative in the financial services sector.

Debate adjourned.