Dáil Éireann debate -
Wednesday, 4 Feb 2015

Vol. 866 No. 2

Consumer Protection (Regulation of Credit Servicing Firms) Bill 2015: Second Stage

Minister for Finance (Deputy Michael Noonan)

I move: "That the Bill be now read a Second Time."

I welcome the opportunity to address the House on this important legislation, which is a priority issue for the Government. The purpose of the legislation is to protect consumers whose loans are sold by regulated financial service providers to unregulated firms. It will address concerns surrounding the continued applicability of the Central Bank's codes and access for borrowers to the Financial Services Ombudsman after loan books are sold. The proposed legislation provides that borrowers retain protections after their loans are sold. For example, they will retain the protections provided by the Central Bank codes, such as the code of conduct on mortgage arrears, known as the CCMA.

Unregulated financial institutions are not bound by the Central Bank codes. In addition, while customers of unregulated financial institutions have access to the courts, they do not have access to the Financial Services Ombudsman. As Members will be aware, while many purchasers of loan books have already agreed to voluntarily apply the Central Bank codes when managing loan books, voluntary compliance is not enforceable. As a result, the Government committed in March 2014 to ensuring these protections would be made available for all consumers whose loans have been sold.

It is generally accepted that there is a need for financial institutions to be able to deleverage and restructure their loan books to return to their main business of supporting the economy through the provision of financial services, including credit for SMEs and consumers. We do not intend that this legislation will inhibit that process but neither do we want borrowers to lose protections because of a change in ownership.

Consumers need protection when they take out credit, during the course of holding credit and when they are repaying credit. It is not equitable for some of these protections to be avoided due to the regulatory position of the entity that owns the credit. For this reason, consumers should maintain the protections they had before their loans were sold and that is what the proposed legislation seeks to achieve.

The process of preparing the legislation has been complex. My officials have carefully considered how best to protect consumers and, as is often the case when preparing legislation, their thinking has evolved over the course of the preparatory phase. Last July and August, the Department of Finance ran a public consultation seeking views on this proposed legislation. A total of 19 submissions were received from a range of respondents, including the financial services industry, consumer groups, public representatives, individuals and other stakeholders. The submissions are available on the Department's website. Subsequently, my officials met some stakeholders to clarify submissions and the technicalities of how the credit servicing industry operates. The officials also discussed the issue with the authorities in the United Kingdom, which have faced similar policy challenges in recent times. Officials in the Department of Finance have carefully considered the submissions and have been working intensively with the Central Bank and Office of the Attorney General to progress this legislation. This legislation again underlines the value of public consultations. It means that legislation is prepared in an open and transparent manner and plays an important role in contributing to understanding of the issues and avoiding unintended consequences.

When work began on this Bill, the initial thinking was that the ownership of credit should be regulated to ensure that borrowers continue to receive the same protections as they enjoyed prior to the loan book sale.

The public consultation process highlighted an issue with this approach, as it was possible to envisage cases where owners would effectively be a passive special purpose vehicle, SPV, and where they would outsource servicing of the loans to a firm that would not be regulated. It therefore became clear from the consultation process that if we were to effectively protect consumers it was better to regulate the process of credit servicing, as that is the customer-facing activity. However, if an owner does not outsource credit servicing and instead undertakes the activity themselves, they must be regulated. In other words, some regulated entity will be responsible for all credit agreements.

The Bill is entitled the Consumer Protection (Regulation of Credit Servicing Firms) Bill 2015. The Title was agreed following consultation with the Office of Parliamentary Counsel and reflects the approach being adopted to protect consumers.

The proposed legislation will amend the Central Bank Act 1942, Central Bank Act 1997, the Central Bank (Supervision and Enforcement) Act 2013 and the Consumer Credit Act 1995 and provide for related matters. It is proposed to amend section 28 of the Central Bank Act 1997 by inserting definitions of the terms “credit agreement”, “credit servicing”, “credit servicing firm” and “relevant borrowers”. The term “credit servicing” is tightly defined in order that a firm which communicates with relevant borrowers in regard to their credit agreement will require authorisation. As mentioned earlier, the legislation will also require owners which do not outsource credit servicing to another party to be regulated. The effect of this amendment is to regulate the activity of credit servicing, and the credit servicing firms engaged in such activity, in order that the borrowers retain the protections they had before the loan book was sold.

All consumer and SME loans which are sold will be covered by these amendments and retain the protections they currently have. These include, first, the code of conduct on mortgage arrears, CCMA, which sets out the framework that lenders must use when dealing with borrowers in mortgage arrears or pre-arrears. It requires lenders to positively engage with the objective of helping borrowers meet their obligations. Under the CCMA, borrowers must be dealt with in accordance with the mortgage arrears resolution process, MARP, which sets out the steps to be followed on communication, gathering financial information, assessing the circumstances of the borrowers and proposing a resolution. Procedures for complaints and appeals are also provided. Second, the consumer protection code provides protections such as limits on communications, personal visits and other contacts, complaint resolution processes, error handling, compliance of outsourced activity with the code and post-sale information provisions, including warnings on switching from a tracker mortgage to a variable interest rate mortgage. Third, on the code of conduct for business lending to small and medium enterprises, SME customers of regulated financial institutions have the protections provided regarding arrears handling, complaint resolution, etc.

Breaches of the Central Bank codes can lead to sanctions on the regulated entity. As credit servicing firms will become regulated financial services providers under the new legislative regime, all appropriate supervisory powers of the Central Bank will be applicable to them as regulated financial service providers, including the administrative sanctions procedures regime. Customers of regulated financial institutions also have access to the Financial Services Ombudsman, FSO, whose role is to investigate, mediate and adjudicate complaints about the conduct of regulated financial service providers. This is a very important protection for borrowers.

Finally, with regard to credit union credit, we must ensure that where credit union loan books are sold outside the credit union movement, those borrowers are afforded the same protections as other borrowers. This requires an amendment to the Consumer Credit Act 1995. Therefore, the relevant codes will apply to credit which is initially advanced by a credit union but is subsequently sold. We are not aware of circumstances where this has arisen but consider it to be prudent from a consumer protection perspective to provide for this.

Turning to the details of the Bill, section 1 amends section 28 of the Central Bank Act 1997 by inserting definitions of "credit agreement", "credit servicing", "credit servicing firm" and "relevant borrowers". The activities of credit servicing have been defined to ensure that the entity managing the relevant borrowers’ credit arrangements will be regulated. The effect of the amendments to section 28 of the Central Bank Act 1997 is to regulate the activity of "credit servicing" and the "credit servicing firms" engaged in such activity, so that the borrowers retain the protections that they had before a loan book was sold. Section 2 amends the Central Bank Act 1997 in regard to the Central Bank’s powers to grant and refuse applications for authorisation. Section 3 amends section 33A of the Central Bank Act 1997 to enable the Central Bank to impose conditions or requirements on authorised "credit servicing firms".

Section 4 amends the Central Bank Act 1997 by inserting new sections, 34E and 34F, with transitional provisions for retail credit firms and credit servicing firms, respectively. Section 5 amends Section 3 of the Central Bank (Supervision and Enforcement) Act 2013 to amend the definition of "customer". Section 6 amends the Central Bank Act 1942 to ensure that relevant borrowers whose credit agreements are being serviced by an authorised credit servicing firm are considered eligible consumers for the purposes of the Financial Services Ombudsman. Section 7 amends section 3 of the Consumer Credit Act 1995 (application) to ensure that the relevant Central Bank codes will apply to credit union credit that is sold to an unregulated entity. Section 8 contains the Short Title and collective citation. The Bill will commence on its signature by the President.

This Bill is important because it addresses the concerns of a number of consumers whose loans are sold. It will give consumers a legally enforceable right to complain to the Financial Services Ombudsman and it will ensure that consumers whose loans have been sold will have the benefits of the Central Bank codes and those dealing with those consumers will have to be authorised by the Central Bank. I look forward to a constructive debate on the Bill. I believe there is broad agreement in the House on the need to ensure that borrowers will have the same protections as they had before their loans were sold.

The Bill will protect consumers whose loans are sold and I commend it to the House.

Acting Chairman (Deputy Olivia Mitchell)

Is a copy of the Minister's speech available? I will wait a moment or two for that to be distributed.

Deputy Michael McGrath

I can proceed.

Acting Chairman (Deputy Olivia Mitchell)

Fair enough. I thank the Deputy.

Deputy Michael McGrath

I welcome to opportunity to speak to the Second Stage of this very important legislation, the Consumer Protection (Regulation of Credit Servicing Firms) Bill 2015. I apologise to the Minister for not being here for all of his speech. I was attending the banking inquiry at a private meeting. I was not expecting this Bill to be introduced so.

Acting Chairman (Deputy Olivia Mitchell)

None of us were.

Deputy Michael Noonan

The previous Bill collapsed.

Deputy Michael McGrath

I understand. Nonetheless, I am glad this debate is getting under way.

We have called for this a Bill for a considerable period. Many thousands of mortgages have been sold by existing financial institutions to private equity funds, in the main, and because of the operation of the code of conduct on mortgage arrears, those mortgage holders now find themselves outside of the statutory protection of the code of conduct on mortgage arrears and, indeed, other statutory protections. That exposes them to very significant risks because the code of conduct on mortgage arrears, which has been developed over the last number of years, offers vital protections to mortgage holders. It offers protection in particular to mortgage holders who find themselves in some level of financial difficulty because of the requirements the code places on lenders. Example of these include the requirement to go through a series of steps to work with borrowers in arrears in order to try, in so far as possible, to rescue a mortgage or to put in place forbearance measures and the requirement on mortgage holders to complete standard financial statement forms, for example, so that the lender must assess the capacity of a borrower to repay a mortgage to see if it can be restructured and made sustainable and to put a stay on any possible legal proceedings being taken by lenders. The code of conduct was diluted in the last couple of years and many of the key protections that borrowers hold were also diluted.

This balance of power between the lender and the borrower has shifted firmly in favour of the latter.

Notwithstanding its limitations, the code of conduct on mortgage arrears, CCMA, is an essential tool for mortgage holders. Under the current two-tier system, the vast majority of mortgage holders benefit from statutory protections, while another group of borrowers do not enjoy such protections. I refer to those whose mortgages have been sold on by their lenders by virtue of the liquidation of the Irish Bank Resolution Company and the exit from the Irish market of a number of institutions which sold their mortgage books, mainly to private equity funds from the United States, in an effort to wind down their operations here. While almost all of the private equity funds have committed to voluntary compliance with the code of conduct, this is not a substitute for a binding code that enjoys full legal force. In the event of a dispute between the borrower and the new owner of the mortgage, there is no policeman in place. The borrower will not be able to approach the Department of Finance or the Central Bank which is responsible for the application of the code of conduct on mortgage arrears because the new holder of the mortgage will not be a regulated entity and, therefore, will fall outside the scope of the CCMA. As such, the borrower is essentially left to his or her own devices.

It is clear from certain cases that have been brought to my attention that equity or vulture funds, as they have been described, sometimes operate outside the code. While this practice may not be widespread, problems have emerged in individual cases. We simply do not know the extent of problem because many borrowers in arrears are in a vulnerable position and not all of them are fully apprised of their statutory rights or the protections afforded by the code of conduct on mortgage arrears. The extent of non-compliance with the CCMA among vulture funds is difficult to determine. For this reason, its protections should be extended to all mortgage holders.

The Joint Committee on Finance, Public Expenditure and Reform scrutinised the heads of the Bill in December. Members had a good engagement with officials from the Department and a number of advocacy groups. One key concern emerged from our deliberations. While everybody welcomes the broad scope of the provision bringing mortgages that have been sold on to private equity funds under the umbrella of regulation, the original intention in the Bill in respect of oversight of the sale of mortgages was to make the ownership of credit a regulated activity, but the Minister appears to have moved away from this proposal in the published Bill. It is my duty to seek to change his mind on this issue because he appears to have backed away from the original proposal, presumably under pressure from financial institutions, of which we know a number made submissions to the Department on the Bill.

As proposed, the Bill will leave us with a half-baked system under which the servicing agent for the mortgage will need to be regulated, but the same requirement will not apply to the owner of the mortgage. In essence, the Minister is proposing to replace the current two-tier system with a different type of two-tier system. My fundamental concern is that an opportunity to provide for the effective regulation of the sale of mortgages has been lost. While my party will support the Bill in principle on Second Stage, we will engage with the Minister in a detailed debate on Committee Stage and seek to have the new owners of mortgages, namely, the private equity funds that have become the legal owners having stepped into the shoes of the original lenders in a legal sense, fully subject to the regulation of the Central Bank. The full statutory protections provided by the code of conduct on mortgage arrears should apply to the mortgage holder.

The system proposed will mean that companies such as Pepper which administers mortgages on behalf of private equity funds will be subject to regulation and come within the ambit of the code of conduct on mortgage arrears, while statutory protection will not apply in the case of loans held by Lone Star and Oaktree. This two-tier system will create practical difficulties which need to be teased out with the Minister. For example, vulture funds which outsource the administration of loans and will continue to control key decisions such as on initiating action for repossession or raising the interest rate that applies to loans will not be subject to regulation. This leaves a potentially dangerous gap in the regulatory system.

There is also a legitimate concern that loans may be sold more than once, with each subsequent transaction resulting in a deterioration of the conditions applying to the borrower in respect of interest rates, penalty charges and the status of any restructuring agreement. The possibility of changes being made to servicing agreements is a key concern. The owners of mortgages, most likely a private equity fund, may seek to change from one service provider to another. The Bill provides that the service provider will be regulated, whereas the owner of the mortgage will not be so regulated. Having examined the Bill, I am concerned that this will create potential legal uncertainty. It became clear at the joint committee's meeting with officials in December that they were moving in this direction. The Free Legal Advice Centres and other organisations raised important concerns about the issue of legal uncertainty. If the arrangement between the owner of the mortgage - the equity fund - and the service provider ends and a new arrangement needs to be put in place, it is possible that uncertainty will arise about who is accountable for the application of the CCMA and on whom the code is legally binding should a problem arise in the period before the new arrangement is implemented. We need straight, honest responses to address this concern and ensure mortgage holders are fully protected. We do not want people whose mortgage has been sold on to a US private equity fund, through no fault of their own, to discover while following up a dispute that they are subject to a different tier of regulation than those who hold mortgages with one of the main banks that are regulated in Ireland.

The Minister should amend the legislation to ensure borrowers who stick to the terms of restructuring arrangements cannot have the payment structure cancelled by the acquirer of a loan or an agent acting on the acquirer's behalf. He must also review the adequacy of the code of conduct on mortgage arrears. He has acknowledged that none of the banks or financial institutions has been subject to sanction for a failure to abide by the code. It is welcome that the Central Bank is carrying out inspections on this issue. Despite its previous finding that the code of conduct had been breached by regulated entities, the Central Bank has not imposed sanctions on the institutions in question. This is a cause of grave concern. A deterrent is needed as the regulated entities must know that there will be consequences for non-compliance. Given that we are bringing additional entities within the ambit of the code of conduct, it must be made clear that enforcement action, including sanctions, will be taken if the code's provisions are not fully adhered to.

For some time, the Fianna Fáil Party has been calling for the sale of loan books to unregulated third parties to be regulated for a specific period. It is estimated that the loans of between 10,000 and 15,000 mortgage holders have been sold to unregulated third parties and that the number is increasing as the sale of the remainder of the IBRC mortgage book proceeds. As practising politicians, we all regularly meet people at our advice clinics who are experiencing difficulties with their mortgages. Customers of Allied Irish Banks, Bank of Ireland or Permanent TSB can refer to the code of conduct on mortgage arrears when dealing with their financial institutions and have their statutory legal rights, albeit limited in certain cases, upheld. However, others who take issue with letters from private equity funds and service providers on the basis that they are being treated unfairly and that their restructuring agreements with their former financial institutions are not being honoured by the new owners of the mortgage find themselves in legal limbo. This is an unsatisfactory position which must be addressed.

This is particularly the case in light of the fact there is significant potential for more mortgage loan books to be sold. There is an issue of concern in regard to State-supported banks. For example, under clause 11 of the relationship framework with AIB, the bank is not obliged to consult with the Minister if it proposes a disposal of a tranche of loans for an amount of less than €100 million, and a €50 million limit would apply in the case of Permanent TSB making a similar disposal. Therefore, many mortgages could be sold, even by the main institutions in Ireland, without the consent of, or any consultation with, the Minister for Finance. In our view, that issue needs to be dealt with.

I have spoken already about the problems with voluntary compliance. It is an issue that has been teased out at the joint Oireachtas finance committee on a number of occasions. The new purchasers of the mortgages have made it clear through, for example, KPMG, the special liquidator in respect of the sale of IBRC, that there is absolutely nothing in writing to give a reassurance that the CCMA will be adhered to or that it is legally binding, which it cannot be because the new owners are not governed by the legislation.

I have spoken about the issue of third party administrators and the potential difficulties that arise if this Bill is enacted as proposed, in that the owners will not be fully subject to regulation on a par with all of the other institutions in Ireland. That raises real concerns which we will tease out on Committee Stage.

There are a number of other issues which are not covered by the CCMA itself and which fall directly outside the ambit of this Bill. The important thing is to focus on ensuring that mortgage holders and other people who are going to benefit from the extension of the legislation and other loans, for example, will come under this regulation without any further delay. While that is something we will be supporting in principle, it will be very much subject to a proper analysis of the way in which this is being constructed, given the owner is not going to be a regulated entity and will not come under the CCMA. With regard to the service provider, with whom the mortgage holder does have day-to-day contact in respect of the administration of the mortgage, although only in respect of its administration, key decisions in respect of the future of that mortgage, for example, any restructuring of that mortgage or any decision to go down the legal road and commence enforcement proceedings, will be taken by the owner of the mortgage. The fact the mortgage owners will not come under the CCMA or the statutory protections is a concern which I hope the Minister will be able to assuage in the course of Committee and Report Stages.

Deputy Pearse Doherty

Cuirim fáilte roimh an mBille seo. Tá sé thar am dó. Anuraidh, bhí go leor plé agus scansála ann nuair a d'fhógair an Rialtas go mbeadh an Bille foilsithe in 2015. Ag an am sin, dúirt mé gur chóir an Bille seo teacht os comhair na Dála go lom láithreach agus go gcomhoibródh Sinn Féin leis an Rialtas chun a chinntiú go mbeadh sé i bhfeidhm lastigh d'am an-ghairid. Ar an ndrochuair, táimid ag tús 2015, i mí Feabhra, an dara mhí de 2015, agus nílimid ach ag plé an Dara Céim den Bhille seo. Tá imní mhór ormsa anois. An rud a bhí fógartha ag an Rialtas agus a bhí á iarraidh ag an Rialtas ag an am ná cinntiú de go dtiocfadh leabhair iasachta na mbanc faoi chúram an rialtóra nuair a díoltar iad, agus nach mbeadh siad gan chosaint na ndlíthe agus na rialacha a bhí ag baint leo roimhe sin. Tá deighilt mhór idir an sprioc sin agus an reachtaíocht atá os ár gcomhair. Tá an Bille seo dírithe ar an tseirbhís atá á déanamh ar na hiasachtaí seachas an duine atá i lár na hiasachta.

Tá fadhbanna móra ann agus is athrú mór atá ann fiú ó foilsíodh na heads of Bill. Nuair a bhíomar ag plé an ruda seo ag coiste an Oireachtais, bhí athrú mór tagtha ar an méid a bhí i scríbhinn ag an am sin agus na smaointe a bhí ag an Rialtas, faoi tar éis comhairle agus a leithéid a fháil. Bhí an chomhairle seo ag teacht ó heagraíochtaí a bhí baint acu leis na hiasachtaí áirithe seo. Cuireann sé sin imní mór ormsa agus ar Shinn Féin. Is í an imní is mó atá orainn ná go bhfuil iasachtaí bainc díolta ar aghaidh go dtí tríú páirtí ach ní thagann na hiasachtaí sin lastigh de chúram an Bhainc Ceannais anois.

An éireoidh leis an reachtaíocht seo an méid atá i gceist ag an Rialtas agus an méid atá á rá ag an Rialtas a bhaint amach? Caithfimis mionscrúdú a dhéanamh ar an mBille seo ag Céim an Choiste. Tá cúpla ábhar mór a gcaithfear a scrúdú sa reachtaíocht seo. Sin ceann amháin acu atá luaite agam. Tá cúpla rud eile ann fosta, ar nós an code of conduct on mortgage arrears, CCMA, agus an ról a bheidh ag Fear an Phobail sa reachtaíocht seo.

This Bill is welcome and overdue. The Minister will recall that we in Sinn Féin offered during the earlier part of last year to facilitate the speedy passage of this legislation through the Dáil, if possible, and to engage in a constructive way with the Government. There was huge concern at that time, when the Government announced in its legislative programme that the legislation would be published in 2015. The concern focused on the question of why we would allow these loans to be sold to unregulated third parties when the legislation was not planned to be brought forward until 2015. While the heads of Bill were published last year, we are only now, in the second month of this year, starting to deal with it on Second Stage.

From the time the heads of the Bill were published until its introduction, there was quite a shift in Government thinking on the legislation. It was described as legislation to cater for the sale of loan books by regulated financial institutions to unregulated financial institutions, yet what we have in the legislation is something very different. It is the Consumer Protection (Regulation of Credit Servicing Firms) Bill, and while we could argue as to what is in a name, as we discussed in regard to the heads of the Bill, the reality is there has been a substantial change in Government thinking on what and how to regulate, and where the regulation falls.

This has caused major concern for people who are dealing with this at the coal face and for the members of our party. The issue is whether this does what was originally intended and whether the same type of regulation that applies to banks which hold loans today would apply when the banks sell those loans to unregulated third parties. There is also the issue of whether the regulation will follow if they buy loan books from regulated parties in this State. The answer is that it does not. The simple proposal that was put forward by Government, namely, that the regulation would automatically follow to the third party institutions, is not now the case. It is now a more convoluted structure where it will instead apply to the servicing of the loans by third parties. Therefore, it does not apply to the third party but applies to the next party, which will be employed by the third party to service the credit. This creates a legislative concern as to whether there are gaps and mismatches that exist at this time, or that could be identified by those who want to escape the type of regulation that would follow if this legislation did what it is supposed to do. It is a genuine concern, particularly for those who have been thrown to the wolves - those who have had their mortgages sold on to third party institutions.

One of the outcomes of the banking collapse has been the emergence of vulture capitalism at an unprecedented level. Some of that was inevitable but the level at which this Government has tolerated their actions and, in fact, relied on them is, in my view, sickening. We can see that in terms of the bottom feeders in the property sector. It has always been my view, and I have stated it on the record, that the Government and the banks had an agenda to bump up property prices because it would help in regard to the balance sheets of the banks but also in regard to the Government.

Some of the measures the Government introduced, for example capital gains tax and the REITs, have been geared towards that type of proposal. I believe the Government's proposal in regard to introducing a guarantee scheme that would allow for higher loan to value ratios was also an attempt to try to increase property prices. Thankfully that idea has been put aside now that the Central Bank has stepped in and said that what the Government was trying to do was headed in the wrong direction and that it should take the opposite direction.

We have also seen the sale of loan books of State owned banks and the sale of the IBRC loan books comes to mind. The sale of the IBRC loan books to vulture funds was in my view a calculated decision to throw mortgage owners to the wolves. These mortgage owners have had to wait since without any protection. Deputy McGrath spoke about the type of verbal guarantee that was given. That type of voluntary compliance with the different codes is not based on any legal guarantee, any written piece of paper or any exchange of contract and can be broken at a whim without a fall-back position for the Government or the mortgage holder to take action. The sale of loan books has been an ongoing issue and we have seen some of the pillar banks follow suit.

I welcome the Bill and hope it does what it is intended to do. However, I have concerns there are gaps in it and that the shift in focus by the Government could expose some deficiencies. I wish to commend the campaigners for this protection, who have been led by those who have seen their mortgages sold to unregulated entities. They have pressed their concerns in the Houses and have protested outside the gates. They have kept this issue alive and I commend and thank them for their work over many months to keep it real for the public and themselves and most importantly for the political system and the Government. That work has resulted in the bringing forward of this legislation.

Some of the concerns have also been identified by FLAC in its presentation to the Joint Committee on Finance, Public Expenditure and Reform and in its submission in regard to this Bill. The big concern is whether in regulating the servicers of the debt we actually capture what is intended. In other words, do we regulate the loan books? No, we do not. Therefore, do gaps exist as a result of the legislation? We know, for example, that the code of conduct on mortgage arrears is very weak. It was always weak, but it is weaker now as a result of the review carried out by the Central Bank, in cahoots with the Government and the troika. There are questions in regard to the legislation and its effect. Does the code only apply to the areas relating to debt servicing? For example, are there other areas that will now be outside the scope of the code as a result of the legislation only applying to the servicing of credit and not the holders of the loan book?

Another issue of concern is the Financial Services Ombudsman. I have serious concerns about the weak position of that body and while I commend the work the Ombudsman does, the office needs to be strengthened. In the context of this legislation, the question arises as to what recourse has a person with a mortgage that is being sold on to an unregulated third party to the Financial Services Ombudsman. Will they only have recourse to that office on issues in regard to the servicing of credit or will they have recourse to make a complaint if, for example, the loan book is held by an unregulated entity and there is an unprecedented or unacceptable increase in the interest rate? These concerns in regard to the legislation need to be teased out.

We need to ensure we are given enough time to deal with this Bill on Committee Stage and I understand we will get the opportunity to debate it in greater detail in the Select Committee on Finance, Public Expenditure and Reform. I am not convinced, after the debate we had on the heads of the Bill, regarding the change of tack the Government has taken to regulate the servicing of credit instead of regulating the loan books themselves. We are now regulating the middle man instead of the holders of the debt. This is something of which I need to be convinced, but I am open to being convinced and we can tease it out on Committee Stage. Despite the fact there is much to be teased out then, I hope the legislation will pass.

The legislation is complex, but short. It has one main purpose and if we work together, it should not be delayed. There is genuine willingness to get the legislation across the line, but there is also a desire to ensure it is robust enough and that it protects those people who have had no legal protection. In the length of time it has taken to bring this forward, we must get it right. Hopefully, the concerns that need to be addressed can be thrashed out on Committee Stage.

Deputy Catherine Murphy

I welcome the debate on this Bill and I welcome the extension of protection to people who to date did not have protection in regard to mortgage arrears. This is something I and others called for particularly at the time the IBRC loan books were sold when our attention was drawn to the consequences people felt they might face. Many of those who contacted us at the time were furious, particularly those whose performing loans were being bundled with other loans and sold to big organisations for a knock-down price. People felt at the time they should have been given the opportunity to buy those loans, but that is a separate issue. Their argument was that their loans could have been made more sustainable as loans teetering on the edge would have been reduced.

Our concerns regarding the Bill will be debated and perhaps ironed out and amended on Committee Stage. I have a particular concern in regard to foreign entity owners of loan books that do not have an agent in this country and also in regard to loan books we do not anticipate being sold on in the future. What level of protection will be provided for people who find themselves caught in this position? When people take out a mortgage, they expect that mortgage to remain for its duration with the lender from whom they got the mortgage. However, this position has shifted dramatically in the past few years.

The situation is particularly interesting when we look at individual cases. I have had contact with a family whose story illustrates very well that the extension of this protection will benefit not just individuals but also society. The family in question voluntarily relinquished possession of the family home. They had arrears of €3,000 and could not withstand the pressure, which had caused quite a bit of ill health in the household. One of the parents became ill, the other lost a job and the family was on a reduced income. This family now relies on rent assistance, which is a much more costly option for the State than providing protection and working through the arrears, which the family might eventually have been able to manage. Such a situation also has consequences relating to health because of the stress put on a family.

It is eminently sensible not just for the people involved but for society to extend the kinds of protections and try to retain people in a situation where at least the stress of mortgage arrears can be managed. Clearly some progress has been made on mortgage arrears. I deal with Mr. David Hall from the Irish Mortgage Holders Organisation all too frequently. His organisation has worked through the detail with many individuals towards some of those resolutions. That is part of the reason we are seeing some progress. However, that it took a voluntary organisation to engage with some of the lenders says an awful lot. Clearly institutions such as Lone Star and O3 have abided by the Central Bank code of conduct, but it was a voluntary arrangement and it should be mandatory.

Even though the arrears levels are obviously going in the right direction because of not having other housing options, a very substantial number of people go on a very long local authority waiting list, go into a very unsustainable arrangement in terms of lack of security of tenure in the private rental sector or they try to purchase. Particularly with the new Central Bank rules and with people having their homes repossessed we need to take the long view because they will find it increasingly difficult to raise finance in the future. Obviously the option of very expensive rental will become a problem of sustaining that. Particularly if somebody has been unable to service a loan, they are unlikely to be able to pay a large rent. They may be better off or may have no option but to be unemployed because of the way the rent assistance arrangements work at the moment and that does not look like changing any time soon.

So we need to look at the totality of this. In the overall scheme of things it is in our best interests to afford the maximum protection to those who are teetering on the edge or are in arrears. I would welcome if the Minister could particularly address the issue of what happens if the entity is entirely outside the State. There may be limits on what we can do or there may be something that can be added to the Bill. While I may be missing that particular point it seems that they are required to have an agent in this country. I would appreciate if the Minister could address that because that is the most problematic area.

I was supposed to say I was sharing this slot with Deputies Finian McGrath and Fitzmaurice.

Deputy Michael Fitzmaurice

Any legislation that protects consumers is welcome, but we have seen a stark reality in the past year with vulture funds buying up mortgages from the banks. As bad as our own banks are, these people have no mercy. As I have seen in my own part of the country, no mercy is shown to anybody who goes into arrears. At least some of our own banks might listen for a while. This cannot continue.

At the moment there are approximately 57,000 mortgages in arrears and over the next 18 months 57,000 families will reach a stage where they do not know where they are going. As a nation do we know where we are going if we have to fork out so much in rent allowance? The sad reality is that vulture funds from America and elsewhere outside the country are coming in to buy up large tracts of houses while our people are being evicted from them.

A few years ago the Government, on behalf of the nation, decided to bail out the banks. Taxpayers throughout the country are struggling and have seen their living standards drop. Governments have talked about how they have put their shoulder to the wheel. However, now we need someone else to put a shoulder to the wheel to help these people who are in difficulty because many of them are unemployed and cannot service the loans.

If we keep going the way we are going, where will Ireland, as a nation, be a year or two down the road? Will we have foreigners owning most of our property or will we make a decision to work together? I know there is not just one simple solution to all of this - several different solutions may be required. However, we cannot keep letting these American vulture funds gain ownership of our property that our people owned for so many years. Perhaps because of bad advice and because of a recession someone else in another land is gaining out of it. They are now even attacking people who may be in arrears where the amount owed is less than the value of the property.

As politicians, we can keep kicking the can down the road, but sooner or later we need to decide what we will do for all our people and not just some of our people or not just the banking people. Will we look after the Irish people, north, south, east and west?

It is great to hear that growth figures are moving in the right direction and everyone welcomes that. Every day of the week I hear that we are turning corners. That is a good thing if we are, but sadly for the 57,000 people who are in arrears and those who have lost their homes there does not seem to be any corner and only a big black wall in front of them. Life cannot go on like that. Families need to be freed of the shackles and allowed to start a new life. They cannot continue to live with debt around them because, as the saying goes, when poverty comes in the door, love goes out the window.

The sad reality is that it is causing depression. Let us consider the number of people who have committed suicide because of banks hounding them. Many of the vulture funds who have bought the mortgages have no mercy. They do not mind if people take it in a bad way or whatever. They just drive on and many of them do not want even to engage with people.

I welcome something that will try to protect people. However, as politicians, we have to turn around and start solving these problems because if we do not there are dark days ahead for all these families throughout the country.

Debate adjourned.