Select Committee on Enterprise and Economic Strategy debate -
Tuesday, 25 Oct 1994

SECTION 103.

Mr. R. Bruton

I move amendment No. 268:

In page 56, subsection (1), line 8, to delete "arrange, through an insurer or an insurance intermediary," and substitute "require the borrower to effect and keep effected in accord with the provisions of section 101".

This amendment seeks to provide something similar to the provisions of section 101, under which the mortgaged property is being insured. In that case a mortgage lender will not be directly arranging insurance; it will be up to the borrower to choose who should be the insurer.

Mrs. O'Rourke

Is the Deputy referring to house insurance rather than mortgage protection insurance?

Mr. R. Bruton

Yes. We seem to be making provision so the mortgage lender will not have a tied arrangement with any insurer. Here, however, we are providing otherwise; we are suggesting the mortgage lender will arrange this insurance. My amendment would make it open to the borrower to choose the most appropriate insurer. There is a feeling that tied arrangements between mortgage lenders and specific insurers are not healthy and, therefore, it should be open to the borrower to shop around for the cheapest or the best deal, rather than having an insurance policy imposed upon him by the mortgage lender. This would be along the same lines as section 101.

Mrs. O'Rourke

I understand the reasons for tabling this amendment and, initially, I had some sympathy with it. Deputy Bruton is proposing to apply the provisions of section 101 — which deal with property insurance and give people the choice to shop around — to this section, which concerns mortgage protection insurance. These are two completely separate forms of insurance requiring different provisions. This was recognised in the Building Societies Act, 1986, introduced by the former Minister Mr. John Boland.

When one insures a house, one shops around for the best buy and it is very much a personal matter. However, one is not insuring oneself or one's house when getting mortgage protection insurance, one is insuring those left behind. We all agree mortgage protection insurance is highly desirable and at that time it was made mandatory on mortgages such as local authority loans where it used not apply. We have all come across cases where problems arose. There is enough grief in a house where a death occurs without having it compounded by failure to ensure the relict will inherit and be allowed stay in the house.

The approach taken in the Bill is the current statutory position with regard to building societies. It places the obligation on the lender to arrange the protection insurance, rather than leaving it to the borrower. Requiring lenders to arrange the insurance is the best way to ensure this essential insurance is provided for borrowers. It is the most cost effective way because, under the Bill, the borrower will not have to undergo a medical examination and there is discretion in individual cases.

In this case, the right of choice has been subsumed or overtaken by the greater right of those left unprotected if there was no mortgage protection insurance. I have checked the reasons this provision was put into the 1986 Act. Although we are dealing with consumers, for whom choice is the crucial issue, I am convinced the wider responsibility on us as legislators is to ensure those left behind are not fundamentally disadvantaged.

That is why the onus was put upon the lender to ensure the mortgage protection insurance was acquired. It is fundamentally different from the position under section 101, which was a straightforward issue. This is straightforward also but it takes a different tack.

Mr. R. Bruton

I am not raising the issue about using the word "shall" in this provision when "may" is used in the other. Section 103 states that a mortgage lender may decide he wants the property insured; conversely, he may not. Here we are providing that the mortgage lender must have mortgage protection.

Mrs. O'Rourke

The Deputy recognises the need for it.

Mr. R. Bruton

I accept that people do not give adequate thought to some matters and this is an area where the law may have a role in saying that people should take precautions. We can be reasonably confident that building societies will insist on having the property covered for fire, etc. Given that there will be mortgage protection, why should we insist that it is not open to the borrower to shop around and find keener rates from his chosen insurer? The Minister seemed to suggest it was more cost effective if done by the building society.

Mrs. O'Rourke

No, I said by the lender.

Mr. R. Bruton

Is that because an individual could not get terms such as those which would not be insured without reference to his life?

Mrs. O'Rourke

This is only a side issue. I am not putting it forward as the reason but it is part of a side issue. The borrower will have the advantage of, usually, not having to undergo a further medical examination. The Bill allows mortgage lenders discretion to dispense with the need for mortgage protection where individuals show they have already taken out other life assurance. Many people take out policies. I understand that most mortgage lenders allow their borrowers freedom to choose the insurer of their choice in relation to mortgage protection insurance and the lender must ensure this is done.

Mr. R. Bruton

The Minister is doing more, she is saying that the lender shall arrange it. My amendment provides that lenders will see that this is done. The Minister is making a slightly different provision. I accept there are various opt out clauses but the central point of consumer choice seems to be at stake. The consumer should have the right to choose his insurer. If the Minister is worried that the consumer might choose to underinsure his life and leave his successors owing payments, surely this can be dealt with another way, without removing he right of choice?

Mrs. O'Rourke

I understand that in practice most mortgage lenders allow their borrowers freedom to choose the insurer of their choice. We are saying that the lender must insure. Does Deputy Bruton agree with this?

Mr. R. Bruton

Yes.

Mrs. O'Rourke

The lender must ensure that the protection policy is effected, or taken out. The Bill allows mortgage lenders discretion to dispense with the need for mortgage protection provided they are satisfied that borrowers have otherwise arranged adequate life assurance. Most mortgage lenders already allow their borrowers freedom to choose the insurer of their choice in relation to mortgage protection insurance. Could we return to this on Report Stage?

Amendment, by leave, withdrawn.

Question proposed: "That section 103 stand part of the Bill."

Mr. R. Bruton

The section provides that the mortgage lender shall arrange a life assurance policy except in the case of the excluded categories listed. Category (b) excludes loans to persons who belong to a class of persons which would not be acceptable to an insurer, or which would only be acceptable to an insurer at a premium significantly higher than that payable by borrowers generally, I presume this provision applies to people in poor health.

Mrs. O'Rourke

In cases such as this there is a premium on a premium, so to speak.

Mr. R. Bruton

Does this mean that if a person is in bad health the obligatory nature of section 103 should not apply? In other words, may he be given the loan if the lender is happy to give it to him without mortgage protection?

Mrs. O'Rourke

Yes.

Mr. R. Bruton

That is reasonable. On the issue of medical examinations and declarations——

Mrs. O'Rourke

Declarations of one's health?

Mr. R. Bruton

——is the fact that the mortgage lender is arranging the insurance and there is no medical examination——

Mrs. O'Rourke

Is the Deputy talking about the first insurance or the protection insurance?

Mr. R. Bruton

The mortgage protection insurance. Does this absolve the borrower from declaring an illness? Insurance can void policies on the grounds——

Mrs. O'Rourke

——of insufficient information——

Mr. R. Bruton

That is right.

Mrs. O'Rourke

——or a clear intent to withhold sufficient information which would have resulted in a different policy decision.

Mr. R. Bruton

Are we saying the mortgage lender should arrange all this or is the personal declaration still critical even though the mortgage lender is arranging the mortgage protection?

Mrs. O'Rourke

Yes.

Mr. R. Bruton

I know a case where agents failed to pursue a person after the form had been filled and subsequently discovered that the person had been treated for blood pressure. When the person died from a different illness, the insurance company was in a position to void the policy but did not do so. It seems that adequate warning is not given by insurance companies. One cannot be paternalistic about everything but there is clearly a problem with mortgage protection policies in that, if people are ill, they may not always realise what must be declared and, subsequently, doctors' notes can effectively void policies.

Under subsection (4) it is open to the lender to decide whose life shall be protected in the case of a loan made jointly to two or more borrowers. Is it sensible to leave this to the discretion of the mortgage lender?

Mrs. O'Rourke

The existing building societies legislation provides for this. Subsection (4) states: "A policy under this section may, in the case of a loan made jointly to two or more borrowers, apply to such of the borrowers as may be designated by the mortgage lender, due regard being had to the wishes of such borrowers."

Mr. R. Bruton

Why should the view of the lender override that of the borrowers?

Mrs. O'Rourke

I think it is because of due regard to the money lent.

Mr. R. Bruton

Are we presuming that the mortgage lender will act in the best interest of the borrowers? I do not know if we should make this presumption.

Mrs. O'Rourke

The official from the Department of the Environment told me that, since this was provided in the 1987 regulations arising from the building societies Act, there have not been any complaints of which the Department is aware.

Question put and agreed to.

Section 104 agreed to.

SECTION 105.

Chairman

Amendments Nos. 269, 271, 278 and 279 are related and may be discussed together.

Mrs. O'Rourke

I move amendment No. 269:

In page 57, subsection (1), to delete lines 17 to 20 and substitute the following:

"105. (1) A mortgage agent shall ensure that

(a) an information document,

(b) an application form for a housing loan, or

(c) any document approving a housing loan,

shall include the following notice:".

The purpose of this amendment is to ensure that culpability in the case of a breach will lie with the mortgage agent. Placing the onus on the agent helps raise the offence in section 12, as amended. This amendment, and many of the other provisions we are making focus on the culpability of a particular person so that if there is an offence it can be traced to the culpable person.

Amendment No. 271 seeks to insert the following: "A mortgage agent shall ensure that," before "Where". This is a substitution for amendment No. 271. Its purpose is similar to the purpose of amendment No. 269 and places the onus on a mortgage agent to ensure that any documentation issued for information on variable rate loans shall state, following the notice required on subsection (1), that the payment rates on the housing loan may be adjusted by the lender from time to time. These warning notices are in keeping with the emphasis on full disclosure of the facts to the consumer so as to enable him or her to make an informed decision.

The warning regarding the variable payment rates is of particular relevance where the consumer may be committing himself or herself to paying them. The consumer should be told rates can fluctuate and that he should not enter into further credit agreements because he could overstretch himself and that failure to keep up payments could result in loss of one's home. It is interesting to note that section 105 states: "WARNING — YOUR HOME IS AT RISK IF YOU DO NOT KEEP UP PAYMENTS ON A MORTGAGE OR ANY OTHER LOAN SECURED ON IT.".

The purpose of amendment No. 278, is to ensure, as in a number of other cases, that the person responsible for carrying out the task is named. This is to tidy up the legal side of things.

The purpose of amendment No. 279 is to identify the person who should carry out the function provided for in the section. This focuses again on culpability.

Mr. R. Bruton

These amendments are an improvement as the onus is placed on the mortgage agent or the mortgage lender to ensure that these warnings are adequately displayed. They clear up the ambiguity in these sections. As regards the documents and the warnings, are spouses informed about the state of play? If the spouse is not party to the loan, is he or she warned?

Mrs. O'Rourke

In the case of a partnership, housing loans are now required to be taken out jointly. As a result, all documents and information should be equally available. The Deputy raised this issue some months ago. We must get an assurance that this will be clarified early on in the proceedings.

Mr. R. Bruton

That was default.

Mrs. O'Rourke

Yes, it was about default. Joint ownership of homes and joint tenancies are now assured. As regards warning spouses and partners, we must ensure that the two people borrowing for a home, know everything before they start.

Mr. B. Fitzgerald

The Minister is making a valid point. Many people receive letters addressed to Mr. and Mrs. X. However, the man may see it, but not the woman or vice versa. It creates endless problems when the lender moves. Perhaps it may be necessary to send a letter to each individual. I do not know what rights the spouse or whoever has not received the notice has but a registered letter should be sent to each individual, rather than sending one letter to the two.

Mrs. O'Rourke

We no longer think about mortgages because we are past that stage in our lives, but we still get letters from the banks addressed to Mr. and Mrs. Enda O'Rourke. This is wrong because if we have a joint account, it is in the names of Enda and Mary O'Rourke. I do not know how to change that. We are talking about the information document and the warnings in it. The Deputies are worried that these warnings are not clear to both partners in the arrangement——

Mr. B. Fitzgerald

I have seen cases where it was at the stage of eviction——

Mrs. O'Rourke

——before the second spouse became aware of it. That is the point Deputy Bruton raised about default. These people only know about the default when the sheriff is at the door. When this point was raised before, we said we would speak to officials in the Department of the Environment, the banks or the building societies to see what could be done, but that the information should be conveyed. Perhaps this should be done by two letters, for example, one to Mr. Brian Fitzgerald and one to Mrs. Ann Fitzgerald. We will consider this question.

Amendment agreed to.

Chairman

Amendment No. 270 will not be moved as amendment No. 269 is a substitution for amendments Nos. 269 and 270 on the principal list of amendments circulated on 11 May, 1994.

Amendment No. 270 not moved.

Mrs. O'Rourke

I move amendment No. 271:

In page 57, subsection (2), line 24, before "Where" to insert "A mortgage agent shall ensure that,".

Amendment agreed to.

Section 105, as amended, agreed to.