Seanad Éireann debate -
Thursday, 11 Dec 1986

Vol. 115 No. 7

Building Societies (Amendment) Bill, 1986: Committee Stage (Resumed).

Question again proposed: "That section 6 stand part of the Bill."

Mr. FitzGerald

I was about to get involved in another subsection in section 6 when we reached 11.28 a.m. and I opted to begin on it now rather than then. It is in relation to the question of the valuer's report being made available to the mortgagee by the building society — the report prepared for the building society which up to now has not been available to the mortgagee. I hope the Minister will ensure that it will be made available once this Bill is law. I want to acquaint the Minister, if he is not already aware, of the position relating to these reports to building societies.

As I made clear in my Second Stage speech on this Bill, I am the nominee of the Irish Auctioneers and Valuers Institute in this House. They nominated me onto the industrial and commercial panel and the public representatives of Ireland elected me. I had to be elected to my nominating body. The reports going to building societies come essentially from two different professional groupings. They come from either architects or auctioneers. They do not come exclusively from either one or the other. The Minister will appreciate that, if an architect goes out to view a property for the purpose of advising the building society as to value, he may or may not be acquainted with the market value of houses in any city or town. His profession and expertise are as an architect. Where he is sent out to advise on the extension to the house or the condition of the house, that might be more appropriate where it relates to the architect. When the valuer goes out he is normally part of a practice which engages in buying, selling and regularly advising on the value of property in the house market. Therefore, to the extent of his remit, which would not extend to advising on extensions and improvements to a house, he might have a good idea of how it should be done, but he is not the all-time expert on that because that is the architect's role. The valuer is the person who is most acquainted with the value and the architect is most acquainted with the condition of the house. The architect will even be prepared to admit that he is not necessarily the expert on structures. If there is real structural failure in a house that is more the remit of a structural engineer rather than that of an architect or a valuer.

To what extent will the issue of this valuation report be helpful to the mortgagee because it will come from two different groupings of professions? It is not tight enough in the sense that it talks about a valuer's report, but perhaps that valuer's report should be linked in to those engaged in the practice of valuing. I do not necessarily mean members of the institute of which I am a member but those who are engaged in full time practice as people who are available to the public to advise and value. The Minister may retort that if you are going around long enough and often enough as an architect you will know the value. Sometimes with the fluctuating market that can occur, it is difficult for a professional valuer to be sure of the value he is recommending to the building society. Perhaps I will return to that point when the Minister has had an opportunity to reply.

Minister for the Environment (Mr. Boland)

I appreciate the point Senator FitzGerald raises. As he said, the practice varies from society to society and people from different professions are used. In the main these valuation are carried out by valuers rather than members of other professions. There is no doubt that if, for example, an architect or a surveyor is used on a regular basis to produce these reports, he will very quickly, through the experience of his day to day carrying out of these valuations, come to have a ready and real appreciation of property values. It is important to stress that these valuation reports are precisely that. They are reports which are designed to satisfy the society that their interest in the property would be secured or covered if the property were to be again offered on the open market.

It does not purport to carry out a structural examination of the property or advert necessarily to any defects which might be in the property but which would still not result in the property having a lesser value than the extent of the society's interest in the property. It is important that that should be made clear to the potential borrower. I accept that in any arrangement to make valuation reports available to the borrower, who is after all paying for them, their attention should be drawn to that fact.

Mr. FitzGerald

I accept the points the Minister is making. Has the Minister considered, as part of the regulations that presumably he will be dealing with in due course, what I regard as the preferable option, namely, that the report of a valuer who has experience in structures, be he an architect or engineer, would be part and parcel of what is provided to the building society and to the prospective mortgagee in order to try to give a report which is substantial, not just on the value, but on the condition of the house? The building society will want to have their security properly set up by way of the investment they are making and the individual buying the house will be forewarned before he or she buys that there are areas that have to be borne in mind.

The valuing of property is not as simple as some people suggest. With regard to older properties, there is very rarely a house with the same value as another house on the same street. There are different changes of mood and demand relating to the types of houses people will acquire at a particular time. There are different areas of market demand. There are people who will buy one house and not buy another. It is the nature of things. For example, it is much harder to sell a three storey house than a two storey one. People are seeking two storey houses now rather than three storey ones. Three storey houses in the Dublin scene have become much more difficult to sell than two storey houses. Many market trends and changes occur which require an expert to deal with them. It is not something you can just gather together in a few minutes. You also have to be somebody who has a natural instinct for knowing value. Architects, by and large, are not people who have a natural instinct for knowing value. They are interested in concepts of design and so on. Those people could be used to supplement the necessary form of the report that would issue from the building society to the prospective mortgagee if these things were brought together.

At the very least the Minister should ensure in the regulations that what is issuing from the building society in the report is not one of a whole series of little caveats against such and such. It should prominently display the fact that this is simply an opinion on value and it does not purport to be in any way related to the condition of the house and that, if you are not 100 per cent satisifed as a prospective mortgagee, you should, go out into the marketplace or come to our society and we will advise you. There is a panel of people you could go to who would be able to get you a structural survey or, in the case of older houses, the building society might encourage people to get timber surveys done.

I know a surveyor who bought a house about three years ago. He was in the house for a few months only when he discovered he had a major epidemic of merulius lacrymans. This may not be known to everybody but it is familiarly known as dry rot. He had this disease in his house. He is an expert surveyor and as a member of the Institute of Chartered Surveyors he should have been able to find that, or at least have taken steps to get his house surveyed as to the condition of the timber which, after all, is now done with much precision by mechanical equipment of one kind or another. They can measure exactly the extent of moisture or dry rot that might be in the house.

If the Minister is not prepared to follow the line I was taking a few minutes ago, perhaps he would ensure that prominent in the letter from the building society including the report on the value would be encouragement for a prospective mortgagee to have the house he is thinking of buying surveyed by somebody who is an expert on structures. If he has any idea that that may be a problem. When the house is over 20 years old it is in the best interest of the purchaser to ensure that a firm of timber specialists have a look at it to ensure that the purchaser is not running into the great deal of expense, dry rot can lead to. We do not need to be told anything about dry rot in these premises — the Seanad Chamber is out of action because of dry rot. It affects many buildings all over this city. There is an epidemic of it at present. A little more than what the Minister is suggesting is necessary in this area.

Mr. Boland

I tried to indicate in my earlier reply that I felt it would be prudent, if valuation reports were to be made available to the borrower, that their attention should be drawn to the fact that the report is merely an assessment of the market value of the house and does not necessarily indicate that the house is free from structural defects or any of the other dreadful diseases which Senator FitzGerald invited us to consider which attack houses in the Irish climate from time to time. That would be reasonable.

I am a little frightened at his other suggestion that perhaps the provision should be extended to provide not only for a valuation report but also for a structural report. A large part of the purpose of this Bill is to reduce the cost to the borrower especially at the time of purchase. If we were to invite ourselves down the road which the Senator is pointing us towards it would not take us long to realise that introducing a requirement like this would inevitably have to increase substantially an element of the cost at the time of purchase. A full structural report would almost certainly be far more expensive than a valuation report. It is reasonable to require of the societies that they would draw the attention of the borrower to the fact that their valuation report is just that.

It is important to realise that this section should be read in conjunction with section 79 of the Building Societies Act, 1976, which places an obligation on the directors or an officer of the society to satisfy themselves in the interest of the society that the property on which the mortgage is being advanced has a market value of at least the amount of the advance. That is the legal obligation upon the society. There is no obligation upon them to draw the applicant's attention to other structural problems, faults or defects. I join with the Senator in saying it is an important consideration which potential purchasers should give to their purchase. We are talking about what is probably, in most instances, the single largest purchase most people will make in the course of their entire lifetime. It would be prudent on the part of the purchaser to seek a structural report. I do not think it would be fair to require of the societies that they should seek a report of any nature other than the report which satisfies them that their interest in the property is adequately covered.

Mr. FitzGerald

I will not delay for long on this but I want to make one point. If you received a report from a building society, namely, the report relating to the house you were thinking of buying and it came from a professional person would you not assume that it covered all the other things a professional practice might look at? If you get a report issued by an architect relating to value and he does not say anything about the structure, the condition of the house, or possible dry rot, would you not think it is reasonable to suggest that the prospective mortgagee might think everything is all right? You may think everything is going to be fine because a professional company or practice has said the house is fine and there is nothing wrong with it. That is the figure they think is secure for the purposes of the building society and it is in good nick.

I do not get the impression from the Minister that he will ensure that when reports issue from the building society it will be prominently brought to the notice of prospective purchasers that it might be in their interest to have the house examined — not necessarily the structure except in exceptional cases where there could be doubts about the structure — by somebody who knows about the condition of houses or property generally. Prospective purchasers should be advised to go in that direction if they have any apprehension including that which I mentioned about getting the house checked out if it is 20 years old for possible dry rot or wet rot problems that might occur. I do not think this is simple.

I have a three page document which I got this morning on a recent decision of the courts in England relating to this matter. It emphasises the point I am making. We may be leading ourselves into more problems than we realise unless it is prominently brought to the attention of those who are applicants for house loans that there could be potential risks involved. I imagine the building society could issue a whole page of things that people will not bother reading. They get them on the back of their insurance certificates as well. Do people read all those things? I am saying that it should be displayed prominently and I am not sure if the Minister agrees with me.

The Minister referred to costs. I am not all that concerned about costs in this area because we are talking about building societies who are apparently financially more successful than any other financial institution in the country. Presumably, the reports that are being made available to them by a firm of valuers or a firm of architects, or both, will be to their cost rather than to the mortgagee's cost.

Mr. O'Leary

I am glad the Minister brought to the attention of the House the fact that this section must be read in conjunction with section 79 (1) (b) of the Building Societies Act, 1976. Under the provisions of that Act there is no requirement on the building society to get a written report as to the value of the security. All they need do is satisfy themselves with regard to the adequacy of the security. In many cases they will be the same thing. Obviously if a person is borrowing the maximum on a property you could not say whether or not it was adequate until you actually valued it in total and put a definitive market value on it. There could be other cases where a person would be borrowing far less than the actual market price of the property. In those reports there is no obligation whatsoever on the society to consider the market value. Section 79 (1) (b) says:

...there will be available to every person who has to assess the adequacy of the security to be so taken a written report prepared and signed by a competent person (who shall not be an officer of the society) experienced in matters relevant to the determination of the value of the security,...

The person must be experienced in matters relevant to the determination or the value of the security, but his report need not determine the value; his report does not determine the value, it merely says that the security is adequate. To think that in all cases, because this report will be made available to the members, it will automatically give them a value of their dwelling is incorrect. It will merely give them a report as to whether or not the dwelling is adequate security for the amount of money they are borrowing.

They might be buying a property for £100,000 and getting a loan of £50,000. If they got into their possession a report which said: "This property has a value of somewhere between £70,000 and £100,000". Obviously that is adequate security for a borrowing of £50,000. The report could be as vague as that. It is not necessarily that there should be a determination as to the value of the security, merely a determination on the adequacy of the security. Perhaps in the majority of cases that will be the same thing but it is not always the same thing. It should be brought to the attention of the Minister and the public in general that the report they receive may not always be as definitive as they might have thought up to this.

Mr. Boland

Several points arise from that. We have to assume that the majority of purchasers and potential borrowers will pay a fair amount of care and attention to the matter in hand. As I said in the case of many people it is the single largest purchase they will make in their lifetime. It is generally well known that the valuation report relates to the value of the society's advance and the society's interest in the property.

I wonder if Senator O'Leary is not being a little too legalistic in his interpretation of section 79 of the 1976 Act. Section 79 (1) (c) includes the provision that:

...the report relates to the value of any freehold or leasehold estate in the security and to any other matter likely to affect the value of the security.

If that paragraph is read in conjunction with the requirements of section 79 (1) (a) and (b) it seems to indicate that not just the society's interest in the security but the overall value of the freehold or leasehold estate also has to be adverted to.

In relation to the point which Senator FitzGerald has been pursuing I want as gently as possible to point out to him that I have already said twice this afternoon that I accept the point he is making and it would be my intention to include in the regulations relating to the making available of valuation reports a requirement that the society would draw the borrower's attention to the fact that the valuation report was just that and that it was much less than a structural report indicating to people the type of things which they might seek to have expert advice on from the point of view of structural defects. Apart from including that provision, I would have thought it would be good commercial practice on the part of a society endeavouring to expand its activities and its membership to make advice like this available to potential borrowers.

I had ten meetings with the various branches of the building society movement. In a number of those discussions with them I found myself saying on a number of occasions that it was not my function to advise the societies on their commercial practice or their marketing activities. With changing market conditions and with the wind of competition which is beginning to blow and which will increase in strength, it is the societies who respond best to the needs of the customer who will be most successful in the medium and long term. An interesting point was made at one of the meetings I attended that, in the future, the home loan market will be customer driven. That is a good thing. I hope that many of the provisions of this Bill will help to bring that about.

In relation to the point which we are now discussing the majority of borrowers will understand the limited nature of a valuation report. In deference to the points being made by Senator FitzGerald it would be reasonable to write into the regulations a requirement that the societies should draw the borrower's attention specifically to the fact that the valuation report does not advert to or deal with all of the structural matters relating to the property. That ought to be sufficient. I also suspect that more and more as market conditions change, one is going to discover that institutions involved in house purchase loans are offering advice and help of this nature to their borrowers and their potential customers.

Mr. FitzGerald

In one word, "prominently".

Mr. Boland

Yes.

Mr. O'Leary

I do not understand what the Minister says about me being legalistic.

Mr. Boland

The Senator referred to paragraphs (a) and (b) but not paragraph (c).

Mr. O'Leary

I will explain to the Minister what I mean by that. Of course, I am being legalistic because this is going to impose a tremendous obligation on societies, one with which I agree. I think what the Minister is doing is quite right and I support him in that but I just want to have it drafted legalistically in the proper way.

Take the example of a person who is borrowing £50,000 on a £100,000 property and the valuation report says it is somewhere between £70,000 and £100,000. I think that deals with the adequacy of the thing. The report relates to the value of the freehold but what it does not do is to exactly define the value of the freehold. I am not criticising the Minister here and I am not criticising the way in which it was drafted but everybody should understand that you are not going to get a piece of paper here with a definitive valuation. It is totally unnecessary for the Minister to do — even though I am glad he is going to do it — what Senator FitzGerald suggests. The societies themselves are going to have in red ink the limitations of these valuation report. If they do not do that — just as in the case in County Louth to which I referred on Second Stage — they may be held responsible for it. I do not think there will be any problem in getting the societies to emphasise the limited nature of the report. They will be emphasising it themselves to protect their own position. There is absolutely no doubt about that.

Mr. Boland

That is probably right. This matter was also adverted to in the report of inquiry into the policies of building societies in regard to insurance related to mortgaged properties and valuation reports on properties, published by the Restricted Practices Commission in 1985. In section 5 (12) it states:

Recent court cases both here and in the UK would lead us to believe that even where the valuer's report had not been disclosed by the society to the borrower, the relationship between the valuer and the borrower would still be sufficiently close to raise a duty of care and to provide grounds for bringing an action for negligence against the valuer. It seems to us, therefore, that the release of the report would not make any real difference from the legal aspect.

That is quite an illuminating observation on the situation.

Despite the point made by Senator O'Leary, taking the example which he has given of a borrower who seeks to borrow £50,000 on a property for which he is prepared to pay £100,000, I think that that borrower, who finds himself in a fortunate enough position to buy a property which he deems to be worth £100,000 and who has £50,000 available to him without having to have recourse to financial institutions, is almost certainly no daw. He is going to realise that the valuation report only relates to the £50,000 interest the society has in that £100,000 houses. If he wants to satisfy himself that he is not paying above the market odds, either he does it through his own nous, or through the fact that he has hired someone from that admirable body who nominated Senator FitzGerald to this House, to advise him as to whether or not this is the market value of the property.

I think the limited nature of the valuation report is well known to the majority of borrowers, but what is not understood by them is the fact that they are not allowed access to a report for which they are charged. What this paragraph merely does is to allow them access to the document which has been prepared for the society by a valuer but paid for by the borrower, and where, as the Restrictive Practices Commission observes, there is a relationship between the valuer and the borrower.

Mr. O'Leary

I would be very interested to know how the reporters spell the word "daw".

Question put and agreed to.

Section 7 agreed to.

SECTION 8.

Mr. O'Leary

I move amendment No. 3:

In page 5, subsection (1), line 21, to delete "may" and substitute "shall".

The Minister seems to be seeking to establish a new body called the building societies consultative council which I think it is fair to say is a rechristening and reincarnation of the Building Societies Advisory Committee established by section 96 of the Principal Act. I do not know whether that committee met or not between the passing of the Bill and the present day. I heard a whisper they were appointed but that they did not meet, but I may be wrong in that. However, I do not think it would be an exaggeration to say that the frequency with which they gathered together was not such as to strain the public purse. In those circumstances what I am anxious to do — not so much in regard to this Minister who has a particular interest in this area and I am quite confident will appoint a building societies' consultative council, but for a succession of Ministers — is to have a situation where this consultative council will actually meet and play a significant role in advising the Minister with regard to matters relating to the societies. Therefore, my first proposal is on the question of reporting annually and the other is that an obligation would be put on the Minister to appoint such a council rather than leave it open to the discretion of the Minister to appoint or not to appoint the council. There is no reason why such a council should not be appointed. Even if this Minister were to say to me he has every intention of establishing this council, that does not solve my problem because the next Minister might decide to terminate the council.

Mr. FitzGerald

It might be yourself.

Mr. O'Leary

It might be myself, but I will give an absolute undertaking that I will appoint such a body if I am the next Minister for the Environment. I do not think that undertaking is worth much. A future Minister may remove the members and by that method just cease to use this consultative council. In the event of my amendment going through the Minister would be under a continuing obligation — and not only this Minister but future Ministers — and it is only right and proper that there should be such a body. I agree with the principle laid down in section 96 of the Building Societies Act, 1976. I think there are ovbiously changes envisaged by the Minister in the composition of the societies and I am happy to support that. There should be a continuing obligation on Minister to have this consultative council in operation.

Mr. Ross

I would like to support this amendment for the same reasons as Senator O'Leary. Although I do not very much like the setting up of the building societies consultative council because I think it is a further interference with financial institutions, it should not be left to the discretion of this Minister, or any future Minister, to set it up when he feels like it or not to set it up. If he does this there is a danger of his using it as a lever against the building societies in a situation of confrontation or of a Minister in the future saying "I shall set up this council and they will tell you what to do". It should be statutory and permanent if it is not to be used as a lever for actually pushing the building societies around one way or another.

Mr. Boland

I can sympathise with the spirit of what the Senators have been saying. I can do no more than assure the House that it is my intention to establish the building societies consultative council and on the assumption that this Bill may be enacted before the end of this month, I intend to establish the building societies consultative council before the end of the following month.

I cannot say whether the building societies advisory committee provided for under section 96 of the 1976 Act were ever appointed or if they ever met. Senator O'Leary seems to think they may have been appointed but, if they were, it was in the early days of the lifetime of this Act and certainly not to my knowledge or the knowledge of the relatively young and vigorous departmental staff who are now dealing with this area. Our understanding is that the advisory committee were probably never appointed. They certainly were not active. As I have said, it is my intention to establish the consultative council before the end of next month.

I will explain the reasons for the changes in the way the section is drafted. In the 1976 Act there was a provision for representation from the Irish Building Societies Association. At that time the association represented the five major societies and the smaller societies were much smaller proportionately. Since then one of the five societies is no longer a member of the IBSA and the smaller societies have increased the scale of their activities. One of the difficulties I have experienced is in endeavouring to have discussions with the building society movement. I discovered that I had had nine meetings with the IBSA but, until very recently, there was no umbrella grouping which would allow me to have a meeting with the other building societies. They have now come together under the aegis of the Confederation of Irish Industry and I had a most interesting, useful and helpful meeting with those other societies some time ago.

One of the real difficulties is that the IBSA members have a hesitancy about becoming involved in meetings or discussions which also involve the non-IBSA members. It is very difficult for a Minister who has responsibility for a particular area to discover that, in relation to nine or ten societies, some of them are loath to attend meetings with some others. It is difficult to get a representative voice. The stark fact is that the IBSA members represent the vast bulk of the home loan mortgage market, probably 80 to 90 per cent now. Yet, on the other hand, in considering legislation and especially considering the more comprehensive legislation which I have referred to and which needs to be put in place, but which will be, if it is all done in one phase, one of the largest pieces of legislation in volume terms to come before the House for some years, it is important to get the view of the smaller societies whose aspirations or needs may be somewhat different from the requirements or aspirations of the very large societies. Under the terms of the new section it will, I hope, be possible to hear the voice of the society movement both large and small rather than one umbrella group or another. It is important that this should be so.

In relation to this specific amendment it is relatively normal practice that sections or provisions like this are drafted on a permissive rather than a mandatory basis. The intention is that the consultative council would be formed for the purpose of giving advice to the Minister for the Environment of the day and this relates to Senator O'Leary's following amendment. If the Minister for the Environment needs advice that body should continue in existence to make that advice available on an on-going basis. This advice sometimes may be of a somewhat sensitive nature and therefore it should be made available directly to the Minister, but it is also reasonable that the Minister should be allowed to decide whether he wants to give advice from an assembled group representing different interests or not. From that point of view it is reasonable to make this provision permissive rather than mandatory.

For example, if the Senator's amendments were accepted and the Minister for the Environment were not disposed to invite the advice of a consultative council he need merely establish them and put them on ice. That would not fill any useful function. We have to rely on the assumption that the Minister for the Environment will want to bring together those who have views, knowledge and expertise from different sectors of the building society movement into a consultative grouping such as this. I want to make it clear to the House that this section was actually an amendment introduced to the Bill on Committee Stage in the Dáil specifically at my own instigation because of my anxiety to have the consultative council established. I can guarantee to the House, on the assumption that this measure will be enacted before the end of this year, that the consultative council will not only have been appointed but, hopefully, will have had its first meeting before the end of January.

Amendment, by leave, withdrawn.

Amendment No. 4 not moved.

Question proposed: "That section 8 stand part of the Bill."

Mr. Ross

I have one or two questions to ask the Minister on section 8. First, I do not understand why the Minister should have such all-embracing powers over this council. Section 8 states:

(4) The Minister shall, from time to time, nominate one member of the Council to act as Chairman thereof.

(5) The Minister may, at any time, remove any member (including the Chairman) from office.

I am not quite sure what sort of a council this is supposed to be but if it is meant to be a council giving impartial, objective advice to the Minister, if it is meant to be a council which has expert knowledge of the building societies and is representative of all sections of society as well, I cannot see why the Minister should be taking these powers to dismiss and appoint at any time that he wishes. If the consultative council is going to operate in this way it will only become another arm of the Minister in Government. In other words, if the consultative council gives advice the Minister does not like it is likely to be dismissed or is it there only to give the advice which the Minister wants to receive?

My second point is in relation to the powers and scope of the council. Will the council be able to advise the Minister on the application of section 3 of the Bill which covers the powers of the Minister to prescribe purposes for which loans can be made and will it be able to advise the Minister on the future role and the expansion of building societies and the sort of areas building societies may enter in the future?

Mr. Boland

Yes, the last part of the Senator's contribution is one of the primary functions which I would see the consultative council having. I have been endeavouring to establish a working party with representatives from the IBSA and my Department and the Department of Finance and the Central Bank in relation to the preparation of the more comprehensive legislation but there are difficulties encountered in doing that and the difficulties mainly related to the reservation of the IBSA in having the views of the other society heard at that working party and, indeed, reservations which they expressed at having the Central Bank participate.

Part of my difficulty in all of this is that I am afraid the societies' attitude on some matters is a little schizophrenic. They are anxious to move into some of the financial services areas normally provided by the banks yet, as the Senator will know, the main regulatory body for the banks is the Central Bank. Yet the societies, while wanting to take on some of the powers traditionally enjoyed by the banks, do not want to have any dealings with the Central Bank. One of the things that the societies will have to determine is whether they want to become more fully grown, wider, big, full, up-front financial institutions because they have to accept that they will then automatically move into the area of the aegis of the Central Bank.

At the last meeting I had with the IBSA I made the point that, if they were to be successful in a number of the objectives which they have outlined for themselves, it might well be that the Minister for the Environment would no longer have any function in relation to the societies because they would have at that stage moved entirely into the area of financial services and into the area where financial institutions generally operate under the aegis of the Central Bank. I hope that, with goodwill on all sides, it will be possible to use the Building Societies' Consultative Council as the vehicle whereby an amount of consideration of the necessary legislation which has to come along as part of the package of measures that I referred to can be discussed and determined.

I am not sure if Senator Ross was in the House when I was replying to a point which he made but the societies would like to have a measure similar to the British measure. The British measure is 126 sections long; it contains 21 schedules and it runs to 286 pages. It was several years in gestation and indeed major amendments I gather were actually proposed on the floor of the British Houses as it was being discussed. Obviously if a similar measure is to be introduced here it will require a great deal of detailed discussion and it should be incumbent on the Minister preparing that legislation to get the views not just of the major and mighty societies but also of the minor but still important societies. I hope the consultative council will enable this to happen.

Mr. Ross

I wonder if the Minister could give me some sort of indication of the composition of the consultative council? Who will the representatives be? What sort of bodies will they be from? Is it anticipated that there will be three, four, ten or 12 members? Is it anticipated that there will be representatives from the building societies, the savers, the borrowers, the Department or from where? I just cannot in my mind crystallise the sort of direction in which this consultative council will be going and from where its members will be drawn. Why is it necessary for this Minister or future Ministers to have quite such all embracing powers in that he can appoint, dismiss, re-appoint any members at any time or any chairman at any time? I would have thought that there is a value in appointing people for a certain amount of time and then maybe reviewing their performance to see whether they should still be in office. To appoint them just at the whim of this or future Ministers gives an instability and it leads to the suspicion — and I am sure it would not be the case in this Minister's term of office — that if the Minister does not like what they say or if they do not give the right advice, the council are liable to be dismissed. I would like to know why these powers are there because I would have thought people should be there on merit and if they give advice which is not liked, they should not be dismissed.

Mr. Boland

I am sorry I omitted to refer to that last point which Senator Ross has made when I was replying earlier. The provisions which enable a Minister to remove members of a committee or council from office from time to time are not unusual. I hesitate to either elevate or denigrate this body by referring to it as a quango — it hardly merits the title — but there is provision in legislation generally for a Minister to remove members from office. Section 8 (3) allows the Minister to appoint so many persons and any persons so appointed shall hold office for such a period as the Minister may specify. In practice you will find that the Minister would appoint people for a three or a five year period. It would be most unusual if the Minister had to resort to the powers of section 8 (5) to remove a member from office but it might well be that a member might become permanently ill and the illness might be such that the person would not be in a position to offer his retirement and, if he happened to represent a particular interest group, the only way of getting the view of that group might be to endeavour to replace him.

The 1976 legislation specified that on the advisory committee there would have to be representatives of the Department of Local Government which Senators will recall was the former title of my Department, the Department of Finance, the registrar, the Central Bank and the Irish Building Societies Association and such other bodies. Those sort of organisations are the areas obviously which would be drawn on to comprise some of the membership at least of the consultative council. I would like to think that it would be possible to have savers or borrowers represented in some way but there is not to my knowledge any representative group of savers or borrowers. It might well be that the Minister might decide to appoint a sensible member of the general public who was not himself either a borrower or a saver but who had some particular useful expertise to offer perhaps of a legal nature, dare I say even of a financial services nature, and who could make a useful input.

I do not think it is very likely that a Minister will have to use the powers of subsection (1) (5) but I do know of a particular committee which was appointed in this way without a provision for a period of appointment or a provision for removal and the Minister involved who inherited this provision had extreme difficulty in that whilst he discovered he had the power to appoint further members to this committee there was no power to remove and there was no provision for a person coming to the end of his or her term of office.

These are fairly standard provisions and I do not think the Senator should worry or seek to read anything particularly sinister or odious into them. The simple fact of the matter is that the consultative council is to give advice to the Minister. It is in the Minister's interest that he tries to make it as representative as possible of the various groups who may have expertise to offer on how the building society movement should develop and expand.

In that connection I want to say — I do not think Senator Ross was here when I was replying to the Second Stage of the debate — that I made it clear to the building societies, at all times in my discussion with them, that I had a totally open mind as to their future role and the extent of their participation in the financial services area. The discussion document which I published in the spring of this year was based upon the interdepartmental report which had been prepared. They should not take it as necessarily categorically representing mine or the Government's confirmed and unchangeable view.

It was up to the societies themselves to prove the case which they wish to make in relation to any of their future activities. If I were convinced in relation to any of those points I would endeavour to convince my colleagues. I am afraid we got a very short distance down that road and I hope the establishment of the consultative council will provide a vehicle for the societies who wish to express a point of view and to convince others — because there are others in a range of Departments and offices who need to be satisfied before fundamental decisions about the future of these major institutions are taken. It would be my earnest hope that this consultative council will provide that vehicle.

Mr. Ross

That is far from satisfactory. Accepting the Minister's assurances I do not understand why it is necessary in section 8 (3) to put in "...and any person so appointed shall hold office for such period as the Minister may specify". If that is the case I would have thought it would be more logical for the Minister to appoint them for three years, five years or a certain period of time, but not to give that sort of arbitrary power to the Minister or to future Ministers. It would be more sensible to have in the Bill that those who are appointed shall serve a period of years and then possibly be reappointed. I do not understand why such arbitrary power should be there.

I know it is normal in Bills of this sort to give such all embracing powers to Ministers but not in all cases. I would have thought that in this Bill which was drafted unfortunately in a slightly confrontational atmosphere such powers were not suitable because it appears to me that they could be abused. When the Minister says there might be circumstances in which people ought to be dismissed, there might be circumstances in which an appointee to this council should be dismissed, there might be circumstances in which they were ill or incapacitated, I do not understand why those circumstances should not be specifically written into the Bill. It would be more sensible to limit this Minister's and future ministerial power in that way by writing into the Bill the circumstances in which people could be dismissed rather than allowing appointment, dismissal and term of office completely at the discretion of the Minister. Would the Minister consider an amendment on Report Stage stating the circumstances in which people could be removed from office from this body? The danger is that it will be in the consciousness of those appointed that they are there to give advice as long as the advice is welcome but only as long as it is.

Mr. Boland

As I have pointed out these are relatively standard provisions which are contained in legislation generally when bodies of a similar nature to this are being established. The reason those provisions are repeated in legislation, I respectively suggest to the House, is that the House of the Oireachtas over the years have always acted on the assumption that Ministers are in the main reasonable people. These are standard provisions which need to be included to deal with an extreme situation which fortunately very rarely arises. I hope the building societies will welcome the establishment of this council because it would give them a specific vehicle whereby they can convey and discuss their views with representatives from various arms of Government and regulatory bodies.

Looking at some of the areas which were specified in the Building Societies Act, 1976, and the provision to remove people from time to time, if the Senator is attributing some sort of sinister motive to me, I would be inclined to suspect that the representatives of a particular arm of Government would be the ones who would be most fearful that I might seek to remove them from the council. I really think the Senator is being over-fearful in the views which he expresses. It is important to the Minister that this council should provide the advice which hopefully will help to from the basis for the preparation of the subsequent and much larger legislation.

I want to make one further point to which the Senator has referred in a more temperate way this time than when he spoke on Second Stage on the matter. This Bill was not conceived from malice or because of confrontation. I referred to this fact in the other House and said that whilst it is, of course, the right of any organisation, group or individual to express their views, political or otherwise, on the performance of the Government of the day or indeed the Opposition of the day or individual Members of Parliament and I respect that right — it is not the right of any group or individual to misrepresent situations or to introduce elements of personal vilification which, unfortunately, has happened in relation to this area, and I was the sufferer in recent times. I made it clear to the House that irrespective of that I would continue to introduce the legislation and endeavour to establish a vehicle whereby there could be meaningful discussions leading to the necessary and substantial subsequent legislation. At all times I made it clear to the building societies that I accepted that there is a need for at least one, and possibly two other pieces of legislation, and I am inclined to the view that it may be more in the societies' interest that the comprehensive legislation should be divided into sections so that the more urgent part of it from their point of view might first be dealt with.

I am very conscious of the changes in the British legislation which will allow British societies to operate outside Britain. If rumours are to be believed, it may well be that they may turn their attention to the Irish market, as it were, as an experimental springboard, a market which they would regard as relatively similar to their own and in which they might dabble their toe before embarking into mainland Europe. I am conscious of the discussions at EC level regarding the preparation of a draft directive towards the aspirations of having the internal market arrangements come into effect by 1992. I am also conscious of the intervention of the banking groups into the home loan market. There are other suggestions being floated as to new and interesting ways of introducing finance into the home loan market area. Consequentially, it is very important that building societies generally — and each society in particular — examine with care the attention their marketing skills, their approach towards technology, their attitudes towards their members, both investor members and borrower members. They should pay every attention to detail because the market for the future for building societies will be for the brave, the adventurous and those who are conscious that the market will be customer driven.

The change that is going to occur in this entire area in the next five to ten years will be considerable indeed. Unless societies no matter how large or successful to date, are very aware, conscious, and responsive to that change, I fear they may encounter considerable difficulties for themselves. I hope this consultative council will help to bring about in a speedier way than might otherwise have been possible the introduction of that more substantial legislation. I hope in the consideration of that legislation every reasonable attention to the views of the societies will be given and that the fundamental decisions will be then taken vis-á-vis their role relative to other financial institutions in the financial marketplace. It would be my intention to approach that task with, as I said, an entirely open mind.

I do not mind saying in the House that there are suggestions in the discussion document with which I do not personally concur. I indicated, and could not have made clearer to the societies, my open-mindedness on this matter. I also met with the societies more often this year than had been the case in the previous three years. It is both unfair and hurtful to hear it represented that this legislation was approached with a spirit of malice or contentiousness. That is quite simply not true. I have been a Member of this House and the Dáil for some 17 or 18 years. I would regard it as a particular insult to have it suggested that any office holder would prepare legislation based upon those approaches and an insult to Government to suggest that they would accede to an office holder introducing legislation on those bases.

Mr. Ross

I heard what the Minister had to say; I do not think he was here for the whole of my speech either.

Mr. Boland

I was listening outside.

Mr. Ross

What I said was that there was a public perception of malice and confrontation. I stand by that statement and there is a perception not only amongst the public but amongst people in the financial institutions that this Bill was punitive because of confrontation. I am afraid I have heard that too often not to say it, because that is a perception which is abroad outside this House. It is thought by many within the building societies and without the building societies that the motivation behind this Bill was not purely for the good of the borrowers. That is a fact and that remains. I did not say, nor do I say, that it was motivated by malice on the part of the Minister and I feel he is a little oversensitive about this.

Under section 8, the council is being set up in this atmosphere which — let us reduce the temperature a little in here by saying this — is not the most agreeable atmosphere between the Government and the building societies. The Minister should probably not have the powers over the council which he has. When the Minister referred earlier to a situation in which these powers could be used, he referred to illness. That could be specific but just now in his second reference to it, he referred to these powers being used only in extreme circumstances. I do not understand what sort of an extreme situation that is, but I would like the Minister to explain what sort of an extreme situation he envisages in which these powers should be used for dismissal and appointment.

Mr. Boland

I am not sure to what extent it is being productive to continue this discussion. Whatever the Senator's perception is about the relationship there might be between the Government and the building societies, I would have to say that there is also a very wide perception that there is not the best of relationship between the societies' borrowers and the societies themselves. If the Senator cares to reflect on quite an amount of the comment which has been made regarding this legislation since its publication, he will realise that much of that comment did advert to the fact of the bad feeling which exists between borrowers and the societies.

That ought not be the case because, first, the societies are by definition friendly societies, mutual societies. Their original purpose was to come together and to invite from some of their members sufficient money to enable others of their members to build and provide their own homes. They have moved a long, long way from the original concept. I recall a colleague, an office holder, telling me in the last few months that, when he first took out his mortgage which cannot have been more than 30 or so years ago, he was interviewed by the entire board of directors of the society. At that time that society was clearly operating on a much smaller level but operating much more on the basis of the original concept of building societies as friendly societies.

One of the things which needs to be discussed, for example, is whether it is appropriate for the societies to continue any longer as mutual societies, what their status ought to be. They realise and accept that that is one of the questions which needs to be addressed in the context of any further legislation. I can do no more than give to the House again my assurance that I want to see the consultative council established in order to enable the processing of ideas regarding the preparation of this further comprehensive and major piece of legislation. It would be my intention to ensure that the representatives of Government on that consultative council approach the task with an open mind. I would like to think that all of those who might serve on the council would do likewise. Senators in the House will have to appreciate the basic difficulty facing any Minister endeavouring to deal with ten organisations where four, who have by far the major share of the movement, refuse to participate in discussions with some of the others. Whatever the Senator's perception, I would also like to say that I believe it is fair for me to say that I enjoy the best of relations with quite a number of the ten building societies.

Question put and agreed to.

Sections 9 to 11, inclusive, agreed to.

Title agreed to.

An Cathaoirleach

Next Stage?

Professor Dooge

I understand from the Fianna Fáil group that they wish to have the opportunity to put down an amendment on Report Stage of this Bill. I do not know if Senator Ross who foreshadowed a possible amendment also wishes to do so. I have indicated to the Whip of the Fianna Fáil group that if there is to be a separate Report Stage, it is highly desirable that it be taken very early next week. We have reached a tentative agreement that the House will meet early on Tuesday next at noon and if, in fact, it is the wish to have a separate Report Stage I would press very strongly that it should be taken then.

Mr. M. O'Toole

I request that Report Stage be left over until Tuesday to be taken as early as possible.

Report Stage ordered for Tuesday, 16 December 1986.