Private Members’ Business

Banking Sector Regulation: Motion

I move:

That Dáil Éireann:

notes that:

— the level of mortgage repayments, negative equity and mortgage arrears is imposing a significant burden on many thousands of Irish families;

— the latest mortgage arrears statistics from the Central Bank show that the level of arrears is increasing at an accelerating rate;

— the standard variable interest rate for residential mortgages charged by State-owned Permanent TSB is substantially out of line with that charged by other mortgage providers in receipt of State support and is placing unacceptable financial pressure on the bank's variable rate customers;

— normal competitive forces which would allow customers with high mortgage costs to switch to an alternative provider are not currently present in the marketplace, effectively trapping customers with high standard variable rate mortgages;

— the Government put AIB under considerable public pressure to reduce its standard variable interest rate in line with the ECB rate reduction in November 2011 but is applying a "hands off" approach in relation to Permanent TSB;

— the lack of credit for small and medium enterprises, SMEs, is having a detrimental impact on economic activity, is impeding the country's economic recovery and is costing jobs;

— the Governor of the Central Bank has recently commented that credit conditions are tougher in Ireland for SMEs than in any other country in Europe both in terms of costs and availability;

— certain financial institutions are attaching unreasonable terms and conditions to offers of new lending to many businesses and are often making unilateral changes to the lending arrangements in place with businesses; and

— the lending performance of the banks is currently being measured by the amount of new credit sanctioned rather than the amount actually drawn down and put into circulation in the economy; and

calls on the Government:

— as the controlling shareholder in Irish Life & Permanent, to use all means possible to bring about a reduction in the standard variable interest rate being charged by Permanent TSB on its residential customers in order to bring it into line with rates being charged by other mortgage lenders in the market;

— to measure the new lending performance of the banks by the amount of credit actually drawn down and circulated in the economy rather than by loan approvals or repackaging of existing loan facilities; and

— to set out its overall implementation strategy in respect of the inter-departmental mortgage arrears working group, known as the Keane Report, and to detail all other steps it plans to take to address the escalating mortgage arrears crisis.

I propose that the time we lost at the beginning of the debate will be added at the end of this evening's proceedings.

I am advised that it will be adjusted on the Order of Business tomorrow. It will be a three hour debate at all costs. That is the main thing. I am advised that we cannot go beyond 9 p.m. We must discuss it on the Order of Business tomorrow.

We should go backwards.

I propose to share my time with Deputies Sean Fleming, Dara Calleary, John Browne and Éamon Ó Cuív, with five minutes for each of the first three Deputies and ten minutes for Deputy Ó Cuív.

The motion covers three main issues: first, the unjustifiably high standard variable interest rate being charged by State-owned Permanent TSB on residential mortgages; second, the ongoing lack of credit for small and medium enterprises and the manner in which the lending performance of the banks is being measured by the Government; and, third, the escalating problem of mortgage arrears. These are fundamental issues affecting ordinary mortgage holders and small and medium-sized businesses throughout the country. I intend to focus my comments on the Permanent TSB standard variable interest rate. My colleagues will cover other issues including the lack of credit for small and medium-sized businesses and the issue of mortgage arrears, although I will touch on these issues as well.

The purpose of raising the issue of the standard variable rate being charged by Permanent TSB on up to 80,000 residential mortgages is to seek to have a blatant anomaly in the mortgage market addressed, an anomaly that affects the daily lives of up to 80,000 of the bank's customers who are currently on the standard variable rate.

We should remember that Permanent TSB is a bank that the people rescued through the State guarantee and subsequently through the recapitalisation of the institution. Thus far, some €2.7 billion of taxpayers' money has gone into the bank to keep it afloat. Given the failure to sell the Irish Life business, it appears inevitable that a further €1.3 billion must go into the bank, resulting in a total of €4 billion of taxpayers' money injected into Permanent TSB.

The standard variable rate charged by Permanent TSB on residential mortgages today is 5.19%. The European Central Bank has reduced the base rate by 3% since June 2007 but Permanent TSB has reduced its standard variable rate by only 0.25% during the same period.

The bank's margin over the ECB rate has gone from 1.44% in June 2007 to 4.19% today. PTSB's rate of 5.19% is 2.15% more than what AIB, another State-owned bank - a pillar bank- currently charges its variable rate customers. In pure financial terms, this discrepancy imposes a massive additional burden on already hard pressed families. Take as an example a person with a mortgage of €250,000, not an exceptional amount in today's terms, over a 25-year period. The interest rate differential between AIB and PTSB gives rise to an additional monthly payment of €300 when compared on a like-for-like basis and using the correct amortization method of calculating mortgage repayments. Over the lifetime of the mortgage, the PTSB customer will repay an additional €90,000 above and beyond what a comparable customer with AIB will pay. When we examine this in the round and in the context of the household charge, the VAT increase, the increases in various other Government taxes and charges, such as motor tax and so on, we see the difference this makes for people already struggling to get by. Every Deputy has received e-mails and telephone calls from customers of PTSB who are adversely affected by the level of the standard variable rate they are currently being charged. We could recount many stories here setting out in painful terms what it means for people to be trapped in a mortgage charging an interest rate of that nature.

I accept there will never be a situation where all banks charge the same interest rate, nor would that be desirable in a competitive market. That is not what we propose. In an attempt to ascertain the thinking behind PTSB's pricing policy, I wrote to the former chief executive of the bank, David Guinane, in January this year. In his response, he highlighted the increased cost of running the bank in recent years and referred to the higher cost of funding and the provisions for lending arrears. He cited all of these as justifications for the extraordinarily high rate being charged on standard variable rate customers.

When we examine this in more detail, particularly in the context of the recent report by the Central Bank on variable mortgage rate pricing in Ireland, some important findings should be noted in this House. The report stated that it appears some lenders are charging higher variable rates to compensate for the losses they are making on their tracker loans. It also noted that one bank's variable rates are significantly lower, while another bank's variable rates are significantly higher than those of its peers, taking account of funding costs, arrears rates and other factors. This clearly nails the idea that PTSB can justify its standard variable rate based purely on the cost of funds argument. In any event, how is it that PTSB can afford to offer new customers getting a standard variable rate a rate of 3.7%, while existing customers are being charged 5.19%? This highlights clearly that the issue is not the cost of funds.

It also should be remembered that the long-term re-financing operation undertaken by the European Central Bank has given financial institutions the opportunity to borrow considerable sums of money for three years at a rate of 1%. While we do not have an exact breakdown of what each bank has taken up, we know Irish banks have availed of considerable amounts of cheap funding through that operation. This should reduce the cost of funding for the banks by a significant amount, thereby potentially eliminating some of the losses they are incurring under tracker mortgages. Even if the banks are making losses on their tracker mortgages, that is no reason for standard variable rate customers to subsidise these rates through the predatory rates on standard variable loans. The same arguments can be made against AIB and the EBS. The standard variable rate customers are not subsidising tracker mortgages to the same extent in those banks as in PTSB.

It is difficult to get an exact figure of the number of PTSB customers on the standard variable rate, but based on a press release issued by the bank in February 2011, it is estimated that up to 80,000 standard variable rate customers are affected. Fixed rate customers are also potentially impacted, because when their fixed rate ends, they will go onto the prevailing variable rate at the time. I have seen a number of examples of cases where this has occurred. When people's term on the fixed rate was expired, they were offered exorbitant fixed rates of 7% or 8% by the bank or the alternative standard variable rate of 5.19%. Not only does this issue affect existing standard variable rate customers, it also affects people on fixed rate mortgages with PTSB and they should take an interest in the issue because it will affect them.

It is important to highlight that what PTSB is doing by charging such a high level of interest on standard variable mortgages may well be self-defeating, as it is driving more and more people into arrears which will ultimately increase the bank's need for recapitalisation, a process that is still ongoing at its parent institution Irish Life and Permanent. The Central Bank has affirmed that high standard variable rates are counter-productive. In its 2011 annual accounts, PTSB's provisions for loan losses are now expected to be approximately €1.4 billion, compared to €420 million in 2010, with almost all of the expected increase attributable to the Irish residential mortgage loan book, due to a number of factors including, a significant increase in the number of PTSB mortgage loan accounts greater than 90 days in arrears at the end of December 2011, at 11.5% of total cases. This compares with an industry average of 9.2%. Therefore, we know for sure the level of arrears being experienced by PTSB customers is higher than the industry average arrears experienced by customers of other banks. I have no doubt the rate being charged by the bank to its standard variable rate customers is a contributory factor in accounting for why more of its customers are experiencing difficulty than those of other banks. In other words, what PTSB is doing is not just putting a huge financial burden on families, its approach may well be counterproductive for the company in that it serves to drive up the level of arrears for which it must account and provide in its annual statements.

The obvious question an outsider might ask is: Why do PTSB customers not move their business elsewhere? If only it was that simple. Unfortunately, the mortgage market in Ireland is dysfunctional and there is a lack of competition. In preparation for this motion, I wrote to all of the banks, Irish and foreign and asked them what their policy was in respect of people seeking to switch their mortgage from another bank to their bank. The responses were lukewarm to say the least. Very few of the institutions concerned said they were open to accepting mortgages switching from another bank. Banks simply do not want to hear of it and that is the evidence on the ground from customers. When they seek to transfer their mortgage from PTSB to another bank to avail of cheaper interest rates, they are not accommodated. This is the harsh reality.

This begs the question as to the response of Government and the Central Bank. Both are certainly aware of the issue. The Central Bank, while it did not name PTSB in a statement on 11 February, was in my view referring to it when it said it was engaging with specific lenders who appear to have standard variable rates set disproportionately high compared with the cost of funds through the Central Bank's existing powers of suasion. While it does not seek additional legislative powers at this time, it is trying to use softer powers such as influencing the bank to bring about a reduction in the rate being charged. To date, that has not worked and the customers of PTSB are paying the price through the level of mortgage repayments they must meet.

I have raised this issue with the Minister for Finance, Deputy Noonan, on countless occasions through parliamentary questions and on the floor of the Dáil. The Minister confirmed to me in a reply in the Dáil in January that he did not raise with the PTSB the issue of the standard variable rate being charged.

We got the stock answer, repeated in an utterly disappointing amendment from the Government which washes its hands of responsibility for this issue and says it has no role in the matter. I might have been able to accept that argument were it not for the fact that last November, when the ECB reduced its base rate by 0.25% the Government, very publicly, hauled AIB, Bank of Ireland and Ulster Bank before the Economic Management Council and insisted that the ECB rate reduction be passed on to the banks' standard variable rate customers. At that time, the Minister of State, Deputy Hayes, said on the media that it was pathetic that the banks were not prepared to pass on the ECB rate reduction. The Government, effectively, pressured banks to pass on a rate reduction. Those banks were already charging considerably less than Permanent TSB for standard variable rate mortgages. The real issue, which we highlighted at the time, was the spread of mortgage rates being charged in the market by all of the banks concerned.

It is not good enough for the Government to say it has no role in this matter. It took on a role last November when AIB was, very publicly, forced to back down and pass on the standard variable rate, which it did, bringing its rate down to 3.04%. That is in marked contrast to the approach the Government is taking in respect of Permanent TSB which is charging more than 2% higher while the Government is taking a hand-off approach and is not being proactive or raising the issue with management, despite the fact that we know the rate being charged is contributing to a higher level of mortgage arrears in that bank.

I do not understand the reluctance of Government to say what it believes should happen, even if it does not have the legislative power to make it happen. What does the Government think about the fact that the bank is charging such a high level of interest? Why abandon the customers of Permanent TSB? Why is there one rule for the customers of AIB and another for the customers of Permanent TSB? Is it because AIB is part of the Government's two pillar banks strategy and Permanent TSB is not?

I welcome the comments of a spokesperson for Permanent TSB reported on this evening's news. The spokesperson said the bank is in intensive discussions with the Department of Finance about the future of the bank and that the outcome of those discussions may be a reduction in the interest rate being charged. I welcome that. I have no doubt the timing of the statement is the result of pressure brought to bear on the issue by this motion. I welcome that.

I also highlight the issue facing customers of EBS who have contacted Members to make the point that although they are now part of a merged institution with AIB they are being charged 4.33% while AIB customers are being charged 3.04%. The Minister, in a press release welcoming the merger, made the point that the two pillar bank strategy would standardise the arrangements in respect of the new AIB-EBS, yet we have an enormous differential.

My colleagues will cover other points and I will revert to them tomorrow evening. In the meantime I call on the Minister and his colleagues to intervene and bring pressure to bear, whether publicly or privately, on the senior management of Permanent TSB to ease the enormous burden imposed on its standard variable rate customers who are being crucified by the mortgage interest rate of 5.19% currently being charged by the bank. I hope the Minister will reply in a constructive way.

I welcome the opportunity to contribute to this debate. Everyone in the country is aware of the major problem of the level of mortgage repayments, negative equity and mortgage arrears that is imposing a significant burden on thousands of Irish families. It is, generally, people under the age of 50 who are experiencing severe difficulties because they, by and large, are the people who have big mortgages and are raising families. If one partner in a household has lost his or her job or if the family income has been reduced, the first priority of people who are in financial difficult is to make sure the mortgage is paid and that the family keeps a roof over its head. Even those who are keeping mortgage payments up to date are incurring enormous financial difficulty and hardship in order to achieve that. The cost of food, transport and household bills such as heating and gas, is becoming increasingly difficult for most families. Raising young children and sending them to school is a major cost. A family may also be faced with repayments on a credit card or car loan. People are in severe difficulty and the mortgage repayment is the one they do their level best to maintain.

The motion deals specifically with the State owned Permanent TSB bank, whose variable mortgage interest rate is substantially out of line with other banks. Approximately 80,000 Permanent TSB customers throughout the country are suffering as a result of this excessive interest rate, which is more than sub-prime lenders were charging in recent years. I am a Permanent TSB variable rate customers, so I will desist from speaking too much on this topic. I say this merely to highlight the fact that the bank's customers are spread far and wide across the country.

I will deal with the lack of credit for small and medium sized enterprises, which is causing a major impediment to job retention and job creation. The Governor of the Central Bank, Professor Patrick Honohan, recently commented that credit conditions in Ireland are by far the worst in the European Union. It is important to stress that when we are asking for credit to be made available to small businesses we are talking about viable businesses. No one is suggesting that businesses that are not credit worthy and are not in a position to repay their loans should be given taxpayers' money. Most of the banks are majority owned by the State. We are saying there are many viable businesses that have cash-flow difficulties at different times of the year, depending on the cycle of their business. They are viable in the short term and long term and they need to be supported.

The majority of people I know in my constituency work in small companies with fewer than ten employees. Almost half the private sector workforce work in small businesses. These are the people who are keeping the country going. They are not getting high wages. Their incomes have been cut. Yet, their businesses are being threatened by the severe credit policy of the banks. I was struck by Professor Honohan saying credit conditions in Ireland were tougher than anywhere else in the euro area, in terms of interest rates and the possibility of getting a loan. However, Professor Honohan has a responsibility in this area because he is responsible for the overall banking situation in the country. It is not enough for Europe to advance funding to Irish banks to make sure they are solvent. They must be working and functioning as banks. A functioning bank is one that assesses loans, gives out loans, takes in deposits and makes a profit in that way. Most of the Irish banks are availing of credit from the European Central Bank and taking the easy option of investing that money in government bonds at a safe interest rate, in Germany France or even Ireland, and not passing the credit on to small businesses. This is causing a major restriction on small businesses and on their owners' ability to continue in business. If a small business person is about to get a new contract or to start a new job and must pay people but will not be paid for the work for a couple of months, he or she should be facilitated with a loan or overdraft. However, the banks are very restrictive in this regard. Public representatives are meeting examples of this every day in our clinics and in our daily lives. I hope the motion will persuade the Government to ensure that small viable businesses that are in a position to repay loans receive funding to create economic activity in their own areas. That would be the best stimulus the economy could get in terms of job retention and job creation. That is the main call I make on the Government this evening. It must be ensured that the credit drawn down on a quarterly basis by the small business customers is not an artificial figure.

I thank Deputy Michael McGrath for tabling this motion which gives the House the opportunity to focus on the difficulties in Permanent TSB and the EBS mortgage market and the SME, small and medium business sector. I will continue the points made by Deputy Fleming.

The Government amendment to the motion with regard to the small and medium business sector is disappointing because it does not reflect what I know to be the views of Ministers and Government Deputies. The amendment states that the pillar banks have met their lending targets for 2011. They have met their targets by issuing financing such as loans to clear out overdrafts, by converting long-term working capital facilities into loans and by depriving SMEs of access to any kind of working capital facility to allow them to continue in business. The Credit Review Office maintains that the credit targets are being met but its calculations are based on credit approvals rather than on actual credit drawdowns. The banks may be sanctioning funding at ridiculous terms of interest rate or of personal guarantees with demands being placed on the borrower's personal assets. A loan may be sanctioned but it would be very interesting to see the figures for the period for drawing down the loan. The hurdles which are being put in the way of drawing down sanctioned loans are getting bigger every day, once again depriving the SME sector of necessary working capital.

The Central Bank has reported that in the first nine months of 2011, a total of €1.6 billion in new loans were issued to small and medium businesses. This may seem a very impressive figure but when it is balanced against the fact that in the period, banks removed €2.4 billion in credit by closing down facilities. This is the credit gap which we have to deal with every day in our constituency offices. Lending to SMEs is dysfunctional. In every announcement about job creation and a jobs initiative budget, reference was made to the credit guarantee scheme and we are no further on with regard to the roll-out of that scheme. There has traditionally been a reluctance within the Department of Finance for such a scheme but perhaps it is time for a declaration that this cannot be done if it is not going to happen. It is time for the Department to explain why it is opposed to the scheme. This scheme has been on the books for two years and it has been blocked by the Department. We need this scheme to maintain jobs. I know the Minister of State, Deputy Brian Hayes, is committed to the scheme but there is a blockage within his Department and as a result, all the talk of jobs initiatives is a waste of time.

I thank Deputy Michael McGrath for tabling this motion on behalf of this side of the House. This is a motion on which the House could agree. In my view, a strong agreed motion in this House would give a message to the banks and the lending institutions to show we are not happy with the current situation. Such a motion would also strengthen the Minister of State's hand. I heard the Minister of State speaking recently on the radio and he seemed to be frustrated with the lack of action by the banks and the difficulties for the Government in that area. Business people up and down the country are finding it practically impossible to access loans or proper credit facilities to enable them to protect their businesses and existing jobs and to create new jobs. The absence of credit is causing businesses to reduce their workforce or even to close down in some instances. In my 30 years as a Deputy I have never seen so many business people coming to my clinic. They are very concerned about their business and about the lack of finance available from the banks. In many cases, they have told me that overdrafts are being withdrawn and the banks are asking clients to convert the overdraft into a short-term or long-term loan. This is causing severe problems for business people who are trying to survive. A total of 750,000 people are employed in the small and medium business sector and many of them employ up to ten employees. Printing works and small businesses in my area were doing reasonably well in the past are now finding it very difficult to survive because of a lack of credit.

Every town in Ireland has businesses and shops which are closing down. The lack of Government policies means there is less money to spend. However, the two main reasons for these closures are at the door of the banks and the local authorities. The banks are not lending and the local authorities are certainly acting like highway bandits squeezing the life out of business by charging exorbitant rates for water, refuse and rates. These two reasons are causing severe difficulties for business people.

Last year, the McCarthy report stated that savings of half a billion euro could be made by cutting out waste in local authorities and yet this Government has not seen fit to bring about those savings. If the local authorities could make those savings this revenue could be passed on as savings in commercial rates. The combination of rate charges and the lack of funding available from the banks is putting severe pressure on business people up and down the country. These are the existing businesses while those wishing to develop new businesses are wasting their time going to the banks as no loans are available.

The decision-making for lending has been taken away from the local bank manager and the regional bank manager and decisions are now being made in Dublin by people sitting behind computers or an iPad who do not have a clue about the acumen or the credit-worthiness of a local business person. The local bank manager has the local knowledge about the local business people yet the decisions are being made in Dublin.

I concur with the view that the greatest rip-off merchant in the banking industry is the Permanent TSB. It is charging ordinary householders exorbitant interest rates in order to pay for the mistakes made in other areas of its loan allocations. This cannot be allowed to continue. The Government must intervene to bring about a reduction and I understand talks are under way. More than talk is needed at this time; we need action. For example, a customer with a loan of €300,000 from AIB over 30 years will pay €1,264 per month while a PTSB customer will pay €1,666 per month, a difference of €402 per month. This is not acceptable, it cannot be allowed to continue and it is putting severe pressure on those with loans from Permanent TSB. I ask the Minister of State to continue to fight the battle with the Permanent TSB to ensure that the interest rates are reduced in line with other banks in this country.

This is a very important motion for a reduction in interest on loans from PTSB to small and medium businesses. I hope the House will unite on this motion to send a loud and clear message to the banks that we are unhappy, that a change is required and that even more business people will go out of business if this change is not brought about quickly.

I am delighted to have an opportunity to speak on this motion. I compliment Deputy Michael McGrath on tabling the motion. I raised this issue some time ago during Leaders' Questions and the Government has taken no action on this issue. It is fair to say that despite all the promises made this time last year, the Government has significantly failed to do anything practical for people finding it difficult to pay mortgages and loans. I have always been of the belief that what we need is simple action rather than more reports and complicated plans. For people on low incomes who have significantly lost earning power, we need to change the way the mortgage interest supplement works, which we proposed before we left Government. We need to make one very simple change to the rule that one cannot get mortgage interest supplement even if one fulfils the financial criteria for it because one works more than a fixed number of hours per week. It is a nonsense and it is an arbitrary rule which we suggested in a report I left for my successor in the Department be abolished. It was meant to be abolished in the spring of 2011 but it has not been yet.

The effect is quite simple. In many cases, a couple was working - one was in a relatively high paid job and the other was in a low paid job. The high paid job disappeared and the couple is now trying to live on say a clerical officer or executive officer salary. If one stacked up the figures, the couple would be entitled to mortgage interest supplement but for the fact one is in a job. This Government always said it would get rid of poverty traps. This is a simple one, so will it do that?

The second suggestion I have is a very relevant one. It is particularly important to protect the family home where children are involved. If one takes a family home from children, one is talking about moving schools and a huge upset, which will last a lifetime. A very simple way to help families which are working would be say that the cost of the mortgage interest was an allowable deduction when doing the calculations for the family income supplement. Currently, when one applies for family income supplement, one's PRSI, tax and so on is taken off. What I suggest, and what we suggested last Christmas, is that one would take off mortgage interest supplement and when one got down to the core income, one would then compare that to the target income and pay 60% of the difference. In that way, it would particularly target support at families where there are children and irrespective of the make up of the family. This would eliminate another poverty trap because it would make it worth one's while working and it would mean that the minute one started to work, one's mortgage interest supplement would not disappear. It would require a very simple change to social welfare law and it would be of no cost to the Department of Finance, which I will explain in a minute.

How do we make sure we get good value for money? It would be very simple for the Government to say to the banks that it will amend the law - again, we proposed this before we left Government - so that mortgage interest supplement and mortgage interest relief would not be payable unless the banks brought their interest down to a certain maximum limit set by Government by negotiation. Any reasonable bank will know that half a loaf is better than no bread. It would know that if it did not come down to the interest rate pre-agreed and if there was no mortgage interest relief, no payments would be made. One could, therefore, force its hand and one would have the support of the public. We would not implement this until one had literally put it on warning that if it did not move down, one would take action.

The advantage of all of the moves about which I am talking is that first one is only paying mortgage interest supplement. We had proposed last year that we would only pay on the base rate and not on any inflated rate and that one would only pay one's mortgage interest relief on a low rate. That would mean one would save money because one would be giving less relief or less payment. One could use that saving to improve the terms of the mortgage interest supplement and the mortgage interest relief. As well as that, one would ensure more people paid the banks and since we own the banks, there would be much better compliance and in that way, the bad debts of the banks would be less than they are currently. It is, therefore, important that this Government does practical things.

If one brings somebody's weekly payment on a €200,000 mortgage down from €200 per week in interest to €150 in interest by coming half way down to the AIB rate or €112 if one comes the whole way down, do not tell me that is not the difference in many households between viability and non-viability.

I wish to refer briefly to business. I have never seen such a rush to receivership by banks than I have seen in the past few weeks. Every second small business is being put into receivership. The banks, which were so flúirseach with the money a few years ago, are squeezing the life blood out of business. Viable business are starved of cash. I have seen cases of very viable business where small print clauses have been used, that is, the type of clauses where if one nitpicked about it when one was taking the loan, the bank manager said not to worry about it and that it would never be employed. Those kinds of clauses are now being invoked by the banks to try to increase their profits. As has been said by other colleagues, the banks are great at approving the loan but when one tries to draw it down, one gets a dris chasán or a total bramble path in one's way.

The reality is that there is no money out there to do business. As long as there is no money out there, the Exchequer will lose money because there is no business, more people are on the dole and PAYE, PRSI and self-employed tax are not being paid. We are in a vortex currently and the Government seems totally paralysed in terms of doing anything practical about this. It boasted about the pillar banks. These are pillars of salt and they will collapse.

I move amendment No. 1:

To delete all words after "Dáil Éireann" and substitute the following:

"recognises that the Government inherited a severe banking, fiscal and economic environment this time last year caused by the economic and financial policies of previous Governments;

acknowledges that, during its first year in office, the Government has taken a number of significant steps to stabilise the banking and wider fiscal and economic situation;

recognises that the Government is aware of the increasing financial stress that some households are facing arising from difficulty in meeting their mortgage commitments;

acknowledges that, in response to this situation, the Economic Management Council established the Inter-Departmental Mortgage Arrears Working Group and that the group subsequently produced its report in September 2011;

notes that:

— the working group's report indicated that the mortgage arrears problem is complex and that a range of measures such as personal insolvency reform, mortgage to rent, the provision of independent mortgage advice, direct engagement by banks and the development of sustainable options by banks for their customers who are experiencing mortgage difficulty will need to be advanced to address the problem; and

— the Government has put in place a cross-Government high level group of officials to implement these recommendations;

notes and welcomes the fact that this implementation process on mortgage arrears will now be overseen and driven by a Cabinet committee, chaired by the Taoiseach;

encourages the Government to press ahead with this mortgage arrears implementation process to best support the mortgage holders, who cannot pay the mortgage on their home, in the most appropriate way having regard to the best interests of the taxpayer and society at large;

notes that:

— neither the Central Bank nor the Department of Finance has a statutory function in relation to interest rate decisions made by individual lending institutions at any particular time; and

— Permanent TSB did pass on, in full, the European Central Bank rate reductions in late 2011 to customers holding standard variable rate (SVR) mortgages and reduced further their loan-to-value standard variable rates to align them with the SVR;

acknowledges that the pricing of financial products, including standard variable mortgage interest rates, is a commercial decision for the management team and Board of each bank, having due regard to their customers and the impact on profitability, particularly where the cost of funding to each bank, including deposit pricing, is under pressure;

notes that the Central Bank has not requested the power to have regulatory control over the setting of retail interest rates and rather proposes that, within its existing powers and through the use of suasion, it will engage with specific lenders which appear to have standard variable rates set disproportionate to their cost of funds;

recognises that the Government has taken significant actions to ensure that credit is available to viable small and medium enterprises, SMEs, including the imposition of lending targets on the pillar banks which are more onerous than those imposed by the previous Government;

notes that:

— the pillar banks have met their lending targets for 2011;

— the Credit Review Office is available to ensure that viable businesses who are refused credit or offered it under overly onerous terms have a means of challenging the banks' decisions;

— the Government increased the threshold for reviews to the Credit Review Office to €500,000 to permit more decisions to be reviewed;

— the public interest would not be served by granting credit to non-viable businesses;


— the Government has committed to the introduction of a temporary partial credit guarantee scheme and to the introduction of a micro finance fund; and

calls on the Government to continue to ensure that policies implemented in relation to the SME sector provide that viable businesses can continue to access credit as appropriate.

Fianna Fáil tabled a motion to admonish the Government on commitments in a programme of assistance to which it signed this county up in the first instance. One of the core elements of the programme of assistance was that the State owned banks must be run on a commercial arms length basis. This has been explicit from the troika's very first involvement in the Irish programme. It has consistently stated that the pricing of loans and deposits had to be commercial decisions for the banks. The Opposition knows this and pretending otherwise is an act of gamesmanship to the public and to those hard-pressed mortgage holders.

Despite the programme necessity to separate the banks from the State, the Government is fully aware of the increasing stress that householders face arising from difficulties in meeting their mortgage commitments and obligations. The problem of mortgage arrears is an issue of the utmost importance for the Government and is being treated as such. We are continuing to introduce additional measures to support those who cannot pay their mortgages.

This Government has shown a robust and firm response to the banks since coming into office. We have used persuasion, hard talking and strong engagement with the banks on a daily basis through the new banking unit and the economic management council. That engagement will continue.

One of the important steps taken to protect mortgage holders experiencing difficulty in meeting their mortgage commitments is the code of conduct on mortgage arrears. This is now an important framework that governs the relationship between a borrower and a mortgage lender who is experiencing difficulty and provides a number of protections to the borrower. Forbearance is a very worthwhile and an appropriate response to most people experiencing mortgage difficulty. The approach set out in the code of conduct on mortgage arrears can provide a household experiencing temporary mortgage difficulty with necessary and important breathing space to enable that household get back on its feet and resume meetings its full mortgage commitments at a future time.

However, the Government also recognises that in certain circumstances, other approaches may be required. In view of this, the Government's economic management council decided last summer to establish an interdepartmental group chaired by Mr. Declan Keane to consider what additional measures could be introduced to assist people dealing with more significant mortgage difficulties. Two main objectives were set out for the group. The first was a desire, where appropriate and possible, to assist people experiencing real difficulties with their mortgage commitments to remain in their homes. The second was to ensure incentives would not be created that would encourage people who can pay their mortgage to stop doing so.

Members, and Deputy McGrath in particular, will be familiar with the recommendations outlined in the report. The Government accepted the Keane report recommendations and has put in place an implementation framework to advance this work agenda. The Government attaches a very high importance to this work, as is evident from the fact that a high level steering group was established to oversee and drive the overall implementation of the report's recommendations. This group is chaired by a very senior official in the Department of Finance and includes senior representation from other relevant Departments and from the Central Bank. To reaffirm the high political priority assigned to this work, the Government has also established a temporary Cabinet committee to oversee the implementation, on a cross-departmental basis, of the Government's overall response to this problem and to ensure that a high priority is assigned to the delivery of the implementation measures across relevant Departments and agencies. The committee will be chaired by the Taoiseach and will include all relevant Ministers and the Minister of State with responsibility for housing and planning.

Although I appreciate and understand the concerns Deputies will have regarding the speed of implementation of the various measures, it is necessary to acknowledge this is a complex problem for which there is no immediate or one size fits all solution. A number of different Departments and statutory bodies have roles in addressing particular aspects of the mortgage arrears problem. The individual banks also have a major contribution to make to the resolution of the problem which arises from the lending they initiated in the first instance. Nevertheless, it should also be recognised that significant progress has already been achieved in key areas of the mortgage arrears implementation strategy. The Minister for Justice and Equality, Deputy Shatter, has published the draft heads of a personal insolvency Bill. This draft Bill was submitted to the Oireachtas Joint Committee for Justice, Defence and Equality, whose findings were published on 6 March 2012. Its views, and those of other interested parties, will be taken into consideration in the further drafting and finalisation of the Bill which is due before the end of April, in line with a troika commitment.

The Central Bank has now received mortgage arrears resolution strategies and implementation plans from all licensed mortgage lenders and has engaged with the banks on these initial plans. In his speech of 2 March, the Deputy Governor of the Central Bank, Mr. Matthew Elderfield, set out the current status of this work. Although much work has been done in this area, the Central Bank has indicated that further action is still required. From the Government's perspective, more measured and progressive action is required to deal with households that are in an unsustainable situation. Work has advanced on the mortgage-to-rent scheme, with one such transaction agreed. In addition, a number of potential cases are now being developed in a pilot scheme that involves AIB and the Cluid housing association. The Department of Social Protection is examining issues relating to the establishment of the mortgage advisory function but must do so in the context of the role envisaged for personal insolvency trustees, as outlined in the heads of a personal insolvency Bill, to ensure that there is no duplication of services. We should not forget that the recent implementation of the programme for Government commitment to increase the rate of mortgage interest relief to 30% for first-time buyers who took out their first mortgage in the period 2004 to 2008 will also be of more general assistance to people who are most likely to have the greatest affordability challenge on their mortgage.

I turn to the issue of mortgage interest rates. Neither the Central Bank nor the Department of Finance has a statutory function in regard to interest rate decisions made by individual lending institutions at any particular time. Interest rates are determined by a broad range of factors including ECB base rates, deposit rates, market funding costs, the competitive environment and an institution's overall funding. Ultimately, the pricing of financial products, including standard variable mortgage interest rates, is a commercial decision for the management team and board of each bank, having due regard to its customers and the impact on profitability, particularly where the cost of funding to each bank, including deposit pricing, is under pressure.

The cost of wholesale funding for Irish banks, when available, remains elevated, as does the cost of deposits. The competition between domestic and foreign banks for deposits has resulted in deposit pricing increasing significantly in order for those institutions to retain or grow market share. Although this competition is of benefit to consumers, it is resulting in increased cost of funding for the banks and further pressure on margins. The Deputy Governor of the Central Bank has stated to the Government that, within its existing powers and through the use of suasion, the Central Bank will engage with specific lenders which appear to have standard variable rates set disproportionate to their cost of funds.

Deputies will be aware that Permanent TSB passed on both the interest rate cut of 25 basis points announced on 3 November and the 25 basis points cut announced on 8 December 2011 by the ECB to all mortgage customers. In addition, on 8 December 2011, the bank also reduced the rates applying to a number of variable rate mortgages held by both residential and investor customers by as much as 71 basis points, including the impact of the ECB's reduction of 25 basis points. The PTSB standard rate now applying to variable rate mortgages for owner occupiers is 5.19%. The majority of outstanding balances on Permanent TSB mortgages, some 65% of the total, are tracker mortgages which, of course, are to the advantage of the borrower. The vast majority of these tracker mortgages were issued during the boom years and, therefore, are at competitive rates. Almost all the other mortgages are on variable rates and I understand the average balance on each individual mortgages is under €90,000.

The Government is very conscious of the difficulties facing variable mortgage customers. I understand Permanent TSB is in the process of reviewing its long-term strategy with a view to agreeing a way forward with the authorities by the end of April 2012, as agreed with our external partners in the latest memorandum of understanding, dated 10 February 2012. The Government is fully engaged with this problem. This work is ongoing. As we have shown in the past, we will use every means possible to ensure fairness for all mortgage customers. That includes Permanent TSB mortgage customers. All of us recognise this problem is complex and will not be solved by a single solution, or in a very short period of time. It will take a range of responses from a number of different bodies and will also take time to implement fully and take effect. However, the Government is committed to making the sustained effort that will be necessary to address the mortgage arrears problem, including, I reiterate, the problems that exist for customers of this bank.

I refer to the issue of credit for SMEs. The Government recognises the SME sector is a linchpin in the recovery of the economy and it has directed a number of policy initiatives to ensure an adequate supply of credit to the sector. The banking system restructuring plan creates capacity for the two pillar banks, Bank of Ireland and AIB, to provide lending in excess of €30 billion in the coming three years. SME and new mortgage lending for these banks is expected to be in the range of €16 billion to €20 billion over this period. This lending capacity is incorporated into the banks' deleveraging plans which allow for repayment of Central Bank funding through asset run-off and disposals over the period to 2013.

With regard to the availability of credit for small and medium enterprises, the Government has imposed lending targets on the two domestic pillar banks for the three calendar years, 2011 to 2013, inclusive. Both banks were required to sanction lending of at least €3 billion in 2011, €3.5 billion this year and €4 billion in 2013 for new or increased credit facilities to SMEs. These followed on the initiatives taken by the previous Minister for Finance, who first set lending targets for the recapitalised banks. Both banks achieved their 2011 targets.

Targets are for approval of credit, targets have not been imposed for drawdown and I have no plans to introduce such targets at this time. The drawdown of funding is at the discretion of the borrower and many factors affect whether funding is drawn down, such as changes in market conditions or company restructuring. The Mazars survey of SME lending, conducted on behalf of the Department of Finance, found that the most frequently cited reason for not availing of approved credit was that it was not needed at the time.

In terms of the banks imposing strict conditions on loans, if a borrower believes a bank has attached terms and conditions to a loan such that it cannot be accepted, borrowers have the right to appeal through the bank's internal loan appeals process, which is the first step that should be taken. If the appeal to the bank is unsuccessful, the Credit Review Office will review the decision and make an independent recommendation on the refusal. It is worth noting that, of the appeals made to the office, in approximately half of cases the CRO has recommended that the credit should be granted. I encourage SMEs that feel they have been unfairly treated to use the services of the CRO.

Regarding the comments of the Governor of the Central Bank on tough credit conditions in Ireland for SMEs, the European survey of Irish SMEs is based on a relatively small survey population - in the low hundreds depending on the question - and, in the case of the data on the successful application rates for bank loans, the sample size for SMEs surveyed appears to be 74. The overall EU survey confirms that the sample is representative for the four largest euro area states. Therefore firm conclusions should only be drawn in respect of the larger countries.

I welcome the Private Members' motion tabled by Deputy Michael McGrath, which gives us an opportunity fully and frankly to debate mortgages and small businesses. Last week, when the Government was one year in office, there was a clamour from Fianna Fáil for this Government to take responsibility for its decisions. I will take responsibility for the decisions needed to get this economy going and I will stand over them in front of the people. However, I must remind people of what happened and how they were let down by Fianna Fáil. The Fianna Fáil Government allowed 100% mortgages, allowed no regulation of the banks and took a hands-off approach to the banking sector. As a result, we are dealing with problems with mortgages. I heard Deputy Ó Cuív make reference to the proposals he made before leaving office. He was in office for 14 years and it seems that all he did was make proposals and did nothing to deal with the issues before us.

Over the past number of weeks I spoke to local bank managers. I asked specific questions on whether they were generating money for new mortgages and whether they were lending to small businesses. I asked them questions in such a way that they could not only refer to changing loan arrangements with small businesses but had to reveal whether they were giving new business to small enterprises. Banks have now removed salespeople as key elements of the infrastructure. The salespeople gave out money freely but now we have lenders instead. Lenders were in place ten years ago and they used to analyse loan applications. When small businesses seek loans, they must have up-to-date accounts and viable business plans. That makes sense for any business. New businesses also have to put in capital, which was not happening during the boom. Money was given to anyone who looked for it.

Like St. Paul going to Damascus, it is interesting to see Fianna Fáil going down the road of being in favour of regulation of banks, given that it landed the country and its mortgage holders where they are, with distressed mortgages, unemployed or on an emigration ship. I welcome the opportunity to speak on Private Members' business. The three most important things the Government must focus on are jobs, mortgages and the banks. One year in office, many positive things have been done but the thanks the Irish public is getting for keeping the doors of the banks open leaves a lot to be desired. Our banks are still acting within a bubble and I am glad the Cabinet has set up a sub-committee to deal specifically with this. There is a temptation for some banks to forget that, were it not for taxpayers, they would be closed.

I can cite three examples, the first of which is a businessman in south Limerick waiting for the sheriff to arrive in respect of an order of repossession on behalf of a bank based in Limerick city. The second concerns a young civil servant working for the Revenue Commissioners, with a gross income of €38,000, whose wife is a teacher earning €43,000. Both are permanent employees yet, until recently, they could not get a mortgage. The final example is in east Limerick and relates to the rates being charged, which vary between 5.19% at Permanent TSB and 3% at AIB. Both banks are being kept open courtesy of the taxpayer. We cannot interfere with the day-to-day operation of the banks because there must be a free market but the penny must drop in this country that, were it not for the damage foisted on people by the previous Government, we would not have this problem. Now that we are trying to fix it, the banks must take responsibility and engage with people. I welcome some of the initiatives of the Minister, including the backstop through local authorities to prevent repossessions. We do not want to see families on the side of the road. While progress has been made on the recommendations of the Keane report, much more must be done. Ministers acknowledge there is no quick fix solution to this problem. As an Administration, we have inherited the worst basketcase economy in western Europe. Rather than taking cheap shots at the Government, there is an opportunity to acknowledge that, were it not for ludicrous previous policies, we would not be in this situation. The Opposition should come in with constructive approaches on how the Government can get out of this on behalf of the people who elect us.

No one takes solace from the fact that we have in excess of 400,000 people unemployed and our banking sector is not lending to the extent it should be. Anecdotally, we hear in our constituency offices that small businesses think more must be done. The Minister for Jobs, Enterprise and Innovation and the Taoiseach were in Limerick last week and both listened attentively to the concerns raised by business people. Progress is being made but it is slow. The banks in this country are being kept open courtesy of the taxpayers and they should remember that.

We lost 17 minutes at the beginning of the debate so we will adjust the time tomorrow. Deputy Stanley has three minutes before we finish the debate.

I will try to be as brief as possible. On this issue, we should forgo the usual political point scoring and posturing, which is a feature of debates on Private Members' motions. This issue affects far too many people in our society for us to engage in the type of bating we have witnessed in the past. Be they families burdened with large mortgage repayments or businesses struggling to access credit, they and the economy need a resolution to this issue.

There is much to commend in the motion from Fianna Fáil. The history of how we got to this point has little relevance for the families seeking a solution to this issue. Individuals and businesses trying to stay in business are struggling to keep their heads above water. The only thing that matters to the people affected is what the future holds and not what the past has delivered to us.

Every week worried parents struggling to keep their homes contact me. As the previous speaker stated, the banks, Permanent TSB in particular, which owe their very survival to the actions of the Irish State and the Irish people, played a large role in bringing our people to the sorry state in which we now find ourselves. Necessity meant that the banking system had to be saved but the time for pay-back is soon approaching. Justice, and now necessity, demand that.

Unfortunately, attempts to address these matters are not straightforward as in many cases they are interlocking arrangements and, in some ways, are contradictory in their aims. As the Minister, Deputy Noonan, indicated at the start of this week, negotiations are under way on the issue of the Anglo Irish Bank promissory notes. Along side that the Government is negotiating to move tracker mortgages from other banks to the Irish Bank Resolution Corporation, thereby taking some pressure off the margins of those banks that are playing havoc in the context of the mortgage situation.

As well as helping the banks with the sustainability of their debts, that would also give us an opportunity to put values back into the bank, which then could be realised at a later date through the sale of the State's stakes in those banks. That could raise considerable moneys for the State and for the people of this country. That is the issue because we need banks to be profitable to ensure they no longer require aid from the State. We need them to be profitable to ensure the State can benefit from dividends and, perhaps later, from the sale of some or all of the stakes in the banks but that goal must be balanced by the need to ensure that ordinary families and individuals do not find themselves under undue and unjust financial pressure.

The gap of more than 2% between the variable mortgage rate and AIB and Permanent TSB is punitive, particularly given that normal market forces cannot operate because of, as the motion notes, the inability of people to move mortgages from one institution to another. As normal market forces are not currently present to act as a correction on the activities of Permanent TSB, there is a strong case for intervention by the State, either through regulation or political pressure.

Other aspects of the mortgage crisis, particularly when it comes to arrears, will be alleviated by the Personal Insolvency Bill. These have been partly addressed already by other initiatives from Government such as the mortgage to rent scheme announced by the Minister for housing, Deputy Jan O'Sullivan.

The second part of the motion dealing with the lending to business is a matter of importance also. Businesses need access to lending and the economy needs business to have access to credit to create job opportunities and ensure they can provide strategies for jobs growth into the future.

In recent weeks a constituent of mine came to see me. She is a retailer whose business is holding its own but is currently going through the normal seasonal dip. She requires short-term funding to get over the next two months but it is being denied by her bank. The bank had been given access to large amounts of funding at low rates from the European Central Bank and I understand from certain sources that much of that money is finding its way into commodities such as oil and coffee, which is driving up the costs for working people in society. That funding must be directed towards the real economy and not merely to the next nearest speculative bubble.

The banks contributed in no small part to the current calamity we are now facing. They now have a moral responsibility to aid the recovery of our society from the misery they helped bring about. They can do that voluntarily or through compulsion. The choice is theirs but they must choose quickly because the patience of the Irish people is rapidly running out with regard to this crisis.

We know we are in a recession the like of which this State has never experienced previously due to poor governance in the past. The factors involved were lack of regulation and poor and lax policy, which saw the housing boom and bust wreck our economy, and we have yet to see what will be the far-reaching social consequences of that impact on our society.

In the three minutes available to me I will focus on the mortgages, which is an area that is at the forefront in my clinics and when I meet people generally. We all know very many of our people are in mortgage arrears and negative equity. Approximately 780,000 people have owner occupier mortgage accounts. The three types of mortgage difficulties identified by the Money Advice and Budgeting Service, MABS, are mortgages in short-term difficulty, the ones that are viable and in medium term difficulty, and the unviable mortgages. Those are a significant challenge but I am glad they have been prioritised by the Government from the first day we came into office.

I welcome the establishment of the Inter-Departmental Mortgage Arrears Working Group and look forward to the implementation of that group's recommendations by the implementation teams. I was interested to read about some of the recommendations including the mortgage to rent scheme, the provision of the independent mortgages advice, and the development of sustainable options by the banks to prevent their customers slipping into delinquent mortgage situations.

I welcome the putting in place of the code of conduct on mortgage lending, which brings us back to basics in terms of giving loans to people who can afford them. It is a simple, basic rule that we were all taught by our parents but, unfortunately, it was lost when bank lending, driven by commission, brought us to where we are now. The consumers in this case are badly served. The type of responsible lending we depended on the banks to provide did not happen and I look forward to us returning to that. We must be able to ensure the people who borrow are able to repay their loans.

I am afraid the Deputy must conclude.

I am sorry about that because I had a good deal more to say on the issue.

I thank Fianna Fáil for introducing this motion but it must be said that it will be viewed by many householders with a healthy degree of cynicism, given that Fianna Fáil was in power for more than 13 years and is now attempting to protect home owners when it was wild west policies that got us into this position. I recognise that it is a fine mess we must try to solve but we must give credit in terms of the motion. It is well worded. It is a good motion and it puts it up to the Government to challenge the banking sector and not continue as if we are puppets of the banks.

The Government was elected on a platform which promised relief for those families struggling with their mortgages. That was a big issue for all of us during the election campaign and is an even bigger issue since the election. Since becoming a Deputy I have got an insight into the seriousness of the problem. As a councillor, people came to me with this problem but since I became a Deputy I have been swamped with people coming to me, and I am sure other Deputies on all sides of the House can identify with that.

Twelve months have passed since the election and this is one of the issues about which I am totally frustrated because very little has changed. We have had the Keane report and so on but nothing has changed for ordinary families struggling with mortgages. The taxpayers have recapitalised the banks, yet we continue to be strangled by the promissory notes, payment of which will come down the tracks in two weeks' time. That is causing a great deal of hardship yet we continue to bail out Anglo Irish Bank, under its new name, a bank that is no longer functioning. Meanwhile, the ordinary home owners continue to struggle with payments and under all of the other burdens they are carrying. There appears to be no bailout for those ordinary law abiding, hard-working families but the bankers and the bond holders are getting the bailouts.

I want to highlight the plight of those households in distress with local authority loans. I have raised this issue many times but I ask the Minister of State to take it on board. The statistics are available for all to see. The statistics for those in distress with local authority loans are staggering. Four out of ten of those loans are in serious distress of 90 days or more. That is a total of 9,000 families facing an uncertain future. That compares with one in 12 within the private sector loans. In Dublin city alone, the largest council in the country, one in three are more than 90 days in arrears. That is appalling. That was confirmed this week in response to a question at a local council meeting.

Debate adjourned.
The Dáil adjourned at 9 p.m. until 10.30 a.m. on Wednesday, 14 March 2012.