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Seanad Éireann debate -
Tuesday, 9 Dec 1986

Vol. 115 No. 5

Building Societies (Amendment) Bill, 1986: Second Stage.

Question proposed: "That the Bill be now read a Second Time."

Building societies have been the subject of increasing public attention in recent times. The present Bill is a particularly timely one, I believe, and it deals with several issues which have given rise to some criticism of societies from their members and the public generally. However, it is not a regulatory measure only; it includes a very important provision which will have the effect of giving societies an opportunity to expand the range of services they may offer and it makes a new provision for a consultative group on matters affecting building societies.

Before going on to discuss them in more detail, I will list briefly the matters dealt with in the Bill:

Societies will be empowered to provide loans not secured by a mortgage, subject to regulations. Bridging finance will be the first form of such lending to be permitted but other appropriate types of loan may also be considered;

Tiered rates will be prohibited on loans taken out before 1 August 1986 where a society did not apply such rates on that date;

Tiered rates will also be prohibited in the case of all loans taken out on or after 23 October. However, this will not take effect until some six months after the Act has been passed to allow societies to adjust their investment rate structures as necessary.

The Minister will be empowered to prescribe rules for societies regarding the following:

(a) prohibiting or restricting the charging of redemption fees, a practice which I believe to be fundamentally unfair;

(b) the making available of valuation reports to the borrower, who is required to bear the cost;

(c) the right of the borrower to insure the property with an insurer and through a broker of his or her choice;

(d) precluding or restricting a society from passing on its legal costs in the investigation of title, so that the borrower will have to pay only one set of legal fees;

(e) the arranging by a society of mortgage protection insurance through an insurer or intermediary nominated by it.

Provision is made for a faster procedure for the coming into effect of rules prescribed under the Building Societies Act, 1976, in relation to the appointment, remuneration and removal of the boards of directors of societies.

A Building Societies Consultative Council is provided for — this replaces a somewhat similar provision of the 1976 Act. Finally, two technical amendments to the 1976 Act have been included, the purpose of which I will refer to later.

Senators will be aware of the winds of change that are now blowing through the financial marketplaces of the world. All areas of the financial services industry are going through a period of rapid change as new technology, deregulation and ever more intense competition make their impact felt.

This scenario of change and development can be seen on many levels. In a worldwide context, the question of trade in services is one of the major areas to be dealt with in the new round of talks on the General Agreement on Tariffs and Trade. At EC level, the member states have committed themselves to working towards the completion of the internal market by 1992, and in that context discussion has commenced at working party level on a draft directive on mortgage credit. In Britain, there has been not only the much publicised "Big Bang" in the City of London, but, of more direct relevance in the present context, the enactment of a lengthy and comprehensive new Building Societies Act.

The new British legislation not only greatly widens the range of activities in which societies can engage, but will also empower them to operate subsidiaries abroad. This, together with the EC draft directive to which I have referred, means that Irish building societies can expect, in the years ahead, to face the challenge of increased competition in their home market and to have the opportunity for potential new markets abroad for their own services.

In this context of rapid change, and having regard also to public concern about some building society practices, an interdepartmental committee was established last year to look at a wide range of issues affecting societies. It made recommendations both in relation to the types of practice giving rise to criticism of the societies and, in a wider context, on the types of change in the legislation governing societies that would enable them to continue their development in the years ahead to the advantage of their borrowing and investing members and of the general public.

Following consideration of the committee's recommendations, I published a discussion document which was circulated to interested parties, from whom I requested, and received, written submissions. The document itself, together with these submissions, is the starting point for consideration of the future legislative framework within which societies should operate. I emphasise, as I have done in speaking to the societies themselves, that it is a starting point, and not the last word. If a strong case can be established, for example, for powers wider than those recommended, I will be prepared to listen and to give due consideration to the weight of the arguments on each issue.

It will be clear to Senators from my remarks that I see the present Bill as a first step only; further legislation will be required and will be brought forward. However, before embarking on the major task of developing wide-ranging new measures — a task which with the best will in the world cannot be accomplished overnight — I was anxious to deal with some of the areas in which the societies have, justifiably, come in for a degree of public criticism. I was disappointed to find that, despite my open attitude on the question of wider powers, which I have just outlined, the main societies were not prepared to co-operate with me by introducing a voluntary code of practice in relation to the practices in question. For this reason, I have found it necessary to bring forward the present short Bill.

Senators will also be conscious of a further reason for the introduction of the Bill. I refer to the move by a major society during the summer to introduce tiered mortgage rates. It was bad enough that this society — which for so long had operated most successfully without recourse to tiered rates — should have taken this step at all, particularly at a time when one might have expected the trend to be away from tiering, but what made it particularly unacceptable to me, as to the members of the society affected, was the application of the change to existing loans.

Borrowers, who had chosen the society in many cases for the very reason that it did not operate the tiered system, found that the rules were being changed in the middle of the game. I considered this to be unfair; I said so, and I am dealing with the matter in the present Bill. I was strengthened in my resolve to proceed with this measure when I was informed by the society in question, in the course of a meeting with the Irish Building Societies Association, that a board decision to introduce tiered rates had been taken six or seven years ago. I find it extraordinary that no notice of this decision was given to members generally or those members who borrowed from the society subsequent to that unpublicised board decision.

I now propose to fill in a little more detail regarding the various measures contained in the Bill. Section 2 makes a quite radical change in building society legislation by redefining the term "society" as used in the Acts. In addition to the purposes of raising funds from members for the making of mortgage loans, societies may have the further purpose of making loans with or without security in accordance with regulations made by the Minister under section 3.

Section 3, then, obviously follows on from this new definition of a society and provides the power for the Minister to make regulations, with the consent of the Minister for Finance and after consultation with the registrar, setting out the purposes of and the conditions — other than the rate of interest — for loans not secured in the traditional way by a mortgage. The Minister is also being empowered to make any consequential changes to the Act that may be required as a result of regulations governing new types of loans. Such regulations will require a positive resolution of both Houses.

Subsections (4) and (5) of the section, which were not included in the Bill as originally published, would enable the Registrar of Building Societies to give a direction to a society or societies prohibiting the making of the type of loans covered by this section. The registrar in deciding to use this power, is to have regard to the criterion of "The Orderly and Proper Regulation of Building Society Business", an expression which occurs frequently in the Building Societies Act, 1976.

I intend to use the new powers under this section to enable societies to provide bridging finance. In a submission to me on the discussion document, the Irish Building Societies Association indicated that, and I quote:

There is no reason why this finance should not be offered within the building society system, and at a substantial cost saving to the house buyer.

Other areas of lending will also be considered — home improvement loans would be an obvious possibility.

I must say I am somewhat mystified by the approach of the Irish Building Societies Association to this question of new lending powers. In the submission from which I have just quoted, dated May 1986, they express a willingness to offer house improvement loans at a substantial reduction on the banks' interest rate. In a more recent submission, however, they proposed that the Bill should be amended to confine loans under this section to bridging finance. Societies outside the association have, however, expressed an interest in forms of lending other than mortgages and bridging finance. Any regulations made under the section will, of course, be permissive, that is to say, societies will be under no obligation to avail of the new lending powers.

Section 4 deals with tiered interest rates, a tiered rate being defined as a rate greater than the lowest one available to members of a society generally and which is determined by reference to the size of the loan, the amount outstanding or the income of the borrower. This latter element has been included in the definition in case societies would otherwise be tempted to use the criterion of income to replace their existing system of tiered rates.

Tiered rates will be prohibited in the following cases:

Where the mortgage was created before 1 August last and a tiered rate was not being charged in respect of the loan on that date; and

Where the mortgage was created on or after 23 October — the date of publication of the Bill.

In the latter case, however, for a period of some six months from the passing of the Act societies will be permitted to continue charging tiered rates on the loans. This is to give them a chance to review their interest rate structures to take account of the prohibiting of tiered rates on the lending side. Once the six months are up, however, a tiered rate cannot be applied to any loan taken out after the Bill was published. This spells the end of tiered rates on new loans.

Section 5 provides that a borrower who is charged a tiered tate in contravention of the preceding section has the right to recover whatever excess amount he may have paid. Furthermore, a borrower cannot be held to be in contravention of his mortgage contract if he refuses to pay any excess amount demanded by a society charging a tiered rate contrary to the provisions of the Act.

Section 6 is a key section in the Bill providing, as it does, for the making of regulations by the Minister in relation to several building society practices. Rules prescribed under this section will come into effect one month after the commencement of the regulations.

The prohibiting or restricting of the charging of redemption fees is the first matter regarding which rules can be prescribed under subsection (1) of section 6. This practice of charging a penalty which may be up to several months interest to a borrower who wishes to repay a loan early strikes me as very unfair. I have not been convinced by any of the arguments I have heard in favour of the practice, and I know that borrowers will warmly welcome the regulations which I will make in this regard.

A valuation report on the property being mortgaged is required under section 79 of the Building Societies Act, 1976. As many Senators will be aware from their own experience, societies have operated the frustrating practice of charging the cost of this report to the borrower while refusing to give him or her sight of the report. The Restrictive Practices Commission recommended that an order should be made in relation to this practice but, instead, I propose to deal with it under the present Bill.

Another matter on which the Restrictive Practices Commission recommended action is the practice by societies of requiring borrowers to insure the mortgaged property with an insurer nominated by the society and through the agency of the society. Regulations can be made under this section removing or restricting the right of a society to insist on a particular insurer or intermediary.

One of the areas in which societies come in for particular criticism is that of the legal costs of house purchase. Contrary to the practice elsewhere, Irish building societies insist on having title to the property being mortgaged examined by solicitors nominated by the societies from quite restricted panels. The fees for this examination of title are charged to the individual borrower, who has also, of course, his own legal fees to pay. Under this section, I will be in a position to prescribe rules precluding or restricting societies from passing on their legal costs to the borrower.

Rules can also be prescribed under section 6 in relation to the arranging by a society through an insurer or an intermediary nominated by it for the provision of mortgage protection insurance. Such arrangements have been made in relation to publicly funded house purchase loans and I believe they can be very worthwhile from the borrowers' point of view.

I must point out that extensive powers to prescribe rules are already conferred on the Minister under section 10 of the 1976 Act; the powers in section 6 of this Bill are in addition to those already in existence. However, under the procedures in the 1976 Act, it would take a lengthy period before the prescribed rules could come into operation. For this reason, I have added a section, section 7, to the Bill to expedite the coming into operation of any rules to be prescribed under the 1976 Act in relation to a particularly important area, that of the appointment, remuneration and removal of the boards of directors of societies. This is an area of the operation of societies that has been the subject of much comment and I believe it is one in which there is considerable scope for improvement.

Under the new procedure, the registrar will notify a society within one month of the commencement of the regulations if its rules are not consistent with those prescribed. The rules will come into effect three months after the commencement of the regulations. A society will have a right of appeal to the High Court before the expiration of that three months period and, where the appeal fails, the rules will take effect from one month after the date of the court's decision.

Sections 8, 9 and 10 have also been added to the Bill since it was first published.

Section 8 provides for the establishment of a Building Societies Consultative Council which will have a duty to advise the Minister on matters referred to it by him and a general right to advise on matters affecting building society business. This section replaces section 96 of the 1976 Act, which is being repealed. The essential differences between the two sections are that there is no specific limit on the number of members and no specific bodies or organisations are referred to in the new provision. Under the 1976 provision, there was a limit of nine and specific reference was made to having representatives from the Departments of the Environment and Finance, the registrar, the Central Bank and the Irish Building Societies Association.

I believe that, in view of the rapidly changing situation in the financial services area, to which I have referred, it is better to have a more flexible provision to enable the Minister of the day to decide on the size and composition of the council which is most appropriate to the prevailing circumstances. The committee provided for under the 1976 Act was never, in fact, appointed. It seems to me that the appointment of a body truly representative of societies and other interested and competent parties would be particularly appropriate now and that is why I have decided to up-date this provision.

Sections 9 and 10 were originally included in the Housing (Miscellaneous Provisions) Bill, 1985. Since they are clearly more appropriate to the present Bill, I have decided to insert them here and to have them deleted from the Housing Bill on Committee Stage.

Section 9 amends section 12 of the 1976 Act. The purpose of the amendment is to allow the registrar the same discretion in relation to the registration of alterations to the rules of societies as he has in registering the rules of societies in the first place. Under the 1976 Act, the registrar had to register alterations to rules once he was satisfied that they were in accordance with the Acts. This amendment would enable him to reject an amendment which he considered would be prejudicial to the orderly and proper regulation of building society business.

Section 10 amends section 22 of the 1976 Act by providing specifically that societies may borrow abroad. Societies have, in the past, borrowed money abroad under the existing provision, but this wording puts it beyond doubt that societies have this right. It also provides for appropriate control of such borrowing by requiring the authorisation of the registrar with the consent of the Minister for Finance.

Building societies have become very important institutions in our national life to which they have made a major contribution by enabling so many people to achieve the goal of home ownership. They can be justly proud of their achievements and it is right that we should acknowledge them. As legislators, we have a duty to ensure that they operate within a framework that will enable them to continue and to enhance their contribution to the general wellbeing and we also have a duty to ensure that their practices, which affect the lives of so many people in so fundamental a matter as housing, are just and reasonable. The Bill is, as I have said, a first step on the road to a comprehensive review of building society legislation. It is an important Bill, and I commend it to Senators.

The objectives of the Bill, according to the Minister, are the protection of mortgage holders and the elimination of objectionable practices and also to secure the future for building societies and to regulate and encourage them to do some of the things one would expect in normal market conditions. I have great doubts about this Bill and cannot see it having any major beneficial effect on the operation of building societies except perhaps in a negative manner and I cannot see it being of any real benefit to the consumer.

The building society movement has been serving the people of this country for many years. In general these societies have done a good job throughout times of economic growth and they are still doing a good job in times of economic stagnation. The societies are a major contributor to the economy representing as they do over 120,000 mortgage holders and approximately 800,000 depositors. Ireland has one of the highest percentages of home ownership in the world and this could not have arisen were it not for the vibrancy, good management and aggressiveness of the building societies.

Much has been made over the past few months of the amount of money being spent by building societies on advertising. I am not sure there is a need to advertise as much and as often as they do and I often feel that the main beneficiaries of the advertising hard sell are not the advertisers — in this case the building societies — but the companies producing the advertisements and also the people who relay them either on TV, radio or in the newspapers. We hear criticism of advertising by building societies from people who are very slow to criticise companies in the supermarket or food distribution area. Money generated from advertising by building societies is used for the benefit of the societies and the benefit of the Irish economy, whereas quite a large proportion of the money used by supermarket groups in advertising is used to sell non-Irish goods or to persuade people to buy non-Irish goods.

In saying that building societies are major contributors to the Irish economy I mean this in a real sense. There is not a house builder in the country who has not benefited from the operation of building societies and, indeed, there is hardly a building tradesman or a general operative in the building industry who has not had a major part of his income over the years generated by the loans which have come from building societies. The State has quite a good record in the provision of finance for house purchase through its Department of Environment programmes of local authority house building, through SDA loans and HFA loans. A combination of State funding for house building and private funding from share-holder's funds from banks and building societies is very necessary if we are to provide on a continuing basis adequate housing for our people.

There are inadequacies in the operations of all means of providing housing and there is no one who could suggest that improvements could not take place in the operations of the building societies. This Bill does not address the societies and their operations for the right reasons or in the right areas.

Many comments have been made about the differences in management costs between the companies and the building societies and questions have been asked about the remuneration of directors and the expenses they receive. If we check out the remuneration of people in the building societies it is clear that it is not enormous by financial institutions' standards. The maximum quoted by Deputy Yates in relation to one of these people was £35,000 a year. If we cannot afford to pay £35,000 to a full time director of a company and if we consider they are not entitled to be paid £35,000 a year, it is time the rest of us left the country because, if we are not prepared to pay for good management, those people will not stay in the country. There is a mood abroad that people should not be paid for doing a good job. It is about time we forgot that and tried to pay people to do the job. We will have better standards of management and if the Senators and TDs were paid a bit more we might get a better standard of TD and Senator although I am not criticising the present Members.

An Leas-Chathaoirleach

We have good TDs and Senators but they are not properly paid.

People compare remuneration and expenses of directors of building societies with normal financial institutions but there is a major difference. No director of a building society can hold equity in a building society because there is no such practice. They are merely paid their salaries and expenses due. They cannot pass on shares in a building society in the same manner as directors of banks pass on their shares. The only interest that a director can have apart from his salary or expenses, is from a deposit account and he gets the same rate of interest as any other member of the public. There is not direct similarity between the remuneration of directors of banks, finance houses and the remuneration of directors of building societies.

The Bill does nothing to help either side of the equation in relation to the better running of building societies for the benefit of depositors or mortgage holders. We must attempt to protect the overall interest of the people in relation to building societies. There is a possibility, on the passing of this Bill, that there will be benefits to certain mortgage holders through the abolition of the tiered system but, equally, there is no guarantee that the income lost to the societies as a result of the abolition will be absorbed in saving in the running of the societies. I will be happy to see the abolition of the tiered systems of interest rates in all financial institutions, including banks, as the benefits of tiered systems go to the larger borrowers and depositors. In the case of tiered interest rates, there is absolutely no doubt that borrowers from banks suffer because of the system. The smaller borrower pays a lot more than the larger borrower and this is surely something that should be addressed by the banks as well as addressing it here.

There is some merit in the parts of the Bill which purport to do away with restrictive practices such as redemption fees and the requirements to use particular insurance companies and solicitors. To change the rules in these areas might be useful to a certain number of people but I cannot see them making any major financial contribution to the borrower. I fear that on the changeover any income lost will be inevitably taken up by an increase in overall interest rates. Indeed, when we talk about the restrictive practices involved in terms of solicitors and insurance companies, if the Minister is so worried about the borrowers he should look at the rules of the Department of the Environment regarding the taking out of an SDA or a HFA loan.

The Department of the Environment make certain that the county council involved use their own solicitors in the granting of a loan and the borrower must use his own solicitor. The Department of the Environment will not accept an independent solicitor or allow the borrower to have the solicitor of his choice. If the Minister is serious in terms of regulating the borrower's right in terms of solicitors he should ensure that his own Department apply the same regime. In relation to insurance, there is now a change in that mortgage protection has to be built into any loan granted by the Department of the Environment but the borrower cannot go to any insurer and look for an independent quote on a mortgage protection policy. He cannot go to his own insurance broker or insurance company. The mortgage protection policy is written into the mortgage by the local authority and the borrower has no right to question that, which has meant that interest rates have risen marginally within the public sector because of this imposition by the Department of the Environment. If that is so within the Department of the Environment, it will apply equally to building societies.

I welcome section 3 of the Bill which allows new loans to be made by the societies although there should be an upper limit to the amount of societies' funds which could be used for any purpose other than for house loans. Originally it was not quite specific regarding the area in which these loans could be taken up, but the Minister is quite specific now that they can be only taken up in terms of bridging loan. I welcome that provision because for the past number of years too many people have had to pay bridging loans for too long at too high a rate through the banks. The building societies were not holding up proceedings. In many cases the transfer of title was held up because solicitors were not doing their job properly.

I sincerely hope that the new provisions now being brought in which will allow the building societies to give out bridging loans will ensure that the borrower will be able to get a bridging loan at a reasonable cost, well below the current bank bridging loan rate of interest which is extremely high. Of course the reason it is extremely high is that the banks know the borrower is in a very difficult position and if he does not get the bridging loan he will not be able to buy his house. Therefore, they charge whatever they like on these bridging loans. Of course they do not tell the people that if they go over the length of the term of the bridging loan they are charged excess interest on the loans and they add this excess interest — sometimes it can be up to 6 per cent — without notifying the borrower. This is an area that should be looked at if we are talking in terms of provisional funds for housing because basically building societies are there to provide moneys for housing.

The other areas of provisional money for housing should also be taken into account and probably one of the weaknesses in this legislation is that it does not go far enough. It is a very short Bill which was introduced because of the hullabaloo over the tiered system of interest rates brought in by one particular company and at the same time there was an increase of 3 per cent by a specific company. It is typical to bring in legislation which is seen to be popular but nevertheless we should not bring in Bills like this on an ad hoc basis. We should attempt to ensure that a Bill dealing with major financial institutions is brought before the Houses of the Oireachtas as legislation is changing throughout Europe in the area of borrowing, lending and investment. Events will overtake us here very shortly if we do not bring in a Bill which will give some protection to Irish financial institutions.

The section of the Bill which allows new loans to be made by societies was dealt with, but I said I would not like to see too big a percentage of the funds of societies given out for any purpose other than house loans. The Minister has suggested bridging loans and, of course, I presume the bridging loan involved here will be a bridging loan on the purchase of a house. Often bridging loans are given for other purposes and quite a lot of money could be used while people are waiting for documentation or whatever. The business of building societies is to borrow money and to lend it for the purpose of building houses. The provision for finance for houses should be the main objective of a building society, especially now when there is such major competition for funds from other financial institutions. In the past few years one of the bigger building societies was taken over by a banking group. I would like to see building societies engage in banking, insurance and the provision of full financial services but not if these other activities were to the detriment of the main purpose of the building societies, which is the provision of houses.

Building societies in England, under new legislation, have been allowed to engage in a full range of financial services and, of course, it will apply to building societies here very shortly because of new EC regulations on the opening up of the insurance and financial institutions market. They will have to stand up to competition from societies which are well known to us here from television advertising. Without going into names, some of them are enormous in their size and scope. I believe Irish building societies will succeed in competing with these new companies and I am also confident that they will, when allowed, be able to make an input in major EC markets. Competition for funds and for services will inevitably be enormous in the near future and if, as is suggested, building societies' management costs are too high, then automatically they will not stay in business.

It will be interesting to see what happens in terms of competition when the new societies start coming in here. Irish banks are small in terms of the British banking system, but they have been extremely successful in their operations in Great Britain. Allied Irish Banks in terms of the world banking system are extremely small, but apparently small is beautiful when we consider the profits and organisation they have been able to put into their banking system in the United States. The impact of foreign companies on the building societies can be kept to a minimum and, of course, if their management costs are too high, they will be forced out of business because they will not have funds to lend.

Like every other mortgage holder, I detest an increase in interest rates when I have a shrinking income. I agree with speakers who suggested the pinning of rates for a long period as this would enable all mortgage holders to plan their outgoings. High interest rates here are not caused by the building societies but by a combination of internal and external factors. The Government must take responsibility for our current high interest rates; there is absolutely no doubt that the imposition of DIRT has had major implications for the financial sectors in that very large amounts of moneys have left the country leaving financial institutions short of funds to give to prospective borrowers. If the outflow of moneys from this country continues interest rates will rise and, unfortunately, there will not be enough funds in financial institutions to pay for the operation of businesses and building societies will not have the funds to give out to potential borrowers.

There is a suggestion that funds are beginning to dry up, that people do not have the money to invest any more in building societies or banks, even though the Government, and indeed many financial institutions suggested there would be a big increase in the amount of moneys people would have to spend this year. The majority of this money, it has been stated, is now taken up in paying back former borrowings and this leaves very little money in people's pockets for the suggested spending spree before Christmas. Even if there is a spending spree, unfortunately it will benefit Northern Ireland. The relevant Minister does not seem to be doing anything to stop the hundreds of buses going over the Border every day. I cannot see how difficult it would be to stop a bus or to prosecute the person in Newry interviewed by a reporter on the 6 o'clock news bulletin holding up a television set for which he paid £150. He said he was bringing it back from the North, without paying VAT or duty and a woman also interviewed said she had bought £500 worth of goods. They were identifiable and there is absolutely nothing being done to stop this type of spending. I cannot see why the "Gay Byrne Hour" programme every morning is allowed to have a comparison table on the price of goods in Dublin shops and those over the Border. There should not be such comparisons. The reporters do not speak of the cost of getting to the North or various other costs. Traders in this country should not be "knocked" by the local television station.

An Leas-Chathaoirleach

Will you get back to the Bill please? Your remarks would be more appropriate on the Appropriation Bill.

The Appropriation Bill will not be debated until after Christmas when all our money will be in Newry and Belfast. The Bill, as I said, does not go far enough. A number of provisions will possibly help people, such as the suggestion that where a survey is done by a building society on a building, it should be available to the borrower. There are people who suggest that this is not a good thing, that it might preclude valuers from giving a proper valuation, that they might show up defects in the house and if these were shown to the borrower there might be repercussions.

A couple of new sections have been added to the Bill since it was introduced in the Dáil. In the section which introduces the establishment of the building societies' consultative council, the Minister stated that it will be flexible so we could have a consultative committee of 90 or nine. The 1976 Act stated that there should be a consultative committee of nine and that is a reasonable number. To leave it open to the Minister to decide the number, without putting it in the Bill, is a major flaw. I should not like to see any Bill coming into this House where this or any other Minister takes upon himself the setting up of a consultative council in which he is the only person——

Irrespective of Government?

I have always said irrespective of Government. The Minister is taking unto himself the right to make up a consultative council. He does not give the numbers or anything else, apart from the fact that it will be set up and that it is overtaking the provisions of the 1976 Act. If the Minister was so concerned about occurrences within the building societies over the past number of months or years why did he not activitate this consultative commission which the 1976 Act empowered him to do? If there were major problems the consultative committee could have been brought in and used as an arbitrator between the Minister, the building societies and the borrowers. I am worried about tiered loans as their operation in the banking system benefits that system, the bigger borrower and the bigger lender and are to the detriment of the smaller borrower and lender. If a substantial amount of income is being got through the tiered system of interest rates through the building societies, the only way they will get it back is by increasing the rate for the smaller borrower and decreasing it for the smaller lender to the building societies. Building societies, from management costs, will not be able to replace the income from one unless, as I said, they increase the interest rates of the other.

The Bill is short and will not make much difference. It is a PR exercise in the main and its implications will not benefit any section of society — the building societies are the very people to whom it is supposed to be addressed or the mortgagees of the building societies.

I should like to start my contribution by remembering one of our colleagues in another House some years ago who passed away today. He was also chairman of the Irish Civil Service Building Society. It is not inappropriate for me to mention Mr. Maurice Dockrell who died today and to say how sorry I am — and I am sure every colleague in this House is — at his passing. He was in the other House for some 32 years and was a great figure in the life of Dublin as Lord Mayor and indeed in these Houses and the surrounding areas over such a long period in public life.

My contribution will range from a few moments in dealing with Senator Lanigan's contribution to a much more measured speech in relation to the Bill, to certain minor shortcomings in it and to certain aspects of the building society world. I was a little bit confused by Senator Lanigan's speech and I hope it is not the considered view of both the Leader of this House, and the Leader of the Opposition in the other House. He started off by saying there was no need for the Bill. A short time later he said that it had some merit. Then he said it does not go far enough and also that it will not make any great difference. I do not really know Senator Lanigan's position on the Bill or if he gave it any time or consideration. Did he intend to speak here this evening or did he suddenly rush from a more pressing engagement to speak on a Bill which he had not had the opportunity to read? It is an offence to this House that he should speak in that fashion, particularly when his only concern was to protect the life and lifestyles of directors of building societies. He mentioned some concern for the building of new homes. I assume he would also be interested in prospective mortgagees, the house buying public, young couples getting married who intend to buy a house and who are confronted by a degree of self regulations by the building society which, unfortunately, have not been in their interest in recent years.

I do not intend to be critical of the building society movement in general, as it has been a tremendously important institution for, in many cases, well over a century. The building societies were largely founded in the last quarter of the last century and have played an immensely important part in the ability of people to buy their own homes. There is an extraordinarily high rate of home ownership. As I understand it, 70.8 per cent of our community own their homes and are assisted to a large degree by building societies in doing so. That degree of home ownership is on a world level. It is spectacular and, apart from New Zealand, no country has managed to achieve that degree of home ownership. It is something we should encourage and it is part and parcel historically of the Irish character. They want to own their homes and to improve them and that is something of which we can be very proud.

The Bill has a great deal of merit although some of the detailed sections might not be of earth shattering importance. However, to those who face the prospect of buying and selling a house they are of extreme importance. The section allowing building societies to offer other than the security of a mortgage, the sole activity largely which they are engaged in at present, is an important section in this Bill — to make loans in other words for other purposes. The point made by the Minister when he was introducing this Bill that he will allow the building societies to get into the area of bridging finance is very important.

Prospective house purchasers face the difficulties of getting bridging finance and of adding some considerable extra interest to their purchasing requirements. They have to deal with a whole variety of fees before they ever get to the point of securing a building society loan. There are intervals between the sanction of the loan and the availability of finance. There are intervals of that kind also — indeed longer periods — generally affecting HFA and SDA loans and there are difficulties faced by many in relation to where to go. There are people who do not have a sufficiently developed relationship with their bank manager — they might not even have a bank manager — their sole saving might be in the building society, and the difficulties in getting a bridging finance arrangement can often be great. When they have to come up with it in a hurry and have counted every £50 in purchasing their home, the availability of bridging finance through the building societies is an important aspect.

The Minister might consider what he will do about the applicants for the HFA and SDA loans who face the same problem of bridging finance difficulties. It is something that needs to be done at local authority level and through his Department.

The Minister spoke of a development he would like to see taking place by the building societies in the area of home improvement and reconstruction. He and his Department have been giving great impetus to this at national level recently with the home improvements grant scheme. The building societies have been co-operating with owners in refinancing houses. If one finds oneself in a position where one has to face certain improvements they will refinance the house or put the house in at a different figure allowing for the improvements. That has been going on to a certain degree. It is something that I benefited from in the past. The change in relation to tiered rates is a very important and timely change. I very much welcome that.

The Minister spoke earlier about the question of making available to the borrower the valuation report on the property being purchased. He said he intended by regulation to deal with this matter. I quote from his speech:

As many Senators will be aware from their own experience, societies have operated the frustrating practice of charging the cost of this report to the borrower while refusing to give him or her sight of the report. The Restrictive Practices Commission has recommended that an order should be made in relation to this practice, but, instead, I propose to deal with it under the present Bill. The valuer's report as we know it relating to the purchase of a house is a very confusing area and perhaps it is one that will need some additional thought in the Department of the Environment in the interest of securing the right remedy. There are a great variety of people, architects, valuers and so on, who do reports for building societies. There is no such person I know of who can do a report as a structural person, in other words, a person who will be able to speak on the structure of the house and also able to speak on the value of the house.

There is a difficulty in this in trying to come up with the right solution in relation to the kind of person who will give an all embracing report which will deal with both the structure and the value. We have problems at present with certain building societies using architects and certain building societies using valuers. The architect goes out, has a look at the house, gives his confidential report to the building society but he would not be attuned to market conditions on the value of that house. Some of the building societies are using architects for this purpose.

I happen to be the nominee of the Irish Auctioneers and Valuers Institute in this House and for that reason I have a fair knowledge in this area. I want to make that point because we have to get this structured correctly. It does not seem that releasing the valuers report is always going to necessarily help the borrower. In the final analysis if we get the right combination of people doing that report it would be helpful. What is required is a report on the structure and a report on the value and somehow to get that together in a fashion where it could be helpful to the borrower. In the general area of releasing these reports I am very much in favour of what is contained in the Bill.

There are other matters concerned with the use of an insurance company suggested by the building society in relation to the question of legal costs paid by the borrower who also, incidentally, pays his own costs with the vendor paying theirs. It is quite unbelievable that we have a situation like that I welcome the new provision in that regard and also the provision relating to what we were saying a moment ago on insurance affecting mortgage protection.

One of the more important aspects of this Bill is in relation to redemption fees. It is incontestable that there is a situation where in order to get out of a society and move on to another society — I had this experience three or four years ago — you are charged a handsome fee on getting out and a handsome fee on getting in. Those kind of sizeable sums on top of moving house are very severe on individuals. There is no explanation for them. With the level of interest and profits societies earn, that kind of thing should not be allowed. I very much welcome the provision in the Bill in relation to this.

I would like to say a few words on building societies generally. It has got to be borne in mind in relation to societies that there are some 13 building societies in Ireland with assets ranging from over £100 million down to a few million pounds. We are dealing with four very large societies — the big four as they are called. The directors of those societies seem to have a large degree of power, so much so that it is virtually impossible to have a sufficient voting strength as a depositor to exercise control or even attempt to influence the manner in which the societies are operated. These thoughts are coming in relation to a Bill that the Minister admits is dealing with an area of building society needs for legislation. The Minister will, I am sure in due course deal with a more expanded need for legislation in this area.

Building societies influence the financial market where their position is more profitable than the banks — the most profitable financial institutions in the land. This is at variance with the popular concept of non-profit making organisations. The building societies have got into the financial stage of being in control of hundreds of millions of pounds. That is an enormous situation for these societies to be in with the level of control that seems to be exercised on them from outside whether by way of their depositors or by way of the State.

To that degree all of what is being done in this Bill is very welcome. The top five building societies — the Irish Permanent, the Educational, the First National, Irish Nationwide and the Irish Civil Service — control 90 per cent of the assets of building societies and all of them advertise extensively. They do not advertise just in the printed media but they advertise through television and the cinema. Anywhere you go you come across advertising by building societies about how friendly they are and how well looked after you would be, both financially and otherwise, by coming in to see them. The building societies also operate an extensive branch network. Part and parcel of their branch network are agencies. I accept fully that not all the signs you see for the Irish Permanent Building Society or the Educational Building Society are branches but they are firms of auctioneers who are agencies for particular building societies. There is nothing wrong with that. I can think back to ten years ago, looking down on a town in Donegal where apart from a couple of banks, the building societies were the most prominent buildings you would see even from a couple of miles away. The other day I was driving along Sundrive Road to Kimmage Cross and noted five building societies in that area. They are competing with each other and they operate in very smart premises.

They have devoted a considerable amount of their profits into expenditure on both advertising and on developing this network of premises throughout the country. The figures are slightly out of date but in 1982 there were 670 branch banks around the country operated by all the banks. There are 525 branches and agencies of building societies around the country. They are almost comparable in the numbers of units of their organisation throughout the country as are the banks and they are more profitable than the banks. We should examine their activities and also look at other areas in the course of time.

The building societies provide an immensely important stimulus for the level of home ownership in Ireland where over 70 per cent of the population own their own homes. The building societies, established as they are for over a century in many cases, have provided an enormous stimulus in that direction. Many of the societies operate extremely well with very high standards although there are criticisms of some which we are all too well aware of following the "Today Tonight" programme last week. In the area of property, shops and agencies there are some merits in the building societies group spreading their wings and opening branches in different parts of the country. More often than not they are opening these branches in rather secondary shopping arcades that might fall into disuse were it not for the building society or some other type of service organisation moving in. They play an important role in keeping in business the shopping arcades that have been competing with new major and out-of-town centres. It gives them a chance to continue trading and it provides local shopping centres for the people.

The lending and deposit market of building societies increased considerably in the period from 1972 to 1982. It is clear that in 1982 the total lending market of the building societies was 15.5 per cent and the deposit market was 16.3 per cent. If you compare that with the Associated Banks at 41.4 per cent and 48.7 per cent you will see there has been an enormous increase in the activity of building societies. The building societies have obviously been taking an interest in other areas. It is quite clear to me that there has been an interest by building societies in the building world outside the building and improvement of their own branch premises. They have been interested in the building world generally.

Trends in Britain show a diversification by the building societies and there is a challenging period ahead for the building society movement. It is a challenging period also for other professional activities associated with building or building finance. I speak here obviously of those engaged as auctioneers and estate agents, of brokers in the area of insurance and agents dealing with the purchase and sale of shares, or stockbrokers as they are more familiarly known. Given the trend in the United Kingdom, building societies in Ireland will be looking for an increased role in the financial market. In due course we, as a Government, will have to consider what they do in this area. Signs are for a much wider role for building societies. The Minister has taken a major step in allowing them to get into the area of bridging finance and presumably into home improvement. These are areas which will assist the national Exchequer at a time when there will be a need for curtailing the amount of demand on its resources and spreading the load perhaps to areas where they could assist.

The building societies operate a very large portion of the home loan provision in Ireland. I am sure the Minister will have a more up-to-date figure but they financed 74.2 per cent of the home loans in 1980. Their operations have given a great deal of help to people who want to buy their home. I am concerned, as I know are many Members of this House, about the cartel operated by the building societies and the fact that it has been very difficult for any innovation to be offered to house buyers by way of mortgages.

One question I want to mention relates to the type of thing I have come across in practice in the past — and I am sure is going on to much a lesser degree today than was going on then — where one could not help but be aware of a certain type of understanding, putting it in its mildest form, between those engaged in the building of certain new housing areas and those providing the finance in striking the market price of the houses. I do not know if it is going on today to the same extent but the mortgagee would obviously be the person who, in the final analysis, would suffer from a fixed price that was not related to the market. My comment on this is not intended to deal with all the building societies but there have been instances where that was at least suspected. Everybody here may suspect it may be going on. The Minister mentioned the release of the valuation report — and that will be very important for the protection of the mortgagee.

I have been talking during the past few minutes about the four big building societies. In recent weeks we have seen the rise of the mortgage interest rate by 3 per cent. It has been felt by many — I know the Minister was not quite in relation to his criticism of this — that the building societies could have chosen a little less than they chose. It is felt that perhaps they were a little hard on the mortgagees at this time in raising mortgages to that extent. The four big building societies are the ones I mentioned earlier. They vary in the manner in which they operate their society, in the assets they own and in the numbers of staff they employ. It is appropriate that I bring to the attention of this House a certain matter which has come to my notice in the past number of weeks relating to the internal organisation and affairs of the Irish Nationwide Building Society. I do this not just in the interests of the staff in that building society but in the interests of the staffs of other commercial and industrial concerns in Ireland who in some instances may be suffering the exact same plight from the management of their company, or society as in this case.

In recent weeks I was approached in my position as public representative by three individuals on the staff at the headquarters of the Irish Nationwide Building Society. I was told a number of things relating to the internal organisation and operation of that society. There is no trade union involvement in that society whereas there is in the Irish Permanent and the Educational Building Societies. I believe something of the order of 150 personnel other than management are employed in general in branches.

In the Nationwide's new headquarters at the corner of Camden Street, where 60 to 70 staff are employed, a movement got under way in October or early November. The staff felt it was necessary and fruitful for them to meet to discuss areas of mutual interest and concern as staff members and their relationship with the management of that building society. The meeting took place as scheduled. Out of the 60 or 70 members of staff who could have attended this meeting 17 were present. The arrangement made with the management of that society was that they could meet at 5.30 p.m. provided the discussions were over at 6 p.m. I am sure Senators will agree, without unnecessarily demonstrating my point, that it seems to be a little out of the ordinary practice of engaging in discussions of any kind to be told before you start that the matter would be so curtailed that you had half an hour and then you would have to leave the building which, as I understand it from a number of sources, is what happened in the Irish Nationwide Building Society.

A day or two following that meeting a communication — not by letter — was made to the staff concerned. They were told that at no time in the foreseeable future would they be permitted to use staff premises to have meetings of that kind relating to a discussion among themselves on mutual staff interests and concerns members of staffs usually have. Members of this House can meet together as a political group or through the Committee on Procedure and Privileges and members of a trade union can hold meetings.

For example, Senator Shane Ross will get together with other stockbrokers and there will be meetings of those engaged in property, engineering and so on. An incident where staffs of a major building society — considered capable of having a major influence on our society — cannot allow staff to meet or in any sense try to regulate the length of time during which staff could meet seems to be unfortunate. I have also been told that there is a variety of other concerns affecting staff in that organisation.

I do not think what you are saying is relevant to the Bill. I will let you go on but ask you to be brief.

I am dealing with a concern——

You are dealing with individuals.

——which not just transcends the building society movement, and perhaps more than one society, but also could be part and parcel of the organisation of other financial or commercial institutions. That is important enough to be discussed here.

It does not——

Words used to me yesterday were to the effect that that society seem to employ redundant staff frequently, paying them a pittance. One staff member employed in that society dealing with mortgages for six years is now paid a figure of £100 per week. It is hard to believe that is the going rate on the market at present for somebody who has had that experience in handling mortgages at the level he is apparently at.

I mentioned this to make a point concerning the great need, on the one hand, for societies like the Irish Nationwide to bear in mind the balancing situation of not becoming too zealous in the direction of raising interest rates — which has been happening recently — or, on the other hand, of not concerning themselves enough with the interests of staff in their societies. The board of the Irish Nationwide Building Society would do themselves much good in the period ahead by avoiding the prospect of union confrontation which could necessarily be the outcome of the kind of attitude they seem to adopt to normal meetings of mutual interest by staff members. They should do this before it is too late to avoid the difficulties the Trust Houses seem to be having in operating a concern in Ireland from the United Kingdom.

This is all very interesting but maybe the speaker will be able to tell us where it is relevant to the Bill before us.

I said that.

I will finish on that note. It is very relevant with the hundreds of millions of pounds involved, that a building society such as the one I mentioned would not try to do something about the morale of their own staffs and the organisation of their own company. Staff relations, if Senator Ross does not know it, are an important subject.

It has nothing to do with the Bill.

(Interruptions.)

I have ruled on it and I was about to mention the matter again. The point is the extraordinarily high charges of building societies and the minimum wages they are paying to their staff — you have made the point, Senator FitzGerald.

That is the point I was making, on the one hand the 3 per cent rise in mortagages and, on the other hand, the fact that staff seem to be underpaid. Staff morale is low and they are unable to meet to discuss matters of mutual concern. Allied to that we have the growth in the branch network of the societies generally and the extent of advertising and colourful presentation these societies have. I hope what I am talking about will be a warning not just to those involved in one society but to any other commercial or industrial concern who may think that is a suitable way of conducting their affairs.

At this time there is a fair degree of difficulty facing those out of work. They may find themselves having to accept jobs with terms of remuneration which are not necessarily in their best interests but with little option except a job in X company or Y company. That is why I instanced this today. It has a wider application and this House is interested in the wider good of the people of Ireland. I will have a few things to say on Committee Stage.

I am glad to get an opportunity to make a very brief contribution to the Second Stage debate on this Bill. Senator FitzGerald was very unfair to Senator Lanigan when he criticised his contribution. It was wrong to say that Senator Lanigan was more favourably disposed towards the building society than the house builder; it was wrong to say that he had more sympathy for the director than the mortgagee. What Senator Lanigan said is exactly what I want to say and that is that I believe a major review is necessary in this area but not in an ad hoc fashion as in the Bill.

I believe — and many people are convinced — that this Bill was born out of confrontation. The Minister has been projected in the role of a David fighting Goliath — the building societies. An equally valid picture would project the building societies in the role of David fighting the State — the Goliath. The reality of the situation is that the building society movement is at war with the Minister or, perhaps, the Minister is at war with the building societies. But, in any event, this is a very bad situation for housebuilders and for the country. I believe, as do many people, that legislation conceived from spite could not and will not make good legislation.

I agree with some of the points raised by Senator FitzGerald. I am glad we have such a high level of home ownership in this country. We are all concerned that that would increase and to do everything in our power towards that end. Senator FitzGerald has a point with regard to his criticism of the methods of valuation. On the standard form two valuations are given. One is the replacement value which is relatively easy to estimate; it is simply the building costs with a special fee to cover professional fees, and then there is the valuation in other words, the price which would be realised when a house is sold. This is a rather subjective thing and even a trained and qualified valuer might not necessarily get it right. There are many factors involved to determine the price that will be paid for it.

I would like with other members to pay tribute to the building societies. They should be recognised for their tremendous contribution to housing since the formation of the societies in the early years of this State. Senator FitzGerald has rightly pointed out the very high level of home ownership which was possible solely because of the building societies. It is fair to say that this Minister and previous Ministers have recommended thrift, they have encouraged young people to invest with the building societies. I hope that continues. I have great sympathy with those paying high mortgage rates. When considering the building societies and the borrowers our sympathy must always lean towards the borrower.

I am grateful, too, for the changes the Minister has announced with regard to the new house grants. With regard to the house improvement grant it was unfortunate that people who could not afford to employ a contractor were debarred from availing of grants if they used direct labour of their own hands. To some extent the Minister has redressed that with regard to the new house grants. The fact that this change was made so soon underlines how wrong the Minister was about making the change in that area. I am not fully familiar with the changes. I believe that direct labour is now allowed to a certain extent. This will have a great effect on building and I welcome it. I hope the Minister will introduce that in the home improvement grants in the near future as well.

I believe the Government and not the building societies are responsible for high interest rates. Societies must offer attractive rates to investors comparable with those which they could obtain elsewhere. High interest rates are a concern for us all, but employment and taxes are equally important. Where two young people or maybe two not so young people are working there is great difficulty in repaying the mortgage. If one of those people loses a job it is impossible to repay the mortgage. That problem would not be as acute if we had less unemployment and lower taxes. The increase in rates is caused by Government policy. The building societies are concerned by the whole marketplace approach generally. Fianna Fáil helped with that mortgage subsidy in the past so that nobody with a mortgage would be penalised. This was proper because the problem, to a large extent, is caused by the Government of the day.

The building societies are concerned by the lack of investment and lack of confidence by investors. Since the budget in January of this year £1.6 billion has left the country. The DIRT tax is eating into the savings of people who would invest with building societies, even the modest saver. There is a lack of goodwill and proper investment climate in Ireland. An atmosphere of good relationship with the Government is necessary and everything that can be done should be done to improve that and to arrive at a situation where profit is not a dirty word. By and large the building societies work on very narrow profit margins.

I agree with section 3 which deals with the power of the Minister to prescribe purposes for which loans may be made. As the building societies are in competition in the housing market with other lending agencies, it is only right that they should be allowed to enter into other areas. In passing, I should like to pay tribute to the other agencies, including banks and firms, who help employees in that area. Much more could be done in regard to employees getting help from their firms. I also pay tribute to the credit union which has helped house builders.

Section 7 deals with rules relating to appointment etc. of boards of directors. This is an area where very careful handling is necessary because past and present boards have served the building societies and the country very well, despite criticism which was not deserved in many cases. They have built up an expertise which should not be despised. It is very important to ask the Minister not to destabilise the situation in this regard.

Section 8 deals with the Building Societies Consultative Council. If this council is set up it would require exceptional care in selection of its membership to ensure that persons of competence and knowledge in this area are appointed to this proposed council.

Section 4 deals with tiered interest rates. The banks have tiered interest rates and the building societies, to be put on the same footing as the banks, also must have this facility. People who invest with the banks get different interest rates according to the amount they invest — whether it is right or wrong is not for me to say, but that is the situation. It should apply to the building societies as well.

I welcome any benefits arising as a result of the Bill. It is legislation in an area where a major review is necessary. I regret that this major review was not undertaken. Like other Members of the House, I appreciate and pay tribute to the building societies' work. When we go around the country and see the enormous housing schemes, we realise the contribution made by the building societies and those who have dedicated their lives in that area.

We will have an opportunity to deal with the sections in greater detail on Committee Stage. With those reservations, I welcome the Bill.

I do not subscribe to the thesis that the Bill has been introduced out of conditions of war or with the motivation of any spite by the Minister of the day. It is legislation that has been described by the Minister as one of the early sections of a series of pieces of reforming legislation in the whole area of building society control which is agreed by most Members of the House to be long overdue.

I have listened carefully to the many tributes being paid to the building societies. I, like many others, welcome the fact that houses have been able to be built and that people have provided themselves with shelter. I might not agree that I have an unreserved admiration for the concept of home ownership and what it tells you of national character and previous speakers. Be that as it may, the building societies have financed a great deal of house and shelter provision in the concept of home ownership. Perhaps the more useful figures that will emerge in the debate will be those outlining the position of the borrower in relation to the building societies, to which much of the Bill is addressed.

Few people realise the high proportion of disposable income which the average mortgage represents. I may be wrong, but speaking from memory I recall one set of figures that I saw some years ago which suggested that perhaps between 30 per cent and 35 per cent of one's net disposable income in any month goes in servicing a mortgage from a building society. Obviously in this legislation it would not be relevant to go into the whole question as to why such a high level of mortgage is necessary to purchase shelter. It tells you a good deal about the society that you have to borrow so much to meet one of the basic needs in society. It is, however, directly relevant to the Bill to reflect on the atmosphere which prevailed when the original building society legislation was framed, when building societies formed themselves under legislation that is within the general rubric of friendly societies. At that stage the emphasis was on the provision of shelter and making it possible for people to build houses. All the recent discussion, however, has been about interest rates.

I am one of the people who welcomed many of the statements being made here by the Minister, limited as they are as he has correctly pointed out, to one phase of the problem of the reform of the building societies. However, I want to add at the outset that the fact that an enormous amount of investment has been used in building houses reflects both the high cost of building land and the presence of the morality of speculation in relation to building land. It is not acceptable in many civilised societies that the basic costs of building, including site cost, would be bid up to the way that they are.

There is a heavy contrast between those early days of the building societies and what now prevails, where the major groups report profits in recent years far in excess of £25 million and figures quoted for the current year are still quite high. A problem arises here in relation to what is happening. Are building societies the same as any other borrower on the money market, the money market as referred to in the Minister's speech? Alternatively, are building societies involved in investment the same as any other investor? The suggestion made by the previous speaker — and also in other speeches — is based on what one might call the climatological view of economics which prevails in the country at the moment, that is that when the atmosphere is right people find money throbbing in their pockets and they rush to invest, but if the atmosphere goes wrong, their little pockets get cold and they cannot invest and so on.

These kind of simplicities are of no value to us at all. What is at stake in the Bill is interesting, that is it is pointed out that there will be a degree of control in relation to building societies. I welcome this. Also, there is another subterranean point in the Bill — and I do not think it is necessarily confrontational — that where self-regualtion is not possible, regulation by legislation is necessary. It is far beyond time that many organisations and institutions, particularly those involved in credit provision, should be controlled to a far greater degree and be made far more accountable to the public, particularly those who have origins that are based on the provision of shelter and so forth.

There are technical aspects of the legislation that are to be welcomed. The Bill goes further along the ground towards having an integrated set of financial services. On purely practical grounds this is to be welcomed. There are other important points in the Bill also. The ones which have drawn the most criticism are those that refer to new rules for the building societies. I doubt if there is anybody in the country who could justify some of the practices which have been referred to both in the Minister's speech and in the report of the interdepartmental committee. If you think again about it, you ask what kind of credit for what purpose should make it so heavily penalised to redeem one's loan — the loan having been granted? Surely that is unsustainable?

Of course, here again people are betraying their own logic. On the one hand the argument is that the building societies must be free to operate in the marketplace while on the other hand there is the view that once the loan has been given it cannot easily be redeemed, except by imposing some penalties. That in itself is totally unsatisfactory. I am worried, as I have said, that the provision of a roof over one's head — and Irish people have chosen to own it, rather than rent it — should occupy one-third of net income in any one month. This tells one a good deal about the kind of society we have. There should be greater control in this area. When the Minister goes on to other pieces of legislation there is the case for beginning with colleagues in the Department of Finance and asking the Minister for Finance and those who work in that Department to think in terms of reforming the Central Bank Act to ensure a far better degree of control and accountability in relation to credit provision.

In relation to the practices which have been referred to, the question of introducing a tiered rate of borrowing after giving an initial loan is hardly the logic even of the marketplace itself. I notice that a great part of this Bill deals with a row that has emerged in relation to this between the Minister and the building societies. The Minister should be supported in trying to bring about some kind of accountability in relation to practices that have been noted by the interdepartmental committee and about which many individual borrowers have complained. As well as that there is a great deal of secrecy. From the Minister's speech it would seem that this secrecy has been undone and the undoing of that secrecy should be welcomed, for example, the non-availability of valuation reports, the restricted nature of access to legal advice, the manner in which legal costs are calculated and so forth.

If the building societies want to be in the marketplace, these conditions should be removed. I am not saying this because I believe that the marketplace should govern the supply of housing. It is one of the great tragic comments on a society that people looking around the economy find that it is in this area where there is scarcely any risk at all involved that money might be invested. It reminds me of the general banking system where high interest rates are accompanied by high demands for collateral, little risk-taking and a very short-term horizon.

The suggestion in the Minister's speech is that this will put the building societies into a stronger position in relation to competition once the single market has been introduced in 1992. On this question there has not been sufficient though at all. There is not great evidence, for example, of comparable performance between Irish credit provision and European credit provision. Those who argue for the automatic advantages of this in relation to trade and services in the financial area are really straining the truth. In relation to section 3 which mentions the making of regulations with the consent of the Minister for Finance and after consultation with the Registrar of Friendly Societies, this is bringing aspects of credit provision within the scrutiny of the public where it will be welcomed.

In both Houses we are elected to legislate in all areas and in relation to credit provision there is nothing mysterious about the marketplace for credit. The building societies have enjoyed the protection of legislation passed by Parliament. Equally they must welcome it when amending legislation is introduced. In areas where there has been no voluntary response in reaction to publicly aired disquiet in relation to a whole series of practices, including rewards to directors, administrative costs, advertising, the question of duplication of services and so forth, both Houses of the Oireachtas have a responsibility.

The Bill is quite modest in its purposes. It is modest because it is part of a whole corpus of legislation of reform. There is no point in being simple about it. In relation to the establishment of the consultative council, different expertise will be necessary but on the council there should be represented the voice of borrowers and the experience of borrowers. Borrowers put it in very plain terms when they speak about their difficulties in relation to the credit that a building society loan represents. They speak about the hidden costs that they do not understand; they speak about the difficulties of ever reducing their total sum borrowed; they speak with wonderment about the total sum that will be repaid. I often wonder, given the total volume of credit that is borrowed, what is the total risk that is involved. I was in this House when the Family Home Protection Act 1976 came in. At that time there was a lobby saying we were interfering with the collateral of the building societies and that we were interfering with their right to repossess a home. On that occasion speakers from different sections of the House welcomed what we were doing because we were putting the social right to shelter before the unrestrained and unrestricted criterion of the marketplace.

I welcome the reform of the inner practices of the building societies that this represents. We will have an opportunity on another occasion to speak about the question of the role of the building societies and their general accountability to the financial supply and the role of the Central Bank in that provision.

I do not give the same welcome to this Bill as seems to be coming from the other side of the House. I am greateful to Senator M. Higgins for the very calm and more ideological criticism of this Bill than the absurd criticisms I heard from Senator FitzGerald this evening. It is wrong that a Bill of this sort should be used by Senators to criticise irrelevant specific and very detailed matters that go on in a specific society. These are undocumented and unsupported with particular evidence, and I do not think it right that a Bill like this should be used for that sort of purpose.

There is a political undertone to this Bill which perhaps Members of the political parties in this House are reluctant to talk about. It is no secret that at least one society and maybe others of the big building societies, is identified positively with a political party. It is no secret that the public perception of what is going on behind the Bill is partially a party political manoeuvre. It should be said that the urgency with which this Bill is going through the Houses is suspicious. Many people feel that this Bill is born out of a political initiative rather than any great concern for the future of the building societies or the future of borrowers. Bad law emerges out of bitterness. Bad law emerges out of conflict and the background to the Bill is undoubtedly a situation of confrontation between the Minister and his civil servants on the one hand and the building societies on the other. Whereas there are good things in this Bill and there are worthy detailed ends to restrictive practices with which I would not quarrel, it seems a great pity that this Bill has been introduced piecemeal as what appears to many and appears to the building societies as a punitive measure for not yielding to the will of the Government on particular issues.

This is a bad Bill because it is such a piecemeal Bill. The Minister and the Government have missed a great opportunity in introducing the Building Societies (Amendment) Bill because in detail it is short, it is beneficial and it is right in many of its details, but it could have been a far larger Bill and it could have tackled far greater problems. Whereas it does tackle those restrictive practices which many of us believe should be tackled, I wonder why the building societies have been singled out by the Government for an attack on restrictive practices because there are many other organisations who practise practices like this. I can only say I think it was the result of a confrontation with the Minister which I regret.

The missed opportunity is that the building societies are being treated in this Bill as though in some ways they were still the small societies they were when they originated. It has to be recognised at this stage in 1986 that building societies are massive significant financial institutions. They have grown into much larger institutions than anybody could possibly have imagined at the time they were set up and, in this time of financial deregulation, of greater financial competition in financial markets throughout the world, this Bill will be seen as a restricting law rather than a law which is in tone with the trend in financial markets throughout the world.

Debate adjourned.
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