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Select Committee on Enterprise and Economic Strategy debate -
Wednesday, 22 Mar 1995

Death of Member: Expression of Sympathy.

Before proceeding with the business of the meeting I propose that we stand for a minute's silence as a mark of respect to our late colleague, Deputy Johnny Fox, who was a member of this committee.

Members rose in their places.

On behalf of the committee and the staff, I propose to send a letter of sympathy to his widow and family. Is that agreed? Agreed.

Consumer Credit Bill, 1995: Committee Stage (Resumed).

Since our meeting on 25 October 1994, and in accordance with the order of the Dáil of 25 January 1995, amendments which were undisposed of at that last meeting are deemed to have lapsed. All amendments to the Bill tabled since that date are contained in one list with today's date which Members have. The amendments have been numbered so as to follow on from the last amendment disposed of by the select committee. At the meeting on 25 October it was decided to postpone consideration of section 108 of the Bill. The select committee proceeded to dispose of sections 109 to 117 before adjourning on that day. With members' agreement it is proposed to resume consideration of the Bill on section 108 and then proceed to section 118. Is that agreed? Agreed.


Chairman, before I move the amendment I wish to extend my congratulations to you on your election as Chairman of the committee. I hope that your career does not come to any sudden end in the chair in the manner of your predecessor.

I move amendment No. 291:

In page 58, before section 108, to insert the following new section:

"108—(1) The Minister may, after consultation with the Minister for the Environment, by regulations, make provision requiring the disclosure to the borrower of specified information relating to any insurance commission, introduction fee or other inducement, charge or expense that may be payable to any person or retained by any person on foot of an insurance policy taken out by the borrower in connection with the making of a housing loan, or on foot of the making of such loan.

(2) Regulations under this section may in particular specify:

(a) the nature of the information to be disclosed, including information on the manner in which any commission, fee, or other inducement, charge or expense is to be determined, the amount or value of same and the arrangements for the payment or provision of same,

(b) the circumstances in which and the time at which the information is to be disclosed,

(c) the manner of disclosure of the information.

(3) (a) Subsection (2) is without prejudice to the generality ofsubsection (1) and accordingly regulations under this section may make provision for matters other than those mentioned insubsection (2) or further provision as to any of the matters there mentioned.

(b) Regulations made under this section may:

(i) include such consequential, incidental, transitional or supplementary provisions as may be considered appropriate by the Minister to be necessary or proper for the purposes of this section;

(ii) apply either generally or by reference to a specified class or classes of loans, insurance, mortgage agents, or persons or by reference to any other matter that is considered appropriate by the Minister.

(4) Where, in connection with the making of a housing loan, a mortgage lender or mortgage intermediary acts exclusively for a particular insurer, he shall at the first reasonable opportunity and in any event before any commitment is made by the borrower, disclose this fact to the borrower and the possibility that such insurance may also be available from other insurers.

(5) Where, in connection with the making of a housing loan, a mortgage intermediary acts exclusively for a particular mortgage lender, he shall at the first reasonable opportunity and in any event before any commitment is made by the borrower, disclose this fact to the borrower and the possibility that the borrower may obtain a housing loan from another mortgage lender.

Section 108 is basically a redraft of the existing section so as to provide that disclosure and transparency of commissions, fees, charges and so on shall be achieved by way of regulation made by the Minister for Enterprise and Employment in consultation with the Minister for the Environment. The present text of section 108 places an obligation on a mortgage lender and mortgage or insurance intermediary to disclose up front to borrowers the insurance commission, for example endowment commission, or introduction fees payable in connection with a housing loan.

Disclosure of both insurance commissions and introduction fees is needed to enable the borrower to judge the extent, if any, to which the lender or intermediary in recommending a particular mortgage product is influenced by the commission or fee received. A mortgage lender and mortgage or insurance intermediary were also required to disclose to the borrower any charges or expenses deducted from the insurance payable. Section 108 also specified the circumstances in which disclosure should be made, for example at advertisement, application and approval stages.

The first need for this amendment is one of compliance. The present approach underlining section 108 of requiring a mortgage lender and mortgage or insurance intermediary to disclose commission, fees and so on in relation to mortgages could lend itself to circumvention and distortion of competition. Because of this it is now considered that a far more prescriptive approach will be needed. It is proposed therefore that the detailed disclosure provisions which are necessary to achieve the transparency objectives of the section should be provided by way of regulation. Such an approach will help counter non-compliance and ensure that the provisions of the section impact evenly on all types of lenders and intermediaries. It is proposed that the regulations would be made by the Minister for Enterprise and Employment in consultation with the Minister for the Environment.

Secondly, I wish briefly to outline why I consider primary legislation would be an unsuitable vehicle for detailed disclosure. It would not be appropriate or practical to provide in primary legislation the kind of detailed provisions necessary to ensure the type of transparency that we are seeking in connection with commissions and fees paid in relation to housing loans. Generally, primary legislation lacks the flexibility of regulations and does not lend itself to dealing with complex disclosure issues, for example, transparency in relation to commissions or fees which are paid in the forms of benefit-in-kind. The most important reason, however, is that regulation would facilitate the drawing up of a comprehensive range of detailed transparency provisions which can be adapted from time to time to deal with circumvention as well as remove any anomalies which may emerge in the light of experience.

Thirdly, the amendment shall result in equitable disclosure obligations of insurance commissions by both mortgage lenders and intermediaries. The insurance industry have represented to my Department, and indeed to the Department of the Environment, that the present commission disclosure requirements in section 108 could impact more onerously on intermediaries than on mortgage lenders.

The full amount of insurance commission which an intermediary receives on the sale of a mortgage would have to be disclosed in all cases. This will continue to be the case under the regime prescribed by regulations. On the other hand, a commission retained by an insurance subsidiary or a mortgage lender could avoid disclosure. This is because it does not entail a direct payment or transfer of funds by the insurance company to the lender. The subsidiary could retain the commission for itself. In other cases, a lesser figure only might be disclosed to the borrower.

The Government recognises that there is some substance in the case put forward by the insurance industry and that section 108 should be amended to ensure that it impacts evenly on all types of lender and intermediary and does not distort competition. The regulations would specify, inter alia, the type of information to be disclosed in relation to insurance commission, introduction fees, other inducements, charges or expenses; the amount of such commissions, fees, etc. and the manner in which they are calculated.

They would also cover at what stages and how the relevant information must be given to the borrower. The regulations would also deal with complex disclosure issues, for example, would specify how the profit element of an insurance commission arising on a housing loan which accrues to a mortgage lender's subsidiary or vice versa, should be disclosed to the borrower. Under the regulations the Minister would have power to make such provisions as he considers necessary from time to time to ensure compliance with the section in the light of experience.

I will give some examples of what disclosure under the proposed regulations might entail in relation to insurance commissions and introduction fees. In the area of commissions, the total amount of commission paid in cash terms to independent intermediaries — commission paid on a case of equivalent basis where the intermediary is a tied agent, for example, where payment is made by way of bonuses, perks or any other consideration paid to the agent which can be fairly attributed to a mortgage transaction; any monetary payments or benefits receivable by staff of either the parent company or organisation or its subsidiary which can be fairly attributed to the insurance commission arising on a mortgage transaction; any profit derived by the parent body or its subsidiary for mortgage related insurance commissions; where the insurance policy is sold through the sales staff of the insurer and the insurer is the parent or subsidiary of the mortgage lender, the amount of any monetary payments, benefit in kind, etc. which can be fairly attributed to mortgage related insurance commissions.

With regard to introduction fees we would have in mind the total amount in cash terms of any introduction fee paid by a mortgage lender to an intermediary in connection with the intermediary introducing mortgage business to the lender; disclosure on an equivalent basis where the fee is in the form of a benefit in kind or other perks in lieu; disclosure on an equivalent basis where the intermediary is a tied agent, that is, bonuses, perks or any other consideration paid by the lender to the agent which can be fairly attributed to a mortgage transaction.

To prevent circumvention of the disclosure requirements in section 108 in particular, it is proposed to provide that the Minister for Enterprise and Employment, with the consent of the Minister for the Environment, may by regulation amend, extend or restrict the definitions in section 96, including insurance commission. To ensure that all relevant definitions are covered it is proposed that the definition of introduction fee in section 108 should be included in section 96. The power to make regulations in this regard will ensure that any attempts to circumvent the disclosure requirements of section 108 by, for example, changing the nature of insurance commission or introduction fees can be dealt with by way of regulation. These amendments shall be tabled on Report Stage.

Section 108 (4) requires mortgage lenders and mortgage intermediaries, where they act exclusively for a particular insurer, to inform prospective borrowers of this fact and to emphasise that they are free to get insurance from other sources. Such disclosure would allow borrowers to weigh up the quality of the advice they are getting from a mortgage intermediary who is tied to a particular insurer. Subsection (5) places the same disclosure requirements as specified in subsection (4) on mortgage intermediaries who act exclusively for a particular mortgage lender.

I have listened with interest to the Minister but I would like him to tell us more about why he believes this section is required. Does he believe that the amount of commissions, introduction fees, inducements, charges or expenses are substantial? Does he believe that those amounts, if they are substantial, represent either a substantial, heavy or unfair burden on the consumer? Has the Minister much information about this? I wonder to what extent it is necessary for the public to know about the internal cuisine of all the institutions involved? I have not heard a particularly compelling reason from the Minister for doing this.

It is in the interests of the consumer that there is the widest possible range of means of access for the consumer to financial institutions, particularly, in this context. The number of points of access is not necessarily the same concern as the extent of competition, but we should encourage institutions to compete for the business. I wonder if this disclosure is not an unnecessary intrusion into the arrangements they make to compete with each other and to have the widest possible range of access and contact points with the consumer.

In subsection (4), in respect of an insurance based mortgage, the agent or intermediary, if acting exclusively for a particular insurer, has to reveal that and has to tell the borrower that he may get insurance from other insurers. Under subsection (5), where the intermediary is the local friendly building society, acting exclusively for a particularly mortgage lender, not only has the building society to tell the borrower of that fact but has to tell the borrower that he may obtain a housing loan from another mortgage lender. What is the logic of that?

If I go to my local garage to change my car I am mature enough — and I am not peculiar in that regard — to know that I have the option of going to buy a Toyota, but if I do not like what is on offer I can go to a Nissan dealer or to someone else. My local garage owner would be upset if it were suggested to him that, in keeping with the thinking in this Bill, he would have to tell me that he will sell me a brand new Toyota for my traded in old banger but that I also have to bear in mind that I can go somewhere else and buy a different brand of car.

Why is it deemed necessary to do this? We have more than enough advertising and more than enough outlets for consumers to be aware they have a choice in these matters without going to the lengths of specifying it in legislation. I would like to hear more about the reasons for going this far. They are not immediately obvious to me.

I congratulate the Chairman on his appointment. By way of a wry comment I would say "same scene, same set, same actors, different positions". I trust the Minister of State will now produce all of the amendments, those I accepted and those I did not, on Report Stage and we will have a truly all party Bill. It is good to work on the Bill again.

Will the regulations and the strictures also apply to banks offering mortgages? Can the Minister of State give me the percentage of mortgages obtained through building societies and other mortgage suppliers and that obtained through banks?

Yes but I do not know the percentage; I will find out from the Minister. I would rather deal with this at the end, if you do not mind, Chairman.

If the Minister searches through his files, he will find the precise percentage of mortgages as evidenced by banks and building societies. There is a given percentage in the files and I am sure the Minister's colleague in the Department of the Environment will be able to show it to him.

There is a difficulty — I am sure the Minister recognises it — in that we will then be pursuing only one branch of mortgage givers to the obvious advantage of others. Banks will be able to put these costs down to infrastructural expenses. They will say they are charging no commission, that they are giving the mortgage as it is. What matters to the consumer is the bottom line and whether they are getting a good deal on their mortgage. Will the Minister state how he will deal with banks who give mortgages of this type? They say they will pay no commission to any intermediaries but these costs will be wrapped up in the infrastructural expenses of the bank, their branches or suppliers. I wrestled with this problem for months when I was Minister — the last Bill concentrated on this — and had a series of meetings, but I could not get a proper solution and nobody came forward to help. The regulations the Minister has put forward, praiseworthy as they seem to be — they appear to be most detailed and convoluted — will disadvantage those who are traditionally in the mortgage giving business and help the banks, who will say that there is no commission or other hidden costs in their mortgages. One will then create a discriminatory position by harassing one group of mortgage givers while not applying the same rule to other groups.

I congratulate you, Chairman, and the Minister on being elevated to your posts. We are getting great value from the Minister, given that he is being paid only half the salary of a person sitting at the Cabinet table.

I have a difficulty with this section of the Bill. I do not see how section 108(4) ties in with the Insurance Act, 1989, under which tied agents must state that on all the literature they use. Is it intended that this will be in addition to or in substitution for the obligation of agents under the Insurance Act, 1989? Will mortgage lenders or intermediaries who are in fact exclusively tied to one insurer be a tied agent for the purpose of the Insurance Acts and obliged to carry notice of that on all their literature in any event?

Is there any particular mode of notification or disclosure in mind in relation to subsections 4 and 5? Can it simply be verbal and if so, what form does it have to take? Is the obligation under these subsections caught by the general right to make regulations under subsection 1? On the face of it, this does not seem to be the case. If it is merely a requirement that they must only give a verbal indication, what real protection is there for consumers if, during the course of a conservation, something is dropped parenthetically into some sentence and then there is full compliance with the Act? It seems that the general power to make regulations under subsection 1 does not comprehend a power to specify the way in which exclusive agencies will be communicated to people under subsections 4 and 5. I would be interested to know how the Minister proposes to deal with that and how this Act will mesh with the provisions of the Insurance Act in respect of tied agents?

While I appreciate the concerns raised by the previous speakers, there is a certain validity in what the Minister is trying to do here. Despite what previous speakers said, getting a mortgage is a little different from purchasing a car. There is an automatic assumption that the person is knowledgeable in the area of mortgages. There is also a lot of mystique surrounding mortgages because many different institutions, like insurance companies, banks and building societies, offer them. Attention is often focused on the papers with regard to the different offers from the various institutions.

As far as insurance companies are concerned and whether endowment mortgages are good value for money as opposed to building society mortgages, often the customer getting a mortgage relies on people who specialise in advising in this area. There may often be a question mark in the mind of a client as to whether the company giving the mortgage and advising where the client should go are often acting to maximise their own returns or on behalf of the person seeking a mortgage at the most competitive long term rate. The Minister's actions here may, if anything, demystify the process for the person getting the mortgage. One would like to think that what the intermediary is getting, with regard to recommending that one goes a certain route, is in the best interests of the client.

I appreciate what the Minister is trying to do, but I agree with Deputy Dukes when he drew the analogy with buying a car. It strikes me as surprising that if a person is tied to a specific mortgage company, he must at some stage during the discussion indicate that he is tied — one would assume the client may know that when going to him — and disclose to him that he may get a better housing loan from another mortgage lender. That would appear to be saying that while a lender may be running a business and offering a service, they can tell a client to shop around and go elsewhere, which strikes me as rather strange logic.

I fully appreciate this Bill which is particularly designed in the interest of the consumer, not the lender, banking institutions or building societies. It has been produced to protect borrowers. Therefore, having listened to the complaints about subsections 4 and 5, I see no valid reason to oppose or object to the Bill in so far as all that has been asked so far is that certain facts be disclosed to either the borrower or the borrower who has to pay an insurance premium. Surely legislation, particularly consumer legislation, is all about empowering the consumer to be able to get the best deal available or at least to be knowledgeable about or informed that a comparable or possibly, better, deal might be obtained in another area.

Given the tendency to concentrate the power to lend or borrow mortgages in small restricted groups, it is important that the consumer is equipped with the relevant knowledge. Given the monopoly I cannot see any reasonable argument to oppose this. Agents should be able to tell them that there are other companies in this business and inform them that they have an exclusive relationship with a certain insurer.

That is only one part of it.

I am only dealing with one part at present. I understand this has been debated on 16 or 18 occasions.

I have confidence in Deputy Dukes's ability to look after himself when he visits his local garage. However, there are people who may not be as well equipped to look after themselves and this is probably one of the major decisions which they are likely to make in their lives. A housing loan is something which most people would only deal with once. Even taking Deputy Dukes's example, the purchase of a car involves a major decision. The commission element, I understand, can involve several hundred pounds. I understand that the normal arrangement is that 60 per cent of the commission in the first year goes to the intermediary.

If the consumer walks in off the street to a named bank or building society, they know where they stand. They know that bank or building society is trying to flog them their particular product. If, however, they walk in off the street to an independent intermediary, they expect independent quality advice. Frequently it is not apparent that the intermediary has a link to one of the banks or insurers. It is important that the consumer is able to make up his or her mind on the quality and reliability of the advice they are given. It is, therefore, important to establish whether the intermediary has such a relationship — as a tied agent or otherwise — because it gives the consumer all the knowledge so he or she may weigh up all the options. I do not see it as a serious proposition to require someone to make it clear that alternative sources are available if they are wanted. No salesman would send someone a different insurer, institution or otherwise.

I do not know about the point raised by Deputy Michael McDowell in respect of the Insurance Act, 1989. This is a consumer Bill; I doubt if it conflicts with the 1989 Act, but I will check. It is governed by the ability of the Minister to make regulations. The detail the Deputy raised as to whether communication should be verbal or written will be dealt with by regulation.

I did not get answers to my questions.

The answer to Deputy O'Rourke's question on the banks is yes. I understand that it is approximately one-third or 30 per cent.

Of mortgages sold through banks.

Yes. I do not understand Deputy O'Rourke's point about harrying and harassing mortgage givers. In my experience, it is usually the mortgagees who end up being harassed or harried.

That is not the point.

I do not recall anybody harrying building societies or banks, but I may be at cross purposes.

I believe we are. Some 30 per cent of mortgages are give through banks which will say blandly to their customers that they do not operate a commission system. They are immediately in a superior situation to the individual mortgage giver operating in a tied agency or otherwise. Banks and building societies will say they do not operate a commission system. Surely the bottom line for the consumer is the price and value of the mortgage which he or she is getting. Banks and the main building societies will have a clear advantage. The consumer will not be better off because banks and building societies will just say blandly that they do not charge commission. Yet the price of that mortgage will be the same as that given by the individual mortgage giver who will say what the commission is and that they are tied to a certain agency.

There is a lack of transparency, which this Bill is supposed to be about, in mortgages given by banks and building societies vis-�-vis mortgages given by small mortgage givers like those we know in our constituencies. There is a clear bias in favour of banks and building societies in this measure because it does not apply across the board. I ask the Minister how he proposes to deal with that because the banks and building societies will say they do not operate a commission system.

Deputy O'Rourke introduced her remarks by saying that she herself struggled unsuccessfully with this. There is an element of truth in what she said. However, all the Bill can do is achieve optimum transparency so the consumer knows the odds when he or she makes their decision. As instanced by Deputy O'Rourke, they will know in the case of a particular bank or building society where they stand. It is not correct that in that case the lender will not have to disclose insurance commission. The only difference, as I understand it, is the question of introductory fees which would apply in the case of an intermediary.

Insurance commission applies in the case of the type of lender Deputy O'Rourke instanced. They will be required to make that clear to the would be purchaser, It goes back to Deputy Dukes's point about the widest possible range or means of access to the institutions.

All we can do in this legislation is ensure that the information is made available to the potential customer so he or she may evaluate it and make a judgment on the best product available. It will not minimise the points of access or competition — in fact, it will enhance competition. It is not the case, for example, in provincial towns, that when one goes to the local auctioneer or whoever and is being flogged this product one knows he is a tied agent for one of the insurance companies, banks or whatever or has an exclusive relationship with one of these institutions. This will make that clear and the punter will have to make up his or her mind.

I have no difficulty with the proposal that where an intermediary is tied to another institution that is made clear to the consumer, although I am not sure the situation is as opaque as the Minister suggests. From my observation — it is not a statement of fact — most intermediaries who have a link with a given institution advertise that fact. It makes a lot of sense for them to do it because if they advertise that they are linked to the First National Building Society, for example, they make the sensible judgment that they will benefit from the overall advertising for that institution. In most cases they have the logo of the institution on display outside their premises. I have no difficulty with the desirability of making it clear to a potential borrower that there is a link between the agent and a particular institution but I am not convinced that we need to remind people that they can get the a similar product elsewhere. Most people know that already. I agree that if a consumer goes to somebody who proclaims themselves or their firm to be a financial intermediary without indicating any link to an institution, but is in fact linked in that way, then there is a certain amount of misinformation to the consumer but those cases are not widespread.

To return to the amount of fees, inducements and introductory charges. If I understand the Minister correctly he has said that in a typical insurance based deal, 60% of the commission for the first year goes to the intermediary. I thank him for that answer to my question. Has the Minister evidence that a substantial amount is charged — either on particular transactions or in general by way of commissions or introductory amounts — and is that an extra charge to the consumer over and above what they would pay elsewhere? Let me explain what I have in mind. If a person wishes to get a mortgage from a building society, that person can go — depending on where they live — to an office or branch office of that building society and be quoted terms for the mortgage. Is it the case that if the consumer goes to an intermediary, who has a link with the building society but is not a branch, they will pay more for the mortgage? If not, what is the reason for making a special specification here?

That is the point I was making.

At the risk of boring the Minister, and other Members of the committee who are not familiar with this issue, I will go further.

A financial institution has a choice. It can decide to open a branch in a town like Rathangan, for example, where, as far as I am aware, there are no branches of any major building society or it can choose to do a deal with an auctioneer or insurance agent there to act on its behalf. That decision will be made purely on the basis of financial criteria. It will look at the cost of opening a premises, the associated charges of doing so and the expectation of the volume of business it might attract. The conclusion might be that this would prove too expensive. They might be better off going to one A. Dukes who operates there as an insurance agent or auctioneer and do a deal with him for commissions on the basis that this might be a cheaper option than opening a branch, given the volume of business they expect. If an intermediary is asked to declare commissions and so forth, should not the building society be required to declare what its overheads are on the operation also? It seems to me that they are essentially the same thing. From the commercial point of view of the operator, the choice they have to make is one between doing the job through their own branch or hiring an agent to do it. In either case the cost will be determined by market factors. The way the institution deals with that cost will be on the basis of what it considers to be the best commercial option, which will have to be accounted for to the institution's auditors.

What is the reality behind this? Does the Minister suspect, has he reason to believe or information to indicate that, when a potential borrower goes to an intermediary, there is an additional cost involved over and above dealing directly with an institution which the consumer needs to know about to be properly informed and protected? If there is not, then it is purely vexatious to make these kinds of requirements.

I have considerable sympathy with the points made by Deputies Dukes and O'Rourke. They are fundamentally the same points if expressed differently.

I understand the Minister is proposing that if an auctioneer advertises that he represents Irish Nationwide — I have a particular person in mind in the midlands — when the advertisement that that person is an agent for a building society hangs above the office why does he have to say that he will benefit from 10 per cent or 20 per cent of the first year's business? The Irish Permanent in Ranelagh, for example, is not obliged to give the consumer any information and can offer a mortgage on precisely the same terms without indicating anything about the fact that they could do better elsewhere. Why does a person who has a notice up — is not posing as an independent broker but actually has an arrangement with the Irish Nationwide, of which no one is in doubt — have to disclose details of their remuneration arrangements? If you got the same mortgage from a building society and paid the same amount of money for it, you would get no such information and the building society simply pockets the money. The building society in Ranelagh is not obliged to tell you to go next door to get a mortgage. However, somebody linked to a building society, even though they advertise the fact — when regulations are passed under this section will be obliged to declare it — is obliged in those circumstances to tell the consumer that they may get a better deal elsewhere. I am not happy with the thinking that underlies this particular arrangement.

Will the Minister state if we are dealing here with associated insurance contracts, such as protection of mortgage insurance contracts, or does this also apply to endowment mortgages? If it applies to endowment mortgages, is a mortgage lender obliged to say that the consumer can get the insurance aspect of an endowment mortgage provided by some other insurer? Is that what subsection (4) means? If the mortgage lender is obliged, in relation to an insurance contract, to raise the possibility that the insurance aspect of the endowment mortgage can also be available from other insurers, could this be the case? Is that what is intended? It is by no means clear that it is excluded. If you are selling an endowment mortgage package presumably the consumer is told that they can go to any insurance company they want this package.

I have sympathy for the views expressed by Deputies O'Rourke, McDowell and Dukes on the bias which seems to exist in favour of the banks and larger institutions vis-�-vis the smaller operator. Clarification is needed from the Minister on that specific point. The Minister spoke earlier on the level of disclosure and the fact that he would cover this whole area by way of regulation, verbal or written. I wish him well in trying to do that but who will police and implement those regulations?

Deputy Dukes has left. The fact of the matter is that, for example, introductory fees alone could have come to several hundred pounds. What typically happens in that situation, as I understand it, is that the lender pays that amount of money to the intermediary. I can only repeat that if the consumer walks in off the street to a building society or a bank, they know precisely where they stand. They need not know where they stand if they walk in off the street to one of the people categorised in this Bill as an intermediary. They may and, on the other hand, they may not. I do not know the answer to Deputy Dukes's question about how widespread it is. He has as much experience of this as I have. I cannot say how widespread it is but I do know that there are instances where it is not clear that the person posing as an independent adviser on these matters is purely independent, in the sense of having no relationship with the lending institutions.

Having listened to Deputy McDowell, I am almost persuaded, in respect of the following phrases in subsection (4), "and the possibility that such insurance may also be available from other insurers" and in subsection (5), "and the possibility that the borrower may obtain a housing loan from another mortgage lender", that they are superfluous. I am persuaded of that so I will consider it between now and Report Stage.

Is this the last two lines in subsections (4) and (5)?

Yes. I do not think it adds a great deal to those two subsections which are taken from the original section 108. The answer to Deputy McDowell's other questions about endowment and——

Mortgage protection.

——mortgage protection is "yes" in both cases. They are included. The answer to Deputy Kitt's question is that it will be policed by the Director of Consumer Affairs.

On the implementation and policing, it was always intended it would be in the hands of the Director of Consumer Affairs. I know the Minister is making efforts to get additional financial allocations by other means, which we will be coming to later, to buttress the Office of the Director of Consumer Affairs and, I suppose, to buy in expertise. The Director of Consumer Affairs is responsible for a range of issues but he would not have the precise knowledge of the whole range of financial products and the language that is used in selling these products. It seems that everyday there is a new way of buying education for your children in advance, making investments, buying pensions, arranging your burial or making expensive purchases of one kind or another. They are all, day-by-day, cloaked in new jargon. They are designed to confuse and to perplex people. They are certainly not aiming to make it easy. Of course, this Bill is only the opening of the door. I have always said that and I know the Minister agrees with that. It is only the opening of the door of transparency.

It seems that the Director of Consumer Affairs would be well served — perhaps the Minister would take this on board — by a financial services consumer council, which would be composed of some people who were in the business and also of consumers. This council would watch and explain developments, see what is happening in Europe and the United Kingdom and, in general, regulate and keep an eye on developments within the financial services area. Worthy and all as the Director of Consumer Affairs is — he is a fine person and a proven public servant with a strong record in that service — I do not think he has the acute financial knowledge which will be needed to implement the provisions of this Bill along with other regulations. He does not have that knowledge and even buying it in will not be enough. He will be well served by the setting up of a financial services consumer council. It will be able to look at things such as happened with a building society in the United Kingdom which had to withdraw staff because they were not properly trained in the selling of products. That is a vast complex area and perhaps, when the Bill is passed, we can talk about the setting up of a financial services consumer council, including the Director of Consumer Affairs, to advise the public on the range and complexity of credit products on offer. There is not a day when we open a newspaper that we cannot a fresh credit product, looking all worthy and proper but, I feel, constantly seductive to the buyer. The buyer is, in the main, uninformed and will think it is a good idea and go for it.

Returning to the high street banks and building societies, the point we were all making is not that we are after the consumer, at the end of the day we want the consumer to get value for the product he or she is buying, we want transparency, knowledge and value, in that order. I still maintain the high street banks and building societies have the edge on the intermediary. A cult of mistrust has grown up around the word "intermediary". The intermediary is seen to be getting away with wads of money in his or her back pocket from introduction fees, intermediary fees, brokerage fees, etc. when, in fact, the main high street institutions, that are far better staffed and financed and with far greater resources, are saying they have no introduction fee, no commission. They trumpet on the radio: "Come to us and you will get better value — no introduction fee, no commission fee, etc." Yet, if the consumers look at what they pay for their mortgage, they will see that they pay the same. Meanwhile, the intermediary is being followed up and down the country to disclose his or her various fees. It is wrong. I thought it was wrong when I was wrestling with this problem before and nothing has changed my mind since.

I admire the fact that we are trying to make the process more transparent and trying to get the facts so that the consumer can see them. The consumer does not get the chance to see the fees because they have gone into the provision of the mahogany and glass fittings, the proper staffing, etc. which go to make up a major high street institution. Perhaps by Report Stage the Minister will have thought further on this. Will the Minister see if there is any way there could be equal disclosure, as for the intermediary, of infrastructural costs which go to make up the price of mortgages and associated products given through the high street institutions?

While I do not want to prolong the debate because I welcome the Minister's second thoughts on the alternative sources of insurance or mortgage lending — he is right in that regard — it did occur to me, while Deputy O'Rourke was speaking about the fixed costs of running an expensive branch, that there is also the question of many people sitting behind desks in those expensive offices being on a bonus for selling mortgages——

That does not show up.

——and that will not show up anywhere. They will not be classified as intermediaries. A manager may be on 10 per cent performance bonus if he sells a mortgage——

And a customer has to pay a fee if he or she asks to see him.

——and he has just as much incentive to sell his product as the intermediary. Under this system, the consumer dealing with the manager will not have it drawn to his attention that he is dealing with a person who has an incentive to close the deal, whereas he has his nose rubbed in it if he goes to an intermediary.

With regard to that last point, when I made my introductory remarks I countered that in respect of commission paid on the type of case instanced by Deputy McDowell and Deputy O'Rourke, we try to include situations where the intermediary is a tied agent, or what I describe as payment made by way of bonuses, perks or any other consideration paid to the agent. That is about as far as one can go.

I cannot readily see how one would be able to require the institutions, or ascertain their reaction, given their reaction to more moderate measures——

When the Minister was on this side of the House he was not too worried about the reaction of the financial institutions.

——to undertake the kind of infrastructural audit which Deputy O'Rourke suggested. I agree with the Deputy that it can be quite bewildering and confusing for the customer or the consumer and that it is difficult, on occasion, to make an informed judgement for a variety of reasons. She is correct about new products and packages coming on the market all the time and she instanced, as examples, two packages to put children through education. However, since this reforming Government came to power such packages will no longer be necessary.

The Minister advised me that he does not agree with the abolition of third level fees.

There are other products and packages, and I am happy to consider the idea of a financial services consumers' council, but this should only be advisory, and the defect the Deputy points to is in respect of the expertise which may or may not be within the office of the Director of Consumer Affairs to deal with the fairly onerous commitments he is undertaking under the Bill.

I agree with Deputy O'Rourke that the present occupant of the office of the Director of Consumer Affairs is undertaking exceptional work. The Deputy is correct in that the expertise required to police the Bill means that additional resources will have to be made available to his office and the system will have to respond more flexibly to his requirement for specific skills than has been allowed by the specific relationship which he has had, to date, with the Department. This will have to be looked at, because, for example, in terms of some of the responsibilities vis-�-vis the financial institutions, there is a great wealth of imaginative and creative talent in the banks that Mr. Fagan will have to scrutinise. If the legislation is to be effective he will have to be given the resources to do this, and hopefully this will be done.

Will the Minister consider the idea of a financial services consumers' council as an advisory body?

I will consider the proposal.

Acceptance of the amendment involves the deletion of section 108 from the Bill.

Did the Minister not say that he would come back on Report Stage?

The Minister is making the amendment now, but he advises that he may further amend it on Report Stage.

I advised that I will press the amendment now and that I will consider the points which have been raised for Report Stage.

Amendment agreed to.
Section 108 deleted.

Sections 109 to 117, inclusive, were considered by the Select Committee at its meeting of 25 October, 1994.

Sections 109 to 117, inclusive, agreed to.

I move amendment No. 292:

In page 61, before section 118, to insert the following new section:

"118.(1) Subject to subsection (2), a creditor or owner shall in respect of a refusal by him to enter into a credit agreement or a consumer hire agreement, as the case may be, give to the consumer the name and address of any person from whom the creditor or the owner, as the case may be, has sought information concerning the financial standing of the consumer, within 14 days, after receiving a request in writing to that effect from the consumer.

(2) Subsection (1) does not apply to a request—

(a) received more than 28 days after the refusal, or

(b) which relates to information to which the Data Protection Act, 1988, applies being data within the meaning of that Act.

(3) Subject to subsection (4), a person who has supplied information to a creditor or an owner in respect of the financial standing of a consumer in respect of a credit agreement or a consumer hire agreement shall give to the consumer a copy in legible form of any information held by that person concerning the financial standing of the consumer, within 14 days after receiving a request in writing to that effect from the consumer, together with a fee of £5, or such other amount (if any) as may stand specified in regulations.

(4) Subsection (3) does not apply to a request—

(a) received more than 28 days after the name and address referred to in subsection (1) has been given, or

(b) which relates to information to which the Data Protection Act, 1988, applies being data within the meaning of the that Act.".

The purpose of this amendment is to improve on and replace the present text of section 118 relating to information on the financial standing of the consumer. The new text imposes the same duty to disclose information concerning the financial standing of the consumer in the case of consumer hire agreements as will apply to credit agreements. Consumer hire agreements were not covered in the original text. This is the principal difference between the proposed subsection (1) and the original subsection (1).

Subsection (2) provides that the duty to provide information entailed in subsection (1) will not apply to requests received outside a time limit of 28 days, or to a request which relates to information which the Data Protection Act, 1988, applies. It is not the intention, in framing this section, to cut across or duplicate in any way the provisions of the Data Protection Act.

Subsection (3) is not expanded to cover a consumer hire agreement in addition to a consumer credit agreement. The Minister may, by regulations, vary the amount of the fee which the consumer is required to give the person from whom he is requesting the information. The purpose of this fee is to ensure that, as far as possible, applications of this nature by consumers will be bona fide. It will also defray the expenses of the supplier of the information in providing a legible and intelligible copy of the information requested.

Subsection (4) stipulates that requests received outside the 28 day limit, or relating to information available under the Data Protection Act, are not covered by this legislation.

I welcome this amendment. Recently a person came to me who was in business with a JCB machine and ran into some financial difficulties which he subsequently resolved. The man wishes to re-establish in business, but he keeps on being refused by different institutions along the way and nobody will tell him why, other than to advise him that his application has been considered but not granted. This man believes that information concerning his application has been fobbed around to every lending institution and that if he was to apply to an organisation, be it a hire purchase company or leasing company, he should be entitled to a report explaining why he is being refused.

With regard to the banking institutions, they have a long memory if one sins against them, even going back a few years, and endeavours to rehabilitate. By contrast, a person who fails in business in the USA bounces back and is encouraged. While the ethos of the Government is to encourage business as much as possible, if one failed financially in the past it is very difficult to re-establish, even if financial commitments are honoured. The financial institutions appear to close up against such people and there is almost a code of secrecy among them which militates against a person re-establishing.

I therefore welcome anything which would force a lending institution at least to explain why it is refusing to grant a credit agreement or a consumer hire agreement. Many people are unfairly penalised under the present system.

With regard to the text of section 118, I agree with Deputy Finucane in that it is generally desirable that those who are refused credit should be able to work out why and set the record straight if they can. They should not be dogged by unfavourable information being available to creditors in a form which is inaccessible to the person to whom it relates.

However, there are two aspects which worry me. It appears to apply to everybody in every circumstance who refuses a credit agreement. For example, if a money lender knows that a potential borrower has borrowed from somebody else before, he may inquire as to the dependability of the borrower and be advised that the borrower was troublesome and that it would cause the money lender great pain to lend him money.

Situations like this could arise and may involve a reasonable credit reference, given in very informal circumstances. It may not amount to information which is available in some written form; it may be purely a verbal conversation between two people. It would seem to be a mistake in circumstances like that to require a person to reveal to all disgruntled would-be borrowers who have been refused, all the details of precisely why somebody thought poorly of them.

The second thing that occurs to me is that if somebody came to me for credit, either in a consumer hire agreement or a consumer credit agreement, and I consulted 12 agencies or people, the implication if I refused might be that all 12 gave a poor reference. Section 118 as it is now does not isolate the referee who gave the thumbs down. It worries me somewhat that if only one of three credit institutions gave a thumbs down, the disgruntled borrower is told the three names of the people consulted but not who gave the thumbs down. That seems to be what section 118 now says. It is most unsatisfactory. It also gives rise to the possibility that one could get around it. Someone who got an unfavourable reference could get a favourable reference from somebody else and say that it was one of the following three people who gave the thumbs down, leaving the consumer just as wise at the end of the process as he was at the beginning. Whereas I accept the Minister is trying to prevent people from being blackened in terms of credit and I accept the principle there, there is a problem if one cannot identify the negative referee and innocent people are brought into the process as their names have to be supplied.

I welcome this legislation. A constituent of mine who had two good businesses and two houses was getting a fax machine installed in his office and decided to get it through an agency at £5 per week. He was upset when the agency refused to give him that £5 per week. On my advice, he went to his solicitor to try to get a reason for the refusal of credit. Of course, at the time they were not obliged by law to give the reason and he was very upset.

I hope that when this legislation is enacted the financial institutions will have to give the reason why they do not give the money. For too long these institutions have had too much power and I am glad now to see the power may be shifting towards the consumer. I welcome this legislation.

As I understand it, they do not have to give the reasons. They only have to identify any person consulted. That is my reading of section 118. I would be much more impressed if anybody who gave a negative credit reference had to be identified and give the reason. We are in an extraordinary situation that even positive referees have their names put down on a list and it is up to the person who is disgruntled with the outcome to work out who gave him the thumbs down.

That section is in line with what we had included earlier but having regard to what Deputy Michael McDowell has said, I am not convinced that it will do the job. I accept the thrust and the good intention of section 118 which endeavours to open up that process and to see that people who perhaps had a bad experience in an earlier transaction but concluded their transaction with honour are not discriminated against by having this incident on their record. Is the Minister satisfied, because I certainly was not when I was dealing with it, that there is not an inner circle of communication reference which covertly identifies that applicant for credit? Many people have gone through transitory difficulties with a particular loan or product, cleared the debt and later wished to make another credit purchase but found they could not do so. This section is meant to address that and is an honest attempt but it will not be able to do it because there is that ring or cartel of prohibition which will stop that person engaging in another credit purchase. To truly reflect what we are trying to do, the section should, as Deputy Michael McDowell said, point out the person who gave the bad reference and the reasons why. The applicant should have a chance to ask why?

When I was on the other side of the House, if I had ever realised that Deputy O'Rourke was so unhappy with this Bill I would have made hay.

I told everyone of my unhappiness.

Deputy Finucane gave an example of the type of thing this section is designed to deal with and it is manifestly unfair that someone who failed in business for whatever reason ought to find himself or herself blackened with the institutions when he is trying to get back on his feet. If Deputy Dukes was present, he would probably ask me to quantify it for him. I cannot quantify it——

We all knows it happens.

——but we all know, as Deputy O'Rourke says, it happens so it is a good example of what this is designed to do. One has to be conscious that Deputy McDowell above all else is an advocate and therefore I have to look closely at what he says to me because he is capable of making a plausible sounding argument even if he is not right. So I want to look carefully at what he said because I think it a bit unlikely that if three names were given and, in the case of the money lender in any event I greatly doubt if three people would be consulted in the first instance on the £100 loan to Mrs. Murphy at the door——

Go on to the bigger boys.

In the case of the bigger boys, I greatly doubt if you would have a situation where two would approve and one would give the thumbs down. In any event it is the lender who makes the judgement on the basis of the advice. The lender may have prudential reasons other than bad risk for refusing the credit.

Deputy Michael McDowell tabled an amendment saying that nothing in this Bill shall impose an obligation on the lender to make credit available where, in his or her judgment, it ought not be made available. I am not convinced on this occasion. There are people who could be bad risks and one could imagine one moneylender telephoning another to say "whatever you do, keep away from her".

It could be a "her" now.

One cannot say we should give the benefit of the doubt to "her" who is hiring the bulldozer and not to "her" who was the money-lender's client. There is a constitutional issue here and I would not like to distinguish.

It can be done at the moment.

Amendment agreed to.
Section 118 deleted.