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Wednesday, 31 Mar 2010

Money Advice and Budgeting Service: Discussion.

I welcome Ms Anne Marie O'Connor, business manager, Money Advice and Budgeting Service, MABS, and Mr. Michael Culloty, social policy and communications officer. We will receive a short opening statement to be followed by a question and answer session. All members should keep their contributions short, concise and to the point as we must conclude the meeting by 4 p.m.

I draw everyone's attention to the fact that members of the committee have absolute privilege but the same privilege does not apply to witnesses appearing before the committee. The committee cannot guarantee any level of privilege to witnesses appearing before it. Furthermore, under the salient rulings of the Chair, members should not comment on, criticise or make charges against a person outside the House or an official by name or in such a way as to make him or her identifiable. I invite Ms O'Connor to make her presentation.

Ms Anne Marie O’Connor

We are pleased to have been invited to make a brief presentation on the money advice and budgeting service, MABS, to the committee. For more than 18 years MABS has been the only free, independent and confidential service dedicated to the provision of advice and information to people who are in debt, or at risk of getting into debt, in Ireland. The focus of MABS is on low income families. We have a national network of 53 services providing the face to face service with a total of 235 fully trained staff. We operate a national helpline which provides information and advice and supported self-help to callers who wish to engage directly with their lender. The MABS website is also a useful source of information and advice.

MABS is funded by the Citizens Information Board. We have seen considerable growth in the client base and there are now in excess of 31,000 active MABS clients. The number of new clients grew from just under 15,000 in 2007 to 19,000 in 2008, to almost 23,000 in 2009. More than 6,000 new clients have presented to MABS offices for the year to date. The average amount owed by that group of new clients is €15,500.

There has also been strong growth in the number of callers to the MABS helpline. Almost 25,000 callers were assisted by the helpline in 2009. Perhaps, ironically, that is a positive development as it is important that people who are at risk of getting into debt take action early. We find that helpline callers often get in contact in anticipation of a future financial difficulty. In general, a slightly higher proportion of MABS clients are female, most clients have families and the most significant age cohort is those aged between 26 and 40. In recent times we have seen an increase in the number of clients who are partially or wholly reliant on social welfare, which had averaged at 63% to 65% of the client base, but is now closer to 70%. There has been an increase also in the number of MABS clients who are mortgaged, from 22% in 2007 to over 35% at present. An increasing number of our clients may have been in employment and able to pay their debts six months or a year ago, but now due to the loss of a job, a reduction in working hours, or other losses of income, they can no longer meet their commitments.

In terms of the debt profile of clients there has been an increase in complex, multi-debt cases. The mix often includes personal loans, utility arrears, credit card debts, mortgages and hire-purchase loans. Other high-cost credit types also feature strongly, such as money lender loans, catalogue debts, overdrafts and sub-prime loans. When people first come to MABS they can be highly stressed and are often very vulnerable. Financial difficulties can give rise to ill health, depression and family problems, and that can exacerbate existing difficulties as well as giving rise to wider societal costs. Some of our clients may be afraid to contact their creditors. They might have multiple debts. They do not know who to pay and do not see a way out. Some of our clients are unfamiliar with the social welfare system and do not know what supports are available or how to access supports. MABS staff go through a very detailed and structured process with clients. The process is designed to empower clients to deal with their debts in a sustainable way. We assist clients to budget, prioritise debts, access social welfare and to make a realistic repayment plan. Where necessary, we may negotiate with creditors on the client's behalf and also set up and administer a repayment plan.

Committee members might be aware that we have an operational protocol with Irish Banking Federation members. We take a good practice approach to debt and arrears management based on our experience of what works for clients. There is a structure and a logic to the way we work. Our goal is sustainability. The benefit of the protocol is that there is now growing acceptance of the MABS money advice process across the credit industry. Notwithstanding our work on prevention and protocols, it is fair to say that some of the problems that are now emerging are both highly complex and intractable. That is particularly the case for mortgage debt. We welcome the formation of the expert group on mortgage debt.

Furthermore, MABS has long believed that a holistic out-of-court approach is the only solution for debtors who cannot pay and, as such, we welcome the ongoing work of the Law Reform Commission in this regard. In experience of MABS, the current legal process for dealing with consumer debt is inappropriate for many clients who, due to an unanticipated change of circumstance, simply do not have the capacity to repay what they owe. The legal process is harsh, costly and unproductive for those who cannot pay through no fault of their own.

It is vitally important for individuals, families and society that what may be termed "can't pay" debtors are afforded the opportunity to repay what they can, but also that there is a defined and realistic timeline for debt settlement. The so-called "fresh-start principle" is important so that at some point in the future, people who are currently over-indebted can once again engage and participate as full members of society.

We have already noted that many MABS clients avail of high-cost forms of credit, and we are concerned that in the absence of mainstream alternatives, there could be a growth of high-cost credit forms such as loans from licensed moneylenders and the use of catalogues as a form of credit. While not yet evident in our client statistics, we are concerned that new forms of high-cost credit targeted at people under a lot of pressure to avail of immediate cash could become a feature, as they have in other jurisdictions. These credit types include on-line loans, pay-day loans, so-called log book loans and others.

MABS is always concerned about a possible resurgence of unlicensed moneylending. All of these issues need close monitoring and, where possible, regulation. Other issues which need to be considered for the future are credit-rating mechanisms, universal access to basic banking facilities, access to affordable credit and the regulation of commercial debt advice and debt collection services. I thank the committee members for their time.

I thank the delegates for attending the committee. We have debated the issue over the past 12 months and are all aware of the situation regarding the bankers, the major developers and the major companies, but we have a tendency to forget about people on low incomes who are in financial difficulties. There are 31,000 people who use MABS, which is a huge number of people in financial difficulties with banks, credit unions or with loan sharks. We will have to discuss the issue more frequently to see what we can do.

What percentage of that figure are in trouble with banks, credit unions and moneylenders? We all know how vicious moneylenders can be and the exorbitant interest rates that they charge.

Ms Anne Marie O’Connor

Banks and financial institutions represent about 68% of the total portfolio. Moneylenders would represent less than 5%.

I thank the delegates for appearing before the committee and I compliment them on their work. We all refer people to MABS. It was said in the presentation that the average debt of clients of MABS in the last 12 months has been about €15,500. In the main, these are people aged between 26 and 40, predominantly female, although I suspect that in most cases this is because wives or female partners are good in that area. It was also pointed out that 70% of those attending centres are on social welfare, while there is an increasing number of people on mortgages. How many of those on social welfare lost their jobs in the last 12 months? How much of the debt involved would be mortgage related? How much of it is on 100% mortgages? Is there a concentration on specific mortgage providers? How much of the debt is related to credit cards, hire purchase and leasing? What is the profile of people who are seeking the advice of MABS? We find that many people appear to have many credit cards, so that when they come before MABS, they have a large number of credit card facilities and they have been allowed to accumulate debt with no proper controls in place.

The delegates spoke about how to deal with the issue. What should be put in place straight away that might help them with their job? Can we enable them to point out that the providers of funding are not being co-operative to the extent they should be?

The presentation refers to the five most prevalent debt types. Is the list in order of the scale of difficulty which the clients of MABS are experiencing? If so, what is the proportion for each of the five areas? MABS has been doing very effective work, and this started in the Cork area. It has now grown to 51 units. People come to MABS through parallel organisations such as the Citizens Information Board. Is there an argument for greater co-ordination, such as being based in the same offices so people can make direct contact?

There seems to be a willingness to establish debt management companies in the UK, which present themselves differently to debt collection agencies. They claim that they promote a holistic approach to debt, which is bought at a discount from the creditor. What is the experience of MABS with these organisations? Are they working effectively? Do they constitute a threat? Is there a need for regulation and legislation on them?

Ms Anne Marie O’Connor

I cannot give exact data on the cohort of our clients who have lost their jobs recently, but there has been an increase in the number of clients in receipt of social welfare, and we know that many of them would have been in employment until relatively recently. That correlates with the increasing number of people who have mortgages, as they would have been in employment when they took out the mortgage. We are doing internal research at the moment to get a better idea of the nature of the mortgages and when they were taken out. That should be very useful in assisting people.

Several questions were asked on the level of indebtedness. There has been a significant growth in the amounts owed across all debt types. Excluding the mortgage arrears category, between 2006 and 2009, that grew from about €9,000 to €13,000. Credit card debts grew from almost €4,000 in 2006 to around €8,000 in 2009. We have also seen increases in utility bills and other debt categories. There has been a definite growth of all debt types in terms of the amounts owed.

Which is the area that has caused most alarm over the past year? In other words, which area requires most urgent attention in terms of the growth of debt?

Ms Anne Marie O’Connor

The mortgage debt category causes most concern for money advice staff. It is a relatively new feature of the work we are doing for a significant cohort of clients. We always did an amount of mortgage debt work but it is now a growing trend. Mortgage debt is different to other debt because the loans are so long-lived and there is no short-term solution available in the same way there may be in regard to credit card debt and personal loans.

What is the delegates' experience of dealing with lenders in terms of coming to arrangements to assist those struggling with debt?

Mr. Michael Culloty

Last September, we promulgated a protocol between ourselves and the Irish Banking Federation, IBF, which has now been in operation for six months. MABS has had a positive long-term relationship with creditors, particularly the mainstream lenders, and the protocol has enhanced that. It is not yet where we want it to be but there have been significant improvements. We are seeing a greater willingness in the marketplace to reach affordable and sustainable agreements at least in the medium term. That is why we welcome the mortgage arrears code and the commitment by the IBF to assist people who are in difficulty with mortgages to reach affordable agreements. The moratorium on repossessions has also been of assistance. None of these measures is an end in itself, nor do they collectively address the problem in full. However, they are helping people through this difficult period.

How many people have approached MABS in the last six months because they are experiencing difficulties in meeting their mortgage repayments?

Ms Anne Marie O’Connor

Approximately one third of the total client group have a mortgage but not all of them will necessarily be in difficulty with their mortgage repayments. People tend to prioritise mortgage obligations above other debts.

Mr. Michael Culloty

People may present, for example, with a credit card debt but may also have a mixture of other debts. Mortgage holders often have credit cards and store cards because they were affordable in the former economy.

Senator Boyle asked about debt advice and services. We were one of only a very few operators in this area until relatively recently. Now that operators are being imported from the United Kingdom and indigenous services are being established, we are concerned, as we said in our presentation, about how they are being regulated and about the degree of protection for consumers. Anecdotal evidence suggests vulnerable people are being taken advantage of and abused. That is a cause of concern for us.

Ms Anne Marie O’Connor

In regard to the scope for co-ordination and co-operation between different service providers, we were assigned to the Citizens Information Board last year. Progress is ongoing in terms of working together and finding complementarities between services. Two services are already in the process of co-locating since the assignment.

I also asked about the prioritisation of the five prevalent debt types.

Ms Anne Marie O’Connor

They are based on the euro amount. In terms of the ordering, personal debts——

Is number one the highest?

Ms Anne Marie O’Connor


I thank the delegates for their presentation. I did not know a great deal about their work so it has been educational. MABS has been in existence since 1992 and the work it does is clearly very valuable. How is it financed, how much is its budget and has its funding increased in that period? The delegates indicated that they sometimes negotiate with creditors on behalf of clients. Do they generally find their approaches are welcome or do lenders look askance at them? I understand that people who run into debt problems often have half a dozen different debts and that even assembling all those obligations together may be helpful as they seek to negotiate with their lenders. The delegates referred to the expert group on mortgage debt. Will they expand on that because I am not aware of the existence of such a body?

Ms Anne Marie O’Connor

Our funding originally came from the Department of Social and Family Affairs but we are now funded directly by the Citizens Information Board. We are entirely State funded, with our budget in the order of €18 million annually.

Mr. Michael Culloty

In regard to how we are perceived by the credit industry, when we started out in 1992 we were viewed as interfering old busybodies, but that has changed dramatically in the intervening period. One element of that change is the multiplicity of credit that is now available. It has moved from a situation where we were dealing primarily with people living on social welfare to one where we are seeing people who availed of various credit products. A sign of how seriously we are taken by the credit industry can be seen from the protocol we have entered into with the Irish Banking Federation. The core of that protocol is the MABS process in reaching affordable and sustainable agreements outside the legal process.

Ms Anne Marie O’Connor

The expert group on mortgage debt was recently convened by the Government and comprises relevant officials from the various Departments, including the Department of Social and Family Affairs, the Free Legal Advice Centres and others.

Have the delegates found this initiative useful?

Ms Anne Marie O’Connor

It is important to have a group looking in an in-depth way at solutions in regard to mortgage debt.

I thank the delegates for attending the meeting. Does MABS have enough staff to deal with the current client base of 31,000? What percentage of client queries relate to sub-prime mortgage providers? What are the delegates' experiences of working with those lenders in order to reach a settlement on behalf of clients? The exorbitant interest rates they charged in recent years have hit people hard in their pocket. Does MABS have sufficient expertise to deal with issues in regard to mortgage arrears? Will the delegates elaborate on their comments in regard to log book loans and credit rating mechanisms? I accept that negotiations are confidential but can the delegates indicate whether there is a degree of realism among lenders in terms of a willingness to write off a certain element of loans based on the financial reality of clients?

Ms Anne Marie O’Connor

There has been a significant increase in client numbers and an increase in the complexity of the work. MABS was granted an additional 19 posts last year on a temporary basis. In terms of our expertise to deal with the issues that are now emerging, all money advice staff receive ongoing training in the areas of social welfare, legal, credit codes and so on. We also have access to expert legal and social welfare advice, as necessary, to support case work.

Log book loans are a new phenomenon and I am unsure whether they are even fully operational here. They are loans secured on a car or log book and have become prevalent in the United Kingdom. On credit rating mechanisms, we are concerned that people who may have fallen into arrears on their mortgage but are managing to repay a percentage will discover that their credit rating is damaged and that they will therefore be unable to avail of credit in an emergency or for any other reason.

What does MABS propose as a solution in this regard?

Mr. Michael Culloty

It is part of the broader question of the availability of credit in the future. In particular, the area of credit for people on low incomes is one that needs some attention and it is also important that there be proper consumer protection with regard to different forms of credit.

Does MABS have a representative on the debt mortgage group?

Ms Anne Marie O’Connor

MABS is not participating directly on the group but the Department of Social and Family Affairs is represented and we would be feeding into that, through that person.

Mr. Michael Culloty

With regard to the sub-prime issue raised by the Deputy, the sub-prime lenders were non-deposit-taking banks and, traditionally, were not subject to the codes. Of course, that was changed legislatively last year and they are now within the codes and are also subject to the mortgage arrears code. That has, in a sense, changed their attitude towards MABS and our negotiating ability in recent times.

What about the question of write-offs?

Mr. Michael Culloty

Traditionally, one would always have write-offs, depending on the cases that one was negotiating on and people's circumstances, and I am sure that still applies. The issue of "fresh start" is a concept that is in existence in other jurisdictions. A pilot programme that we had with the Irish Banking Federation was based on two principles: one was full disclosure and the other was a "fresh start" principle, so it existed during the extent of the pilot. That may be an issue that needs to be addressed going forward, particularly looking at the size of the over-indebtedness of certain clients.

On the issue Senator Quinn raised in regard to the interdepartmental group report, we have received correspondence from the Minister for Finance on that and the clerk will forward it on to MABS.

There are two issues I would like to raise before we conclude. The issue of credit card debt seems to get lost at times. We all have credit cards and, during the economic boom, we would have letters coming in, increasing our credit limits. However, many people do not read the small print when applying for a credit card, particularly the interest that is charged, which is phenomenal. In some cases, the customer can argue the case but may not do so. Has MABS seen many cases where interest keeps increasing and reaches the stage where the person is in no position to pay? I hear from people coming to my clinic who are in financial difficulties that the credit card companies are putting severe pressure on families. When a person gets into financial difficulties, the credit card is the next thing a person will use because one has to buy essentials, even if the person has no money coming in. It is an issue for self-employed people in particular, and one that has to be addressed by Government because they are not entitled to social welfare payments or any sort of payments, and are in severe trouble.

There is another issue on which the witnesses might perhaps correspond with the clerk to the committee. MABS suggests the legal process is harsh and costly. Will the witnesses correspond with the clerk on that with a few examples of the costs incurred as we put a report together on all of this?

Ms Anne Marie O’Connor

The credit card situation is exactly as the Acting Chairman outlined in that people rely on the credit card to pay for day-to-day living expenses and they then find that the debts have amounted very significantly.

It is when the bill comes in that the person realises how much has been spent.

Ms Anne Marie O’Connor

Yes. We would often see people with several credit cards and those debts obviously add up very significantly. One of the benefits of the protocol for us is that we work with the credit card sections of the IBF members, and we have agreed a process for negotiating with those creditors about credit card debts. We would have concerns that, where pressures are applied to people, those people would prioritise the credit card debt and pay it because they feel pressurised to do so. However, that may undermine their capacity to pay other important debts such as the mortgage, utility bills and other key debts. For that reason, the process we employ, whereby we prioritise debts and treat credit cards as secondary debt, is very important and is working very effectively for our clients.

Will Ms O'Connor forward a copy of that protocol to the clerk?

Ms Anne Marie O’Connor


Do the interest rates between different credit cards and institutions vary much? Would MABS have come across situations where some cards are charged at a low interest rate and others at an exceptionally high rate?

Mr. Michael Culloty

Those rates are published and there is a variety of rates. For example, some credit cards still offer interest free or very low interest periods for new customers. However, I am sure all of that area is tightening up now and I suggest there is less competition. One of the issues we would emphasise to people who come to us, because we are aware of the pressure being exercised by some creditors on credit card consumers, is that distinguishing between priority creditors and secondary creditors is absolutely essential when people are making any kind of submission or proposal to a credit card supplier.

I am aware that Halifax has written to its customers in Ireland stating that they must pay their debts within a particular period of time because it is leaving the country. What kind of pressure is this putting on clients? Have such clients come to MABS on this issue?

Mr. Michael Culloty

There is an issue with regard to credit card companies that are leaving the Irish market and suggesting to their consumers what they should do. One of the options they are giving is that the customer would change to another credit card supplier but there is some reluctance from other suppliers to take on those consumers. For those who have not moved, or are unable to move, from the supplier which is leaving the Irish market, they will be encouraged to change from a credit card debt to a normal loan. Our understanding is that the terms and conditions of those loans have not been promulgated yet. With regard to the company mentioned by the Acting Chairman, its website states that it will be outlining the terms and conditions of those loans in the middle of April.

What legal pressure does it put on them in proceedings? I am particularly interested with regard to credit cards. For example, is Halifax issuing legal proceedings against people who are not paying their credit card debt before it gets out of the country or has it stepped up matters with an aggressive campaign?

Mr. Michael Culloty

We have no evidence that it has stepped up. Credit card companies were always quite aggressive in their pursuance of people who had not kept up with their repayments. We are seeing in some instances harassment that would border on contravening legislation and the pressure can be quite considerable. We would be particularly concerned for vulnerable consumers who may be already depressed because of their financial situation because inordinate pressure could have drastic consequences. That is a concern of MABS.

I apologise for the small number of members present today but there are other issues being dealt with by the House such as the issue of Quinn Insurance, which means that the financial spokespersons of the various parties are in the Chamber, and there is also a Fianna Fáil parliamentary party meeting. I thank MABS for coming in and suggest that the witnesses might come in again in the future. They have given an excellent presentation, particularly with regard to people in the low-income bracket. We can see the figures are rising every year. It is very significant issue that has to be addressed and one that we in the Houses of the Oireachtas must examine in order to facilitate these people further. I thank the witnesses again.