Thank you, Chairman. As the stated Chairman, I am here as president of the Law Reform Commission. Ms Rickard-Clarke is my colleague and fellow commissioner. Mr. Spooner has been our lead researcher in respect of this study of personal debt management and debt enforcement.
The commission would like to begin by thanking the joint committee for the invitation to attend today's meeting to discuss the commission's interim report on personal debt management and debt enforcement. The first issue to which I wish to refer is the commission's consultation on personal debt management and debt enforcement. In September 2009, the commission published its consultation paper on this subject. That paper examined the law on personal indebtedness in Ireland in its wider policy setting, but with the commission placing particular emphasis on reform of personal insolvency law — bankruptcy and related matters — and judicial procedures for the recovery of debt.
The commission recognised that the focus on the law in these two areas raised a wider context of personal indebtedness generally. The commission, adopting as a reference point the framework proposed in a 2008 study funded by the European Commission, therefore approached the subject on the basis of six building blocks, namely, responsible borrowing, responsible lending, responsible arrears management, debt counselling, personal insolvency law and holistic court procedures.
The commission fully appreciated, however, that not all of the six building blocks contained appropriate subject matter for review by a law reform body, particularly in light of the wide and complex questions of economic and social policy involved. Therefore, the consultation paper identified certain relevant issues falling outside of the commission's core focus which could be addressed by other bodies, as well as those which could suitably be dealt with by the commission. In particular, the commission's primary focus was placed on the fifth and sixth of the building blocks — personal insolvency law and legal debt enforcement proceedings — and it limited its provisional recommendations for law reform to these areas.
In chapter 4 of the consultation paper, the commission, therefore, discussed the other four building blocks, while taking the view that they could be more appropriately addressed by other bodies, for example, as part of the work of the Financial Regulator or in the context of the development of a new statutory framework for financial services law in Ireland. In the area of responsible lending, the consultation paper raised several issues for consideration. These include reforms to credit reporting regulation and practices, as well as possible methods of enforcing responsible lending standards through licensing conditions, private law mechanisms or levies on financial institutions.
Regarding responsible arrears management, the consultation paper first discussed the possibility of introducing reforms to the Financial Regulator's code of conduct on mortgage arrears, before suggesting that consideration should be given to introducing an equivalent code in respect of non-mortgage debt. The final topic considered in the area of responsible arrears management was the provisional recommendation of the commission that a system for the regulation of the debt collection industry should be established. In respect of debt counselling and money advice, the commission provisionally recommended that a regulatory system for debt management undertakings should be established.
In response to the need for urgent action regarding the growing problem of personal over-indebtedness and repayment difficulties in Ireland, in December 2009 the commission decided to establish a working group on personal debt management and debt enforcement which would review, within a strictly defined timeframe, the additional actions that could be put in place in the short term, pending the long-term solutions which would be included in its final report.
The following four general subject areas were chosen by the commission and the working group to be addressed in the interim report: financial regulation; codes of practice; legal processes; and distribution of information to consumers. Under these four headings, 14 specific activities and measures are identified for consideration in the interim report. Among the key elements in this 14-point action plan are the further development of a standard financial statement arising from the review of the operational protocol on managing debt drawn up by the Irish Banking Federation, IBF, and the money and budgeting service, MABS. This will have a major practical effect because it will provide an agreed Irish standard to assess an individual's total income and total outgoings. The commission's interim report points out that some creditors do not take into account a person's total debts when assessing how much they expect them to pay. The standard financial statement allows both the individual and all creditors to have a complete view of what would be a realistic amount to pay in a given situation.
The second important element is the extension of the IBF-MABS operational protocol on managing debt. This will also bring more financial institutions and other creditors into a nationally-agreed debt management process so that it will include not just IBF members, the main banks — as it the case at present — but also credit unions and, potentially, the so-called sub-prime lenders, as well as utility companies. The latter is because many people owe money to the ESB and other providers such as Bord Gáis. The successful outcome of this extension would also make a significant change on the ground for people in difficulties.
The third element relates to the compilation and distribution of comprehensive information for consumer debtors, using a dedicated website. This would provide a one stop shop of all the available information, based on the detailed material compiled in the interim report.
The fourth element revolves around a proposal by the commission and the management of the Courts Service for a pre-action protocol for consumer debt cases, based on model statutory rules of court set out in the interim report. This would impose a mandatory requirement on creditors to issue a warning letter before bringing debt proceedings and would allow the individual to obtain advice from, for example, MABS, including preparing a standard financial statement to present to the creditor before court proceedings even begin.
The fifth element is a proposal by the commission to clarify the status of statutory codes of practice in court proceedings, for example, the Financial Regulator's consumer code. At present, it is not clear whether courts can take non-compliance with the consumer code into account, for example, by deciding to stay a final order or to refuse legal costs.
The sixth important element is a proposal by the commission to reduce the waiting period for a discharge application under the Bankruptcy Act 1988 from the current 12-year period to six years or less. This would not affect the detailed restrictions in the current bankruptcy law, but would be a modest stepping stone towards more comprehensive reform, including the non-judicial debt settlement system to be proposed by the commission in its final report on personal debt management and debt enforcement, to be published by the end of the year.
The commission's interim report does not deal directly with the issue of mortgage debt, because that is currently being considered by the Government's mortgage arrears and personal debt review group which was established in February of this year. The interim report is, therefore, primarily limited to discussing methods of addressing problems arising in regard to the repayment of personal unsecured debt. The commission nonetheless has included references to the various initiatives and actions that have been developed or planned for mortgage debt, in particular where these clearly overlap with initiatives concerning non-mortgage debt. The commission’s intention in this respect is to assist the Government’s review group with relevant material for its consideration at this point.
The interim report also largely omitted a discussion of the areas of personal insolvency law and debt enforcement procedures. The commission indicated that these areas require reforms that could only be achieved on a medium to long-term basis, and so would be inappropriate for discussion in the interim report, the focus of which is on reforms capable of being implemented without delay.
With regard to the purpose of today's meeting, the following additional subjects addressed in the interim report may be of particular relevance to the issue of financial regulatory reform: Government proposals for the reform of financial services regulation legislation generally; regulation of money advice undertakings; regulation of debt collection undertakings; regulation of credit unions; credit reporting; IBF-MABS operational protocol, as noted earlier; and status of statutory codes of practice in legal proceedings, as noted earlier.
In regard to the Government proposals for the reform of financial services regulation legislation generally, the interim report outlines the content of these proposals and welcomes them due to their potential to have a positive impact from the point of view of consumer protection and the prevention of over-indebtedness.
In regard to the regulation of money advice undertakings, the commission reiterates the provisional recommendations of its consultation paper that this industry should be made subject to a regulatory regime, while noting that the area is to be examined by the Department of Finance, which will consider whether legislation should be introduced. The commission suggests that, in the interim, money advice undertakings should voluntarily adopt appropriate codes of conduct, such as the United Kingdom Debt Managers Standards Association code of practice, which has been approved by the Office of Fair Trading.
The interim report also reiterates the consultation paper's provisional recommendations for the regulation of debt collection undertakings, while recognising that complex legislation would be required to achieve this objective. Therefore, the commission does not consider in detail this subject, and indicates that it will return to it in the final report. The commission, however, notes recent industry efforts to introduce standards of best practice on a voluntary basis, most notably those undertaken by the Irish Institute of Credit Management.
Next, the interim report discusses the issue of the regulatory framework applying to credit unions. The consultation paper had identified several issues for consideration in this area, including the establishment of legal rules obliging credit unions to share credit history data; the introduction of legally binding codes of conduct for credit unions; and the extension of the maximum interest rate that can be charged by credit unions. The interim report notes the reforms to the credit union regulatory regime which have been made recently or which are proposed to be carried out shortly. This discussion includes reference to the strategic review of the credit union sector currently being carried out by the Financial Regulator.
The interim report then turns to a discussion of credit reporting and its role in facilitating responsible lending practices. The consultation paper's discussion of the problems arising in this area in Ireland and of the different models of credit reporting systems operating in other countries is noted. The interim report acknowledges that it may be difficult to achieve improvements in the Irish system of credit reporting due to factors such as technological limitations. The interim report also notes, however, that the Department of Finance is currently examining the credit reporting system in Ireland so as to inform the Minister for Finance of any issues that need to be addressed and what measures may be required in this area, a development which is welcomed by the commission.
This concludes the commission's presentation of the outline of the contents of its interim report, with a particular emphasis on the elements of the document relating to potential reforms in the area of financial regulation. The commission now welcomes the discussion of all of the above issues by the committee.
