Vol. 111 No. 15
Senators will be aware of the amendment to motion No. 6 circulated earlier this afternoon. The Cathaoirleach has allowed the amendment despite its short notice on this occasion, because of the bank holiday, falling on Monday of this week, can be regarded as a reasonable disruption of the required two days' notice.
However, in these circumstances in the future the Cathaoirleach feels notice should be given at least prior to the day's sitting.
I move:
That Seanad Éireann calls on the Minister for Finance to establish a Commission on all aspects of credit, and its availability, such a Commission to address itself inter alia to the problem of money lending, both by unlicensed moneylenders and by those with licences charging over the legal rate; that it further incorporates a review of the provision and curtailment of credit in different circumstances and to different groups by commercial banking systems and that it reviews the long-term requirements in relation to credit of vulnerable groups, individuals, businesses, etc. and that it reviews these matters from the perspective of protecting consumers and that finally it be empowered to review any such matter as it shall deem appropriate for the pursuance of its objects.
I have great pleasure speaking to this motion on behalf of the Labour Party group. It addresses a number of points. Perhaps I should isolate what I think are the principle points. It calls on Seanad Éireann and the Minister for Finance to establish a commission on all aspects of credit. The purpose of this is that the more flagrant abuses of the provision of credit, for example in dramatic fashion by unlicensed moneylenders or by licensed moneylenders charging over the rate, have to be put in the context of credit availability from the former institutions as well as the latter. The second aspect of it is the adequacy of the legislation and the implementation of legislative protection in the case of both licensed and unlicensed moneylenders.
Another aspect is that it specifically includes the credit provided by the commercial banking sector in so far as it says that a commission should review the circumstances in which credit is provided and curtailed for different sectors. What I have in mind — I will develop this — is in relation particularly to the farming sector and the small business sector. I make no apology for suggesting that the price of agricultural land in the years immediately following Irish accession to the European Community was grossly inflated by the availability of credit for the purchase of land and expectations of high output in relation to milk and what was assumed to be related to agricultural profits. On that occasion the credit available to members of the farming community was little more than an auction being conducted in the offices of the different bank managers. I am particularly worried about the small business sector who have often been encouraged to borrow but who are asked at the same time to accept a change of philosophy without consultation or without conditions being explained as to why circumstances have now changed.
The motion also makes reference to the long term requirements of different vulnerable groups, individuals, businesses and so forth. The history of banking in Ireland has shown that there are people to whom the formal provision of credit is made available. I worked on one area in relation to the provision of credit in the 19th century. It was very clear that the activities, for example, of usurious gombeenmen, as they were called then, arose because of the fact that the people to whom they lent money did not qualify by the standards of what was then an extended banking system. Equally there are particular points in the life cycle of borrowing families in relation to credit.
The motion makes reference to two other factors. One is the need for a consumer protection, that is, adequate information and explanation for those borrowing so that they will know what it is they are undertaking. It finally asks the commission to investigate any other matter that is appropriate for the pursuance of its objects. What I have in mind is that it would look, if it felt it was necessary, at the terms and circumstances of hire purchase provision and the credit components of such hire purchase provision, be it by private undertakings or even by the sales section of semi-State bodies.
I will make a couple of points in relation to the urgency of this. I should like the movers of the motion to think again about moving an amendment. I find it difficult to accept the amendment as worded in so far as it notes measures that have been announced. I welcome these but they do not go far enough. It seems to exclude consideration of the credit policy of the commercial banks and to concentrate entirely on the operation of licensed and unlicensed moneylenders in the main Act. The banks have only enjoyed this separation from conventional moneylending since 1971. The Moneylending Act, 1900, included a specific reference to banks. In 1971 they were excluded from the main Act. I want them included. That is one of the reasons why I cannot accept the amendment.
The background to this resolution is one of misery. The social and economic environment which is exploited by unlicensed moneylenders had drawn comment from people who have worked among the poor and vulnerable sections of the community. The more dramatic cases can be cited by many people. I am interested in these, but I do not want to base my case on these alone. The social and economic environment of those who are the prey of unlicensed moneylenders should concern us. For example, unlicensed and licensed moneylenders charging more than the official rate of 39 per cent have concentrated on specific moments in the life cycle of families at risk. At any time in Galway city my quest for information suggests that in a new local authority housing estate one may expect up to three different companies to canvass door to door asking people if they want to borrow money for furniture for their new home. Equally at times of First Communion and Confirmation — times that are important symbolically in the lives of people — one can expect them to call to the door offering credit. People should know what they are doing but I doubt that this is the case.
One of the purposes of such a commission is to address the adequacy of the legal provision and protection that exist at the moment. The licensed moneylenders quote any figure over the official rate of 39 per cent. In some cases the figures given to members of the St. Vincent de Paul have been as high as 77 per cent. They are used to construing this as a service charge. In other words, you are paying for the individual to come to your door to extort what is an illegal proportion of interest. This is a flagrant violation of the law. I will get a little more earthy about this. At present charitable and voluntary organisations have great difficulty in eliciting information on specific cases and getting people who are being charged these illegally high rates to come forward. There were seven cases reported to the gardaí in Galway city before July 1985. There have been no prosecutions in these seven cases.
When I ask people about the operation of the law the impression I get is that it is a vague area. There is some kind of understanding that it is difficult to establish the additional income beyond the 39 per cent and maybe it is best left alone. The alternative, it is suggested, is that moneylending will be driven underground and everything will get a great deal worse. That is a bad practice in law and it should be addressed. I am hoping to make that point as constructively as I can. I have examined the lending companies. I said they charge over 39 per cent. One company has described this as "service charges". Another has described it as "reasonable fees" and another has said that 20 per cent is a reasonable increment to charge for calling to one's door and looking for payment of what is due. That is one aspect of the whole case.
There is the question of unlicensed and licensed moneylenders. There is equally the problem in integrating the registration process of the Revenue Commissioners and the question of what is required by way of licence from the District Court. It is imprecise and not sufficiently strong. One of the purposes of this commission would be to look at the law. Maybe the Legislature is a bit slower than the public in this regard. The public opprobrium directed against extortionist moneylending is quite considerable. I believe it is not accidential that the New Ireland Assurance Company decided to unload one of its bodies, the Jordan Estates, for that reason. Public opprobrium is somehow attached to the general holding company by the activities of moneylending. I do not believe people should approach these subjects in fear or ignorance. I would welcome education on credit within the school system. It is one of the basic procedures in life that one needs to know about.
This enables me to turn to the conventional credit policy. I do not believe the banking system provides adequate information to those to whom it lends. I doubt very much if the people, for example, who have gone from the status of overdraft customers to term loan customers and who might have been passed on to the finance company associated with one of the commercial banks, always know what exact changes are taking place in relation to the rate of interest that is being charged. I wonder why it is that, when I go into a small shop and see the price of Mars bars and packets of Beanos displayed under threat of the law, there are not displayed in the banks charts indicating what the true rates of interest are for specific terms of loans in particular circumstances? This is not met by saying: details of our credit policy are available on request. This is not just good enough. It is a different principle altogether to the old one of consumer protection in relation to the display of price lists and so on, which was a mitigation of the old principle of caveat emptor.
The most controversial part of the motion is that the supply of money by the commercial banking sector — even where it is being provided — has been totally insufficient. If one wanted to be a private market person looking into the supply of credit one should look at the manner in which it is being provided. I have given an instance in the farming sector. Equally, anybody who has run a business knows very well that there are circumstances in which money will be practically fired at you and there are others at present where you will be asked to reduce overdrafts and to keep within certain limits. I am not advocating profligacy but I am asking for a logic. We are in an interesting phase in the history of economics. I will give an example of it. Capital intensity within industry is increasing. The number of unemployed people is going up and even within nationalised industries in Britain there are fewer employees. The traditional pattern of savings and investment has changed. You have to ask yourselves what kind of changes you need in credit policy to handle a new situation in which you are trying to do something about unemployment.
A dissociation has been established in the history of credit commercial banking in both Britain and Ireland. It is a dissociation between savings and investment. This is important. For example, in the history of savings there used to be a pattern in Britain where people saved and invested their money in shares and so on. One of the great changes between 1940 and 1980 is that whereas in 1940 80 per cent of investment was by private shareholders on the basis of their own savings, by 1980 it was only 40 per cent. What happened was that the great institutional investors had come on the scene and thus the assets of building societies, banks and managed pension funds had risen. We now have the octopus principle, if you like. This is where savings are sucked into a central point and investment decisions are made in terms of a philosophy that is usually justified in an ethic such as: "We are really looking after our depositors' funds." I read this in the annual reports of the building societies. With the greatest will in the world, the investment pattern of the major institutional investors has been in terms of a very conservative investment policy. It has been in the most conservative possible areas. You have to ask, is that the philosophy that will give you the investment which will in turn give the jobs at times when the market is not providing them.
There are other reasons in relation to the whole question of credit and the gathering in of savings. One of the important points is that the time limit of the policy of the commercial banking sector has been short. By European comparisons, it is among the shortest. In relation to the security that they have looked for, they have been extraordinarily conservative. I meet a number of business people who tell me that not only have they to secure their borrowings with deeds or with particular assets of the company but they are asked to give personal guarantees as well. The history of many a business that has failed and many a family that has been ruined is one of the initial borrowings. So much collateral has had to be given that the company has no fall-back position for expansion or investment. In a totally inhuman way somebody who was once a customer has become a victim. The silence in this regard that has descended on this island is interesting. I wrote elsewhere that it was rather like mental illness; it affected most families but most people were afraid to speak about it. I still hold that opinion.
The commercial banking sector is not, by market criteria, competing. In this regard there is an unanswerable case for the development of a giro system through the post offices. With regard to all those people who are arguing about the business of avoiding deposit taxes and who want to save their money, it would be easy for those who have entitlements to move from one counter within a post office to another counter and deposit their money if they so wished. One can only look at the ideological reasons why people are opposed to a post office giro system being developed. Equally, if we wanted to introduce an element of competition into banking services, there are no obstacles being placed in the way of the building societies moving into the provision of full banking services.
I am more interested in the inadequate philosophy, strategy, supply and policy of credit that the commercial banking sector has. I am not terribly interested in old-fashioned pieces of theological arguments saying the market will decide. What is the market? The fact of the matter is that a credit policy is about investment. I cannot see the point of going to the polls to an electorate and saying that you are worried about this aspect of the economy or another, you are worried about there being socially productive investment or you are setting up institutional models such as the National Development Corporation while at the same time you are allowing this rather primitive, conservative, weak commercial banking sector to dominate in areas of credit. To link this second part of my argument with the first: a great deal of the reason why many people are forced into the grip of moneylenders is the unavailability of credit to them by the commercial banking sector. In relation to the whole question of wives borrowing only with the consent of their husbands, to what extent is that not a contributory factor towards people borrowing from what are even more unaccountable credit sources than the banks themselves? I suspect that it is a very significant factor.
We have to ask the question as to what credit philosophy and credit policy the commercial banks work under. The standard of interaction between them and their customers has radically changed in the last few years. There are now in different regions and in different cities and towns, credit committees established. Thus managers are no longer answering their customers straightforwardly in terms of their creditworthiness. I have stated by analogy of an octupus that there is need for a sectoral credit policy. One can speak about the likely credit needs of small businesses, the likely forms of credit that can be provided for different kinds of small businesses and so forth. I will give a practical example of this and people need a lot of practical examples, as I have noticed in recent years, when they are trying to make sense of economics. If a person is starting his own business, does not own a house and does not have the personal guarantees, does this mean that he should be denied credit? It does, of course, in the Irish system because one can only borrow on terms of fixed assets. One will get no credit whatsoever for ideas. As more and more people in the retail sector are telling me, neither can one get any credit in relation to turnover. What we are speaking about, therefore, is an island full of people many of whom have ideas, who want to invest and who have a conservative credit policy that precludes lending on anything other than on 19th century credit principles. This matter should be addressed. I do not want to anticipate the precise manner in which this should be done. It is far beyond time that the whole basic Central Bank Act, 1942, which governs the relationship of the Central Bank and the commercial banks was looked at to try to direct savings towards investment in socially purposeful ways. We can assist in this rather than demanding it, in so far as we can do it by the structure of taxes and allowances.
Equally, it is an interesting one. There are some surveys which suggest that both in Britain and Ireland many people who save would like to see their savings invested in their own particular region and in activities that would be socially purposeful and so forth. As it is at present they are sucked into the central vacuum cleaner which not only invests conservatively but often speculatively. The Minister would probably be able to give figures, I have not got them at present but the enormous rise in the purchase of fine art in recent years is little else than naked speculation. The credit policy by the major banks has been towards assisting such speculative activity rather than towards assisting genuine productive activity.
The other parts of this resolution simply ask for consumer protection. I have said sufficient on that. We are entitled to clear guidelines as to what our obligations are, and so forth. I want to make one or two points on the philosophy behind what I am saying. It is a simple belief that, to our cost, we have dissociated savings and investment in a certain way, and unless we think about how we manage the supply and flow of credit we are going to be significantly handicapped in developing a response towards problems like employment and productivity. The changes that are taking place are ones that are challenging the conservative and orthodox views of economic and financial services. The traditional markets of the conservative financial institutions have been to invest very conservatively in very secure investment. I mentioned gilts, commodities, fine art, farmland, commercial and industrial property. It is not an accident and I did not invent it to see where most of the banking services are located.
Farmland has not proved to be a very safe investment.
It has proved to be a bad speculative venture by the commercial banks, as the Minister should know.
I do know.
The farmland in the Minister's own constituency was grossly inflated. Many of his constituents have been ruined by the commercial banking sector.
The price was inflated.
Thank you for the correction, Senator, as I am sure you know them as well. I hope that in supporting this resolution you will assist them in their plight. The other point I want to make is in relation to the whole question of where savings go. We have to try to overcome our antipathy to the State in this regard. There is, somehow or another, a view circulating that if you interfere in any way with what are effectively private, unaccountable decisions by the commercial banks you are involved in some way ruining the economy. I want to make the point that it is not the State sector which went running for Government protection when the financial institutions were placed under what was perceived to be a threat in the last couple of years. If a State company did that, in many cases they would have encountered the opprobrium of the public. It is very interesting to speak about the different levels of credit available to different people and groups. I assert that more credit has been more easily and more often available to people who speculate within the economy than to many people who could have been productive in their work and created employment. That is the nub of the argument.
I am simply saying on the whole question of a commission, that when you look at the most miserable people exploited by moneylenders, you need to examine the whole issue of the structure of credit. Where is the financial accountability within these large institutions? It might be said there is a fundamental accountability to their depositors. Where is the discussion by depositors on what is investment policy? I will go much further than that. I remember reading the debate at the time of the establishment of building societies. The assumption was that their primary purpose would be to make provision for the building of houses. Anybody looking at the operation of building societies in Britain as well as in Ireland can see clearly that their major preoccupations and concerns in recent years have been about the management of their funds, about competing for savings in different circumstances of competition and the management of funds so deposited rather than being about the original purpose of providing houses.
What I am speaking about is, if you like, the building of social dimension into a credit policy. It is the idea that you might take stock of your human population and regard the economic fiscal policy as a set of instruments. As one of those instruments, you look at credit policy. The argument which I sometimes read comes from such documents as the Central Bank of Ireland statement on monetary policy, March 1986. I respect the people who prepared this report but it is not a fundamental, unanswerable paradigm for the management of the State finances or for the provision of credit in the short term or, as the report stresses, from 1986 on. On page 4 it states:
The Central Bank does not intend to issue a formal guideline for bank lending to the private sector for 1986. Credit guidelines have been in use since the late-1970s, a time when bank lending to the private sector was growing at well in excess of 30 per cent per annum, resulting in a rising level of banks' indebtedness to the Central Bank and pressure on the external reserves.
My point is that there are criteria by which you should judge your credit policy other than the ratio of the commercial banks to the Central Bank in terms of deposits and the pressure on external reserves. One of those criteria is the ability of the credit policy to contribute either to the reversal of unemployment trends or the production of an incapacity.
I hope the Seanad will agree with this motion. Its proposals are simple and modest. It is calling for a commission and I would like in one minute to answer the question of those who say that a commission may take a great deal of time and may be a very heavy way of setting about this. We have for so long neglected the whole issue of credit in this provision in our society that I would be willing to wait to have these issues unemotively and carefully examined with all the different contrasting models of relationship between savings and investment. Equally, what is urgent — perhaps the Minister will indicate this — is how the law can be changed to deal with the specific short term effects of licensed and unlicensed money lenders. I have already said that the law is vague. It is inoperable and insufficient. Equally, in relation to the question of consumer protection, that too can be met. A commission which would set the specific short term problems — these emotively charged situations — in a broader context would be the best way to handle this problem.
I will conclude on the point about the family who are in the grip of a particular moneylender. When you actually investigate the family circumstances you will find that they are vulnerable people who are also at risk from the credit policy of other lending institutions. They may feel that they may not get the money elsewhere other than from the person who is offering it to them. Equally when you look at it in terms of what are their fears, it is quite wrong to imagine that everybody in society stands in the same relationship to the sanctions that are being threatened by the credit offering institutions. The families most at risk from the moneylender are the ones who will most likely have their light cut off if they owe an ESB bill. When you look through the eyes of families you see that what you have is a comprehensive dependency and vulnerability. The way to go about that is to look at how credit affects our lives and how it affects different sectors of the economy. Ask the question: what would be an appropriate credit policy to enable us to tackle one of the greatest scourges of our time, a society with a high unemployment rate? I ask the House to support the motion.
First of all, I would like to say that our motion is very far-reaching and, therefore, it is not possible at this point to accept the amendment put down by the Fine Gael Senators. I say it is far-reaching in that when we are dealing with moneylending, for example, we cannot go on the basis of some television programmes we have seen and leave it at that as many of us will remember television programmes before which were not quite on the ball. We do not want to be in a position where we condemn moneylenders out of hand even though we condemn the principle of it. We do not want to condemn people out of hand or attribute to them deeds that they may not be guilty of or put it to them that it is as extensive as it might be until we know what the full facts are.
We do know that illegal moneylending represents a very serious social problem and it is at serious proportions in urban areas. We know that there are many unlicensed moneylenders but do not know how many. We know that moneylenders try to hide their identity and that they keep their operations very secret. Allegations have been made of threats of violence and exposure against people who cannot live up to their commitments. It has also been suggested that violence has, in fact, been inflicted. We are not saying that in our motion. We want somebody to investigate this in a thorough and detailed way. There is an argument that the Garda may be lax in the sense that everybody else knows about it and yet there are no prosecutions made.
It is quite a serious situation. But to say that it is widespread and pervasive needs a substantial amount of backing. At this point I do not think we have that backing. We know that a serious problem exists which needs serious investigation. I do not think that the question of a commission is going to take as long as people might imagine. There are commissions which are set up for the specific purpose of stalling, but if a commission is given the proper terms of reference it can report fairly quickly, impartially and in depth. That is the reason we do not want to go down the road of laying accusations, but we do think that it requires thorough investigation. Another point about the amendment which makes it difficult for us to assent to it, is that it seems a piecemeal way of dealing with the whole question of banking, credit and moneylenders etc. So, it is not satisfactory to us as an amendment.
Naturally, in any area where one must borrow money there is a very serious problem for the people concerned. By and large the borrower, if borrowing from a moneylender, has no protection whatever. The basis on which money is borrowed in some cases, it is alleged — and I use the word selectively — is that if you get £1 off somebody you will pay five shillings a week until the £1 is paid back. You are paying five shillings off the loan and five shillings interest. Obviously, if there is that sort of abuse it is very serious and we will have to go after it. The people affected by this are very often seriously involved in trouble because of having to rely on social welfare payments. When you talk to some of them about getting into such trouble and ask if they did anything about supplementary welfare allowances, you find that the criteria for obtaining supplementary welfare allowances are so vague and so difficult that very often people get into a mess over the whole thing and do not realise what their rights are. Very often they cannot obtain the supplementary allowances in adequate time.
There is an abundance of evidence on moneylenders in existence. There is an abundance of arguments that the credit facilities of banking institutions are not readily available and that the kind of collateral needed cannot always be met by the type of person we are concerned about and want to protect. Naturally, it is of very serious concern to us. It is not today or yesterday that we started to talk about the question of moneylending. Labours' "Constructive Programme for an Organised Nation", published in 1941, talked about moneylending. The position is that this was our attitude to banking, currency and credit and, while the Minister may raise his eyes when I read it——
I was not.
I said you will when I read it. You will probably say many changes have taken place. I would suggest that many changes need to take place. I quote:
Whenever it is proposed to improve the social and economic conditions of the people, the cry is raised at once: "Where will the money come from?" But every country in the world, including our own, obtains all the money it requires for war-like purposes, military equipment, mimic warfare, aerial development. If money were called for to construct a greyhound track or a cinema, it would be forthcoming immediately; if a foreign loan were issued in Ireland at the moment of our greatest misery, banks and insurance companies would vie with each other in offering subscriptions.
We know well that people with vast capital are citizens of the world and they would do a deal with the devil if the price was right. We have got some of our people into deals with China and elsewhere. The quotation continues:
It is obvious, therefore, that improvement in our social services and the raising of the standard of life are not retarded or prevented merely because we lack money but to a considerable extent because of the disinclination of those who own the money to make it available for these purposes.
Banking, Currency and Credit in this country are virtually the monopoly of a few professional bankers working in collaboration with the Bank of England; they may in their absolute discretion, provide or refuse to provide financial accommodation for any purpose whatever, they determine the conditions on which credit facilities will be afforded, the period for which credit will be available and the rate of interest which will be charged for it. These powers should not reside in a small body of persons, many of them out of sympathy with Irish aspirations, who are not responsible for their actions to any authority within the State.
I will accept any point of view which says that there has been a very substantial move forward in the light of working class people opening investment accounts and being able to borrow and so on, but the fact remains that it is relative to the new situation we are in. They are still at the bottom of the heap and the banking and credit system in Ireland is not releasing money in sufficient amounts to help create employment and so on. It is an evil thing if the control of banking and credit is tied up wrong. It is a banking system that ties the hands and feet of people. Where credit is denied to small businesses because of the lack of proper collateral it inevitably leads to further unemployment. It is a contributory factor to unemployment. Consequently, we are talking about linking it in with the fact that people inevitably have to turn to moneylenders instead of being able to turn to the normal banking and credit facilities.
Senator Higgins mentioned the question of post offices and State banks. I do not know in what context he mentioned them but I can see nothing wrong in the State setting up their own bank to go into competition with the banks and bringing in terms that would facilitate people who are in serious difficulties. While much has been done by the credit unions it is also quite clear that much more could be done, even to the extent of saying that if this commission comes out with a report and we find that we have made our claim correctly, and if we are right or even half right about the credit and banking facilities, then we must do something about that.
We must, on the one hand, tackle the banking and credit system and, on the other hand, try to make facilities available to a greater extent through the credit unions even if it meant the State coming to their rescue through putting a certain amount of money behind them to take many people out of trouble. I do not mean the "grush" money. I mean to assist people to get loans at very low rates. I know that the State plays a part in credit unions. The whole question of doing a little more about it would take it away from the area of trying to cope with people, particularly young married people, who are frustrated and disillusioned as a result of the whole money lending system. It would also get us away from the concept of very important firms tying themselves in with money lending. That allegation was made on a recent television programme. It is not to the credit of big business people to enter into deals or into taking shares in circumstances where it is evident that there is money lending going on. While 39 per cent is the legal rate the rates they are charging are exorbitant.
I remember some years ago one would go to these loan societies, which were legal, and it was not uncommon to find yourself down in the sheriff's office when you could not meet your commitments. There was no way you could go in and make an excuse like you could to the credit unions and say "I can afford to pay five shillings a week, will you take it?" You could not do that with the banks as they would not wear it. On the other hand, there were moneylenders in the Jewish community who the minute you went in to them and said you had not got the money they would be — I do not want to say Christian — charitable. The minute you said "Look, here is this woman, she is in the height of trouble. I have got to help her. She can offer two shillings a week," he would dive on the two bob and that would be it. That facility does not exist anywhere else. There is no compassion with people who go around knocking on doors collecting debts. We are talking about money lending. These are the allegations. Nobody knows if the person so doing has developed into another area. For example, they could be giving coal out by the week in addition to lending and have people in more trouble. They could be giving shoe dockets or anything — it is all available to them. I have no doubt that it extends far beyond money lending in many cases. That is why people are in all sorts of trouble.
I move amendment No. 1:
To delete all words after "Seanad Éireann" and substitute the following:
"notes the measures taken and proposed by the Government to improve the protection provided to the public in connection with the provision of credit and borrowing and calls on the Government to ensure the speedy implementation of these and other measures to improve the situation of vulnerable groups, with particular regard to the operation of licensed and unlicensed moneylenders."
I am sure Senator Michael D. Higgins will be glad to know that I am not happy with his motion nor am I happy with my amendment, because I do not think either of them exactly tackle the problem which needs to be tackled. I would like to spend a few minutes identifying a number of the areas where I consider there are problems. I would like to explain why I consider Senator Michael D. Higgins' motion casts its net too wide in an attempt to deal with all these problems together, problems which, in my opinion, are different. As a result of that he proposes the establishment of a commission which, if it was ever established along those lines, would not report for years and which would be asked to consider things on so many different levels that I do not feel there is any rational way detailed terms of reference incorporating this could be drawn up for inclusion in the brief to that commission.'
On the other hand, I acknowledge the point he made in the course of proposing his motion that perhaps our amendment is drawn too narrow and sees the thing too narrowly. That is something we can consider during the course of the debate this week and in whatever other week the matter is dealt with. With regard to our banking institutions, our credit institutions and our moneylenders, there are three different kinds of problems to which I would like to refer briefly. First of all there is a function for an investigation as to the part which credit plays in the economy of the country. That is a macro-economic job. It is the kind of point developed by Senator Michael D. Higgins when he spoke about the damage which was done to the country as a result of the overheating of the economy in extending credit to the agricultural community for the purchase of land in an unreasonable fashion. There is a sense in which it would be useful to look at the provision of credit on that scale, the provision of credit to people at local level to start businesses and the provision of credit to people who have good ideas but no substantial asset backing with which to guarantee the borrowings necessary to commence production. The way in which these problems can be tackled on the macro scale is deserving of investigation. However, that is fundamentally different from the other two problems I see in the credit area. I would not like that problem to be confused with the other problems.
There is a problem with regard to what you might call unlicensed money lending and the dirty end of credit. This is a problem almost for the Minister for Justice rather than for the Minister for Finance. Without doubt unlicensed moneylenders are operating in the country. What has been indicated very strongly rather than proved conclusively by the two programmes put out on RTE, which were excellent, is that licensed moneylenders are abusing their position by charging fictitious service charges. This problem has to be tackled at that level. A relatively straightforward amendment of the current legislation would aid and assist the Garda Síochána in the prosecution of these matters. It is also important that we recognise that the priority which is given to the prosecution of offences of this type appears to be low. We are entitled to expect that, as a result of the publicity which would be associated with changing the law with regard to licensed moneylenders, it would be reiterated to the forces of law and order that it is the expectation of the Oireachtas that the law as it is now or the law as it is amended in the future would be applied so as to provide the protection which was originally intended.
Over the last few years a situation is growing up where many of the very respectable banking institutions in the country have got involved in activities which, to say the least of it, leave them open to an investigation of this type. I have personal knowledge of this. Unfortunately, I cannot say what the individual case is, because it be a breach of confidence, but I will tell the executives of the firm involved. I have personal knowledge of an abuse by Bank of Ireland Finance in this regard, the methods by which they chase people for money and the way in which they put the screws on people who fail to deliver. It is not good enough to do your work on a respectable basis through your employees. If you employ outside "consultants" to do work on your behalf, they are acting on your behalf and they must also maintain the proper decorum and apply only such pressures as are reasonable. It is not reasonable to phone people in the middle of the night or early in the morning. It is not reasonable to stop people as they drive about their business on a subterfuge or trick. This has happened.
That is a separate and distinct problem. I would put that in the category of licensed and unlicensed moneylenders. People have abused their position in collecting money lawfully due to them. I am not saying that people should not repay money they owe. The pressure to repay must be reasonable. We have seen the publicity afforded to licensed moneylenders. It goes beyond that. I have one specific example in mind. I would be pleased to give details to the officials of that organisation, should they wish to contact me. That is a second, separate and distinct problem, quite separate from the macroeconomic problem of to whom credit should be made available and how it should be made available to generate more activity in the economy.
The third problem — one which is particularly close to my heart — is the investigation of the role of the banking institution in other areas of economic activity. Is it wise that banks should get involved in insurance? Is it wise that banks should get involved in travel companies? Is it wise that banks should become involved in foreign subsidiaries? What implications do these adventures have for the stability of the banking system in the future? We may draw a conclusion from the ICI debacle. With regard to our banks and our major banking institutions they are underwritten by the State in all but name, because the economic difficulties which would be created by a failure of one of our banks means that no Government could allow it to happen. With that guarantee comes responsibilities. Among the responsibilities which should attach to the banking institutions in those circumstances is the responsibility not to engage in any activity which places the bank's shareholders' funds, its depositors' funds or the Government's funds, or the taxpayers' funds at risk. Therefore, investment in overseas subsidiaries, where such subsidiaries are outside the control of the Irish Government and outside the control of the Central Bank, is not necessarily in the interest of the Irish economy or the taxpayer. That is a third area where I see a need for specific investigation and a redefinition of the role of banking.
Members will understand why I am so disappointed, first of all, having thought about my own amendment and it being so narrow. On the other hand, it is not practical or fair or very advantageous to incorporate in the one investigation the moneylenders, licensed or unlicensed, and the macroeconomic argument with regard to credit. They are different investigations. They have different functions. One is the policeman's function. The other is the creative economists function. For that reason, while I express myself individually in support of each of the sentiments contained in Senator Higgins's motion, I am unable, at this stage, subject to what is said in the debate, to accept that the remedy proposed by Senator Higgins, that is, the establishment of a commission to investigate all these matters, has the urgency which is demanded by the unlicensed moneylender/availability of credit at an individual level. I do not think that will deal with that matter with the urgency which it deserves. It will not be in a position to deal with the other very important matters of the general economic function of credit on the one hand and the role of the banks in the economic life of the country in general outside the banking area. It cannot deal with all those matters simultaneously.
Suppose we had two commissions?
We would really need three commissions.
We have the Central Bank Bill coming.
The problem with regard to moneylenders is that it cannot wait for a commission. I will be interested to hear what the Minister will have to say on this matter and to what Senator Higgins will say in reply. The advantage of these motions is that we all learn as we go along and it helps to clarify our minds as to what the issues are. With more of a sense of duty than with any great confidence I will be pushing it to a vote. I propose the amendment.
The Senator loses the right to speak now.
Having listened to the debate it reminds me of the story of the person who was looking for the one-handed economist and when asked why he wanted a one-handed economist, he replied that he was fed-up listening to economists saying "on the one hand and on the other". I suppose the impetus for the debate came about because of a television programme which may or may not be accurate, or truthful, which may be misdirected and which may have been well documented; I am not too sure. There is no doubt in my mind but that there is a need for an addressing of the community towards moneylending in all its aspects.
Any of us who deal with people who have problems of living from week to week have seen the difficulties they can fall into by getting involved with moneylenders legal and illegal. It is not much use to me to listen to Senator O'Leary talking about the macroeconomic situation when we are talking about the poor person who has not got a penny in his pocket and then suddenly a saviour comes along and offers him £20, asks for a rate of interest which seems not to be too high, at least it will pay for the groceries this week even if that £20 would have to be paid for ten times over. Every week we come across people in the lower echelons of society who are involved with moneylenders. The problems created by moneylenders are passed on to politicians and social workers and community welfare officers who have to deal with the immediacy of the problem. Often people come to us in our clinics who cannot pay their ESB bills this month, who cannot pay for their groceries, who cannot pay anything. The reason they cannot pay is they have had to pay the man who knocked on the door looking for the interest on money that was borrowed many months previously, possibly to pay for the ESB bill that was overdue at the time.
The ESB, I must say have been dealing with people on a sympathetic basis in recent months. They realise that people can get into trouble. They have been dealing on a sympathetic basis with people who have large families so that they can provide heat and light at least in the house. The community welfare officers around the country are spending 90 per cent of their time dealing with problems associated with illegal money lending or, indeed, with money lending which is legal but which is excessive as to its interest. When one thinks of a legal rate of 39 per cent one can understand the problems that are created. The smart boys in the business say the interest rate is 39 per cent but, of course, one has to pay a service charge. One has to pay a certain amount of money to get the loan. In many cases this 39 per cent becomes 78 per cent and, as we have heard in many cases, it has gone up to 100 per cent.
People are not told how much they will have to pay back on each £1 borrowed. Interest rates are not something that people who go through primary school or who go half-way through secondary school are very au fait with. Interest rates, indeed, are not something that people who have gone through secondary school or who have gone through an arts course in college are au fait with. Many people who have gone to universities and are studying for a master's degree would not have a clue what the real interest rate being charged by the banks at present is. People should be told how much they will have to pay back per £1 borrowed, over how many months, so that they will know exactly how they will have to pay back. Forget about the rate of interest. The rate of interest does not matter in actual fact. It is the amount of money that a person has to pay back. If we are talking in economic terms the rate of interest is important but, to the ordinary man and woman in the street, if they borrow £1 and have to pay back £2, £3, £4 or £6 over so many months, that is all that matters. The Government will have to recognise that in large figures in the windows of every lending institution the interest rate is not the major thing that is being advertised. It is the number of pounds per months that has to be paid back per £1 borrowed. That is essential.
Senator O'Leary mentioned the fact that banks should not be involved in the risk business. Does he expect everybody in the economy to be involved in risk other than the banks? Every customer of the bank, if he is any good, is involved in a risk every morning that he goes into business. Does he want the banking community to stay out of the risk business? If they are going to stay out of the risk business their interest rates and their charges should be much less than they are. If they have no risk they should have a very much lower interest rate and they should have very much smaller charges. If there is risk in being involved in banking, then let there be high interest rates and let there be high charges. If Senator O'Leary had his way, they should have no risk, but their customers should have all the risk. That, to me, is crazy.
The Senator should look at the size of the bad debt provisions that are being made by most of these banks, even taking account of security.
Bad debt provision, even in the banking system, is the same as in every other situation in economic life in this country. They can write off their bad debts against their profits. At the end of the year their bad debts are written off against profits and they get a tax break on their bad debt provision. Their bad debt provision is a book figure which is balanced by the very fact that they are allowed by the Revenue Commissioners to offset that against their profits on a 100 per cent basis. Can any Senator provide me with the name of a bank who have not made a profit?
Credit Finance have made a loss.
One bank have made a loss. I would suggest that, therefore, this bad debt provision is a figure which is offset by the taxation system. I cannot understand why there should be an amendment to this motion, because nothing will happen about it anyway. The commission will not be set up, but it does give us an opportunity to discuss the relationship between the lending institutions and the borrowers. For that reason it is a very useful exercise.
Senator O'Leary said that the problems as between the moneylenders who are illegal and the moneylenders who are legal, whether they are banks or otherwise, are not different. Of course they are different. There is a different scale involved. Generally speaking, the people who get involved with illegal moneylenders are people of very limited means, who become involved because they have not got the means to feed themselves for the next week, or they have not got a bed, or they want to buy a pair of sheets. They find that the only way they can get them is to get into the hands of these moneylenders. What is frightening is to see the connection between these moneylenders who are illegal and banking and insurance businesses who are in the higher echelons of our economic society.
I would not like to see banking nationalised. I have absolutely no wish in the wide earthly world to see banking nationalised because I would expect that it would mean a structuring of lending that would be rigid and would be without a human aspect. For that reason I would sincerely hope that, for the foreseeable future, we can see a banking situation in Ireland which is free and which allows the borrower a certain amount of freedom within the risk taking that banking should involve.
I would sincerely hope that bankers would not be constrained, as has been said previously in the debate, on their lending, as they are now. In the past the local bank manager was the person who analysed and assessed. Ninety per cent of the assets of banks in this country have been built up by the dedication of local bank managers and the local information that they have, not by the macroeconomics that has been spoken of by Senator O'Leary. Because of the change in the banking system, where the computer at head office basically dictates the borrowing ability of a customer without going into the background of the customer and without going into the historical banking relationship between the customer and the bank, a bad day's work has been done. We have the situation now where there is not a bank manager in the country who, if there is a loan of over £5,000, does not have to go at least to his regional manager. When it goes over a certain other figure, the regional manager has to get on to the head office. In the past the local manager made decisions. These decisions built up the assets of the banks in Ireland to an enormous degree.
I am not saying we should turn our backs on the present economic situation in terms of the machines that are available. We should still make sure that the banks do not lose the humanity they showed in the past when protecting consumers. There are industries in this country which suffer because of bad banking. I am not saying there is bad banking on behalf of the bank, but there are bad bankers and there are bad customers. Consumers have often fallen between the bad bankers and the bad consumer of credit. There is a need for the Government to look at the banking system as a whole. I am not so sure whether the Central Bank is the proper analyser of what is good or bad for banking. The Central Bank is an instrument of Government. The Central Bank is not an instrument of business, of consumers or of banking. The Minister said that he would have a new Central Bank Bill coming through. I am not sure of the relevance of the Central Bank Bill to the debate which is going on here. All the Central Bank can do is regulate the overall demand for credit and analyse the overall limit to which credit can be given. Therefore, I am not sure, in the context of these motions, what relevance the Central Bank has.
It is interesting that today we have a note from the Irish Bankers Federation announcing the establishment of a new banking information unit, the Irish Banks' Information Service. It says:
Banking occupies a pivotal role in the economy as the conduit through which savings are channelled to industry, agriculture and other productive and exporting sectors.
That that role is often misunderstood is damaging not only to the banks but also to the economy at large. We confidently expect that the work of the IBIS, in providing factual objective information about banking, will make a positive contribution to an increased understanding of the banking industry.
It is interesting that we got that note today. It is interesting also to note that there is a note at the end of it for editors:
The Irish Bankers' Federation was established in 1973 when Ireland joined the EC, primarily to represent Irish banking interests abroad.
It did not say it was to protect the interests of the investor or of the borrower abroad. It said it was to protect the interests of the bankers abroad. Banking should be more open. The rates of repayment should be very well set out. If anybody enters an arrangement with a bank, whether it is on a credit or a debit basis, he should be told, very straightforwardly, in simple language, how much he will have to pay back or how much interest he will get if he lodges daily to a deposit account. He should be told if he will get more interest if he lodges monthly, or whether he will get more interest if he asks for his credit balance every day. He should be told whether he will get more credit if he asks for his interest to be added every day or if it is added, as the banks normally do, at the end of every six months period.
This motion gave us the opportunity to talk about banking, particularly about illegal banking, and about high interest rates being charged and high service charges being charged by illegal bankers. I am not sure where the debate will get us. I do not think either the proposition or the amendment will get us any place. If the Minister is going to use the Central Bank as the regulating system, the debate will have been of no use except to have a chat in a nice little club about the problems of the banking system.
The motion before us calls upon the Minister for Finance to establish a commission on all aspects of credit and its availability. It only asks for a commission. I cannot understand what Senator O'Leary was speaking about in his amendment. When he spoke he agreed with everything Senator M. Higgins had already said and he agreed totally with what is in this motion because it does nothing for the motion. The motion stands or falls as it is.
I would refer to the various aspects that Senator Lanigan noted. The Senator was frightened and worried that in the future the banks in Ireland could be nationalised. The situation as we see it, is that a nationalsied bank would be very good for the country. There is no reason why the Post Office cannot take on the banks and outdo them. Why should the situation arise where we have civil servants, members of the Garda Síochána and members of the Army queueing up outside commercial banks to have their Government cheques cashed? It is a ridiculous situation. Why should we have a situation also where commercial banks handle all of the county council money? Why should that not be handled by the banks instituted by the State — for example, by the Post Office?
There are various aspects of moneylenders, both licensed and unlicensed — I would rather go into the banking organisation later. When we look at the moneylenders Act of 1933 — we are now in 1986 — we have a crazy situation where one can get a licence for £100. That is a ridiculous situation to be in in 1986. One can form a limited company, give in a subscription of £100 and have a licence. One has then a licence to go from door to door collecting money from innocent people. What happens when all of this money is collected? What happens when the company gets into difficulty? What happens the peoples' money then? There is absolutely no control over it? We are talking about a limited liability company set up by an individual and his wife. They pay £100 and they start off a moneylending service. They canvass from door to door. We all know what happens then. We have people borrowing and the types of fees, rates and interest they are charged are outlandish. We see here that the rate of interest should be 39 per cent, according to the Act. The Act is being flouted left, right and centre. Nobody seems to bother about it. Senator O'Leary said it should be a matter for the Minister for Justice. If it is a matter for the Minister for Justice, what is he doing about it? In every new housing estate we have these people going around from house to house canvassing people. A very good system — I like it myself — is where you actually put away some money to pay for the major bills. But when you put away some money to pay for a bill of £100, and it cost £150 to pay for that bill of £100 then it is ridiculous and excessive. The Act prohibits the employment of canvassers. But, in effect, that is what is happening every day in the city of Dublin, in the country, in every town and in every housing estate. It is the poor who suffer.
Senator Lanigan referred to the community welfare officers. That is all one has to do — talk to the community welfare officers. Senator Higgins talked about St. Vincent de Paul and the social worker. Go and ask them what is actually happening to the poor of this country and how these moneylenders are getting rich out of the misery of the poor. They are worse than the drug pushers. They charge rates of up to 200 per cent interest. We have seen it on television. We know it happens. We have to do something about that straight away.
Would Senator Conway move the adjournment?
