I shall not be very long. I am glad this motion came before us. It addresses itself to a very fundamental and central area of life and one that is gilded over very often with far more glamour than it deserves. It is interesting, if I may make a small theological digression, that the single greatest difficulty that the Roman Catholic Church has in the area of papal infallibility has to do with the whole teaching on usury. A Pope at the turn of the millennium or sometime subsequently denounced usury in such categorical terms that it is very difficult still to justify an adjustment in moral teaching to allow money to be lent with interest. Consequently, many people feel that that Pope renders the whole teaching on infallibility somewhat dubious. Many other things which they have done subsequently would add to that——
Regulation of Credit Facilities: Motion (Resumed).
An Leas-Chathaoirleach
Is this relevant?
The Bill is about money lending, credit and so on. I find many things relevant that other people would not in these matters. I have said what I wanted to say. I was addressing myself to the whole question of the morality. Traditionally, in Western civilisation, there has been a question mark placed over the lending of money with interest. It has always been regarded conventionally as somewhat suspect and somewhat less than the proper behaviour of a proper Christian in Western civilisation. The most categorical reflection of that was that pope whose name escapes me.
There are far more aspects of money-lending. The legitimate lending agencies such as banks would deeply resent being categorised or even mentioned in a motion which also deals with other less savoury forms of money-lending. However, we do need to address ourselves to the motives and the values which motivate the whole financial services sector. The sort of lectures, arguments and difficulties which we have presented to us in the area of wage claims, claims to be compensated for the cost of living, which are usually based on appeals to our commonsense or patriotism or our sense of the common good are arguments which the financial services sector tend to believe they themselves are exempted from. We have the recent evidence of the fight of funds from this country because of the unusually high value of sterling relative to our currency and the possibility of a "Killing" being made in Irish pounds at some future date, related also to the high interest rates in Britain, and the necessity which then developed in this country for interest rates to be raised in order to entice back all that money or keep it within our country. The role of the financial services sector in the export of capital in a way which undermines this economy is one of the issues which a commission such as the one proposed in this motion should examine.
One of the images of the entrepreneur which this country has been saddled with in recent times is the brave individual who mortgages his house a second time in order to set up a small industry. Am I alone in finding something almost immoral in an individual having to put his family home at risk in order to start an industry? I do not regard that as some sort of model of entrepreneurial activity: I regard it as an appalling reflection on a society that a person who has an idea, who is prepared to risk his current secure career in order to develop that idea, is also given the additional burden of realising that if the idea does not work out his family's future security in terms of a home is threatened.
I find it appalling that people have to go to the extent of mortgaging their homes in order to persuade our excessively profitable financial institutions to lend relatively small sums of money. It should not have to be like that. The basis on which financial institutions operate ought to be changed so as to avoid that sort of penal imposition on people in order to secure a bank loan. I think it should not have to be like that. The basis on which financial institutions operate ought to be changed so as to avoid that sort of penal imposition on people in order to secure the bank loan. They all say that they are holding their depositors' money in trust and therefore they are obliged to do these things. Some of their recent adventures, particularly in the insurance area, would suggest to me that when it comes to the possibility of big killings and big profits the banks are quite prepared to take high risks but when it comes to the small individual trying to generate real work in manufacturing industry they tend to take a very different view.
We need to treat the whole area of the financial services as a unit and to somehow pretend that there is a fundamental distinction between the licensed moneylender and your local bank manager is to escape the essential reality that both of them are in the business of handing out money to people who would then pay a quite substantial price for having access to that money. I am not suggesting that bank managers and licensed moneylenders should be categorised along with illegal moneylenders, but the two areas are similar manifestations of one of the experiences of most people — that of having to ask somebody else for money that they need for necessities and which they have to pay for, over their lifetime in some cases.
On the other hand, illegal money-lending is probably one of the other cancers in our society which has spiralled in growth over the last ten years as people have experienced further hardship upon further hardship. "Today Tonight" in particular deserve to be congratulated for what they did to expose some of the excesses involved in that area. A commission to investigate the whole area of lending is more than overdue.
There are many other things that one could ask. For instance, the banks have a very tidy little business, amounting to something close to multiple millions in the area of bridging loans. There is hardly a loan made by a bank which is more secure than a bridging loan because the amount of cross guarantees they need between lending agency, solicitors, borrowers, etc. is enormous and yet they choose to charge the interest for bridging loans at the highest risk rate of interest. In other words, you are charged interest as if it was a high risk loan even though it is probably the least risky lending that the banks undertake. It appears to me that they know they have cornered a market, that they have a monopoly, in the area, that there is no way around it for most people and therefore they say: "Let us screw them for every penny we can get and charge the maximum rate of interest which we can impose within the law". It seems particularly cruel that this should be done at the expense of people trying to buy a house.
The glamourisation of lending and the trivialisation of the problem of repayment was particularly tragically underlined in the last 12 months by the case of a young person in Dublin who became entirely depressed by the scale of borrowing and eventually committed suicide and the coroner at the time attributed his suicide to an excessively easy lending policy followed by a particularly harsh imposition of terms for repayment by a particular bank. The whole area of dealing in credit, the whole area of holding money on deposit, the whole area of handling money which is to be lent to other people is far too important to be dominated by those whose primary interest is the maximising of profit, not by the creation of wealth but simply by the maximising of their own opportunities. There is no wealth creation in the financial services sector; it is simply a question of manipulation of other people's money and other people's needs. Therefore I welcome the motion and I congratulate the members of the Labour Party for putting it down.
When our group decided to put down this motion it was before the actual television presentation of the problem. When we decided to table it as an urgent matter for debate in the House events had taken place which ensured that it was imperative that the Government would address themselves to the problem of credit in its total perception, that is credit, whether it is by official lending institutions like banks, building societies, credit unions or any other agency which allows money to be given to people without an element of security or by the tragedy of money-lending as we know it. The Minister will know, as her constituency was mentioned particularly in the recent television programme, the devastation that can be caused by unofficial moneylenders or moneylenders that are licensed but are abusing their position to solicit further business and creating situations where people never actually get out of a debt situation.
My colleague, Senator Michael D. Higgins, presented the resolution, which is worded to establish a commission on all aspects of credit and its availability. I am sure that we are open in our view as to the type of legislative controls a commission would have. We will be listening with interest to the Minister's response.
We feel that the Government have a responsibility to set up some from of responsible body that can address itself to the problem outlined in the resolution. We know of legal moneylenders who charge over the proper rate and we know of unofficial moneylenders who charge anything they wish to people who are caught in a poverty trap — and there are people in the poverty trap through no fault of their own. We have unfortunate people, who presently would be termed deserted wives and in some instances deserted husbands, who have difficulty in proving to the satisfaction of the Department of Social Welfare that they actually qualify for benefit because of the technicality of determining whether the husband walked out on them or whether they were forced or battered out of the home and had to leave.
All these embarrassing questions are asked of people in that poverty trap who they find themselves with young families with no visible income. They are totally dependent on the supplementary welfare scheme which can be used at the discretion of supplementary welfare officers. One finds that the amount of money that a deserted wife with two or three children can get from the State is minimal and is not sufficient to sustain the family in frugal comfort, even in rural areas where it is possible to have access to fresh vegetables and so on. Moneylenders exploit that situation. They know of these people; they become aware of these people; they drive to their doors and offer them money; they offer them clothes for their children; they offer household goods and effects and so on on a deferred payment system which, if you are in need, seems a tremendous boon. If people want to buy clothes for their children and suddenly somebody appears on the doorstep with a legitimate book and suggests that they may have a pair of shoes for the child, or a dress for £1 a week, that is exactly how the person looks at it. Those items can never be paid for under the system of credit that the moneylenders give.
At Christmas time also they exploit in a most devious way unfortunate people who are subjected to all the barrage of advertising at Christmas time, especially in homes with no income and with children needing what they would consider as Santa Claus. Then "Santa Claus" arrives at the door suggesting that on the back page of the book they can have in addition to all the things already given on an easy payment system, a sum of £50 for Christmas, as if it was a gift. you find that the person over the next 12 months pays back almost £200 for the facility of£50 on Christmas Eve. There are people in my constituency and other areas also who are being subjected to that type of pressure by unofficial moneylenders under the guise of providing another service. Were it not for some of the non-statutory agencies, the voluntary bodies working in the field both at the social service level and at the level of St. Vincent de Paul, many of these people would never be able to get themselves out of their difficulties. One would never think that in 1986, with the social welfare system as we have developed it down the years, trying to improve and keep it at a level that has not been achieved even by our European colleagues, this situation could arise. There are other demands we are unaware of, things happen on the ground and create situations where people fall into this poverty trap. I am anxious that the Minister and the Department of Finance would address themselves to this problem.
It would be improper of us, as Members of this House, if we did not pay a special tribute to the whole concept of the credit union which has blossomed among us. These credit unions are offering credit at about 6 per cent, which is less than half the rate the commercial banks charge for credit. They do that in a very private way. They lend money to people to enable them to get themselves out of situations they got into. It is appropriate that they would be given credit for what they do. They do it at local village level, at branch level in towns and it is done on a voluntary basis. I would ask the Minister to look at areas in which she could assist the credit unions by creating some kind of fund which would enable them to employ more staff on a full time basis, because at that level of interest on loans they certainly cannot compete with the banking institutions as regards the number of staff they can employ or the office hours they are open. The more available that kind of credit is to people in the poorer categories, the more likelihood of the moneylenders being unsuccessful in his devious operations.
I have mentioned St. Vincent de Paul because I am aware in my constituency of the sympathy and understanding that tremendous voluntary organisation has shown for people who are literally without food or clothes and are hungry — and there are people like that in the country. Some people say it is their own fault and some cast aspersions on them. But there are people in difficult situations created by problems completely outside their control. It behoves all of us to ensure that they are assisted in every way possible.
The other change which has taken place, in the countryside especially has been the advent of the supermarket. The supermarket nowadays is demanding cash at the till for all purchases. The day of the family grocer, sadly, is on the way out. Formerly people could go to their family grocer and get a certain amount of credit for food. They paid for it on children's allowance day or on pay day or whenever they had money. There was a trust between the local family grocer and his customer; it was always there in our time. That day is gone. You have supermarkets in every town in the country with no interest whatsoever in people who are in difficulty. I ask the Minister, when she does set up a commission to ensure that every possible avenue is explored in trying to assist people who are in need and also those who are in the business of giving credit, particularly credit unions, which perhaps could be the answer to the problem if they were recognised for what they are in the towns and villages of Ireland. If we address the problem in that way we will root out these people who are guilty of the cardinal sin of exploiting people to such an extent that they get themselves into a credit situation they can never get out of. That is a tragedy for a country that was always responsible for its poorer people and always had a regard for their needs. I am sure that the Minister will assure us that that caring society is still with us in this electronic, technological age — the age of credit cards and the age of plastic money and all the other easy ways of paying for everything until the bill comes in at the end of the month. That is everybody's problem; it refers to us as well as to the poorer people. It is a system we must be conscious of and we must also be careful of it.
I thank the House for their response to our motion. Their contributions have recognised the problem as we all see it. I am sure the Minister has first hand information on it. I know she has probably been approached by people with this problem at her clinics. I know she has a commitment to try to do something about it. It is a pity also that particular politicians exploit the situation and boast about it on our national airwaves, which is unusual in the area we are talking about, because normally anybody involved in that area would want to shy away from publicity. Some of them were arrogant about the fact that they were giving a service to people who needed it, but in the process they exploited these people for everything they had. I am worried that, as Senator Ryan said, people can do desperate things if they find themselves unable to meet the normal bills for electricity and gas, food, clothes and all the basic essentials. We should address ourselves, as a Government and as a House, to this particular problem.
I am glad to make a contribution on this important subject. The Members who tabled this motion should be commended, all the more so when we hear, as Senator Ferris has said, that the motion was tabled before the recent exposure in the media. I would be inclined towards Senator Ferris's views also. Where we have a problem we want to solve we should first look to the structures which are there to see if we can deal with that problem, structures which have proved themselves. In this instance I would be making the case, like Senator Ferris, that we have the credit union which has done so much and is doing so much in this area. Much more could be done if more assistance were forthcoming from the Government.
While I agree with the motion in relation to the objective, at the same time I would feel somewhat unhappy with the commission because it is a long term project; there is a certain amount of bureaucracy and at the end of the day I am not too sure that most people have been satisfied when commissions have been held before. Nevertheless, I agree with the broad terms of the motion.
I must, like Senator Ferris, pay tribute to the recent media exposure on money-lending, especially by RTE. The media play a very important part. They are criticised very often—and rightly so—but in this area, where they do so much good, we should not overlook the positive side. On RTE, we have so many imported programmes, like "Dallas" and "Dynasty", which show an opulent style and an unchristian way of life and, many would say, an immoral way of life which is foreign to us. Many people are critical of and offended by these films, where violence is shown on our screens. We have a means here, through our TV programmes, to show our own way of life, the way of life we would want. If more money were made available to project the kind of image we want to project, this would be a great counterbalance. These programmes were educational. Perhaps more advertisements could be included on the national media. When I spoke earlier this evening I mentioned advertisements. I feel the best ones would be showing what transpired in actual situations, the problems people had and how they overcame them. People can be educated in this way, particularly young people.
Perhaps not so many young people were watching the recent programmes. They were programmes in which, by and large, they would have little interest. The schools have a large part to play in teaching thrift and a certain frugality which is necessary, a balanced approach to life. I am not preaching perfection but in Ireland there is too much drink and there is so much money spent on drink. People are poisoning themselves, by smoking and spending too much on it. Betting shops are making big profits. The unemployment problem is massive and we have related problems. It is very important that in our schools' civic programmes thrift is thought, how to handle money so that people will not be pushed into an embarrassing situation where they will have to borrow money at rates of interest far above the legal limit whether from registered or unregistered, legal or illegal moneylenders.
I believe that for people who get into this situation—I know of some of them and we all know of some of them—it is like a situation where they are sinking in a swamp and the more they try to get out the more they get involved. We all know the old adage, neither a borrower nor a lender be. The moneylender has made unreasonable profits. We have a tradition of borrowing. We are all aware of that. I wonder if it is the same in other countries. Would they have the same problems? I doubt it very much. It was the same situation back in my youth. I remember when I was going to secondary school in Kells there was a loan bank in the town and payments were made every Friday. It was one of my duties to bring in the money from people I passed along the five miles of the way, paying their money weekly. They borrowed something between £5 and £20, hardly any more than £25. The money was paid back at one shilling per pound per week. There was a certain amount of money taken out at the start and that was over 20 weeks. If they missed one week there was a fine of 3p. I remember that vividly. Those people had to get somebody to sign for them before they got the money. That money tided them over problems and, of course, the people who vouched or went guarantor for them, when a problem arose, coaxed and persuaded them and in that way, I suppose, helped them to pay back.
Even small farmers had to borrow. When people nowadays read in the papers what may be termed the fortunes which farmers leave in wills and so on in reality most of those farmers would be in a bad way. I recall that back over the years small famers had to borrow money to buy stock. they repaid it when the stock was sold and in that way they had a certain dignity, although there was no profit in it.
Of course society today is very changed from that time. There are many areas I could instance where this change is obvious. There are young people moving, for example, into local authority housing schemes. We see many problems there. People have no savings. We have seen where they move in and have no furniture. I know of one particular instance where, in a housing scheme in this city on a Sunday, the parish priest could not have his dinner. He was going around to try to get pieces of furniture to help people in that situation. When we criticise our priests and our clergy and religious of all denominations we should remember the important work they do in this area outside religion.
We have the problem in Dublin where people were moved out to the suburbs. As I said here before, it was a political decision. The reality of the situation was that in the suburbs it was possible with a certain amount of money to buy more land, to build more houses and therefore to satisfy more people. The unfortunate part of it was that these people were taken out of their own ground, their roots and their culture in the inner city, where the shops were close at hand, where they had friends and in-laws to call on. Sometimes a wife might not be a very good cook and they could call to their in-laws. When they moved out they were alone and adrift. There was no dignity there and they had to borrow.
In urban areas more than in the country there is a day to day way of life. The people live for the day. I agree that voluntary organisations have done trojan work. Senator Ferris referred to the St. Vincent de Paul Society. Senator Brendan Ryan referred to the suicides caused by financial problems, but equally tragic were the broken homes; and very often when voluntary organisations moved in it was too late. I often thought in many instances it was a case of keeping the rat's head over the water. It is not a very picturesque metaphor. Though it may not be very Christian to say it, it might be nearly better to let him sink and drown.
With regard to the credit unions, I would agree totally with what Senator Ferris has said. The credit unions have done marvellous work. They are doing it at present. I know from personal knowledge and experience in my own town of Kells. I am a member and I have a loan from the credit union. I know that when a member calls for a loan he or she is called in and given advice. Many people call in desperation, in tears, and many people are thankful to the credit union. Women have come in on many occasions on the point of a nervous breakdown, taking tablets, because the husband might not even know that money was borrowed. I have seen, even in my own town, and still see, an individual collecting openly for a lending agency.
The people themselves own a credit union and this gives them a dignity. They are pooling their resources. In Kells we have 2,500 members with a savings of £1,200,000. There are personal loans of over £900,000. This, as Senator Ferris has said, is not unique to one place. This is happening all over the country. When members of the parish borrow they are really borrowing from one another. The borrowing rate is 12 per cent on a sliding scale and the shares are ensured up to £2,500. If someone dies with that amount, £5,000 will be paid to the relatives of that individual after 55 years.
I could go into many more areas of the credit union — the voluntary work done by the directors and the supervisors, the weekly meetings, the trust put in young people, the trust put in everybody who wants to borrow because people are taken on their merit. It is the record over the years that matters not the big income or the big wage. The person is taken for what he is.
An Leas-Chathaoirleach
The Senator has one minute to conclude.
I meant also, if I had time, to pay tribute to Canon Hayes, founder of Muintir na Tíre, who did trojan work in this area. I mention him particularly because I am fortunate enough to come from the parish where he ministered first, the parish of Kilbeg where he did so much work in this specific area. Above all people, he brought dignity to the working people and to those who had nothing. In that parish his name is still remembered with gratitude.
Finally, it is desirable to give help to the credit unions. We must remember that no help was given to them over the years by way of tax exemptions. The new interest charged at present puts them on the same plane as all the other institutions. But here we have an institution that has proved itself, that is able to help, and it would be far more useful than a commission. It is in a situation where it is working and, like Senator Ferris, I recommend that the Minister consider giving help to the credit unions. It would be far better than the long term effects of a commission.
The motion before the House is very wide-ranging. It calls for a commission to examine all aspects of credit — its availability generally and to individuals and groups, long term credit needs, the problems of moneylending and the protection of the consumer, that is to say, the borrowing public. Not surprisingly, the debate has covered much ground and Senators have made several interesting points. I hope to deal with the more significant of them and to explain the Government's position.
I would agree with Senator O'Leary that this motion is drafted too widely. The proposed commission would be required to examine the macro aspects of credit, in other words the overall supply of credit in the economy, its allocation between the various economic sectors and the future requirements for credit. But, in addition, it would be required to consider what might be called the micro aspects of credit, that is the impact on the borrower or potential borrower. The commission would find itself switching from the great issues of the economy to the more personal issues, for the individual, of getting credit on the wrong terms or, perhaps, not getting it at all. These are important but they are of a different order of magnitude.
Senator Higgins seemed to want to tackle both facets. On the macroeconomic elements I would have to say that I do not at this point see a need for an official inquiry.
The last credit commission was established in 1934 and reported in 1938. This investigated the general system of currency, banking, credit, public borrowing and lending and the State's involvement in sectoral credit. A similar commission now would have to have similar broad terms of reference. At that time the institutional arrangements for regulating banking and credit were limited. In fact, the entire financial system was much less developed. The position now is quite different. We have the Central Bank, which licences and supervises banks and lays down monetary and credit policy. Among the general statutory obligations of the Central Bank is that of ensuring the welfare of the people as a whole in matters of credit. We have also a larger and more sophisticated banking system and financial markets operating in a more developed and diversified economy.
The level of credit expansion within the economy is set by the Central Bank by reference to the state of the economy generally. Senator O'Higgins talked about the general thrust of monetary policy. He specifically suggested that it should not be narrowly based but should contribute to a reversal of unemployment and to the growth of our productive capacity.
For the record, there is no Senator O'Higgins a Member of this House. My name is Senator Michael D. Higgins.
Thank you. I stand corrected. The fact is that monetary policy is directed towards sustainable growth. But short term factors, such as the level of the official external reserves, cannot be ignored without creating problems for the entire financial system. In the long run such problems would hamper efforts to create sustainable growth and employment.
I will reply to the word "selectively". It is an abusive term and is inaccurate in relation to my speech. On a point of order, I resent it.
An Leas-Chathaoirleach
Senator Higgins, I would prefer if you would wait until the Minister is finished.
In the past credit guidelines were directed specifically to ensuring that productive investment was given priority. In the 1986 Monetary Policy Statement issued by the Central Bank on 6 March, which the Senator selectively quoted from, it is clear that lending for productive purposes will continue to be encouraged. The document also made it clear that credit guidelines were no longer being used because there was no need for them. For a number of years now demand for bank credit from the private sector was below the level which the Central Bank had indicated would be acceptable. There is, therefore, no lack of credit within the economy.
In fact, the demand for credit has been limited due to general recessionary conditions. I believe that the recovery in economic activity now under way and the rapid fall in inflation will stimulate a renewed demand for credit. I hope that the banks will give priority in this situation to the needs of the productive, wealth generating sectors in industry and agriculture, both for investment funds and working capital.
I am well aware that different sectors and individual firms complain about the supply of credit, the level of interest rates, security and guarantees and the other general terms on which loans are made available. I am also familiar with the complaints about the lack of venture capital. I have never hidden my conviction that the lending agencies could and should do more to assist new businesses to get off the ground. It is not that we lack official support, through the IDA and tax concessions but there is a reluctance in this country to take risk, which is only slowly breaking down. I am not saying it is all the fault of the banks and, indeed, banks with their obligations to savers may not always be the best people to embrace new ventures. Irish business too has too much loan capital. We need new risk equity investment, through the Stock Exchange or outside it via special venture capital funds. In this regard, I have welcomed the establishment of the new Smaller Companies Market and to show his support for this development, the Minister has included in the Finance Bill certain changes relating to capital gains tax. I hope this new development will be very successful.
The point I want to make is that, unlike in the 1930s, we now have the institutions, the agencies and the developed financial system that enable us to operate monetary policy, to assess the credit needs of the economy and to provide for them. There is no lack of inquiries, reports and special interest groups. For example, in the industrial sector the financing of the traded sectors was investigated by the National Economic and Social Council in 1984. I do not see a need for another investigation into credit at this general level of the economy.
The main source of credit in our economy is, of course, the banking system. Within any overall guidelines on credit the banks decide on the allocation of funds. This means, among other things, that they must have due regard to the creditworthiness of the applicant. Depositors invest with banks in the expectation that the bank will use their money wisely and in a prudent way. This means not lending on a non-commercial basis. To do otherwise is not the proper role of a bank and would be an irresponsible use of moneys which are, in fact, the savings of the people. I was glad to be reassured in the debate that no Senator had in mind that banks or other lenders should be obliged to lend on any basis other than a commercial one. Yet it would be easy to draw the contrary conclusion from the remarks of both Senator Higgins, Senator Harte and indeed Senator Ryan.
Only by wilfully misconstruing of people by ignorant people.
Sustainable jobs will not be created by just throwing bank credit at ideas. The problems are more complex than that.
Patronising rubbish.
Senator Higgins also accused the banking sector of being too conservative, and of not taking enough risks to promote industrial growth. I would have to disagree with him. The increase in the size of the bad debt provisions being made by the banks in recent years is an indication of the risks banks carry.
Bush fires.
Senator Lanigan thought that the only reason for the rise in bad debt provisions was the tax advantage of doing so. That is not the case.
Rubbish.
Only specific bad debts may be set off and the Revenue Commissioners must be satisfied that they are genuine before they are allowed.
Senator O'Leary suggested that there is a need for a separate commission on banking. He instanced particularly a need to look at the expansion of banking in the future. I could not agree. There have been several reports on the banking system in Ireland such as the NESC report which I have already referred to. In our modern society we have several fora where these issues can be aired without the need for the establishment of a commission which would take time to report and might not add greatly to our existing knowledge. The Central Bank is, I know, concerned that banking changes should not harm the general welfare of the people, the banks' customers or their shareholders. The Senator mentioned the ICI affair. This case taught us a number of lessons and I know the bank is bearing them in mind in its supervision policy. Bank supervision is a dynamic matter which develops and responds to changes in banking organisation and practice. At present banking is changing very rapidly and supervisory authorities are having to react quickly and frame suitable policies.
In this regard, it is not correct to say that the expansion of the banks overseas is uncontrolled. Internationally, it is now accepted that the responsibility for bank subsidiaries or branches abroad lies with the supervisory authority of the parent bank in co-operation with the host country. I would also point out that, arising from an EC directive, regulations were made last year which require the Central Bank to supervise banks and their financial subsidiaries on a consolidated basis, a practice which the bank was already carrying our for several years anyway.
I would ask the Senators to bear in mind that banking internationally is undergoing great changes. We in this country cannot remain aloof from these developments. Banks, like other companies, must be allowed to grow and to expand, to provide employment and to give improved services to both agriculture and industry. This growth must of course be done on a prudent basis but I do not see a need for a commission to chart future policy in this regard.
I will turn now to the other aspects of credit covered by the motion. I called these the "micro aspects" earlier on but, on reflection. I suppose they are more the social features as they affect borrowers, primarily individuals. This is an element which all Senators have raised in this debate.
A feature of modern living is the change in society's attitude to credit, as Senator Fitzsimons underlined this evening. Whereas formerly individuals saved over a period of time in order to purchase goods, the tendency now is to look to credit to secure immediate satisfaction of one's needs. This change is a result of many factors, such as the rise in real incomes, the increase in people's expectations and the fall in the value of real savings in a period of high inflation. All of these changes have been associated with a significant increase in the demand for credit. In addition, credit institutions have changed their approach too and are now more willing to make credit available.
The results of these developments are that people are much more tolerant of relatively high levels of debt in relation to their resources and incomes. The lending institutions also are often less rigorous in the assessment of creditworthiness. Both parties tend to have a more relaxed attitude to borrowing and lending. Inevitably there are people who get too heavily into debt and who cannot meet their obligations. There are others whose creditworthiness just runs out. They become bad risks. And there are yet others in our community who simply do not have access to credit because they are part of the large proportion of the population who have no relationship with a bank or their social position is such that they would not be considered for credit. Such people may have serious problems and may be driven to fairly desperate solutions, including recourse to unlicensed moneylenders. All Senators are clearly concerned about abuses of moneylending and I share that concern. It is a fit subject for debate as an issue that affects the lives of quite a number of our more vulnerable fellow citizens. As Senator Ferris has pointed out, in my own constituency of Wexford we have a tragic record in relation to unlicenced moneylending as was ably highlighted in a recent media programme.
Moneylending has been the subject of much public discussion lately and some alleged abuses have been brought to light. The Government are concerned that individuals should be protected as far as possible. As the Minister for Justice has pointed out in the past, in reply to questions in the other House, the Garda authorities pursue all alleged breaches of the law in relation to moneylending. However, the Garda authorities face certain difficulties in investigating offences since the people making the allegations or the borrowers may be unable or unwilling to give information. Also the irregularities cited are not always criminal offences. For example, the charging of excessive interest is not a criminal offence. It is often thought that charges in excess of 39 per cent are illegal. The Moneylenders Act of 1933 does mention a figure of 39 per cent. However, this is in the context of a provision which allows a court, in proceedings brought by a moneylender for recovery of money lent to re-open the transaction and give relief if the transaction is adjudged harsh and unconscionable. The law therefore provides the remedy in the case of excessive interest being charged to the borrower. However, that remedy is in the hands of borrowers if they wish to use it, when moneylenders seek to bring civil proceedings against them.
The Government have an open mind on changing the law in relation to moneylending. The Minister for Justice has given an assurance that he will consider introducing any amending legislation which may be found necessary. However, as all Senators are aware, the moneylending abuses are part of a much more complex social problem and cannot be solved by legislation alone.
I recognise that for one reason or another individuals, especially the disadvantaged members of the community, may have problems securing credit or with the terms on which they can borrow. Their situation is not in all cases entirely hopeless. Senators Harte, Ferris and Fitzsimons drew attention to the important work being done by credit unions over many years. Credit unions are nonprofit making organisations, organised on the basis of a common bond of region, vocation or religion, for example. They are pre-eminently community self-help organisations. They provide a safe place for the savings of local people and assure them that should they need to borrow they will, as members, be eligible for a loan at reasonable rates of interest. The typical credit union is run by a managing committee elected from its own members. In this way the unions are responsive to the needs of their members and can provide a personal service. They are particularly valuable because their structure enables them to be of assistance to people who might be intimidated by larger and more impersonal financial institutions. Credit unions are widespread in Ireland, with over 470 unions and over 500,000 members scattered throughout the country. At the end of 1984 they had total assets of £270 million and outstanding loans of £216 million. I would commend credit unions as a real source of saving and borrowing in the community.
The Government recognise that borrowers, as consumers, may need protection. Several Senators, particularly Senator Lanigan, wanted more information to be given to borrowers.
The Central Bank has always exercised functions in relation to prices, restrictive practices and consumer protection in the banking sector. It has been instrumental in bringing about considerable improvement in the information banks provide to customers about the terms of credit.
The Government announced recently changes in the legislation governing prices and restrictive practices. There will be a streamlining of administrative practice by the amalgamation of the present bodies into two new fair trade bodies. The Government have decided also to end the special exemptions from the general law which some sectors of economic activity, including banking, enjoy. The Government propose to bring banking within the ambit of the general law on restrictive practices and consumer protection.
An order is being drafted under the Consumer Information Act, 1978, which will require all advertisements and notices that make reference to the cost of credit to show the true cost of that credit expressed as an annual percentage of credit granted. This will standardise the method of calculating the cost, the frequency of payments, plus the interest and other charges payable. It is hoped to present this order to the Oireachtas in the near future.
I might also add that work on a new Central Bank Bill is well under way in the Department of Finance. If the Minister for Finance considers there is a need to improve the role of the Central Bank in relation to consumer protection and related matters, he will include suitable provisions in the proposed legislation.
In relation to the access of women to credit there has been a perception that women have been treated unfairly by the financial institutions and have been denied fair access to credit. The Minister of State with responsibility for Women's Affairs is examining this problem in the context of the general question of implementing the UN Convention on equal treatment of women. Should any action be found necessary the Government will bring forward the necessary proposals.
I have indicated the areas where I see Government having a role. The major function of Government in a modern economy in the area of credit is to ensure that sufficient credit is provided, within the economic parameters, to fund sustainable economic activity and growth. The second function of Government would be to ensure as far as possible that credit is made available to those sectors where it can be put to the best use, in the overall national sense. For example, credit should be used primarily to finance production and employment at home rather than an unsustainable consumer import boom. But, in our system of private enterprise, Government must stop short of trying to do those things the market can do better. It is no part of the business of Government in normal times to allocate credit between competing interests or to direct bankers to give preference to particular borrowers, whether they are corporate or individual. If, as a matter of national policy, the State wishes to aid or give preference to certain interests or sectors, it has various means of doing so, for example, the IDA, the tax system, or grants.
Third, it is the duty of Government to hold the ring, to ensure that the weaker party can secure fair play and proper redress. That is what we are doing in the consumer protection legislation and the changes which we propose to make therein. That is the purpose of the Moneylenders Act. I will not pretend that people do not fall through the safety net. They do and some always will because, in the end, we are faced with the results of individual choice and individual decisions. We have to educate people and inform them so that each person will take the best possible decision in relation to his or her circumstances—the decision he or she can live with. This process should begin in the home, where the values of thrift and caution must be nurtured. The educational system has a part and also consumer groups, trades unions and, indeed, the financial institutions themselves.
This debate will have served a useful purpose if it brings home to people the risks attached to over-dependence on credit and the dangers of borrowing on onerous and harsh terms without taking proper account of the ability to repay. The peace and happiness of many people can be shattered by excessive recourse to borrowing.
I accept that there are important social aspects to borrowing. I want to assure the House that the Government are prepared to take whatever measures may be needed to correct proved abuses and to assist people who are genuinely trying to order their affairs prudently. Our approach is practical and realistic and the fullest consideration will be given to the points raised in this debate.
I would like to begin by apologising for the couple of occasions on which I interrupted the Minister of State but I am sure that the House will agree with me that it is very difficult to sit on one's seat and listen to one's remarks being systematically misconstrued and indeed being misrepresented. I would also like to welcome the Minister of State to the House. It is good to see women rising to the office she has and I congratulate her on that. Unfortunately, listening to her speech has made me more convinced than ever of the need for this commission. Let me state again the simple principles of the resolution which is in the name of the Labour Party Members in the Seanad. It called on the Minister for Finance to establish a commission on all aspects of credit and its availability.
Despite the mish-mash that is contained in the Minister's speech, there have been many commissions on credit, one of which is referred to in the Minister's speech, the 1934 commission. Some of the fundamentals of this commission are misconstrued in her speech. It said on the question of availability of credit "such a commission to address itself, inter alia, to the problem of moneylending”. Yes, indeed, there are two aspects. There is the question of the present abuses. A specific question was put by me when I moved this motion. If the law is adequate why are the cases which were reported in Galway last year not being proceeded with? The Minister for Finance sat where the Minister of State is now and his officials took note and yet I am asked to wind up this discussion on this motion without an answer to that question. The people who are abused by the moneylending system, by the inadequacy of the law, by the slowness of the procedures are entitled to an answer to that question.
The speech was in itself, when it was not abusive and misconstruing remarks made in the House, curiously evasive in practically every substantial matter of the motion. It did not answer even that small question. To move to another matter, it fudged the issue of the relationship of women to credit. As someone interested in the rights of women I find it offensive it is so bad. It states:
In relation to the access of women to credit there has been a perception that women have been treated unfairly by the financial institutions and have been denied fair access to credit.
Is it true or is it not? What is the opinion of the Minister for Finance? I am an elected Member of this House seeking his opinion.
The Minister of State said the Minister of State for Women's Affairs is examining this problem in the context of the general question of implementing the UN convention on equal treatment of women. I congratulate the Minister for Women's Affairs. I am a member of the Committee for Women's Rights which is trying to do the same thing. The Minister of State also said, should any action be found necessary the Government will bring forward the necessary proposals. What is the reaction to the evidence offered in this House of the refusal of access to formal credit by women and the results it had in forcing women to go to less than the formal sources of credit? It is evaded by the high minded people who wrote this mish-mash of reaction, ignorance and evasion that I have just listened to.
I have just listened to a little lecture as to what should be the question and what should be the subject matter of a commission; because you decide that there are two aspects to the work of the commission as it is proposed, the overall supply of credit and the particular deficiencies in the laws available now. I know that. I would hardly have worded the motion the way I did if I had not adverted to that very reality. The only satisfaction I have got is that both points have been ignored. I find entertaining — I will come to that in a moment — the manner in which the provision of money from public taxation to the IDA is neatly confused with the supply of credit to Irish industry, which is a notion on which I would fail a first year economic student of mine in first term at university.
Another aspect of this motion is that it called attention to the question of people who are licensed charging above the rates. I asked in moving the motion and other Senators have also asked, for a resolution of the question whether people who are charging service charges above the 39 per cent are or are not breaking the law and if they are breaking the law, how will the law be amended? We got no answer.
The motion also incorporates a review of the provision and curtailment of credit in different circumstances and to different groups by the commercial banking system and that it reviews the long term requirements in relation to credit of vulnerable groups, individuals and businesses. I referred in my speech to the stop-go policy of supplying credit for the purchase of agricultural land which every economist in this State knows had the result of inflating the price of agricultural land in the seventies. That issue is not addressed in the reply. In fact this speech could have been written by the more rabid PR section of the most chancy bank in the country. I had in mind here the differences between people who need priming capital to establish a venture and people who need it after the venture has been established in the first few years and so forth. Let us have a rational discussion about that. Instead of that we got a semi-hysterical rejection of reasonable arguments that were put forward. The motion finally stated that the commission be empowered to review any such matter as it shall deem appropriate for the pursuance of its objects. I am moved, having listened to the reply to this debate, to, in fact, insist on it being put before the Seanad and it will be my intention, if necessary, to call a vote on this motion. It is a very important one.
I want to say, and I say so very unemotively, that I take exception to the reference that I quoted selectively from documents that had been published by the banking system. If I made such an allegation in this House I would substantiate it. It is not substantiated in the speech we have just heard. I would require proof of it. I find it quite disgraceful and cowardly to make such a remark. The Minister of State said that a similar commission now would have the same broad terms of reference as the commission of 1934 which reported in 1938. Is anybody trying to tell me that the credit requirements of the economy in 1985-86 are similar to the ones of 1934-38? The whole experience of Irish business in every aspect of it, farming, small businesses, major businesses and so forth, is that the supply of credit is very limited. Where is the response to my arguments about the short time span of the banking system? There was no reply to that. Where is the reply to the question about the collateral required by the commercial banking system? Where is the reply to all the comparisons made to the European credit philosophies and systems? They were all ignored in favour of a semi-abusive rejection of arguments made by Senator Harte and I.
The Minister of State said:
Senator Higgins talked about the general thrust of monetary policy.
The language, the way that remark is made, tells you a lot.
he specifically suggested that it should not be narrowly based but should contribute to a reversal of unemployment and to the growth of our productive capacity.
Let me repeat it for the dense. Let me repeat it for those who chose not to understand. What I am saying here is that an objective record of bank lending policy, opinions I quoted by a former Member of this House, including Senator T.K. Whitaker, suggested that there was an excessive availability of credit and finance from the banking system for speculative ventures rather than productive ventures in the Irish economy. I repeat that it was available for speculative ventures rather than genuinely productive ventures with employment creation aspects. I did not want to be proved right by the debacle of people who suggest — I ask the House to bear it in mind — that a bad debt provision by a banking system is supposed to be its credit policy. The bad debt provision by a banking system, which includes a major bank that invested in bush fires, the relegation of football teams, the collapse of airlines, all those daft things that would not be taken by anybody else — the whole conglomerate of these kind of bad risks is supposed to constitute a credit policy. It would be laughable if it was not coming from officials within the Department of Finance. It is disgraceful as a comment within the banking system.
The 1986 monetary policy statement issued by the Central Bank on the 6 March is the one I am supposed to have selectively quoted from. The Minister of State also said:
...it is clear that lending for productive purposes will continue to be encouraged. The document also made it clear that credit guidelines were no longer being used because there was no need for them.
I repeat my remark. I would like, when the Minister for Finance or whoever stands in for him comes in to this House, that they have the courage to say where I selectively quoted from this document. The document is in the Library of the House. It is a nice cheap little reference, trying to suggest that the old-fashioned people who are trying to resurrect the corpse of old-fashioned credit policy are speaking for some kind of orthodoxy and that the rest of us have no knowledge of economics. I was lecturing on credit and the history of economics before the Minister for Finance was heard of in politics. There is this statement by the Minister of State further on that the 1930s exhausted the capacity of the Department of Finance for a credit commission. "My God" is all I have to say to that.
The Minister of State also said:
There is no lack of enquiries, reports and special interest groups. For example, in the industrial sector, the financing of the traded sectors was investigated by the National Economic and Social Council in 1984. I do not see the need for another investigation into credit at this general level of the economy.
It will be news for the people who work in NESC that that particular report constituted the equivalent of a commission on credit. I will come back to the House and offer them their opinion on that kind of a remark.
I want to make the following point very clearly. The Minister of State said:
The Senator mentioned the ICI affair. This case taught us a number of lessons and I know the bank is bearing them in mind in its supervision policy. Bank supervision is a dynamic matter which develops and responds to changes in banking organisation and practice.
What does this mean? "This case taught us a number of lessons". It taught the citizens that they would have to pay. It taught the banks that they could go back to the Government to bail them out Then it is represented in a Department of Finance prepared document that bank supervision is a dynamic matter which develops and responds to changes in banking organisation and practice. This, I suppose, could be kindly construed as saying that even the most stupid of speculative fools may learn sometimes and change their practices. But to put it into a speech to Seanad Éireann, replying to a motion calling for a commission on credit and for a review of banking policy, is asking us to accept too much. Banks, like others, must be allowed to expand and grow.
The Senators who put down this motion knew exactly what we were doing. We knew the difference between a charitable institution and a bank. We simply said there are numerous abuses taking place at the moment. We asked that a commission be set up. May I give a practical example of the reason for short term abuses. The people who are being charged over the rate by legal people, and who are being abused by illegal people, have said that if such a commission came into existence they would travel and give evidence before it when they would not give evidence locally. Equally, we looked at the question of what was a charge and what was the interest rate. We looked for clarification on that. The law needs to be changed.
We looked at the question of selling in kind through commodities and the building of an interest component into it. That needs clarification. We wanted a response as to how the law will be changed to remove the social blight of all of this illegal activity. I reject the daft notion, based on some concept of original sin, that says "If only individuals were more canny and not spending too much and if they were not influenced by consumerism and so forth." One Senator after another in this House said that when children are coming up to first communion, when people move into a new house in a housing estate, they are not mindless, daft consumer, mad fad buyers. They are people under enormous pressure from the wrong kind of society to look after their children and to buy things they badly need.
The second set of purposes referred to in our motion addressed the fact that the country is teeming with people with ideas and an anxiety to work. We simply said: is it not reasonable to ask a commission to anticipate the needs of agriculture over a long period of time, the needs of small industries, the needs of industry, to look at the credit policies in other European countries, to say that you will accept an idea, a piece of technology, that you will change the time span for investment, that you will change your concept of collateral? This is not asking the banks to be a charitable institution. It is asking them to change their conceptions of themselves from being glorified old-fashioned money banks within the concept of British banking into being modern day credit institutions. As long as we have this kind of thinking, when the banks PR can find its way into Seanad Éireann in response to a motion that was well meant, it fills me with depression.
I must say, as a citizen and as a taxpayer, I find it offensive that speculative ventures, nationally and internationally, can receive credit on better terms over longer periods with less security than genuine productive ventures. I challenge this point. Where in any published account of an economy is the bad debt provision of a banking system accepted as the main core of its credit policy? The bad debts from the bush fires, the relegated football teams, the collapsed airlines and all the buildings which blew up which nobody else would take — Ireland's banking credit policy. I believe that there are productive ventures. We need to have credit available for them. Certainly, let us have a mix of credit, credit available through the banking system, soft loans, the whole question of grants-in-aid, depreciation allowances and so on.
I suggest that from 1934 to 1986 is a a reasonable length of time. There are enough messages coming out — not from socialists but from the Confederation of Irish Industry, from small farmers, from the Irish Farmers' Association, from consumers' banks and so forth to have a commission that will look at the overall supply of credit and will immediately, when it starts its work, dispose of the abuses in relation to moneylending. People are concerned that a commission would take too long. It is my view that a commission would afford the privacy that different people, like the St. Vincent de Paul Society and the credit unions, are telling us is necessary if people are to come forward and give evidence of abuses. Equally there are commissions, including the Whitaker Commission on the prisons, which was established quickly, met quickly and produced a report quickly, and gave us a very fine report.
I end with a plea. Credit is something and economy is something that is within the understanding of our citizenry. If it is not within the understanding of our citizenry we will fall into a backward dilapidated economy that will never supply the growth we want. There is one word which is attachable to this motion. It is all about one thing. It is about accountability. It is saying that credit, the supply of it to different sectors in different circumstances, short term and medium term, should be accountable to a public policy in Ireland. The people who do not want this motion want to continue the worst kind of accountability that exists in Ireland at the present time, the non-accountability of the credit system and specifically the banking system within it.
Is the amendment to the motion withdrawn?
Yes.
In view of the amount of time available to us may I suggest that we suspend the sitting until 8.10 p.m. so that I can get the Minister and continue the Committee Stage of the Health (Amendment) Bill.
Is that agreed?
Yes.