This again raises the issue of penalty interest which we suggested would be unthinkable for moneylenders. I would like to hear the Minister's view on these penalty charges.
SECTION 111.
Question proposed: "That section 111 stand part of the Bill."
Some charge it and others do not and they vary from 0.5 to 1 per cent. We have a table of them. Some do not charge penalty rates but capitalise the arrears, while others charge penalty interest rates on arrears, which amounts to a levy. The Central Bank must be notified.
If a lending agency assesses the risk on a person and agrees to certain contract terms, should it have the right to do this? The lending agency is caught out if the person proves to be a greater risk than it forecast and it retrospectively tries to change the contract, although the Minister said it is put into the contract at the outset. In effect, if it has one bad experience, it will increase the rate of interest. I am not sure if that is acceptable practice. I do not know whether we have heard the views of people like the Director of Consumer Affairs on this matter. A person who fails to meet one payment is hiked up to a high risk category and will have to pay even more.
Is penalty interest of this nature, which we have outlawed in the case of moneylenders, acceptable practice in the case of mortgagors? If a family gets into difficulties, it is not wise for the lending agency to push them further into the mire.
It is right from the lending agency's point of view. Many do not enforce them, although they have penalty rates. They try to make arrangements for individual cases as regards payments and clearance. Even where a lending agency has a penalty rate, it is small. However, it is a foolish practice. In many cases the lending agency must come to an arrangement with the borrower, for example, freeze the amount or work out a settlement rate. How many times does a penalty rate come into play?
It would come into play if it took a judgment mortgage against the property. Banks or lending agencies would be encouraged to go for judgment mortgages in that they would get a greater amount because of the application of the penalty clause.
I speak from practical experience dealing with people who have difficulties with their mortgages when I say that most cases end up with an intermediary. By that I mean an intermediary from the political community making arrangements on behalf of the borrower with the building society and the penalty rate does not come into play. There is a danger that serious arrears may lead to repossession, although this does not often happen. Repossessions in Ireland are low in comparison to Britain in recent years.
The concept of penalty interest sticks in my craw, that is, the notion that when a family gets into difficulty the first response is to double or increase the price. To recognise it as a practice does not seem to be an enlightened way to proceed.
In practice, I do not believe penalty rates are imposed very often. The more sensible lending agencies have given up using them, although they are allowed. However, we have ruled this out in moneylending arrangements.
Question put and agreed to.