I want to inform the House that amendments Nos. 3 and 5 have been ruled out of order for Report Stage as they do not arise on the committee proceedings. I would also like to remind Senators that the proposer of an amendment may close the debate on the amendment but no other Senator may speak more than once.
Building Societies (Amendment) Bill, 1986: Report and Final Stages.
I move amendment No. 1:
In page 2, lines 25 and 26, to delete "for such purposes" and substitute "for the purposes of providing bridging finance".
This deals with the power of the Minister to prescribe purposes for which loans may be made. The power has been taken to enable societies to provide bridging loans. Our amendment says "In page 2, lines 25 and 26, to delete "for such purposes" and substitute "for the purposes of providing bridging finance". The Minister is seeking general powers to do a specific thing, that is, to allow societies to provide bridging loans. Jurists normally object to this procedure as being bad in principle. The section gives very broad powers. These should be restricted to the Minister's declared purpose in view of the piecemeal nature of the legislation. Comprehensive legislation and updating are needed in this area.
The Minister said he wants to make provision that building societies would be allowed to provide bridging finance. This should be included specifically in the section. The section as it is gives the Minister wide power, in that he promises everything and nothing. This power, which he will have through this section, gives him considerable leverage in situations where the Minister might want the building societies to toe the line as happened in the past. This is ad hoc legislation. If the Minister wants power specifically to provide bridging loans that should be stated clearly in the section.
This is an extraordinary amendment. The building societies have for quite some time, been calling on the Government to afford them the opportunity to extend the range of their lending activities. In the response which the IBSA made to the Government's discussion document earlier this year that association gave an indication that they were most anxious to be allowed to engage in a range of lending activities. I know that the non-IBSA societies are very anxious that that should be so. In discussions on earlier stages of this Bill in this House and in the other House I indicated that it had been my intention to afford to the societies the right to engage in bridging finance as an initial step, but that section 3 had been deliberately cast in such a way as to allow the Minister from time to time to enable the societies to engage in whatever lending was deemed to be appropriate.
I also indicated that I thought the facility of allowing societies to make home improvement loans available seemed to be appropriate to the activities of building societies. Interestingly, when this Bill was first published and when a representative of one of the major building societies was asked to comment on it, he dismissed section 3 as being of little consequence because it provided only for making available to the societies the facility to make bridging finance available. That is quite wrong. The section as it stands allows the Minister to allow the societies from time to time to engage in additional types of lending as is deemed appropriate.
For some extraordinary reason, late in the course of discussion of this Bill in the other House the IBSA changed their attitude entirely. They issued a document to Members of the Oireachtas which was totally at variance with their earlier submission, asking to be allowed to engage in a number of different types of new lending. They suggested instead that the section should be so restrictive as only to allow bridging finance to be made available.
I cannot understand why this should be so, and why an association which has been demanding the right to engage in various forms of lending should now, suddenly, seek to have the section made so restrictive as only to provide for bridging finance. Interestingly, the intention of the Opposition amendment here in this House now would be to achieve exactly what the IBSA lobby have been asking for. It is, perhaps, interesting to write into the record that the IBSA lobby document, which was sent to Members, suggests precisely that an amendment should be made to section 3 and that subsection (1) of section 3 should be "amended only to allow societies to give bridging loans" and quoting again from the IBSA lobby document "by the substitution for the following words `for such purposes' of the words `for the purposes of providing bridging finance'." The Opposition amendment says to delete "for such purposes" and substitute "for the purposes of providing bridging finance." If that coincidence was not enough the explanation given by the IBSA lobby as to why they want this restriction to be built into the section is, and I quote:"The Minister is seeking general powers to do a specific thing, allow societies to make bridging loans. Jurists normally object to this procedure as being bad in principle. The subsection gives very broad powers. These should be restricted to the Minister's declared purpose in view of the piecemeal nature of the legislation".
Senators will recall the opening sentences put forward by Senator Fitzsimons as to why this amendment should be accepted. They are word for word, down to the commas, identical to the IBSA lobby document. One can only wonder why, at this stage, this amendment has been entered when this suggestion was not advanced at any other stage of discussion of the Bill here in the House. One can only wonder as to why some of the societies now want to have their additional powers restricted only to the area of bridging finance when I have make it clear on a number of occasions that it is my intention to allow societies to engage in a number of other lending activities and that I felt allowing them to make bridging finance available to their members was the first and most appropriate step.
It is particularly interesting to reflect as to why the IBSA have changed their attitude in this latest lobby document which they circulated to Oireachtas Members, which is in marked contrast to the document which they produced in May in response to the Government's discussion document, where they asked at paragraph 2.2. of their document that they should be allowed to operate in the area of bridging finance but went on to say that home improvements loans are another area where an APR of approximately 20 per cent is charged by the banks and "the building societies will be happy to offer similar finance at a substantial reduction of the bank's interest rate". Yet if I were to agree to the acceptance of this amendment, the societies would not be allowed to engage in that type of loan facility or any other which the societies have been asking for.
It is particularly interesting to reflect that the non-IBSA building societies are very anxious that they should be allowed to engage in a range of other home-related loan type activities and have expressed the earnest desire that the Minister would, by regulations, allow them at the appropriate time to become involved in a number of activities, including inter alia bridging finance. It would be a retrograde step if, for some extraordinary reason known now only to the Opposition and the IBSA, section 3 were to be recast in such a restrictive way as only to allow for the extension of the building society powers into the area of bridging finance. I am not prepared for that reason to accept this amendment.
With regard to the Minister's rejection of the amendment and his appeal to people on the other side to have another think about the amendment, I certainly understand the thrust of what they are saying. It is important that there would be a deal of flexibility retained by the Minister in the development of the building society movement. I would like to support what the Minister says and to appeal to have the amendment withdrawn.
On the day the Committee Stage debate was taking place I was on my way up here and I was asked to meet a representative of the IBSA, which is normal practice with Members of the House. I put it to the Minister that there is nothing sinister in receiving representations and responding to them. I recall a number of occasions in this House when we had a debate in response to matters raised by representation. I recall Senator O'Leary on the Nurses Bill giving well earned praise to the Minister for changes which he incorporated in the Bill due to the debate here following representations. There is nothing sinister in that regard. Might I also remind the Minister that I was coming up to the Committee Stage debate when I was detained, but the amendments which we have tabled conform with my Second Stage contribution.
The building societies would like more or less to have facilities such as the banks have, but this would belong to comprehensive legislation, not to this Bill which, rightly or wrongly, people conclude was conceived out of confrontation and a certain amount of vindictiveness. I am concerned about the borrowers and the savers. There are two sides to the coin. I appreciate that the Minister tried to achieve a certain purpose and he failed. It is not appropriate to go into that now.
In this ad hoc legislation, as the Minister stated previously, he wants to give the building societies the power to provide bridging loans. The purpose of the amendment is to give the Minister power to provide bridging loans and all the rest should be reserved for legislation which would go into the matter fully. The building societies have made enormous strides through the years and, hopefully, they will get stronger every day. In the light of that fact comprehensive legislation is needed specifically in this Bill, to give the building societies power to provide bridging loans. The rest should be reserved for the comprehensive legislation I mentioned.
Amendment, by leave, withdrawn.
I move amendment No. 2:
In page 3, to delete lines 25 to 31.
With regard to the tiered interest rate, representations made to me indicate that all the banks have a tiered system of interest rates. In the banks it is the smaller borrower who suffers. I understand, with regard to the building societies and the tiered interest rates, it is the small borrower who benefits at the expense of the larger borrower. If that is so I am sure the Minister is concerned about the smaller borrower. Our concern is to provide funds for the building societies. If they lose in one area, they must look for finance in another area. From the point of view of benefiting the smaller borrower, the Minister should agree to this amendment.
I am opposed to this amendment which I find curiously at variance with the last amendment which the Senator proposed. The last amendment sought to restrict the Minister's powers to extend additional lending facilities to societies to one area, yet, a number of the societies have indicated that, if they are allowed to engage in additional forms of borrowing, the income from those additional forms of borrowing will more than offset any possible loss through any other changes which are being introduced or mooted in the Bill. The Bill needs to be viewed as a package where the additional powers in section 3 would offset any loss of income which might arise from later sections of the Bill.
I wonder if Senators realise the variety of tiered interest rates which apply from one society to another. It is not simply the case that tiered interest rates affect only people borrowing large amounts of money for the purchase of large houses. For example, three societies commence their tiered interest rate charges at loans of £20,000, another society commence their tiered rate at £21,001 and two furtheir societies commence charging tiered rates at £25,001. Four societies operate tiered rates at a level below the average loan, which is now in the order of £24,000, whilst two other societies commence a loan level only £1,000 above the average. One society operate a premium rate of 1½ per cent above the standard for loans in the range of over £20,000 to £25,000 and a similar premium on loans of £25,001 in one case and £26,001 in the other case to £31,000.
I can see no justification for the manner in which tiered rates apply at different levels and in different bands as one enquires as between one society and another. It is particularly unfortunate for potential borrowers with societies who are operating tiering at those punitive levels especially when one realises that the borrowers will normally have engaged in a savings policy for some years with that particular society and will find themselves when they want to apply for a mortgage virtually locked into that particular society. As I have already pointed out, a number of societies have said that if they get a reasonable extension of powers under the provisions of section 3 of the Bill that extra income which they feel confident would be generated for them through those additional powers would more than compensate them for any reduction in income which might be brought about either through this section or through later sections of the Bill.
The other point to bear in mind is that tiered interest rates as applied to home loans, have virtually been eliminated in other countries. I had hoped that the societies would themselves have been voluntarily moving towards the idea of dropping this practice in preparation for the substantial and additional competition which will come into the home loan marketplace in the immediate future. Senators should also bear in mind that the two large societies which between them cover approximately 50 per cent, if not more, of the total home loan mortgage market at present have operated very successfully for many years now on the basis of charging the standard mortgage rate only and while one of them recently sought to change that policy the other has not. I see no reason why they and other societies in the future, particularly after the six months has elapsed after the passing of this provision, should not be able to operate successfully on the basis of charging the standard basic rate to their borrowers. The facts, as proven elsewhere, speak for themselves as does the success of the societies which have operated 50 per cent of the home loan mortgage market over the past number of years. This is a provision which has been widely welcomed by the general public and will operate in favour of the public. I hesitate to remind the House, but I consider it is appropriate that I should, that this is another IBSA lobby amendment.
This was one of the matters raised by the Irish Building Societies Association when I met a representative of that association. As I have already stated, I was on my way into the House for Committee Stage when I was asked to receive representations. There is nothing unusual in that. The amendments are in line totally with my contribution on Second Stage.
With regard to the tiered interest rates, the point I made was that representations were made to me that the small borrower benefits under the present system. That is either right or wrong, despite what I say or despite what the Minister may say. If that is the situation, it is very wrong that the change will be brought about to the benefit of the large borrower at the expense of the smaller borrower.
In relation to the Minister's insistence that those points have been brought up as a result of the IBSA lobby, there is nothing unethical or unusual in that. It is quite normal practice. The amendments we have done can be checked against my contribution on Second Stage; I would have liked to contribute on Committee Stage but I did not get the opportunity.
Amendment, by leave, withdrawn.
Amendment No. 3 is out of order.
Amendment No. 3 not moved.
I move amendment No. 4:
In page 4, to delete lines 20 to 23.
Section 6 (b) states:
the making available to a member to whom a loan is to be made of the report made under section 79 (1) (b) of the Principal Act relating to the value of any security for the loan.
I hope the Cathaoirleach will give me the opportunity to read section 79 of the 1976 Act, which is as follows:
(1) It shall be the duty of every director of a society to satisfy himself that the arrangements for assessing the adequacy of the security to be taken in respect of loans to be made by the society are such as may reasonably be expected to ensure that——
(a) the adequacy of the security to be taken will be assessed either by the directors or by a director or other officer who is not disentitled by this section to make the assessment, and
(b) 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, and
(c) 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.
(2) A report by a person who has a financial interest in the disposal of an estate in relation to which a loan is to be made by a society shall not be accepted by the person or persons assessing the adequacy of the security as a report for the purposes of subsection (1) (b).
(3) A person assessing the adequacy of the security for a loan by a society shall not be a person who has a financial interest in the disposal of the estate in relation to which the loan is to be made or a person who is entitled to receive any commission for introducing the parties to the transaction involving that disposition.
The first point I want to make here is that if this were a trade union matter there would be an objection. The interest of the surveyors must be considered as well. There is a difference between carrying out a survey and valuation for the building society and for an individual. It is quite a normal practice of mine to prepare reports and valuations. I have a fair amount of experience in this area.
The building society are concerned that the property to be mortgaged is adequate collateral for the loan. That is the consideration of the building society and that is the approach a surveyor takes in carrying out a survey for a building society. A surveyor does not deal with every problem, large or small, in the property, which would be the aim of the surveyor acting for an individual buying the property. I could recount many occasions when I carried out surveys where there were problems in this regard. I will just mention one very briefly which I hope will explain the problem.
I remember doing a very thorough survey of a fairly new bungalow some years ago. I got into the roof space and, as people who are familiar with building know, over the ceiling joints of a single storey house normally there is a layer of insulation. It is very difficult to work in that confined space. I went through what I regarded as every square foot of that area and I found nothing wrong, no problems. I submitted my report and some time afterwards the individual who bought that property came back to me and told me there was a serious leak in the roof which I had examined thoroughly. I went back to the house and went through the roof space again. I discovered at a particular location, where there was a leakage through the ceiling, that there was a basin fitted over the ceiling. The basin was the same colour as the insulation in order to camouflage it. The problem of the leakage occurred only when the basin began to overflow.
There was no way I could have discovered that problem short of lifting the insulation yet it would be my responsibility, if I were doing a survey for that individual, to ensure there was no problem of that kind. We must bear in mind that in a situation like that it is my responsibility. It is very costly to get indemnification. In that report for the building society the bungalow was adequate security. From the point of view of the individual, I am sure I would have been responsible for whatever expense he had to go to in order to deal with that problem. It did not arise in that case because I did not make any charge.
This is the picture I am trying to paint. The objective of the surveyor dealing with the building society is quite different and distinct from that of the surveyor who is dealing with the individual. It would be very wrong against that background to make the surveyor responsible to the individual as well as to the society because, in effect, it would cause extra expense in getting bonding and indemnification. The result would be that fewer surveyors would be adequately bonded. More time would be involved, and surveyors charge for their time and travelling expenses, and the distance would be greater.
I am very conscious of the expense to somebody buying a property and I hope it will be minimised as much as possible, but not at the expense of increasing the cost of employing surveyors. I agree that the Minister is trying to reduce costs. This will not reduce the cost but rather increase the cost of surveys, valuations and of the report. In doing a survey for a bank or a building society at present it is not necessary to go into a house, go through each room and go into great detail. When I approach a house, the general picture makes me 95 per cent sure one way or the other. It is like a farmer looking at an animal in a field. He knows what the animal is worth; he knows the ins and outs of farming.
The surveyor who is dealing with these matters on a daily or a weekly basis is the same. From the point of view of the building society he will check the important aspects, the structural aspects. If there is something he feels is seriously wrong, he will question it. If he or she finds that there is some problem about the site, a septic tank or a well outside the boundary of the site, these are important. If an individual asks me to do a survey with the intention of purchasing the house I will do a far more detailed survey and far more time will have to be spent on it and I will give a more detailed report.
I accept that the Minister's motive is a good one, which we would all subscribe to, of reducing costs to the purchaser. This subsection will not achieve that purpose. It will cause other problems and in the long run the costs will be greater.
I recognise what Senator Fitzsimons is saying about these and other amendments. I have no concern whatsoever as to whether they were sponsored, given to him or suggested to him by the IBSA or any other organisation. That is a normal part of the democratic process which the Minister has to accept. I do not like the confrontational attitude with which the Minister faced the Senator on the other side of the House. It is not in the tradition of this House and I do not like it. It is a further indication of the confrontational attitude between the Minister and the building societies, which should not exist.
Having said that on behalf of my friend Senator Fitzsimons, the amendments are very ill thought out and not in the best interests of the people this Bill is designed to protect. In particular this amendment is one of a series of amendments which deals with turning the main purposes of the Bill on their heads. They are entitled to be examined on their individual merits and I believe they will be found wanting.
It is a good thing that reports will be made available. The fears which Senator Fitzsimons expresses with regard to the exposure by surveyors and others as a result of the publication and the availability of these reports are much exaggerated. In the first place, surveyors obviously will have to take into account the possibility that the reports will become public and they will have to reflect that fact in what they are putting forward. Obviously they are reporting on the adequacy of the value of the property as security.
I would disagree fundamentally with Senator Fitzsimons if he maintained that merely because a surveyor failed to spot a hole in the roof, through no fault of his own apparently, that that would automatically make him liable for the hole in the roof. The responsibility of the surveyor will be clearly related to the adequacy or otherwise of the property as security for the loan. If, as a result of the defect, the property was inadequate as a security for the loan there could be a potential liability. This could only arise where the purpose of the report, which is the assessment of its adequacy as a security for the loan, is called into question. The benefit of the protection is afforded in that regard to the member of the society who is benefiting from the loan. Incidentally, I want to say to Senator Fitzsimons that the question of whether he charged his friend for doing the survey is of no relevance because he could be held responsible in any event on the principle of being a person on whom one could reasonably expect to depend for advice. Irrespective of whether advice is tendered as a result of the exchange of money or on a contractual basis or even if it is tendered free of charge the person giving the advice can be held responsible.
While there are some difficulties with the section, as I have explained earlier, what it proposes is far better than the existing situation. What Senator Fitzsimons is proposing in regard to these reports is the retaining of the existing situation. I do not think that would be in the interests of the members of the society. In this regard the building societies probably have very little part to play. I do not think it is a matter which would concern them one way or the other. It is a matter which would obviously concern those who are valuing or surveying property. That is fair enough. They would have to take into account the realities of the situation as they find it. In those circumstances I support the Bill as it was passed on Committee Stage and, therefore, I do not support amendment No. 4 as proposed by Senator Fitzsimons.
This matter was dealt with on Committee Stage. The report of the Restrictive Practices Commission into this area generally which I adverted to on Committee Stage recommended that a restrictive practices order should be made which would prohibit building societies from charging borrowers for valuation reports, the contents of which were not made available to the borrower. What I am proposing is that the Minister would be allowed make rules regarding making valuation reports available. I indicated on Committee Stage that valuation reports were quite simply reports which ensured that the societies decided that their interest in the property had been adequately secured. I indicated that in the course of making the regulations I would require that the building society in making the valuation report available to the borrower would make it clear to the borrower that the valuation report was not necessarily a full structural report and that if borrowers wished to have reports of that nature carried out that was entirely a matter for themselves. Senator Fitzsimons could, perhaps with profit or with the avoidance of loss, read the Restrictive Practices Commission Report on this matter, particularly paragraph 5.12. For the benefit of the Senator I will quote again what I quoted on Committee Stage where the Restrictive Practices Commission said:
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.
If the Senator reflects on his comments and on that conclusion of the Restrictive Practices Commission he will realise that there appears to be, based on that report, a likelihood that a valuer does have an obligation to a borrower whether the borrower gets sight of the valuation report. The matter will be clarified through the issuing by the building society of the reminder to borrowers of the nature of the valuer's report and the purposes for which it is commissioned by the society although, of course, paid for by the borrower.
In relation to these amendments I have no problem whatsoever in the fact that they are being put forward by the Opposition having been advanced first by the Irish Building Societies' Association. I do not regard that as a confrontation but it is fair that the House should be clear in its mind that these amendments are those proposed by the Irish Building Societies' Association. I find them difficult to comprehend because some of them are totally at variance with the stance taken some months ago by that association, for example, in relation to the extension of their lending powers. The fact that they are now totally engaging in a role reversal on that matter is difficult to comprehend. I also find some of these amendments difficult to comprehend because they seem to be expressing a fear of loss of income while the other amendments would restrict the societies from gaining additional income by restricting their additional borrowing power. Some of the amendments taken as a set are each contradictory of the purpose of the other. Consequently I find them all very difficult to understand. I have every intention, despite what Senator O'Leary says, of making that fact clear.
This Bill was prepared to ensure that a number of objectionable practices engaged in by the societies were put at an end and to allow the societies to engage in additional and new forms of lending to counterbalance that. It is as such a package and not conceived in any confrontational or vindictive way as suggested by Senator Fitzsimons. I want to make it clear that the amendments being put forward by the Opposition are those which were called for by the Irish Building Societies' Association and as such represent the view of the Irish Building Societies' Association. I suggest to the House that the Bill and my comments represent the view of the general public. It is on behalf of the public that I am bringing this Bill forward. I want to make it clear on whose behalf the amendments are being put forward. I do not believe that is confrontational but then Senator O'Leary may have more experience than I of being confrontational.
I made it clear that representations were made to me as normal standard practice in relation to Members of this House and I hope the Minister is not saying that I would include amendments with which I did not agree.
No.
As I stated before I am very concerned with regard to the two sides — the borrower and the saver. My contribution on Second Stage will bear that out.
With regard to Senator O'Leary's contribution and his reference to my responsibility in the situation where I said I did not charge any money, of course I accept that. I was only telling about the incident in a very brief way. I thought I was making it clear that I had a commitment, that I took steps to do the job as best I could but unfortunately did not uncover this problem. I accept fully that that was my responsibility.
With regard to the surveyor for a building society having a commitment to the borrower as well, I accept that and I think anybody would accept it. I recall the situation in the UK — I think it was Yanni versus others — with the Halifax Building Society which identified that situation where the borrower had rights with regard to the survey. The report of a surveyor valuing a house and making a report for a building society is very different from the survey he would carry out fro a prospective purchaser. Having regard to all the circumstances, the report of a surveyor will be so qualified as to be practically useless to the borrower. At the same time, while it is practically useless to the borrower, the result of this legislation will make the exercise far more costly. A surveyor will submit a report to a building society, qualified to the extent that it is no use to the borrower and, in effect, if the borrower wants to have another report or evaluation he will have to have it done at his own expense.
That is the reality. While on the surface it might appear that this will result in decreasing costs for the purchaser, in my view it will not alone increase the costs but, because of the extra indemnification needed, the additional cost of bonding and because many surveyors would have to consider whether it is worthwhile getting indemnification for the amount of work they get you will have almost a cartel or closed shop situation where only a few surveyors will find it worth while to take out indemnification. I remind the Minister that indemnification insurance is very costly and runs anything from £6,000 a year to £10,000 a year. As a result fewer surveyors will be available to do reports resulting in increased costs with regard to time, travelling expenses and heavy on-costs. At the end of the day the report will be practically useless to the purchaser.
Amendment, by leave, withdrawn.
Amendment No. 5 is out of order.
Amendments Nos. 5 and 6 not moved.
Bill reported without amendment, received for final consideration and passed.