Yesterday evening I was just beginning to answer some of the points which Senator FitzGerald made in his speech. I think it is unworthy of Senator FitzGerald to come to this House and on a Bill as specific as this — specific in its purpose of abolishing perceived restrictive practices in building societies — to make a specific attack on a particular building society. I have checked these allegations overnight and I find from my investigations — investigations which Senator FitzGerald, I gather, did not make — that on the whole they are completely untrue. It is a pity that a Senator should use the privilege of this House to make statements of that sort without checking them properly. I hold no brief for building societies as such, or for a specific building society, but I think under the guise of privilege it is a great shame that, possibly for electoral reasons or possibly because Senator FitzGerald has found some new zeal for the oppressed in society — a zeal which I had not noticed in the Senator before — as the electors of Dublin South East approach him and as he comes closer to them, he should adopt this line. Yesterday evening, for some extraordinary reason, Senator FitzGerald was trying to include the Shelbourne Hotel dispute under this Bill which I fear is not relevant either.
Building Societies (Amendment) Bill, 1986: Second Stage (Resumed).
I do not think it is a good road to go, Senator.
I am not going Senator FitzGerald's road. I am replying to statements which he made which quite obviously are not being investigated and have not been investigated. Perhaps what Senator FitzGerald was doing was indicating the highly political nature of this Bill and that he was being used by people who do not have the best interests of the building societies, nor of the depositors in the building societies at heart.
I opened last night by saying that the background to this Bill is unfortunately a highly political background and it is perceived by the Government that the building societies, or certain building societies, have associations with the Opposition here. It appears to me that in its motivation this Bill is a punitive Bill, that it is a reaction to a specific row and a very public disagreement between the Minister and the building societies. By its nature, legislation which is born out of this sort of business, which is born out of public rows, is bad legislation. If that is the reason for the Bill — and it is certainly perceived to be the reason — I think the Bill should be opposed. A Bill should not be introduced out of pique because the Government do not get what they want out of certain institutions. I am surprised the building societies appear to be the only large institutions which have been singled out for treatment for what are undoubtedly restrictive practices, albeit minor. The Bill should be opposed in principle for that reason but not specifically for the details of the Bill which do not merit a Bill in themselves.
What is needed is a far wider Bill or a series of Bills, looking not only at the building societies but at the financial institutions themselves. In his speech yesterday the Minister gave us an assurance that this is the first of many Bills. As far as I can understand from his speech, there is no thinking down the line about what the following Bills are. I cannot any longer take promises from the Government of following Bills to this, purely on trust. I do not see any indication of any further Bills down the line apart from a ministerial promise, which might be empty, in view of the fact that an election is probably due.
What is partially wrong with this Bill is that the building societies are still being treated like the institutions they were many years ago when they were set up. What is not recognised is that once — not all that long ago — building societies were small institutions. Now they are very large commercial institutions and you cannot apply the same rules to large commercial institutions as you can to small ones. Since 1965 home ownership has gone from 53 per cent to 76 per cent in this country; a large amount of that percentage is due to the building societies' role in lending money for this purpose. This should be recognised. I know this is a populist Bill; there is no doubt that large commercial institutions are not popular with the public at large. They are perceived as rich, bullying and inhumane but, nevertheless, it has to be recognised that the role they have played has been significant in providing people with homes. We have one of the highest ratios of home-ownership in the western world and the building societies must be recognised as having played a major role in providing home ownership.
Deposits with the building societies have increased from £35 million in 1965 to over £3 billion in the past 20 years. That is a massive increase and we should recognise that the building societies are not the same organisations they were 20 years ago. The same restrictions should not apply to them and they should be looked at in a completely different light now than when they were set up. The legislation should be accordingly framed; this legislation is not accordingly framed. One of the reasons these deposits have gone up so much is the huge amount of money — which has been criticised in this House — spent by the building societies on advertising. I see nothing wrong with the building societies spending large amounts of money on advertising which attracts savings into the building societies, which is turn can be lent to people to buy their own houses. There may be some ideological objection to huge advertising — which I have never quite understood — from certain sections of this House, but in terms of actually attracting deposits which means more houses are built and more people buy their own homes, I see nothing wrong with advertising. The result of advertising is seen in this massive increase in deposits in the last 20 years.
I understand Senator FitzGerald and the Minister yielding to the temptation to attack large commercial bodies. It is cheap, too populist and ill-considered because it has been the tendency, not just of this Government, but of other Governments to regard the building societies as some sort of an arm of Government, as some sort of commercial organisation on which the Government can put significant pressure and, to a certain extent, can control. I do not believe they should be regarded as an arm of Government. One only had to see under the last Government the subsidisation of mortgages which is an artificial interference in the natural commercial world, or the constant pressures coming from successive Governments on building societies to keep mortgages down.
Everyone would like to see interest rates lower; certainly, every Government would like to see building societies' rates down, so that it is easier and not painful for people to buy their own houses, but it is unrealistic for Governments to be constantly pulling building societies into Leinster House or Government Departments and putting pressure on them to reorganise their interest rates or to keep them down as much as possible. These societies must be allowed to operate in a normal, commercial environment and that would be, in the long term, in the interests of the consumer because they would be competing, not with their hands tied behind their backs, but with each other and with the banks.
The building societies, I think, feel that this Bill is an anti-building society Bill and that is an unhealthy thing. It is a pity that the Government should be seen to be introducing a Bill which is hostile to particular organisations. While there is obviously the need to protect those who are borrowing money from building societies, there is also the need to protect the building societies and to regulate their rules in an efficient way so that they can operate properly. There is also a great need — something which has been neglected in this Bill and in the speeches made on this Bill — to protect saver confidence because the building societies could not operate without the savers who are far more numerous than the borrowers. If this Bill and the Government's attitude are hostile to building societies, what will happen will be that the public perception of building societies and public confidence in building societies will be undermined. We have not seen any great interest in saver confidence in this Bill; we have seen a very populist, rather weak desire to please and curry favour with the borrowers, but the savers which outnumber borrowers by about seven to one are not protected, mentioned or thought of in this Bill and they are a very important element.
The building societies perceive that this Bill restricts them in ways that the banks are not restricted. The building societies, I think, feel that they are victimised in that under present rules banks can do virtually everything building societies can do but building societies cannot do everything banks can do. It seems to them that these are unfair rules under which to operate.
The case of the Irish Civil Service Building Society which was taken over by the Bank of Ireland recently is a very obvious example because when the Irish Civil Service Building Society was being taken over by the Bank of Ireland, a bid from another building society was not permitted. As a result of that you have a bank owning a building society; in effect, a building society being an arm of a bank and the two of them working together as one organisation. You see now the Irish Civil Service Building Society as an arm of the Bank of Ireland issuing cheque cards and whereas since the last budget the banks are now getting the benefits of non-disclosure through DIRT the building societies' only advantage over the banks has gone. Now that banks have entered the home loan market and are competing with the building societies in that market very successfully for obvious reasons, what I would like to see is that if these organisations, the building societies and the banks, are going to be competing, they should at least be allowed to compete on equal terms. This is not so at present.
I have not heard anybody quarrelling with the details of the Bill in this House. It is certainly quite acceptable that redemption fees should be abolished. It is certainly not a great source of argument. I do not believe that the societies should lose their commission on insurance or that duplication of solicitors should not be allowed. What I think should be recognised is that the cost of these charges combined with the DIRT tax will be passed on to the consumer who is the borrower from the building society. There is no doubt that interest rates will rise as a result of these measures, that the cost to the borrower will be larger. It is difficult to estimate how much. The building societies estimate it will be as much as 1½ per cent. I think that is too high but I think you are talking about the effect of the DIRT tax and the effects of the measures in this Bill probably making mortgages about 1 per cent higher. That is something which should be considered by those who are framing the Bill and they should decide whether it is a price worth paying.
One of the concessions to the building societies in this Bill is that non-mortgage loans are to be allowed by building societies. This was heralded by the Minister both in his speech here and in the Dáil as a breakthrough in that it gave the building societies a breakthrough into new ground, that he was in some way allowing them to expand into new areas which they had not been allowed into before. He is applying it now just to bridging loans which is such a minor advance that I do not think we should really make quite such a song and dance about it. While bridging loans are very profitable, they are related to what building societies are doing at the moment, and very closely related to them, and it is a natural extension but it is not a breakthrough of any sort to allow the building societies to enter into new areas where they sorely need to go. What we need, I think, is to hear from the Minister, at some stage before the Bill is passed, what he intends, a very broad outline of what he intends to be in the following Bills which he has promised. My guess is that the silence on that will be deafening because it has not been thought out yet; it has not been considered but it is a very easy thing to say when introducing a Bill like this which is very one-sided.
What appears to have triggered off this Bill is the issue of tiered rates. The tiered rates system while it appears to be an abuse and appeared at the time to be an abuse by the building societies, while it appears to be a way for them simply to make more money, in practice it should be looked at a little bit more closely. It should be asked whether it is the malpractice it is perceived to be. The effect of tiered rates, it is my contention, would be — and has been in the past — that the larger borrowers would subsidise the smaller borrowers. The tiered rates vary from building society to building society but the actual effect is that those who borrow more money pay a higher rate than those who borrow less money. I do not see anything particularly unfair about that.
I see what has been wrong in the past: I see why there should be no retrospective tiered rate but I am not sure that in commercial terms the commercial world would disapprove of tiered rates because the banks have always operated a series of tiered rates. We have had the A and the AA and the triple A ratings and different rates which have operated there. This has not been in the past something which has been seriously questioned as socially unfair but is the normal commercial practice which has been accepted by the commercial world. While the issue of tiered rates has become an emotive one, it would be wrong for us just to dismiss tiered rates as a means whereby building societies are getting more money. If rates are to be evened out across the board, the effect will be that those who have larger loans will in fact be subsidised by those who have smaller loans. I do not think this was the intention of the Bill but it is going to be the result.
I would like to deal for one moment with the consultative council which is being set up by the Minister under this Bill. The consultative council appears to be just another means of giving ministerial and Government control of the building societies. It appears to be a stranglehold interfering with the normal workings of a building society. We do not see such consultative councils working on the banks, nor such consultative councils working on the insurance companies. The establishment of this council and the powers given to the Minister and this council only fuel suspicion that the political motivation behind this Bill is greater than the purported concern for those it champions.
It appears in the details of this Bill that the wish in it to restrict is running counter to the deregulation which is going on in financial markets and in commercial organisations throughout the world. The British Building Societies Bill which was introduced recently gives greater powers of entry into new markets for the building societies. It will be difficult for our building societies when British building societies come in here, as they will do under new rules very shortly, if we are competing with them at a great disadvantage. If the restrictions under which our building societies work are greater than the restrictions under which the British building societies work here in Dublin, we will be competing with them at a disadvantage. It would be a good thing if the Minister and the Department studied the British Building Societies Bill and, if necessary, adapt our Bill or introduce a new Bill so that we can compete on the same terms as British building societies when they come in and so that our buidling societies may change over to Britain and Northern Ireland and grab some of that huge market which is out there.
This Bill runs directly counter to the trend internationally. In principle, I would certainly oppose this Bill because I believe it ties the hands of the building societies in a highly political way without introducing a much broader financial services Bill which is necessary.
I would like broadly to welcome this Bill subject to a number of things that I have to say about it. In doing so, I will be doing, I suppose, what a number of Members of the House have done also, emphasising a number of things that are not in the Bill as well as the things that are in the Bill, which is a proper approach to a Second Stage of a Bill. I do not think our disappointment at the narrowness of the Bill should lead us to a situation like that suggested or indicated by Senator Ross, that in some way, because we did not get the kind of Bill we wanted, the excellent reforms which are in this Bill should be ignored or opposed just to make an additional political point.
I support the building societies and what they are doing. The building society movement has served and is continuing to serve this country well. There have been fundamental changes in the building society movement. It is well that we would recognise those changes and legislate for them. The building societies, within the context and framework of the economic background in which they are working, are providing a good service to their customers. They have provided that good service for many years and there is every indication that they will continue to do so in the future.
It is politically popular and attractive to emphasise some aspects of the way in which building societies are run. It is politically popular, for example, to indicate that in some way their advertising is wrong or excessive. While the advertising of building societies annoys me as much as the advertising of anything else on radio and television, I do not think it annoys me any more than that. As to the percentage of their resources they devote to advertising I would like to hear whether the Minister thinks it is excessive. My own view is that it is not excessive. By and large the building societies have used advertising to build up a market share for themselves which would otherwise not have been there. They have carved out a niche for themselves in the financial market which is important, not only to the building societies but to the country at large.
We had a very serious problem with the amalgamation of the banks in the sixties. Effectively, over large portions of the country you had only two choices with regard to loans because there were only two banks. In some places it was the Bank of Ireland and Allied Irish Banks. In other places it was the Bank of Ireland and the Ulster Bank. If you had any disagreement with the bank, the difficulty you had was enormous. The growth of any alternative financial institutions, even for part of the financial services being provided, is a healthy thing. The growth of the building societies particularly the bigger ones — the Irish Permanent Building Society, the First National Building Society, the Educational Building Society and the other two as well — has been a good thing as far as the general public is concerned. I have no reason to suppose that the building societies are not well managed. All the indications I have are that the building societies are well managed, are efficiently run and provide a good service for their customers. I do not begrudge the people who run building societies their directors' fees. There seems to be a kind of a sport of baiting people over the amount of money they are drawing from building societies. I have no indication — given the size of the institutions which are running — that they are in any way excessive.
That having been said, it must be recognised that the concept of mutuality has all but disappeared in the building society movement. I do not know how we can change that. There is no doubt that the hierarchy of the larger building societies is self-perpetuating. The members do not effectively control the election of their officers. I do not think that is fundamentally different from the position which exists with regard to any public company. I do not think the shareholders of the Allied Irish Banks effectively control who the directors of the Bank are going to be. The problem associated with the absence of mutuality in the building societies is no different from the problems associated with the erosion of shareholder control over any large publicly quoted company.
I do not want to overstate the problem with regard to building societies and put it any stronger than that. In so far as changes are necessary to increase the amount of influence which an ordinary shareholder has in appointing the board of directors and in controlling the policy of his company, the same criteria should be applied to the relationship between the members of a building society and those who are presently in control. To concentrate excessively on those who control building societies is a little bit unfair and a little bit selective. There is a problem in that regard but the problem is no bigger than the problem which is associated with the running of any publicly quoted large company in this or any other country in the western world.
I do not think there is any need for a confrontation between the Minister and the building societies. An attitude of confrontation has grown up between the Minister and the building societies to which I will refer. I recognise that there is a necessity for disagreement between the Minister and the building societies because they are on opposite sides of the fence. One is in the position of controlling and regulating the other. The other is in the position of seeking to stretch to the limits and to minimise the amount of control exercised by the Minister on behalf of this House and on behalf of the people at large.
Disagreements from time to time are inevitable but I do not think there is any necessity for confrontation. A feature of the recent building society-ministerial relations has been that there has been an unnecessary amount of confrontation. It is not for me to say who is to blame for that but it is fair to say that, on the one hand, there has been a political attitude quite blatantly shown by the biggest building society in the country. The people who run the biggest building society in the country are as entitled to have political views as anybody else but they should not confuse their political views with their public duty or their duty as those who control the biggest building society in the country. They should not confuse those two roles. They have become rather confused. They must bear part of the responsibility in this regard.
It would be unreasonable not to say that I find the attitude of the Minister unnecessarily combative towards the building societies. It is not necessary. The building societies are as responsible as any other financial organisations in the country and, subject only to what I have said with regard to the political attitude of the building societies, the way they have responded generally has been right and proper. A more conciliatory approach on both sides would be beneficial to both sides and beneficial to the building societies in general. I recommend strongly both to the Minister and to the building societies in general and to the largest one in particular that there should be a more friendly attitude towards each other so that the many problems which remain could be faced and, if not resolved, put on the back burner.
The building society movement was gravely damaged by the Civil Service Building Society saga. I had the opportunity to raise it in this House. It was an absolute shame that the Bank of Ireland were ever allowed to take over that building society because one of the main uses of a building society, in my opinion, is to provide an alternative to banks. The closeness of the relationship between the building society and the Bank of Ireland is noteworthy. The common use by them of the same computer for the purpose of cash dispensing must mean inevitably that there is in existence a system whereby the balances in one institution can be checked against the balances in another. That is precisely what we indicated should not happen during the course of the discussion as to why the Bank of Ireland should not be allowed to take over the Civil Service Building Society. That was a grave mistake and, in my opinion, has been a serious blow both to the concept of mutuality on the one hand and the concept of an independent building society movement on the other.
I support the concept of the Bill. Its specific measures, to which I will refer in a minute, are by and large very welcome. I accept that there is a necessity for a wider Bill. What I do not accept and refute totally is that because there is a need for a wider Bill, we should in some way translate that into opposition to the individual proposals which are contained in this Bill. That is quite childish and those who adopt that attitude merely want to have their cake and eat it. What Senator Ross wants to do is to say on the one hand: "I am a friend of the building societies" and on the other hand: "Of course what they are doing is wrong and the way I will get over my problems is when it is proposed to abolish some of the things they are doing wrong, I say I am in favour of it in principle; I am only against it because it happens to be in this narrow Bill". That is nonsense.
Senator Ross and the other Senators who feel like opposing this Bill should examine their consciences and should see whether it is right or proper that they should do so. By all means let them make the points on Second Stage as to what is not in the Bill but they should not use that excuse for not supporting measures to which they give lip service — because that is all they give. If they do not support it in this House all they are doing is giving, for example, the concept of abolition of redemption fees lip service. You either support it here, or you do not support it at all. I am confident that, because he is such an intelligent man, Senator Shane Ross will come to see this from the same point of view as myself.
There is a necessity for wider powers and certainly the changes which could be brought about in the building society movement as a result of the expansion of British societies into this country need to be given due weight by the Minister and his successors of whatever party during the course of the coming few years.
The only problem I see with the Bill is that a lot of the powers in the Bill are being given to the Minister. It is not being spelled out what the powers are. It is merely giving the Minister powers to make regulations of one kind or another. Noteworthy in that regard is section 3 which empowers the Minister to prescribe purposes for which loans may be made. The Minister in his Second Stage speech said he intends to use this power to allow building societies to provide bridging loans, but the power goes far beyond that. The overall extent of the power there is something which we should not underestimate because section 3 of this Bill could be used as the basis for extending the powers of the building societies far beyond the question of bridging finance. The extent to which the Minister sees this power as capable of being developed without further amendment is a matter to which we should give some attention on Committee Stage in my view.
There are other specific things mentioned in the Bill. There is the question of tiered interest rates. There is no doubt that this was a confrontation between the Minister and the building society which was, in my view, quite unnecessary. The attitude of the largest building society in this regard, in my opinion, was to be regretted. The Minister's attitude with regard to tiered interest rates is correct. It is grand to say that it will give rise to a general increase in the interest rates charged generally but one very important concept must be adhered to. That is a person who took out a loan on the stated or unstated belief that he or she would be charged the same rate of interest as the general borrowers from that society is now entitled to feel aggrieved if superimposed on that is a tiered interest rate in respect of his or her loan. That kind of approach by the building society was unnecessarily provocative.
Having said that I do not think we should confuse that with any other criticism of the building societies. I do not believe the building societies have acted unreasonably with regard to the question of mortgage interest rates in general. They have been the victim of the movement of interest rates which has been outside their control. Therefore, the fact that interest rates are high at the moment is not a reason why we should complain or criticise the building societies merely for that fact. The reasons for that lie completely outside the control of the building societies and to a large extent outside the control of the Government as well. There is no point in adopting a different attitude to the building societies merely because they must inevitably charge higher interest rates as a result of the general drift upwards in interest rates which was caused by the twin factors of the devaluation of the Irish púnt at the end of last summer and the uncertainty with regard to our present position vis-ávis sterling.
Section 6 of the Bill generally deals with the additional powers of the Minister to prescribe rules. Once again it does not lay out what exactly is to be done. It merely gives the Minister the power to prescribe rules. For example, it prohibits or restricts the charging of redemption fees. Presumably — this is something that we will ask the Minister to comment on during the course of the Committee Stage of the Bill — the Minister may make these powers and may unmake them. In other words, the Minister is under no obligation to leave the powers as he first decides them. I do not see where it is, but I am sure it is somewhere in the Bill, that the Minister can make these regulations and can subsequently change them. With regard to some of these matters, I would be much happier if we wrote in that there would be a prohibition on the charging of redemption fees. I see absolutely no reason for redemption fees. It is a restrictive practice which has prevented people from changing their houses or it is one of the contributing factors to so doing. The idea that if you pay back a building society in 15 years instead of in 20 years you should have to pay an additional three months repayments, or six months repayments, or whatever number of months repayments the individual building society propose, has no logic whatsoever. It is based on a misconception. It would be fair to charge a redemption fee if the building societies were borrowing long to lend long.
In other words, if I went in and borrowed money from them 15 years ago for a period of 20 years, if they made a matching borrowing from another institution for a period of 20 years then of course the early redemption by me of my loan would give rise to a situation where they would have surplus funds borrowed for which they might not have any immediate use. The reality is that building societies lend long and borrow short. The early redemption of an individual loan in no way affects them because if they have too much money all they need do is refuse to take any money the following day. They are borrowing short; they are taking money in over the counter every day.
So there is absolutely no rationale whatsoever for redemption fees where an institution is borrowing short and lending long. It would only be justified where people had matching borrowings, in other words, they were borrowing over a long period of time. Of course, they would be entitled to assume that the money would be borrowed by their customer for the same length of time as agreed in the original contract. There is absolutely no reason why redemption fees should be charged. To suggest that this is going to increase the cost to the borrowers in general may be right in the short term, but it will lead to a more efficient situation and to a greater amount of volatility in the house market, which is in the long term interest of the country at large and in the long term interests of the building societies and the borrowers who are making use of it.
Similarly, I do not see why it is necessary that the Minister should make regulations about the making available of reports but I am quite happy to accept those regulations because it may be important. The Minister will be aware that these reports have a considerable significance with regard to the question of the societies' responsibilities in examining the property to make sure it is value for money because the law has clearly developed to a stage now where the building society, in so doing, has a duty, under the Hedley Byrne series of cases, to the borrower to ensure that the inspection is properly made. There was a case where a local authority — I think Louth County Council — were held to be responsible in that regard. It was reported in the most recent publication of the Irish Reports. We must recognise that the availability of this report could be important if the building society were seen to have examined or valued the property in a careless fashion. The borrower could have redress to the building society on the basis of their report. That is right and proper and I support the Minister 100 per cent in that regard.
Nothing annoys people more than the question of having to insure your property with a building society. It is an intolerable situation, where the insurance is taken out of the control of the property owner. I recognise that the societies have an interest in ensuring that the property is insured and I am sure that they can protect themselves in that regard properly. But the idea that they will determine with whom you shall insure your property and the amount for which it will be insured is quite wrong and quite inappropriate. The insurance of domestic property has reached ludicrous proportions in some cases.
Some of the insurance companies used by the major building societies are insisting on applying inflation indices to the value of the property, which bear no relation to the rebuilding cost or the proper insured cost of the property. As a result of that in many cases the amounts for which properties are insured are far in excess of the amount which the property owner would get if the property was totally destroyed. One of the effects of this will be to ensure that there will be a proper matching between the value of the property on the one hand and the amount of insurance which will be carried on the other hand. I support that completely.
With regard to the question of legal fees, the Minister's proposal is quite right. I support the concept included in section 6 (1) (d). However, section 6 (1) (e) reads:
the arranging by a society through an insurer or an intermediary nominated by it for the provision of mortgage protection insurance.
I understand what that means but I do not understand why it is drafted in a different way. Subsection (1) says that the Minister may make rules prohibiting the charging of redemption fees. The making available to a member, the removing or restricting of a right or the precluding. In other words, the Minister can do certain things; he can prohibit or restrict the charging or redemption fees. He can make the report available. He can remove the right of a society to effect insurance and he can preclude a society from requiring legal costs to be paid. It is then much more vague because it does not say it can preclude the society from being the institution through which the mortgage protection insurance is arranged. It just says that the Minister may, after consultation, prescribe rules in general. It seems to me by the way it is drafted that all the Minister has in mind is to change in a slight way the way in which this operates. A much fuller explanation of that will be necessary on Committee Stage.
The other aspect of the Bill to which I would like to refer is the building societies consultative council. I am very unhappy with the way in which it is proposed to establish this council. There is no obligation put on the Minister to do it. The Bill says "the Minister may". I think that should clearly read "the Minister shall". I do not see why it should be left as "the Minister may" because in those circumstances the existence or non-existence of the building society council is a matter for the individual Minister. When you do not put an obligation on a Minister to do that, over a period of time — not necessarily with this Minister or not necessarily with this Government or the next Government — they become careless about it and the building society consultative council will fade into oblivion.
There should be an obligation on this Minister, and on all succeeding Ministers, to appoint a body and it should be much more stringent than the provisions which are laid out in section 8 of this Bill. There should also be a clear indication as to the number of persons who shall be appointed by the Minister. There might be some indication also as to what interest groups should be represented on it. I do not think the only interest group that should be represented are the people who borrow from building societies or the people who lodge money in building societies. There is a wider public interest with regard to building societies which should also be represented on this consultative council.
Indeed, it might be useful to have a representative of the building societies themselves, not in a dominant position, but giving the building societies' side of anything which is being discussed. That is something on which I would like to hear the Minister speak in general. It is important that this should be teased out and that the building societies consultative council should be strengthened to ensure that it becomes a body with real teeth.
The Building Societies (Amendment) Bill, 1986, will form a useful platform for the creation of conditions whereby building societies can develop a good and constructive role in the years ahead. The growth of the facilities being provided by the building societies is inevitable. They will eventually provide cheque books and the various other facilities which we do not associate with them at present. However, in recognising the useful role which they have to play in providing an alternative source of finance to the general public — alternative from the banking system — we should also recognise that they have a particular role to play with regard to the ownership by the general public of their own property. Underlying everything I say with regard to the building societies is the fact that it is a good thing for society that people should own their own houses.
It is important in considering the criticisms people have of building societies in general that we establish on what basis people are making their criticisms. I am making my criticism clearly on the basis that I want the situation to develop with all its faults. It has faults with regard to the reduced mobility of the workforce, for example, but even with all its faults, the matter of people owning their own houses is a positive development in society. In my experience there is no single event, whether it be social or economic, in which a family can engage which will give rise to an improvement of their relationship with the remainder of society than proper housing. Proper housing, whether it be public or private, is the most important thing. The second important thing that will give rise to a positive development is the fact of their owning their own house, having a stake in their own piece of property. It is an excellent development which I support.
For these reasons I impress once again on the Minister and on the building societies to put to one side any personal difficulties they may have with each other, to resume their consultations in a constructive and sensible fashion, to forge a new building society movement, recognising the changes which the scale of the movement has inevitably brought about and, having done so, to introduce an even more comprehensive building society Bill in the near future which will further strengthen that important sector of our community.
I want to say at the beginning that parasites are a necessary part of human existence. Parasites exist in the human organism to do necessary things. They are not constructive but they are not necessarily things we can do without. That is the context in which I would judge most, if not all, of the activities of many of the private sector financial institutions. They are necessary but parasitical organisations which prey on the economy and consume resources within it but are necessary in the society we now have of an unregulated, undemocratic economy incapable and not susceptible to democratic control.
We must have financial institutions and, regrettably, we must regulate those financial institutions in the context of the powers we choose to leave with them. We cannot do the things we would wish to do with the larger financial institutions because, unlike people and politicians, those who control financial institutions do not believe in values like loyalty, patriotism and commitment to a country. They have a single-minded obsession with the maximising of return for their investors, as they would allege, but the investors return is a coincidental good on the way to maximising the benefit to the institutions. Therefore, to do many of the things many of us wish would simply result, in the context of EC regulations, in the flight of capital out of the country and the destabilisation of the public finances. That is the reality. In this whole area, no matter what fighting words successive Ministers may produce, we do not have the instruments of legislation and financial control to deal with some of the more brazen barbarities of the financial institutions in terms of the way they very often threaten and intimidate the State.
That is the reality in which we must look at what are necessary amendments to the way in which building societies do their business. It is necessary to say at this stage that of course these amendments are welcome, but one has to think about the sort of society which could envisage such ridiculous things as somebody doing a survey on a house to decide whether it is in reasonable condition and of reasonable value and then saying: "I have done the survey but you cannot see the report". If you stand back and look at any other area of society, that sort of idea becomes an utter nonsense. The only remarkable thing about ensuring that borrowers have access to such reports is that it took us so long to get around to it. That is not in any way to minimise the significance of it. That is equally true of a number of the other provisions. The idea that just because I put a building society to the unfortunate inconvenience of my paying off my loan early they charge me for the privilege is equally nonsensical. It is only because we have this dread of upsetting the mandarins of the financial institutions that such reforms are undertaken so slowly.
It is equally true that the demand by building societies that they should say with whom one should insure one's house is a nonsense that should have been confronted many years ago. It is not that they own political parties but because the financial institutions wield awesome power — as they have demonstrated on a number of occasions in recent years — that they have to be treated with such kid gloves. No other area of interest in our society would be treated with such kid gloves and care as the financial institutions. No matter how much rhetoric there is and no matter how many hot words are issued, the truth is that all political parties and all governments are intimidated by the financial institutions. They are intimidated by the powers of the financial markets, intimidated by their capacity to undermine the stability of the currency, to undermine the stability of the public finances and, basically, to threaten democracy itself.
If people think I am exaggerating I refer them to an article written in Business and Finance recently by a senior Irish executive of the World Bank — which is, after all, a financial institution — in which he eulogised a large number of small countries for their economic success. The one thing they all had in common was that they were not democracies, and most of them were of a more or less fascistic and right wing bent. The fact that they were fascist and undemocratic did not seem to matter a whit to this man. What appealed to him was the fact that they were doing wondrous things in the area of deregulation, for instance. Anybody who thinks that it is possible to reconcile the extension of social democracy and all of its values with free market in the area of financial institutions is talking in contradictions. You cannot have a free democracy if you leave financial power in the hands of a small minority. That is the reality of life in dealing with building societies, banks, insurance companies and so on. As an unreconstructed socialist, and as Senator O'Leary said, that is the perspective from which I judge any legislation dealing with financial institutions.
The ultimate gall and the ultimate brazenness of many of the leaders of financial institutions, among them building societies, is the extent to which they give themselves airs to talk about the need for what they would talk about as sacrifice, patriotism and for hard decisions to be taken in the interest of the national economy. At the same time, the same financial institutions when they are asked to make sacrifices will promptly give us lectures about the business realities, the realities of the marketplace, the realities of the world economic climate and the realities of the free movement of capital. Their attitude is it is all right for us to ask you to be patriotic, to make sacrifices and live without the necessities of life, but you cannot expect that from us. We are above such minor details of self-sacrifice and patriotism. We live in the world of the free market in which values and humanity do not count and in which things called market forces — which are nothing more, by and large, than the collective expression of the greed of a small minority — dominate our lives.
Just by way of example, before I talk about building societies, let us not forget the calculated attempt to undermine the public finances that happened two years when this Government went some way towards eliminating a tax avoidance procedure known as bond washing. A concerted decision was taken by financial institutions to endeavour to sell off £2,000 million worth of Government stocks inside a week and in the process to totally undermine public finances, threaten the stability of our currency and, indeed if they had gone ahead with it, to destablised our society completely. These are the people who in other forums and in other times when they are at one or other of these functions where they must wear their public interest hat, will give lectures about patriotism, self-sacrifice and so on but when their own interests are threatened no such values motivate them. The speculation against the currency over the past three or four months was equally an indication of their real interests, their real values and their real priorities.
Finally, and most shamefully — and it refers specifically to building societies — the obsessive advertising of the confidentiality of lenders' accounts in all our financial institutions says something about the fundamental values that are at work in the area of the financial marketplace. Can you imagine employers advertising jobs where they say: "One of the guarantees we will give is that your income is confidential and we will not tell the Revenue Commissioners what we are paying you"? Can you imagine the enormous incentive and attraction that would be to people who wanted to avoid income tax and how ludicrous we would all regard it? We would regard it as utterly ludicrous that people should be allowed to maintain total confidentiality about how much they were being paid for their labour because it is a normal part of a civilised society that people should pay taxation on their income. Then we turn to those who choose to invest in a financial institution and we are told: "No, we will not ask to know who has money there, how much they are being paid or how much interest they are gaining. We will make it totally confidential."
If people are paying the proper level of taxation on any interest they earn, then there is no need for confidentiality. The only justification for confidentiality can be that we are actually turning a blind eye to widespread tax evasion by financial institutions, or through financial institutions by individuals. It is quite ludicrous in a society which legislates to protect such confidentiality to ask other people who have less, who will always have less and who are pitilessly overtaxed, to accept that there is any justice in our society.
That is the reality of the way financial institutions operate. There is nothing in it to do with patriotism, with self-sacrifice or indeed with mutuality in the way that building societies claim to have been set up and claim still to operate. It is all worthy of being judged in the present fashionable campaign for deregulation.
I would have thought, given the scandal that has emerged in Wall Street in the past two or three weeks, that the apostles of deregulation would at least have taken a deep breath before they said any more. In Wall Stret an individual is reputed to have made between 500 million and 600 million because of his access to insider information, his capacity to use that information and his capacity to supply it to others. In return for paying one-sixth of that back to the authorities he is now going to blow the gaff on all the people who were involved. There is also the present spectacle of Guinness being investigated in Britain because of alleged irregularities in share dealings or the major suspicion many of us have about the extent of insider dealings on the Irish Stock Exchange. The inadequacy of regulation in the area of the stock market in Ireland is a matter that has been commented on frequently.
We cannot pretend that we control any of these institutions. We control them on the peripheries because we are afraid of what might happen if we tried to control them where they really operate and where they really work. It is particularly ironic that we are so intimidated in the area of the building societies which are supposed to be of a different fundamental nature and philosophy to the private banking sector. They are meant to be mutual societies, where people come together to save money to enable each other to buy houses. That was the original intention. To suggest that an oligarchical dynasty like our biggest building society, where son succeeds father as the chief executive, is somehow a mutual organisation looking after my interests in an entire and utter nonsense. The coincidence of interest between myself and the managing director the the Irish Permanent Building Society is zero. It is a financial institution dedicated to the maximising of the interests of the financial institution at my expense to the extent they deem necessary to maintain their profitability and to maintain their notions of their own position in society. I am a victim of their manipulation of the marketplace; I am not an equal participant in some mutual society. That is the reality of the building societies as experienced by the vast majority of home owners in our society.
In that context, I do not share this widely held view that the obsession we all have with owning our own homes is necessarily such a wonderful thing. A German friend of mine recently said to me that he had great difficulty in coming to terms with Irish society. He said: "In Germany we rent our apartments and we own our televisions while in Ireland you own your homes and rent your television sets". He does not understand our priorities. His view was that it was an extraordinary burden to undertake. Part of the problem is that we buy houses because it is the only way we can have security outside the local authority market: security of tenure, the right to decent accommodation and the right to a reasonable rent. All of these things are far from clear and far from guaranteed in Ireland. There is a perception of uncertainty there, whatever the legal realities, and that is part of the reason.
The other part of it is the extraordinarily generous level of mortgage interest relief given which only a saint or a fool could ignore. I am getting about £50 a week from the State for the privilege of acquiring property which I can pass on to my children without any form of capital taxation or inheritance taxation because it happens to be my own home. The objective of giving people decent houses and decent homes, of course, is without question. Whether the instruments of policy are correct is another matter and a matter with which I, and I am sure 95 per cent of the membership of this House and the other House, would take issue. The obsession with home ownership may have produced stability in our society but I am not sure that it is a stability out of which creative thinking or anything like that can come. It is a stability in present day terms, given high levels of personal taxation and high levels of interest, which is based on desperation for a large number of people. There are very few people in our society who can reasonably sustain the interest rate increases that have been foisted upon them, quite unnecessarily in my view by the building societies in recent months.
It is in that context that we should look at building societies and talk about some of the nonsenses they come out with. They tell us that market forces dictate interest rates. It is an extraordinary market force where one half of the market is rigid, confined, has no choice, has no mobility and has no alternative but to pay up. That is the position of the average borrower of a building society; you are stuck with a loan, stuck with paying it off and you have no choice. To try to impose a classic free market model, where both seller and purchaser have equal freedom of choice and equal right to negotiate, on the realities of life for the average mortage holder is to fly in the face of reality. That is why we cannot allow institutions like building societies to claim to operate according to some free market model. It just does not exist. There are suckers there to be screwed to the floor every time there is a single perturbation in the market, every time a Government threaten to do anything to deal with them.
It is particularly ironic that the building societies try to claim that the introduction of the deposit interest retention tax somehow justifies a further increase in their interest rates, given the fact that they have equalised their competitive position vis-à-vis the banks and all the other financial institutions. They tell us that because the level of taxation has gone from 28 per cent to 35 per cent they are justified in having a further interest increase. This shows that many of the building societies do not base their campaigns for interest increases on what they describe as market forces. The market does not really exist in many areas of building society operations because they have a monopoly and they have a position of total control over one half of the market, over the borrowers. What they are actually talking about is a political perception of Irish society, of their role and their rights in Irish society and their willingness to use their political muscle to bring governments under pressure. That is why I welcome the Minister's willingness to do what he has done so far because it may bring home to them that whatever their power and whatever their notions of themselves are, they are not unlimited.
I welcome the amendments in the Bill. However, it is a very small step along the road. I am amazed that at a time when we are talking about improving the operation of financial institutions that after ten years the trustees savings banks are still waiting for amending legislation to enable them to compete on an equal footing with the commercial banks. The Post Office is now having to complain about a lack of willingness to allow them to move into the area of banking and one wonders why. All the myths about the State sector vis-à-vis the private sector are called into question if a group such as An Post are allowed to operate with a full banking licence. The idea of an organisation with branches with full banking licences in virtually every small village open from 9 a.m. to 6 p.m. five days a week, and for a half day in the smaller branches, with opening hours that must exceed by a factor of two or three those of the commercial banks would undermine the whole monopoly position of the commercial banks. The idea that they might have to stay open until 5 p.m., the extraordinary idea that they may have to stay open during lunch time and the more ludicrous idea that they open on Saturdays would not be acceptable to bodies who lecture the rest of us about the values of market forces, of competition and so on. They eulogise on these things when they affect everybody else but they assiduously ignore them if they affect themselves, whether they are the building societies or the banks.
If a government cannot achieve the right and proper objective, which is total public control of all financial institutions, they should guarantee that within the public sector where a network of branches exists there is the maximum effective use of the State banking system, and that should be An Post. An Post should be allowed immediately and speedily to have full banking facilities operated through all its branches. That would be the sort of dynamic market force which might force the cosily cosseted banks which do not compete, which do not take risks and which only innovate under most extraordinary restrictive circumstances, to face up to a number of the realities which they choose to avoid.
In terms of the future of financial institutions in Ireland, the Building Societies (Amendment) Bill 1986 is a small step along the way. Real competition is necessary, not some sort of superficial competition based, as in my workplace, on offering a student £5 to go to one bank as distinct from £3 to go somewhere else or offering free student cards or other little things which mean very little in terms of the resources of the banks.
There is need for real competition in terms of lending and borrowing. That does not exist at present. If it existed it would ensure that all financial institutions operated at times and on days that suited their customers rather than suiting themselves. The major merit of the free enterprise market economy is that if proper competition exists it can at least be to the benefit of the consumer. We have the ludicrous position of financial institutions having all the benefits of a free economy in terms of how they determine interest rates, of how they determine their lending policies and of how they determine who to give loans to and at the same time we have all the restrictions of a virtual monopoly. We have the worst of both worlds.
One of the instruments of policy the smaller countries in Europe, whom we should be attempting to emulate, have used from 1930 until now to develop economies which are more dynamic, more flexible and more advanced than ours is that of a far more regulated financial market place. Therefore, we should begin to wonder again about building societies. Building societies should either become again the mutual societies they were set up to be or they should become financial institutions in their own right forced to compete fully in the market place with all the pressures of competition and the pressures of people being able to move from financial institution to financial institution at times and under circumstances that suit them. The major way of stimulating real competitiveness in the financial markets is to allow the one State institution which could do it, An Post, and the trustee savings banks also to have full access to the financial markets and full right to compete in all areas of the financial market.
I welcome the Bill and I am glad the Minister introduced it. I will not give him any lectures about his alleged lack of flexbility with the building societies. They have got away with far too much for far too long and I am very glad to see a Minister at least dealing with some of the more ludicrous privileges that these organisations have claimed for themselves. It does not take more than one step back to look at these privileges to realise that they were ludicrous. They are all part of the dreadful position borrowers are in vis-à-vis their building societies — the monopoly position and total control where the borrower has no option but to agree. I hope the Minister will ensure that any of the ludicrous claims of the societies to raise interest rates irrespective of market forces wil not be allowed. One of the fascinating things about building societies is that they can say they are raising their interest rates because of market forces when it suits them. Even if the market was pushing interest rates down they would find a way to push them up to maintain their own costs and miraculously if no market force came into play they would not be wiped out. Their lenders would not go elsewhere because interest rates were out of line with the market force. That would not happen because their financial interests were at variance with the market and they would simply ignore what they know to be a most inflexible market and carry on regardless. Therefore, I hope the Minister will ensure that none of these amendments is allowed to be passed on to borrowers in the form of higher interest rates.
There is nothing in Irish society that causes more problems than the problem of housing and building societies by their nature are there to help in an effort to provide housing by way of loans. Having listened to the speeches yesterday evening and this morning it is quite clear that there are strong views on this. Yesterday evening there seemed to be much emphasis on the fact that the Minister and the building societies were more or less at loggerheads with each other. It is very important that these two very important institutions, the building societies and the Government, should be seen to be able to deal with problems that exist.
Earlier somebody said he accepted what the Minister had done but that they were only small things. It is unfortunate that these problems have existed for so long and have not been tackled. Anything we can do to help in the building of houses should be done, particularly in this era when so many people are having financial difficulties. Many people who started off so eagerly on building society loans and who were very pleased to have their own houses now find themselves in a different financial position altogether. Varying rates of interest can be frightening for them. Senator Ryan talked about market forces and so on. While the building societies can have a certain amount of pre-occupation in dealing with this, the mere mention that they may increase their rates by 1 per cent can send shudders through the whole community, especially for somebody who is struggling and trying to pay an existing loan. That kind of announcement can send tremors through the whole community.
It is very important that the Minister is there as a defence for the people who are trying to pay back these loans and can say to the societies: "We understand your problem but there is a limit". If we do not have that kind of legislation, people will almost lose hope that they will ever get out of situations where building societies can keep adding on rates of interest if it so suits them. One part of housing costs that always aggravated me, and I am sure the Minister has heard it mentioned before at meetings, is the question of duplication in engineers reports. The county council send out an engineer to check the house as it is being built.
This does not concern the societies directly perhaps, but even in our own case, engineers go out from county councils to check the house. They guarantee that it is all right. The council pay out the loans and then we have another inspection by the Department. All these things are adding to costs, the cost to the Nation. I am quite sure the same applies to building societies in regard to reports, valuations and legal advice. I welcome the fact that an effort is being made to cut out this duplication. Houses are dear, repayments are dear, legal costs are dear. If you get away with one at least you have something in your favour but if you are paying two costs it is absurd.
Many people have the awful difficulty of bridging loans. Anybody who gets caught by a bridging loan pays through the nose. This would not be necessary if loans could be paid out reasonably quickly, but then there has to be a certain amount of red tape to protect public finances. I can accept that but sometimes, delays occur that should not occur. I was on to the Department of the Environment this morning concerning a housing matter that was held up for a longer period than it should have been and the excuse was that delays do take place in the Department. That is a very isolated event but I thought it was an absurd comment for any person to make. He could have said they left it aside and forgot it. Delays should not take place; mistakes should not be made; someone should not be held up for a long time, simply because an application form was left aside.
Anything we can do to help to provide housing should be done. There is a question which probably arises at the end of a person's life when he redeems the loan. I did not realise how ridiculous it was until a relation of mine bought out his house this year. He had about five years to go and finished up paying a penalty of £1,200 to the building society because he was paying off his loan. Putting an end to that kind of nonsense justifies this Bill. In normal circumstances you get discount for paying off your bill. If you have to pay a penalty of £1,200 simply because you are paying off your bill five years in advance, something is completely wrong. I am glad the Minister has put an end to that practice.
On the question of valuation reports, I can never understand how people can decide that they work on your behalf and make you pay for it, and at the same time tell you it is none of your business. If I were borrowing from a building society for a house which in my view was worth £40,000 but the building society decided it was worth only £30,000 or some such figure, I could be living in a fool's paradise. If people are charged for a service, they should be entitled to receive the information.
The question of insurance has arisen. That is an old chestnut. Why should anybody be compelled to insure their house with the insurance company suggested by the building society. It was a malpractice that should never have been allowed. At least it is tackled now and we can be grateful for that. I mentioned already the question of duplicating legal costs. All this duplication leads to extra costs. We should remember that at this stage people are struggling at the start of their married life to get enough money to buy a house. They cannot afford to pay £1 extra. They are just struggling and hoping to meet their repayments. If they have to pay legal fees they should not have to pay, or pay extra insurance they should not have to pay, or pay for a report, or for a valuation they probably have had done themselves, they finish up paying out money they could well have spent on furnishings.
While a certain amount of emphasis has been put on the fact that the Minister had to take on the building societies, we should not go overboard on this. Nor, in fairness, should we wrong the building societies because they play a very important role in our society as well. They are providing money for houses and providing places to invest money. They should not be free to threaten to increase their rate of interest when it suits them, or when they feel they should do it. It is a very difficult sector to control — what causes money to be scarce or plentiful and what causes interest rates to rise. It is a one-sided affairs as Senator Brendan Ryan has said.
They have the dice on their side and they can decide at any stage that they have reason to raise the interest rate. For those who are borrowing money, this is so serious that the Minister should always be on the alert. If he is seen to be taking on the building societies to protect the borrowers, he should not hesitate to do so because too many people can be affected by any variation in the rate of interest charged. Nowadays people are no longer as sure of a job as they were and many who started off in good faith, thinking they had a job and for life, find themselves without a job and with a loan they cannot redeem.
I welcome this Bill. I hope there will be no unnecessary confrontation. I will certainly defend the Minister to the last if he has to take on the building society if he thinks they are not giving a fair crack of the whip to those who are borrowing from them.
I should like to thank Senators for the obvious keen interest which they have shown in this Bill and in general for the welcome which they have afforded to the measures contained within it. The Bill will benefit many thousands of existing and intending building society borrowers. I think it is as well to remind the House again of the main provisions contained in the Bill. They are provisions which, in many respects, deal with a number of items which have given rise over a period of time to widespread public concern.
The Minister will have power to abolish the redemption fee which has been spoken about and criticised by virtually every Senator who contributed, to make regulations regarding the way in which people may take out insurance on their own property rather than through the building society or the society's nominee, to make the valuation reports which the borrower pays for available to the borrower, and to ensure that the borrower is not charged two sets of legal fees at the time of purchasing the home as well as possibly providing for mortgage protection insurance.
The Bill also provides that tiered interest rates on mortgages shall be disallowed where a society did not charge those tiered rates before 1 August of this year in relation to existing borrowers and, in the case of those who borrowed from 23 October onwards, that tiered mortgage rates would be abolished in respect of those loans and all future loans from a date some six months after the passing of this measure.
The Bill also provides for a faster procedure to be brought into operation for the making of rules prescribing the way in which directors of building societies should be appointed, removed and remunerated as well as for the provision of a building societies consultative council. On the other side the Bill in section 3 makes an important provision allowing the Minister for the Environment, following consultation with the Minister for Finance and the Registrar of Friendly Societies, to make new powers available to building societies allowing them to extend loans, whether secured or unsecured, for purposes which might be considered appropriate.
I have already indicated on a number of occasions that I felt that allowing building societies to make bridging finance available was a particularly appropriate extension of the powers and functions of societies. I am interested to examine what other areas societies might most appropriately be allowed to explore. I indicated to the House, for example, that allowing societies to make loans available for home improvements seems to me to be a very logical extension of the activities of building societies.
There were a number of points raised by Senators which I will try to deal with before making some general observations. Senator Lanigan suggested that the provision in the Bill regarding insurance run counter to what has been done in the case of local authority loans. In fact, in the case of local authority loans, through a change which I introduced earlier this year, local authority loans now automatically have a mortgage protection insurance element built into them. I think that is a very desirable safeguard from the point of view of the borrower and the borrower's spouse because it has the effect of redeeming the loan, in effect, in its entirely on its outstanding balance in the event of the death of the borrower. I have included in section 6 the power to give the Minister the right to make regulations imposing a similar condition in relation to mortgages extended by building societies to their members. I have indicated to the societies that I would be interested to hear from them as to how best they would see a provision such as that being built into their loan system.
Senator Lanigan was also concerned that there might be a limit placed on the extent of the non-mortgage lending by societies which might be allowed under section 3. In fact, that section provides for regulations to be made and it would be my intention to ensure that a set maximum limit would be imposed so as to ensure that an undue proportion of the funds of building societies was not devoted to non-mortgage lending. That would not be in the interest either of the society or their investors and would, of course, obviously run counter to the original purpose for which building societies were established.
Senator FitzGerlad referred to the provision relating to the prescribing of rules and the making available of valuation reports to borrowers. I know different societies employ different types of technical or professional people for the purpose of making valuation reports, but the basic fact is that the valuation reports are prepared and submitted to the societies so as to satisfy the society that the property has a value which is such as to adequately cover the amount which the society intend to extend by way of mortgage on that property. It is, of course, correct that the societies should feel satisfied that there is that element of cover in the event of a default on the loan.
It is equally fair that the potential borrower who is asked to pay for that report should be given sight of it so that he too may be satisfied that the property does have, in the opinion of the valuer whose fee they are paying through the society, the value of at least the amount of the loan which they are seeking. The report is, of course, a valuation report and not a structural report. A detailed structural report would, in most instances, be even more expensive than the valuation reports which are normally sought. The suggestion is merely that the valuation reports, which now are prepared and made available exclusively to building societies, but at the expense of the potential borrower, should also be made available to that borrower.
There was much discussion during the debate regarding the general level of management expenses of building societies and particular reference was made on a number of occasions to the level of advertising engaged in by the societies and this was referred to, amongst others, by Senator FitzGerald. I remind the House that the discussion document on building societies which was published earlier this year following the interdepartmental committee report concluded that direct control on management expenses would be ineffective or counterproductive.
I have outlined my belief several times that the enhanced competition and the accountability which should result from this Bill and further measures which are to follow will all in turn bring about an improvement in this area. The House should, of course, be aware that there are in existence potential powers available to the Minister of the Environment under section 76 of the Building Societies Act, 1976, if it should be necessary and that section enables me to make regulations on the recommendation of the Registrar of Freiedly Societies and after consultation with the Minister for Finance and the building societies consultative council, which will now be established under section 8 of the Bill to make regulations, if it should be necessary, regarding the management of societies including the prescribing of limits on operation and management expenses. There is no doubt that the general level of management expenses charged by societies in recent years has risen very substantially indeed and has been a source of quite an amount of comment.
A number of the other individual points which were raised are perhaps more appropriate to the Committee Stage of the debate and might better be dealt with at that time. I would like to turn to the general comments that were made, specifically the comments made by Senator Lanigan and to a larger extent by Senator Ross. I found it rather difficult to follow the reasoning behind Senator Ross' contribution. On the one hand as he went through the specific proposals in the Bill he appeared to agree with each of them, with the possible exception of the measures regarding tiered interest rates. Yet, on the other hand, he took the view that the Bill ought to be opposed for two reasons — one that it had been conceived from a conforntation between myself and the building societies, and secondly, it should be a more comprehensive measure.
In relation to that last point, I had a similar difficulty listening to Senator Ross' contribution on another measure which I had before the House yesterday and last week, the Electoral (Special Voters) Bill, 1986, making special provision for voting procedures for the disabled. On that occasion the Senator criticised that Bill on the basis that it had taken too long to produce it and that it did not provide for sufficient voting arrangements for sufficient groups. In relation to this measure the Senator has criticised it on the basis that it is not comprehensive enough in addressing the entire question of the building society movement. Were that approach to be adopted towards legislation generally, I am afraid it would be very seldom that legislation would be published and virtually all of it, when it did arrive, would be of such a monumental nature as to virtually take up almost the entire parliamentary year on the one item.
The Senator specifically made a suggestion, which would not endear him to my colleague, Deputy John Kelly, namely, that as the British Parliament had recently published a Building Societies Act, we ought to adopt the measures in that legislation and enshrine them in our code so as to provide adequately for the Irish building society movement. To put the question in perspective, let me give some idea of the length of time it might take to prepare legislation, not based on the British legislation, but legislation felt to be appropriate to Irish conditions, to the changing marketplace, to the increase in the level of interest in financial services, to the pending EC Directive and to the change in the British legislation which will allow British societies to trade abroad, which means that they very likely may seek now to set up here. This British legislation which took some years to prepare, I gather, amounts to 126 sections together with 21 Schedules and runs to 286 pages.
The simple fact of the matter is that there is nobody more than I in the last year who has stated publicly and privately the need for building societies to change and to adapt to changes in the marketplace, to realise that increased competition is on its way, to realise the profound changes that will be brought about through the whole of the European Community regarding the internal market and the EC Directive which is now under discussion, to realise that, because of changes in the British legislation, British societies are now permitted to operate in countries other than Britain and that some of them may well indeed if some of the rumours and comments are to be believed, be turning their sights towards the Irish market, to realise that banks and other financial institutions are now becoming much more interested in the home loan market, to realise that technology is bringing about great and rapid changes in the type of customer services that can be provided. For all of those reasons it was incumbent upon the management of building societies to respond to these changes, to realise that many of the things which are addressed in this legislation, and which upset borrowers and the general public have all disappeared in other countries, including Britain in recent years, through the effect of increased competition and the arrival of other financial institutions into the home loan marketplace.
I have made those points over and over to the building societies during a series of meetings which I had with them. I find the remarks of Senator Ross hurtful — and to some lesser extent the remarks of Senator O'Leary — regarding this supposed unnecessary confrontation which exists between myself and the building societies. The simple fact of the matter is that I have had, in the course of the last ten months, ten meetings with the building societies, nine of them with the Irish Building Societies Association and one meeting with those societies which are not in the association. I gather that in the previous three years there was hardly that number of meetings, nor would it be usual for there to be more than perhaps one or two meetings in a year between the Minister for the Environment and the building society movement.
I have had a series of meetings and I endeavoured to set up a working party with the members of the Irish Building Societies Association to address all of these topics, but — I mentioned this on several occasions subsequently — I pointed out to the Irish Building Societies Association that many of these practices which are now addressed in the Bill, in sections 4 and 6 specifically, were practices which were objected to by the general public who found them unacceptable. I invited the societies, so as to allow a working group to operate in a better climate, to agree to adopt a voluntary code of practice which would address many of these measures which have gone out of practice through the effect of competition in other countries and which certainly provoke regular criticism from the general public.
I suggested to the societies that it would be in their interest, to identify in advance the sort of measures which were likely not to be adopted by new competition, likely not to be operated by, for example, British societies if they set up here where, to take one example, redemption fees are not charged and have not been charged for some years by British societies to drop those practices now and to identify in advance and endeavour to head off some of that competition, and to have their image become more acceptable to the Irish public. To allow the detailed discussion that would be necessary to adopt comprehensive legislation and to have it drafted, they should adopt a voluntary code of practice dealing with virtually all of the things which are contained in this Bill and which were criticised here by Senators and by Deputies in the other House.
The Irish Building Societies Association did not see fit to adopt that voluntary code of practice and they suggested instead that those matters might be discussed in the context of the larger legislation. The larger legislation, quite frankly, if it is to be of the nature or the size of the British legislation is going to take many, many months in discussion and many months longer in drafting, not to mention the length of parliamentary time it is likely to take before enactment. As those societies were not prepared to address those questions on a voluntary basis, I felt it was incumbent upon me to introduce legislation dealing with those matters whilst, at the same time, counter-balancing them by the provisions contained in section 3, which the societies have said for some time they urgently need — the right to extend the types of loans which they can engage in so as to produce additional income for them.
I found it interesting, not to say telling, that in the one very interesting and helpful discussion which I had with the societies who are not members of the IBSA, they agreed at that meeting that, if they were given a reasonable amount of additional functions under section 3, the additional income which those functions would generate for the societies would offset at the very least, but much more likely more than offset, any change in income for the societies which might be brought about through the abolition of redemption fees or the other practices, all of which have been criticised by so many people.
The Bill is finely balanced. It provides for a logical extension of the powers of societies under section 3 and thereby an opportunity for them to generate additional income and that additional income will offset any losses of income to them through the operations of sections 4 and 6, which are to deal with practices which are not acceptable to the general public. It seems to me that that, in fact, helps to put the Irish societies on a better footing and in a better marketing position vis-à-vis their customers and the increasing competition which they and we are already witnessing in the home loan market coming from the commercial banks and which is likely to come from other financial institutions, whether domestic or foreign based, in the near future.
I find it difficult to accept the suggestions made by Senator Ross that this legislation was conceived because the Government, as he put it, could not get their way with the building societies. There is a clear duty upon the Government to ensure that societies which now play such a major financial role, as do the Irish building societies, are given the legislation to allow them to operate fairly and with equity and to continue to provide the important element of home loan finance which they do.
There is an equally clear obligation on Government to defend the interests of the real owners of the societies. The real owners of the societies are its members who consist of the investors and the borrowers. There is a real duty Government to ensure that all of those members are treated equally and fairly and if practices are being engaged in to which the members and the general public object there is an obligation on the Government of the day to first seek agreement, and if that is not possible then to seek the authority of Parliament, to deal with those deep-seated problems. That is what I am doing and that is what I believe to be the obligation of Government. I am doing it on behalf of a large vested interest group called the general public. I am not quite sure who Senator Ross was speaking on behalf of.
I have no doubt that this Bill will help the Irish building society movement. I have no doubt that it will help borrowers and potential borrowers and I have no doubt that the measures contained in it are necessary and correct. I want finally to refer to one other item and that is the question of tiered interest rates. I do not understand how at a time when tiered interest rates were disappearing off the British market simply through the force of the market and competition that instead one society here, by far the largest society, which traded very profitably down through the years and especially during recent years, should suddenly move to introduce tiered interest rates not only for new but for its existing borrowers. I found that to be unacceptable at a time when I had hoped that other societies might have moved away from the concept of tiered interest rates. I also found it particularly objectionable that existing borrowers were to have this tiering arrangement applied to their existing loans.
As I mentioned at the outset of my contribution, I found it incomprehensible to discover in the course of one of the meeting I had with the Irish Building Societies Association, that according to the chief executive of that society a decision had been taken by the board of that society six or seven years ago to charge tiered interest rates to its borrowers but that decision has never been made public and the borrowers of the society had never been informed. The people who had borrowed from the society in the period between the board's decision six or seven years ago and the announcement last July were given no indication that there was a board decision to charge tiered interest rates on those loans at the time they took out those loans. It does not seem to me that that could be regarded by any criterion as being a fair or acceptable business practice. It was for that reason that the Government felt that we had an obligation to deal with that matter.
It is also interesting for Senators to reflect on this question of tiered interest rates. There is no uniformity or particular logic about the tiered interest rates system. On Committee Stage on that section I hope that it will be possible to outline in greater detail some of the different bands at which tiering starts and some of the different tiered interest rates charged by different societies. I will conclude by giving just one example. One of the largest of the societies which charges tiered interest rates commences its tiering band on loans of £21,000 and upwards. As Senators will realise with presentday price levels that effectively means that that society for just about any loan which it extends on new houses is charging a rate above the basic rate. As far as the majority of borrowers from that society are concerned, there is no such thing as a basic rate being available to them. I do not think that is fair. The different band levels at which varying societies introduce their tiering and the different levels of tiering do not seem to have any logic or justification and it is for that reason the provisions of sections 4 and 5 of the Bill were specifically introduced.
Senator O'Leary was interested in the concept of the building societies consultative advisory council and he said there ought be an obligation on the Minister to set up that council. The reason that section has been now introduced into this Bill is because there was a provision for enabling the Minister to set up a somewhat similar council under the 1976 legislation. I have to inform the House that in the course of that past ten years that council was never established. It is my intention immediately following enactment of this measure, to have the building societies consultative council established.
All in all, this measure is both necessary and timely. It is, as I have indicated on a number of occasions, only the first in at least two, if not a series of measures, which will be necessary in order to provide and regulate for the changing marketplace and changing market conditions which will apply in relation to home loans and indeed in relation to institutions operating in the financial services area generally. The level of welcome which has been afforded to this Bill in this House and in another place and by the general public is, I think, the best possible verdict that can be passed upon it.
It is proposed to take the next Stage tomorrow. There are two reasons for this. In the various contributions no amendments have been foreshadowed so there should be no great difficulty, but even if amendments are to come either from the Minister or from Members I think it is desirable they be dealt with tomorrow so that they could be sent to the Dáil before that House adjourns. For these two somewhat divergent reasons I propose that Committee Stage be taken tomorrow.