I thank the committee for inviting us to make a written submission, which we furnished in March 2019, and to address it today on the important issues raised by this Bill. We note the recent submissions and contributions made to the committee, in particular on 2 April, and the opinion furnished by the European Central Bank. We do not intend to reiterate our original submission but to draw the committee's attention to a number of points, which we have fleshed out in a supplementary submission, having regard to the other submissions that have been made.
The first point I wish to make relates to inequality of arms. As matter stand, there is a significant inequality of arms between the lender and borrower. The borrower may have no meaningful influence on the content of the terms of the loan and may be wholly unaware that the lender is reserving the right to sell the loan on to an entity of its choice. Even if the borrower is aware of the provisions, he or she may not be in a position to meaningfully negotiate individual terms and conditions with regard to what are, in effect, standard terms in such contracts. It is unfair to imply into such an agreement an irrevocable consent to the transfer of the person's mortgage in any circumstances. We have set out in the written opening statement an example of what we believe to be a typical standard clause. It provides that: "The borrower hereby acknowledges the Lender’s right, without further consent from or notice to the Borrower to transfer the benefit of this Letter of Offer, the Loan and the Lender's mortgage security (including any life assurance policy or policies) over the Property to any person, company or corporation on such terms as the Lender may think fit, without further consent from or notice to the Borrower or any other person".
What is particularly significant about this is that it is an absolute right and is not subject to any preconditions whatsoever, such as the specific circumstances affecting the borrower or the occurrence of a certain level or duration of arrears. I draw the committee's attention to the provisions of the EU directive on unfair terms in consumer contracts. Article 3 of this directive provides that: "A contractual term which has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract, to the detriment of the consumer". The fairness and enforceability of such clauses to sell on that are in the current standard terms and conditions have not yet been adjudicated upon by the High Court but we believe they are vulnerable to challenge.
Our second point is in respect of the Central Bank's report on the effectiveness of the code of conduct on mortgage arrears in the context of the sale of loans, which was furnished to the Minister for Finance in 2018. First, FLAC recommends, and has done for some time, that the provisions of this code must be given legislative force to ensure that all parts of the code are expressly admissible in repossession hearings.
Second, we do not share the view of the Central Bank expressed in the report furnished to the Minister for Finance. In the course of its recent contribution to the committee the Central Bank reiterated that view, that existing arrangements must be maintained by unregulated loan owners, ULOs. Specifically, the director of consumer protection stated that:
Where a loan has been sold by a bank to a non-bank, existing arrangements are honoured. We feel there are many protections in the existing consumer protection framework that keep borrowers in or facing arrears at the core of the process and protected.
The bank's view that where the borrower's circumstances have not changed at the point that a review of a long-term arrangement takes place, that "regulated lenders and ULOs must comply with the terms of the arrangement in place", is not supported by the relevant rules, particularly Nos. 42 and 43 in the code. We fail to see any clear provision in the code that imposes a specific legal obligation on a lender reviewing an arrangement to continue that arrangement where the borrower's circumstances have not changed. Even if it was to be interpreted that there is such an obligation, we question its enforceability in strict legal terms.
Our fears on this question are highlighted by the following passage whose substance recurs at a number of junctures in the Central Bank's report to the Minister. It states:
The Central Bank cannot interfere with the strategy and commercial decisions or the legitimate contractual rights of lenders where such firms are complying with their regulatory and contractual obligations. Regulated entities are entitled to rely on their contractual rights and make their own commercial decisions.
If it is the case, as the bank maintains, that it cannot interfere with a lender or owner’s contractual rights, how can it then impose an obligation on an unregulated loan owner to continue a long-term restructured arrangement against its will where there is no regulatory or statutory obligation to do so?
The next issue we wish to highlight is that of what actually constitutes a non-performing loan, NPL. The principal narrative up to now has been that the sale of loans to funds is justified to reduce the number of NPLs down to a perceived ECB target of 5%. The ECB opinion to this committee, however, did not provide a definition of non-performing loans. The last quarterly statistical mortgage arrears report from the bank, to the end of the last quarter of 2018, concerning principal dwelling houses clearly shows that the significant majority of the almost 14,000 loans apparently acquired by unregulated loan owners in the course of the last quarter are performing restructures. The director of consumer protection at the Central Bank informed the committee on 2 April that there are currently more than 110,000 restructured arrangements on such loans. She added that in 87% of those cases the borrowers are meeting the terms of the arrangements and that these arrangements "are working for those borrowers".
In more specific detail, the latest figures suggest that there are currently 111,504 restructures of principal dwelling house, PDH, mortgages in place. More than 27,000 of these are split mortgages, more than 36,000 are capitalisation of arrears arrangements, and more than 13,000 are term extensions. Some 19,323 come under the "other" heading. This heading mainly comprises accounts that have been offered a long-term solution pending the completion of six months of successful payments. This category also includes a small number of simultaneously agreed term extensions and arrears capitalisation arrangements.
Together these long-term arrangements amount to 87% of the restructures of PDH mortgages. Some 86% are classified by the bank as meeting the terms of the arrangement. Are these considered non-performing loans or not? A key question also arises as to why loans with such long-term restructure arrangements in place would be sold on in the first place? If sales of such loans are allowed, what was the point of the extensive mortgage arrears resolution process under the bank’s code of conduct, which the Central Bank actively promoted and which many borrowers and lenders sought to comply with? Is it the case that the ECB considers these performing long-term restructures to be non-performing loans? We note the comment from the deputy governor that it is not for the Central Bank to stop the sale of either a performing or a non-performing loan.
With regard to enhanced protection for consumers, we believe that legal protections need to be enhanced for consumers whose loans have already been sold to funds. In addition to putting the code of conduct on mortgage arrears on a statutory basis, this Bill could enhance protection for consumers by incorporating the six recommendations made in our original submission. I have replicated these in the written submission and will not now read them out.
We also wish to draw the committee’s attention to the relevant human rights and equality standards that apply to this discussion and which we note are wholly absent from the presentations and submission made by the Central Bank and the Department of Finance. Section 42 of the Irish Human Rights and Equality Commission Act 2014 requires all Departments and statutory bodies, like the Central Bank and the Department of Finance, to consider in the performance of all of their wide-ranging functions how they will advance equality for the groups protected under equality legislation and how they will protect the human rights of all citizens. We note that the Central Bank has committed in its strategic plan to carrying out a detailed assessment of human rights and equality issues relevant to its functions over the period of this plan.
The UN General Assembly guiding principles on human rights assessment of economic reforms provide that states and other creditors, including international financial institutions, must carry out a human rights assessment before recommending or implementing economic reforms or policies that could foreseeably undermine the enjoyment of human rights. These principles require that human rights impact assessments should seek to identify and address the potential and cumulative impact of measures on specific individuals and groups.
A human rights impact assessment of economic reforms requires a diverse range of both quantitative and qualitative data in order to ensure compliance with the human rights requirement of non-discrimination and that due attention is paid to the situation of groups at risk of marginalisation or vulnerability. It is essential that the indicators used to provide information are disaggregated by gender, disability, age region, ethnicity, and income. The submission and presentations from the Central Bank and the Department of Finance make no reference whatsoever to any such assessment and it is likely that the views and opinions they have furnished to this committee have been formulated in the absence of such an assessment and without such data having been gathered.
The reality is that we have very little information about the people in long-term arrears in terms of gender, age, employment status, income, the extent to which they have disabilities, caring responsibilities or both, or whether they receive social welfare. Can the Central Bank and the Department of Finance state with accuracy, based on properly gathered disaggregated data, what is the likely effect on borrowers of allowing creditors sell to vulture funds without further regulation? Has there been any assessment as to the likelihood of borrowers being exposed to acute deprivation such as homelessness or extreme poverty?
We note that very recently the UN special rapporteur on housing, Leilani Farha, sent a letter to the Irish Government and was critical of the lack of regulation of vulture funds. In that letter she talked about the need for a transformation of the relationship between the Government and the financial sector whereby human rights implementation would become the over-riding goal. She refers to the financialisation of housing. We will end by pointing to Article 2 of the preamble to the UN guiding principles, which states that:
Obligations under human rights law should guide all efforts to design and implement economic policies. The economy should serve the people, not vice versa.
Myself and my colleague, Mr. Paul Joyce, who drafted these submissions, are happy to answer any questions members may have.