Dáil Éireann Debate, Thursday - 3 March 2005
102 Mr. Eamon Ryan asked the Minister for Finance his views on whether there is cause for concern at the latest figures on consumer debt, which show a higher ratio of debt to income than ever before; and if he will make a statement on the matter. [6217/05]
View answerI am aware of the concerns expressed by a number of commentators in relation to the continued strong growth in credit, particularly to the household sector and the possible effects of increasing indebtedness upon borrowers. The growth of credit and the associated increase in indebtedness is a matter for the Central Bank and Financial Services Authority of Ireland, taking into account its role as a part of the European system of central banks and the functions of the financial regulator in relation to the prudential supervision of financial institutions and the protection of the consumers of those firms.
I am advised by the financial regulator that the increase in personal indebtedness can be viewed against a background of record housebuilding and while personal liabilities have increased these are backed by real assets; non-housing debt is a relatively small proportion of overall personal debt; and credit card debt in Ireland is growing more slowly than overall personal debt and is modest compared with developments in other markets where there are concerns about unsecured lending.
The provision of consumer credit in Ireland is regulated by the Consumer Credit Act 1995, which is administered by the financial regulator. This Act obliges credit providers to include specific information in all credit agreements in relation to such matters as the total cost of credit, the amount of each repayment instalment, the number of instalments, etc. Additionally, in the case of housing loans, the Act specifically obliges mortgage providers to inform borrowers of the effect on the amount of their repayment instalments of a 1% increase in interest rates in the first year of their mortgages. The purpose of obliging credit providers to provide such information is to ensure that consumers, when making credit decisions, are armed with the fullest possible information in relation to any credit agreement they are entering into and most important the impact that servicing a loan will have on the consumer's household budget.
In addition, the Central Bank and the financial regulator have sought to raise the level of awareness of both borrowers and lenders of the importance of prudent borrowing and responsible lending. The financial regulator, with its statutory consumer mandate, has developed a number of specific initiatives to help consumers make informed choices and make the most appropriate credit decisions given their circumstances. Separately, mortgage lenders were requested to review their practices in relation to customer income verification and the funding of mortgage balances so as to ensure that not only were loans properly secured but also that borrowers would be able to fully repay them. They were also advised of the need to stress test every would-be borrower's ability to meet their credit obligations, in the event of more challenging times.
Responsible use of credit clearly can have advantages for borrowers in terms of their lifestyles, etc. On the other hand, it is very important that loans fully suit borrowers' requirements both in terms of amount borrowed and ability to repay. This is equally important for lenders as inappropriate lending or borrowing can also be damaging to the economy. I, therefore, fully support the Central Bank and the financial regulator in their endeavours to raise the level of awareness of the risks of reckless borrowing and excessive credit growth.
