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Thursday, 16 Jul 2020

Written Answers Nos. 64-85

Mortgage Lending

Questions (65)

Richard Boyd Barrett

Question:

65. Deputy Richard Boyd Barrett asked the Minister for Finance the actions he will take to prevent the practice of the banks to not let persons who are in receipt of the temporary wage subsidy scheme draw down already agreed mortgages; and if he will make a statement on the matter. [16317/20]

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Written answers

I fully appreciate the concerns many people are experiencing about mortgage applications and drawdowns at this difficult time, and my Department is maintaining close contact with the Central Bank and Banking and Payments Federation Ireland (BPFI) as the lending industry works to address the difficulties the Covid-19 situation is causing for both borrowers and lenders. In this context, the Central Bank has advised that it expects all regulated firms to take a consumer-focused approach and to act in their customer's best interests at all times, including during the Covid-19 pandemic.

In the context of mortgage applications, lenders continue to process applications and have supports in place to assist customers impacted by COVID-19. The BPFI has published a Covid-19 Support FAQ document which customers can consult, or customers can contact their lender directly, if they have any queries or concerns about the impact of COVID-19 on their mortgage application. However, within the parameters of the regulatory framework, as set out below, the decision to grant or refuse an individual application for mortgage credit, or temporarily suspend a mortgage approval in principle, is a commercial and contractual decision to be made by the regulated entity and it is not appropriate or possible for me to instruct lenders in that regard. Furthermore, a loan offer may contain a condition that would allow the lender to withdraw or vary the offer if in the lender’s opinion there is any material change in circumstances prior to drawdown and, in such cases, the decision to withdraw or vary the offer is also a commercial decision for the lender.

The European Union (Consumer Mortgage Credit Agreements) Regulations 2016 (CMCAR) provide that, before concluding a mortgage credit agreement, a lender must make a thorough assessment of the consumer’s creditworthiness. The assessment must take appropriate account of factors relevant to verifying the prospect of the consumer being able to meet his or her obligations under the credit agreement and must be carried out on the basis of information on the consumer’s income and expenses and other financial and economic circumstances which is necessary, sufficient and proportionate. The CMCAR further provide that a lender should only make credit available to a consumer where the result of the creditworthiness assessment indicates that the consumer’s obligations resulting from the credit agreement are likely to be met in the manner required under that agreement. In addition, the Central Bank’s Consumer Protection Code 2012 imposes ‘Knowing the Consumer and Suitability’ requirements on lenders. Under these requirements, lenders are required to assess affordability of credit and the suitability of a product or service based on the individual circumstances of each borrower.

Mortgage Interest Rates

Questions (66)

Richard Boyd Barrett

Question:

66. Deputy Richard Boyd Barrett asked the Minister for Finance the actions he will take to stop banks charging interest on Covid-19 mortgage breaks; and if he will make a statement on the matter. [16318/20]

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Written answers

The Members of the Banking and Payments Federation of Ireland (BPFI) introduced the payment break for their customers on 18 March last. These payment breaks were agreed quickly to provide substantial and rapid relief to worried and anxious borrowers, including mortgage holders, in situations where income has been directly impacted by COVID-19, and during a fast moving and evolving public health crisis. At the end of June, almost 160,000 payment breaks have been approved for Irish borrowers, representing €20.1 billion of loans.

Given pre-existing European Banking Authority (EBA) guidelines on the classification of default, the BPFI and its members sought to ensure that its payment break would not lead to the classification of loans as being non-performing.

Two weeks later, on 2 April, the EBA published Guidelines. These guidelines set out the criteria that payment moratoria must meet in order to benefit from supervisory flexibility and for them to not automatically lead to the loans being classified as forborne.

The key paragraph in relation to the charging of interest, paragraph 24, was interpreted in different ways across Europe. It states that:

"The moratorium changes only the schedule of payments. This condition is consistent with the objective of the moratorium to address the systemic short-term liquidity shortages. In order to achieve this objective, the moratoria suspend, postpone or reduce the payments (principal, interest or both) within a limited period of time. This clearly affects the whole schedule of payment and may lead to increased payments after the period of the moratorium or an extended duration of the loan. However, the moratorium should not affect other conditions of the loan, in particular the interest rate, unless such change only serves for compensation to avoid losses which an institution otherwise would have due to the delayed payment schedule under the moratorium, which would allow the impact on the net present value to be neutralised."

As I just mentioned, banks across Europe interpreted the above paragraph in different ways with the results that different schemes were introduced. Some countries provided for the accrual and capitalisation of the interest. Others provided for the non-accrual and a number provided for accrual of the interest but not its capitalisation.

In its letter to Deputy Doherty on 22 June last, the Central Bank stated that the EBA was expected to provide further clarity on the specific issue of interest accrual and, I assume in light of the discussions then underway with the EBA, the Central Bank outlined that both the charging and non-charging of interest is acceptable under the guidelines.

The EBA duly provided clarifications in its implementation report on the 7th of July. It confirmed in relation to the net present value or NPV of a loan that:

" There may be a decline in the NPV if …. no interest is charged for the time covered by the moratorium. Alternatively, the moratorium may be NPV-neutral (i.e. no change in the NPV) if subsequently at least one of the instalments is adjusted upwards or added."

The EBA also confirmed that its guidelines on the classification of default did not apply to loans on a payment break under a general moratorium. The BPFI payment moratorium complies fully with the EBA's Guidelines because it is NPV-neutral.

The Government and the Central Bank of Ireland have stated that it is essential that lenders fully explain the implications, including any associated cost or other significant impacts, of the particular payment break measures being put in place. For instance, lenders should outline if the repayment term of the mortgage will be extended due to the payment break, if monthly payments will increase following the resumption of the mortgage repayments, if interest will continue to accrue during the payment break and the implications this will have for the total cost of the credit, and any other significant matter for the customer when availing of a Covid-19 payment break, or indeed for any other reason.

I have been advised by the Central Bank that all lenders have been required to develop strategies and operational capability to continue to support borrowers who cannot return to full capital and interest after the end of the payment break. This will include offering forbearance as required and restructuring of loans in the event of long-term affordability issues.

Question No. 67 answered with Question No. 5.

Covid-19 Pandemic Supports

Questions (68, 70)

Bernard Durkan

Question:

68. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he expects the proposed European Covid-19 rescue fund to be applied across the European Union; if it will be proportional to the extent to which each country has been affected by the virus in terms of economic and financial cost or by another mechanism; the degree to which this is likely to affect the case of Ireland; and if he will make a statement on the matter. [16429/20]

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Bernard Durkan

Question:

70. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he expects to be in a position to improve the case of Ireland in the context of likely benefit from the multibillion euro Covid-19 related rescue fund of the European Commission; and if he will make a statement on the matter. [16431/20]

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Written answers

I propose to take Questions Nos. 68 and 70 together.

As the Deputy will be aware, on 10 July 2020, the President of the European Council (PEC), Charles Michel, published revised proposals for the next Multiannual Financial Framework (MFF) to run from 2021-2027 to be supplemented by a proposed temporary European recovery instrument “Next Generation EU”.

The total amount being proposed for the period 2021-2027 is €1.824 trillion in commitments (2018 prices) - €1.074 trillion for the MFF and €750 billion for Next Generation EU.

Initial assessment of the Next Generation EU package and the national allocations announced suggest that Ireland, with an allocation of 0.4% may receive just over €1.5 billion between 2021 and 2024 in grants topped up by a potential further €1bn in loans from the facility should Ireland wish to apply. Ireland’s grant allocation between 2021 and 2024 would include:

€354 million for rural development to support the European Green Deal, Farm to Fork (F2F), and Biodiversity Strategies;

€215 million from ReactEU (essentially Cohesion Programmes)

€132 million additional to the Just Transition Fund;

€846 million from the new Recovery and Resilience Facility.

The proposed Recovery and Resilience Facility (RRF) is the largest single instrument in the Commission’s Next Generation EU proposal, with a budget of €560 billion (€310 billion in grants and €250 billion in loans) and is targeted at investment and reform in Member States. The Facility aims to mitigate the economic and social impact of the crisis and support the recovery, while fostering green and digital transitions.

As outlined above, it is estimated that Ireland will receive €846 million from the proposed Recovery and Resilience Facility (RRF) to support investments and reforms, including in relation to the green and digital transitions and the resilience of the economy. This is only 70% of the allocated amounts, as the remaining 30% will be committed in 2023, taking the 2020 and 2021 fall in GDP into account.

The allocation of RRF funding to Member States has been calculated by the European Commission on the basis of the population, the inverse of the per capita Gross Domestic Product (GDP) and the relative unemployment of each Member State.

An application for support under the RRF will be based on the additional financial needs linked to the recovery and resilience plans put forward by Member States. Grants and loans will be paid in instalments on the basis of achieved agreed milestones. No national co-financing will be required. The maximum amount of loans for each Member State will not exceed 4.7% of its Gross National Income.

Further receipts should be available to Ireland under competitively awarded programmes under the “Next Generation EU” package, but this is difficult to estimate at this point.

There is now considerable time pressure on European Council to reach political agreement (requiring unanimity) on the revised package of both MFF and recovery fund before the end of July to facilitate negotiation with and consent from the European Parliament in time to ensure that the next MFF can come into operation from 1 January 2021.

Heads of State and Governments will discuss the revised MFF and “Next Generation EU” proposals at European Council on 17 and 18 July, with the aim of reaching an agreement. The Taoiseach will be attending the Council summit to negotiate on behalf of Ireland. It would not be appropriate for me to comment further in advance of the upcoming European Council negotiations.

Covid-19 Pandemic Supports

Questions (69)

Bernard Durkan

Question:

69. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which the mutualisation of debt arising from the Covid-19 crisis is likely to occur throughout Europe; and if he will make a statement on the matter. [16430/20]

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Written answers

On 25 March 2020, Ireland, in response to the Covid-19 crisis, and along with eight other countries (Belgium, France, Greece, Italy, Luxembourg, Portugal, Slovenia, and Spain) signed a public letter to the President of the European Council (PEC) Charles Michel, calling for “a common debt instrument issued by a European institution to raise funds on the market on the same basis and to the benefits of all Member States, thus ensuring stable long term financing for the policies required to counter the damages caused by this pandemic”.

The letter continued, stating that the case for such a common instrument is strong, since all Member States are facing a symmetric external shock from the Covid-19 crisis, for which no country bears responsibility, but whose negative consequences are endured by all.

On 10 July, PEC Charles Michel published revised proposals for the next Multiannual Financial Framework (MFF) to run from 2021-2027 to be supplemented by a proposed temporary European recovery instrument “Next Generation EU”.

The total amount being proposed for the period 2021-2027 is €1.824 trillion in commitments (2018 prices) - €1.074 trillion for the MFF and €750 billion for Next Generation EU. This recovery instrument will be embedded in the EU Budget and is split into three pillars, and is in addition to the strengthening the existing programmes in the EU Budget.

Next Generation EU financing will be raised by “temporarily” increasing the Own Resources ceiling to 2.00% of EU Gross National Income (GNI) allowing the Commission to borrow €750 billion on the financial markets to fund measures over the period 2021 – 2023 (commitments).

€500 billion of Next Generation EU financing will be in the form of grants to Member States, with the remaining €250 billion as loans.

This additional funding, to be channelled through EU Budget programmes, will be repaid between 2026 and 2058 drawing on future EU Budget contributions from Member States or the Own Resources of the Union.

The centrepiece of the package, the “Recovery and Resilience Facility” (RRF), is the largest single instrument within the Commission’s Next Generation EU proposal, with a budget of €560 billion (€310 billion grants and €250 billion loans), and is targeted at investment and reform in Member States. The Recovery and Resilience Facility will be embedded in the European Semester of economic governance. The Facility aims to mitigate the economic and social impact of the crisis and support the recovery, while fostering green and digital transitions.

There is now considerable time pressure on European Council to reach political agreement (requiring unanimity) on the revised package of both MFF and recovery fund before the end of July to facilitate negotiation with and consent from the European Parliament in time to ensure that the next MFF can come into operation from 1 January 2021.

Heads of State and Government will discuss the revised MFF and Next Generation EU proposals at European Council on 17 and 18 July, with the aim of reaching an agreement. The Taoiseach will be attending the Council summit to negotiate on behalf of Ireland. It would not be appropriate for me to comment further in advance of the upcoming European Council negotiations.

Question No. 70 answered with Question No. 68.

Covid-19 Pandemic

Questions (71)

Bernard Durkan

Question:

71. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he expects the economy here to recover from the Covid-19 crisis, with particular reference to those sectors most severely impacted; and if he will make a statement on the matter. [16432/20]

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Written answers

In the Stability Programme Update (SPU), published in April this year, my Department projected that GDP would decline by 10.5 per cent this year. The central scenario underpinning the SPU projections was one in which containment measures were assumed to remain in place for approximately three months, resulting in a very sharp contraction in the latter weeks of the first quarter and most of the second quarter. Thereafter, a very gradual recovery commencing in the third quarter was assumed reflecting a gradual easing of containment measures and the assumption that a vaccination is available before next year. There is likely to be some upside to these projections on the back of stronger than expected growth in the first quarter, and an earlier than expected re-opening as a result of the progress in suppressing the virus. As the economy continues to re-open, the extent of the recovery over the second half of this year and into next year will be a function of several factors, including the epidemiology of the virus, the success of containment measures, and the global economic outlook, of which there is considerable uncertainty.

At this stage it is clear that the economic impact of Covid-19 has not been the same across all sectors of the economy. Though the majority of economic activity has now resumed, it is likely that the services sector of the economy – much of which relies upon close physical interaction with consumers – has been and will continue to be the most severely impacted. In particular, activity in the retail, hotels, restaurants and arts sectors is likely to experience a severe decline as a result of being closed during the second quarter of the year. Though many of these businesses have reopened from the onset of Phase 3 on the 29th June, they will do so at reduced capacity to ensure compliance with public health guidelines. There may also be changes in consumer preferences due to concerns relating to virus transmission, resulting in lower demand for these services. The recovery in these sectors is therefore likely to be gradual and it is expected that aggregate economic activity will not reach its pre-COVID level until 2022.

The Government’s policy response to the economic impact of the pandemic has been swift, including the introduction of the Pandemic Unemployment Payment and the Temporary Wage Subsidy Scheme to cushion the blow to people’s incomes and maintain the vital link between employers and employees, helping people to return to work as soon as possible once the worst of the crisis has passed. Indeed, in the forthcoming July Stimulus Package and the National Economic Plan, to be published alongside the Budget in October, the Government will demonstrate its commitment to bringing Ireland out of the worst of this economic downturn. Getting people back to work will be a top priority in this regard.

State Aid

Questions (72)

Bernard Durkan

Question:

72. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he expects European state aid rules to be relaxed to facilitate the provision of vital infrastructure such as housing, health and education facilities and support services; and if he will make a statement on the matter. [16444/20]

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Written answers

Questions of policy in relation to State Aid are a matter for my colleague, the Minister for Enterprise, Trade and Employment.

The previous Government introduced the National Development Plan (NDP), committing to an investment of €116 billion for the provision of infrastructure projects. The Programme for Government commits to continuing and expanding on this investment in infrastructure. The Government intends to bring forward the review of the NDP from 2022 and to set out an updated NDP for the period to 2031 to ensure that our economy has the long-term capacity needed for future growth.

Brexit Issues

Questions (73)

Bernard Durkan

Question:

73. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he continues to review the impact of Brexit on various aspects of the economy here; and if he will make a statement on the matter. [16446/20]

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Written answers

My Department continually monitors developments relating to the macroeconomic impact of Brexit.

The Stability Programme Update (SPU) 2020, published in April, set out the economic projections for 2020 and 2021 taking account of COVID-19 and an agreed Brexit. In this scenario, GDP is projected to fall sharply, by 10.5 per cent, this year, followed by an increase of 6 per cent next year.

The recovery is likely to be partial and to bypass many sectors. This assessment was based on the assumption of a free-trade agreement being concluded between the EU and the UK at the end of the transition period in December this year.

In terms of the macroeconomic impact of a no deal exit, Budget 2020 was based a no deal Brexit – resulting in a reduction of 2- 2½ per cent in the growth rate. This was due to a disruption to trade where it was assumed World Trade Organization (WTO) terms would apply, with a consequent decline in business confidence leading to lower investment and a decline in consumer confidence resulting in higher precautionary savings.

The economic situation is fundamentally different now when compared to that point in time. Unemployment is currently at historically high levels, and budgetary policy is more constrained. The impact of a disorderly exit on the economy will therefore potentially be more severe than assumed last year.

The negative impacts will be most severely felt in those sectors with strong export ties to the UK market – such as the agri-food, manufacturing and tourism sectors and also SMEs generally – along with their suppliers. The impact will be particularly noticeable outside the main cities.

It has always been clear that Brexit will have a negative impact on the economy and domestic living standards, irrespective of the format that it takes. Brexit will mean change. Ireland continues to support the closest possible future relationship between the EU and the UK, but it is prudent to plan to ensure that we are prepared for 1 January 2021.

All developments with respect to the future relationship between the EU and the UK will continue to be monitored, and my Department will update the macroeconomic and fiscal projections to take account of any developments in the preparations for Budget 2021.

Interest Rates

Questions (74)

Bernard Durkan

Question:

74. Deputy Bernard J. Durkan asked the Minister for Finance the degree to which lending rates of interest here can be brought in line with those applicable in other eurozone countries in view of the commitment by Ireland to the Single Market and the need to ensure that consumers here receive equal treatment to their counterparts throughout Europe; and if he will make a statement on the matter. [16447/20]

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Written answers

I am aware that the general level of lending interest rates in Ireland are higher than is the case in many other European countries, though it should also be noted that recent trends indicate that rates have been falling month-on-month.

It will be important to recognise that there are many factors which influence and determine the level of interest charged on mortgages, business and other loans. These include the fact that the pricing of loans needs to reflect credit risks, funding costs, capital requirements (which in Ireland are elevated due to historical loss experience), the size of the market, the level of market competition and lenders' operating costs.

Nevertheless, it is worth noting that interest rates on fixed rate mortgages have fallen from 4% in January 2015 to 2.7% in March of this year. There have also been reductions in the level of interest rates on loans to SMEs from 5.15% to 4.25% over the period from the first quarter of 2015 to the end of 2019, as well as reductions in interest rates on consumer loans (for example, from 8.3% to 7.23% APRC on consumer loans over the same period). These lower interest rates bring the interest rates available to Irish consumers and businesses closer to the Euro area averages.

As demonstrated by the recent meetings the Tánaiste and I had with the main banks, the Government will continue to work with the industry to see if any there are further appropriate measures that can be deployed to ensure that the banks can prudently, sustainably and as cost effectively as possible provide new credit to businesses and households.

Financial Services Sector

Questions (75)

Bernard Durkan

Question:

75. Deputy Bernard J. Durkan asked the Minister for Finance the degree to which he continues to monitor the activities of investment or vulture funds here with a view to ensuring fair and equitable treatment of consumers; and if he will make a statement on the matter. [16448/20]

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Written answers

The Central Bank is the competent authority in Ireland for the authorisation and supervision of credit servicing firms under Part V of the Central Bank Act 1997 (the Act).

Part V of the Act was amended by the Consumer Protection (Regulation of Credit Servicing Firms) Act 2015, introducing a regulatory regime for credit servicing firms and bringing such firms within the Central Bank’s regulatory remit. Part V was further amended by the Consumer Protection (Regulation of Credit Servicing Firms) Act 2018 to expand the activity of credit servicing, as defined in the Act, to include holding the legal title to credit granted under a credit agreement and associated ownership activities.

Section 34FA(1) of the Act provides that a person carrying on the business of a credit servicing firm (insofar as that business relates to the newly regulated activities now falling within the scope of the Act) immediately before the commencement of the 2018 Act is taken to be authorised to carry on the business of a credit servicing firm until the Central Bank has granted or refused authorisation to the person, provided that the person applies to the Central Bank under section 30 of the Act for authorisation, in a form specified by the Central Bank, no later than 3 months after that commencement. Persons seeking to avail of these transitional arrangements were therefore required to have completed and submitted an application for authorisation to the Central Bank by 21 April 2019 in order to continue to engage in such activities. 37 firms were granted transitional authorisation status, having applied for authorisation by 21 April 2019 and demonstrated that they met the relevant requirements to avail of the transitional arrangements. Since that date, some firms ceased carrying out regulated activities and withdrew their application for authorisation.

I have been advised by the Central Bank that it has a robust authorisation process in place in which applicants will be required to demonstrate that they meet the Authorisation Requirements and Standards for credit servicing firms. Firms must be able to demonstrate to the Central Bank that they are capable of being supervised, that adequate and effective control of credit servicing takes place in the State and that they are in a position to conduct their affairs in a manner that ensures the best interests of consumers are protected. Factors to be considered in this regard include where the ‘mind and management’ of the firm is located, where key decisions are made and where key functions are undertaken. Persons in senior positions in these firms will also be required to demonstrate that they comply with the Fitness and Probity Standards, the core function of which is to ensure that they are competent and capable, honest, ethical and of integrity and also financially sound. Once the assessment phase of the authorisation process is completed, an applicant will either be granted or refused authorisation and the public register of credit servicing firms will be updated to reflect those firms who have been granted an authorisation.

While under consideration for authorisation, transitional credit servicing firms are subject to the full suite of consumer protection legislation, including the Consumer Protection Code and the Code of Conduct on Mortgage Arrears (CCMA). They are also required to keep the existing associated authorised credit servicing firm in place until their application for authorisation is approved or refused.

In terms of supervision, the Central Bank’s strategy for supervising the credit servicing sector under the existing regulatory framework has a number of elements, including:

1. Detailed data gathering and analysis, including mortgage arrears and repossession data, such as the pattern of arrears in the Irish mortgage market by entity type; mortgage arrears profile; restructuring activity in the Irish market; data on alternative repayment arrangements and complaints etc. Additionally, obtaining direct evidence from consumers to provide first-hand information about their experiences in dealing with the sectors;

2. Intensified risk and evidenced-based supervision, which includes both on-site and offsite inspections, as appropriate. This includes continuous assertive supervision of credit servicing firms’ compliance with the CCMA, to ensure that a fair and transparent process is in place for all borrowers, including those whose loans have been sold; and

3. Use of their full suite of supervisory powers as appropriate.

Currently the Central Bank is focused on ensuring the interests of borrowers affected by the COVID-19 pandemic are appropriately protected. Where a borrower is unable to repay their loan due to short-term financial difficulties caused by COVID-19, they have worked with regulated entities, including credit servicing firms, to make payment breaks available. In this regard, they have recently written to regulated entities, including credit servicing firms, setting out their expectations on how COVID-19 payment breaks should operate. A copy of which can be found here:

https://www.centralbank.ie/docs/default-source/regulation/industry-market-sectors/covid19/dear-ceo-payment-breaks-expectations.pdf?sfvrsn=4

Finally, the Central Bank advises me that its approach to the supervision of the credit-servicing sector is underpinned by an expectation of high standards and a professional and consumer-focused approach to compliance.

Examples of some of the supervisory work the Central Bank has carried out in this regard includes:

1. In October 2018, in recognition of the fact that Irish banks, in common with their European counterparts, were increasingly opting for loan disposals (sales or securitisations) as a means of dealing with Non-Performing Loans (NPLs), the Central Bank published a Section 6A Report on the Effectiveness of the Code of Conduct on Mortgage Arrears in the context of the Sale of Loans by Regulated Lenders. Based on a point in time analysis and informed by various strands of work including inspections, data collection, and stakeholder engagement, the report found that for borrowers who engage with the process, the CCMA was working effectively and as intended in the context of the sale of loans by regulated lenders;

2. In August 2019, in the context of recent activity in the Irish residential mortgage market and evidence of some specific instances that could give rise to potential customer detriment, the Central Bank wrote to banks, retail credit and credit servicing firms to:

1. Set out their expectations of these regulated entities in relation to Mortgage Loan Transactions ; and

2. Seek assurances from the boards of these regulated entities (that are party to Mortgage Loan Transactions) that they have taken the necessary steps to ensure that the policies, procedures, systems and controls of the firm are sufficiently robust to ensure that consumer interests are protected; and

a. In October 2019, following an investigation by the Central Bank into the practice of charging costs associated with the legal process, including third party costs (the costs) to borrowers in mortgage arrears and charging of interest on the costs, the Central Bank wrote to banks, retail credit and credit servicing firms to:

b. Set out their expectations of these regulated entities in relation to charging costs and interest on the costs; and

c. Seek assurances from the boards of these regulated entities that where it was identified that any systems, policies, procedures and practices were not in line with the expectations outlined in the letter, appropriate action would be undertaken as a matter of priority.

Banking Sector

Questions (76)

Bernard Durkan

Question:

76. Deputy Bernard J. Durkan asked the Minister for Finance the degree to which he continues to engage with the pillar banks with a view to ensuring that their customers are treated in accordance with banking rules and regulations here and in the EU, with particular reference to the rates of interest charged to customers and the manner in which repossessions of family homes and-or commercial properties are governed; and if he will make a statement on the matter. [16449/20]

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Written answers

As demonstrated by the recent meetings the Tánaiste and I had with the main banks, the Government will continue to work with the banking industry, including the pillar banks, to see if any there are further appropriate measures that can be deployed to ensure that the banks can prudently, sustainably and as cost effectively as possible provide new credit to businesses and households. Also it is essential that all banks comply with all the applicable national and EU banking rules and regulations, including the consumer protection requirements, and that they are accountable to the Central Bank of Ireland in that regard as the independent regulator of the banking and wider regulated financial services industry.

Regarding the issue of interest rates, I am aware that the general level of lending interest rates in Ireland are higher than is the case in many other European countries, though it should also be noted that recent trends indicate that rates have been falling month-on-month. However, it will be important to recognise that there are many factors which influence and determine the level of interest charged on mortgages, business and other loans. These include the fact that the pricing of loans needs to reflect credit risks, funding costs, capital requirements (which in Ireland are elevated due to historical loss experience), the size of the market, the level of market competition and lenders' operating costs.

Nevertheless, it is worth noting that interest rates on fixed rate mortgages have fallen from 4% in January 2015 to 2.7% in March of this year. There have also been reductions in the level of interest rates on loans to SMEs from 5.15% to 4.25% over the period from the first quarter of 2015 to the end of 2019, as well as reductions in interest rates on consumer loans (for example, from 8.3% to 7.23% APRC on consumer loans over the same period). These lower interest rates bring the interest rates available to Irish consumers and businesses closer to the Euro area averages.

In relation to the issue of repossessions, consumers continue to benefit from the protections contained in the Code of Conduct on Mortgage Arrears (CCMA) and I have been advised by the Central Bank that it is committed to regularly reviewing its statutory Codes and ensuring they remain effective. The CCMA provides important protections for borrowers and the objective of this statutory Code is to ensure that regulated entities have fair and transparent processes in place for dealing with borrowers in or facing mortgage arrears. Due regard must be given to the fact that each case is unique and needs to be considered on its own merits. Also all cases must be handled sympathetically and positively by the regulated entity, with the objective at all times of assisting the borrower to meet his or her mortgage obligations. I can assure the Deputy that the protection of borrowers in mortgage arrears continues to be a key priority for the Government and the Central Bank.

Code of Conduct on Mortgage Arrears

Questions (77)

Bernard Durkan

Question:

77. Deputy Bernard J. Durkan asked the Minister for Finance the reason the lending agencies are allowed to continue with the applications on their own internal mechanisms when dealing with customers who have arrears and that regularly state that the alternative proposals put forward do not comply with their own instruments, which are totally controlled by the banks without regard for alternatives a person might put forward; and if he will make a statement on the matter. [16450/20]

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Written answers

I have been advised by the Central Bank of Ireland (the Central Bank) that the Code of Conduct on Mortgage Arrears (CCMA) forms part of the Central Bank’s Consumer Protection Framework. The CCMA is a statutory Code, the provisions of which must be complied with as a matter of law by relevant firms. The CCMA provides a strong consumer protection framework, requiring relevant firms to ensure borrowers in arrears or pre-arrears in respect of a mortgage loan secured on a primary residence are treated in a timely, transparent and fair manner and that due regard is had to the fact that each case of mortgage arrears is unique and needs to be considered on its own merits.

Banks, retail credit firms and credit servicing firms are all required to comply with the CCMA. The CCMA recognises that it is in the interests of borrowers and regulated firms to address financial difficulties as speedily, effectively and sympathetically as circumstances allow.

An alternative repayment arrangement (ARA) is a contract that is entered into between the regulated entity and the borrower, and the process for arriving at the ARA is stipulated in the CCMA. Provision 39 of the CCMA requires that in order to determine which options for ARAs are viable for each particular case, a regulated entity must explore all of the options for ARAs offered by that regulated entity. A non-exhaustive list of ARA options which may be included in a regulated entity’s suite is set out within this provision.

It is a commercial decision for each regulated entity to determine the suite of ARAs it considers putting in place for borrowers. Any ARA offered to a borrower must be appropriate and sustainable for his/her individual circumstances. The Central Bank cannot interfere in the contractual rights between regulated entities and borrowers such that it could require a regulated entity to consider or put in place specific ARAs for borrowers. Rather, in regulating conduct of business, the Central Bank seeks to ensure that regulated entities comply with relevant conduct of business rules, including providing consumers with all relevant information, putting in place a process for the management of customers’ financial difficulties and not exerting undue pressure or influences on customers.

This framework requires lenders to exhaust the options available from the suite of ARAs offered before taking action which may result in the borrower losing his/her home (whether by voluntary sale or repossession).

The CCMA also requires regulated entities to have an appeals process in place to enable a borrower appeal a decision by a regulated entity, including where the borrower is not willing to enter into an ARA or where the regulated entity declines to offer an ARA. The appeals procedure must inform the borrower of his/her right to refer the matter to the Financial Services and Pensions Ombudsman.

Economic Competitiveness

Questions (78)

Bernard Durkan

Question:

78. Deputy Bernard J. Durkan asked the Minister for Finance the degree to which he expects the economy here to retain or increase its competitiveness on European or world markets; and if he will make a statement on the matter. [16451/20]

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Written answers

The Irish economy experienced strong growth prior to the outbreak of COVID-19, with GDP up 5.5 per cent in year-on-year terms in 2019, with exports making a strong contribution to this.

The strength of our economy prior to the onset of COVID-19, in part, reflects the important steps we have taken to improve our competitiveness. The 2019 IMD World Competitiveness Yearbook recently ranked Ireland as the 2nd most competitive country in the EU and the 7th most competitive country in the world. In addition, since 2008, the Central Bank’s real harmonised competitiveness indicator had improved by approximately 25 per cent.

Importantly, the robust economic growth in recent years has not yet given rise to significant inflationary pressures. In 2019, average annual inflation was just 0.9 per cent. Inflation is forecasted to fall by 0.6 per cent in 2020 due to the outbreak of COVID-19 and is expected to only grow by 0.4 per cent in 2021.

On wage developments, prior to COVID-19, average annual earnings increased by 3.6 per cent year-on-year in 2019. The current pandemic has shifted the focus from monitoring a potential acceleration in wages that could undermine Ireland’s competitiveness to ensuring household incomes are supported.

The outbreak of COVID-19 has caused adverse impacts, in particular on the labour market. However, there are no signs of a loss of competitiveness on international markets thus far. Trade has performed relatively well with the highest monthly level of exports and a record trade surplus recorded in March, caused by a boost in pharma exports. Another major exporting sector, computer services, recorded strong growth in Q1 2020 and is expected to perform well despite the outbreak of COVID-19.

The recovery of the Irish economy is still uncertain, with numerous scenarios still possible. The National Economic Plan, which is due to be published alongside Budget 2021, will demonstrate the Government’s commitment to bringing Ireland out of the worst of this economic downturn. Maintaining competitiveness will be an important part of this.

Economic Policy

Questions (79)

Bernard Durkan

Question:

79. Deputy Bernard J. Durkan asked the Minister for Finance the direction from which he expects to see the greatest challenges to the economy here in the future; and if he will make a statement on the matter. [16452/20]

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Written answers

My Department continuously identifies and monitors possible risks to the Irish economy, and has outlined many of the key challenges that our economy faces in the recent Stability Programme Update (SPU) published in April.

Some of these key challenges and risks to the economy include, firstly, the risk that the slowdown in both domestic and global growth due to the impact of Covid-19 will become more prolonged, with the possibility of scaring effects in the labour market or a second resurgence of the virus which would mean a return of some containment measures. Indeed, the Covid-19 shock to the economy is without historical precedent and, as a result, there is a great deal of uncertainty surrounding the both the magnitude of the economic impact and the subsequent economic recovery.

Secondly, a key external risk identified is the potential for the outcome of Brexit at the end of this year to be more severe than initially expected, with increased uncertainty surrounding the precise nature of the future trading relationship between the EU and the UK.

Thirdly, continued and increasing geopolitical uncertainty has the potential to disrupt growth in key regions and generate headwinds for output and employment in Ireland.

A fourth key risk identified in the SPU is an increase in protectionism, including increased tariffs on EU-US trade, could have a detrimental impact on living standards. Given Ireland’s position as a small open economy with a high degree of integration in global value chains, any further disruption to trade or a slowdown in global growth would have a disproportionate impact on the Irish economy.

It is important to note however that as many of these risks to the economy are external in nature and largely beyond our control, the best way we can mitigate against them is through prudent careful management of the public finances and by focusing on competitiveness-oriented policies. Indeed, in the forthcoming July Stimulus Package and National Economic Plan to be published alongside the Budget in October, the Government will demonstrate its commitment to bringing Ireland out of the worst of this current economic downturn. Getting people back to work will be the top priority in this regard.

Covid-19 Pandemic Supports

Questions (80)

Mairéad Farrell

Question:

80. Deputy Mairéad Farrell asked the Minister for Finance the tax treatment of the temporary wage subsidy scheme and the pandemic unemployment payment; the means by which the liability will be calculated; the way in which the Revenue Commissioners plan to collect same; the tax treatment in instances in which liabilities due exceed unused tax credits for 2020; and if he will make a statement on the matter. [16346/20]

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Written answers

Payments made under both the Temporary Wage Subsidy Scheme (TWSS) and the Pandemic Unemployment Payment (PUP) scheme are income supports and share the characteristics of income. Other income earners in receipt of comparable “normal wages” are taxable on those wages. In the interest of equity, therefore, payments under the TWSS and the PUP are both subject to income tax. Payments under the TWSS are also subject to universal social charge (USC), while the PUP follows the general taxation rule for social welfare payments and, thus, is exempt from that charge. Payments under both schemes are exempt from PRSI charges.

Neither PUP nor TWSS payments are taxed in real-time through the PAYE system, but a recipient of either payment may become liable for income tax and USC (for TWSS only) at the end of the year, which will be calculated by Revenue through the end of year review process.

In cases where the tax liability for those payments exceeds unused personal and PAYE tax credits for 2020, the level of tax and USC due by the person may be reduced or eliminated by the amount of unused tax credits available to him or her at the end of the year. Any liability due may also be further reduced if the person has additional tax credits, for example health expenses, to offset. Revenue has also very recently placed all recipients of TWSS payments or the PUP on what is known as the “week 1 basis” of taxation for the remainder of the year so as to “preserve” unused tax credits that can then be used to offset any income tax or USC liabilities that may arise at end year.

I am advised by Revenue that the final calculation of the end of year tax liability for each person is dependent on a range of factors, including the person’s civil status, their available tax credits, the amount received under TWSS and/or PUP, any top-up payments made by the employer, as well as other entitlements and credits, such as health expenses. Revenue has also assured me that if any tax and USC liabilities still arise at end year following the allocation of unused credits, it will work with its customers to collect the outstanding liabilities over an extended period. This will be achieved by reducing their tax credits for future years, thereby minimising any financial hardship to the greatest extent possible.

Question No. 81 answered with Question No. 39.

Insurance Coverage

Questions (82)

Ruairí Ó Murchú

Question:

82. Deputy Ruairí Ó Murchú asked the Minister for Finance the plans in place to assist companies in the leisure and entertainment industries, community groups and community facilities that cannot obtain public liability insurance or in cases in which they receive a quote, it is prohibitively expensive. [16466/20]

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Written answers

I am very much aware of the problems faced by many businesses, community groups and voluntary organisations, particularly those in the leisure and entertainment sector, in relation to the availability and affordability of public liability insurance. However, neither I, nor the Central Bank of Ireland, can direct the pricing of insurance products, and neither can we compel any insurer operating in the Irish market to provide cover to community groups or organisations, as this is a commercial matter for insurers. This position is reinforced by the EU Single Market framework for insurance (the Solvency II Directive) which expressly prohibits Member States from adopting rules which require insurance companies to obtain prior approval of the pricing or terms and conditions of insurance products.

As the Deputy will appreciate, there is no single policy or legislative fix to remedy the cost and availability of insurance issue. What is needed is for the ongoing reform measures to be implemented and to quickly bear fruit. In this regard, the new Programme for Government identifies a range of issues that the Government will prioritise so as to benefit consumers including small businesses such as those in the leisure and entertainment sector as well as in the various community groupings and facilities throughout the country. This cross-Departmental insurance reform agenda, which I believe builds and expands upon previous work done by the Cost of Insurance Working Group, is a priority for this Government and in particular for my Department.

In conclusion, I wish to emphasise that insurance reform remains a priority for the Government and as noted above this is reflected in the Programme for Government. This is an issue I, as Minister for Finance, along with my Departmental colleague, Minister of State Chambers, will focus on. In doing so we will be cooperating with our Ministerial colleagues that will be participating in the Cabinet Committee on Economic Recovery and Investment in terms of prioritising the commitments on insurance reform.

Covid-19 Pandemic Supports

Questions (83)

Michael Fitzmaurice

Question:

83. Deputy Michael Fitzmaurice asked the Minister for Finance the funds that can be borrowed from Europe from the Covid-19 fund to bridge the deficit due to the Covid-19 crisis; and if he will make a statement on the matter. [16467/20]

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Written answers

I understand the Deputy is referring to the proposed “Next Generation EU” recovery fund. As the Deputy will be aware, on 10th July, the President of the European Council, Charles Michel, published his latest compromise proposal for the 2021-2027 Multiannual Financial Framework (MFF) and the “Next Generation EU” recovery fund, in the hope agreement can be reached at the upcoming European Council on 17-18 July.

The total amount being proposed for the period 2021-2027 is €1.824 trillion in commitments (in 2018 prices) - €1.074 trillion for the MFF and €750 billion for the "Next Generation EU" (€500 billion in grants and €250 billion in loans).

It is proposed that the “Next Generation EU” financing will be raised by “temporarily” increasing the Own Resources ceiling to 2.00% of EU Gross National Income (GNI) allowing the Commission to borrow €750 billion on the financial markets to fund measures over the period 2021 - 2024. €500 billion of “Next Generation EU” financing will be in the form of grants to Member States, with the remaining €250 billion as loans. This additional funding to be channelled through EU Budget programmes, will be repaid back between 2026 and 2058 drawing on future EU Budget contributions from Member States or the Own Resources of the Union.

The European Commission produced a needs assessment underpinning the proposed “Next Generation EU”. In this needs assessment the European Commission estimate that Ireland’s contributions to the Next Generation EU package would be the second highest in Net % GDP terms in the EU - with an allocation of 0.4%. They estimate that Ireland may potentially receive a total of up to €2 billion in grants, with a further €1 billion in loans available should Ireland decide to borrow same.

There is now considerable time pressure on European Council to reach political agreement (requiring unanimity) on the revised package of both MFF and recovery fund before the end of July to facilitate negotiation with and consent from the European Parliament in time to ensure that the next MFF can come into operation from 1 January 2021.

Heads of State and Government will discuss the revised MFF and Next Generation EU proposals at European Council on 17 and 18 July, with the aim of reaching an agreement. The Taoiseach will be attending the Council summit to negotiate on behalf of Ireland. It would not be appropriate for me to comment further in advance of the upcoming European Council negotiations.

Traffic Management

Questions (84)

Neasa Hourigan

Question:

84. Deputy Neasa Hourigan asked the Minister for Public Expenditure and Reform the rationale for the decision by the Office of Public Works to reverse the closure of the peripheral gates of the Phoenix Park; when a public consultation process will take place on the future of the perimeter gates of the Park; and if he will make a statement on the matter. [16322/20]

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Written answers

The Phoenix Park is a wonderful resource for all recreational users, both local and national. The issue of traffic through the Park, and in particular by which gates traffic should be admitted , is a complex one with arguments on both sides as to whether the peripheral gates, which had been closed due to the pandemic in consultation with An Garda Síochána, ought to remain closed to traffic or not. Having weighed up the arguments I concluded that the correct course of action for now, was to re-open the perimeter gates.

This decision was based on an increase in the volume of traffic in the neighbouring areas surrounding the Park to which the gate closures have in part contributed. In fact, a further increase in traffic volume in the coming weeks and months with the escalation of the returning workforce within the City and the re-opening of Schools might be anticipated.

The OPW and I are committed to engaging in a consultation process on the Phoenix Park Traffic Management Strategy, involving all stakeholders, to create a balanced approach to access to the Park, for all users. This process is expected to take place during August/September of this year and will ultimately inform the appropriate sustainable solutions to traffic management in the Phoenix Park in the short, medium and long term.

Flood Prevention Measures

Questions (85)

Richard Bruton

Question:

85. Deputy Richard Bruton asked the Minister for Public Expenditure and Reform the progress on the recommended works on the River Santry between Raheny village, Dublin 5, and the sea in order to alleviate the flood risk; and the detailed phases in the planning, design and implementation of works proposed both in respect of dredging and of the needed increase in culvert capacity. [16343/20]

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Written answers

The Raheny (Santry River) Flood Protection Project was initiated and carried out by Dublin City Council following major fluvial flooding in 1986, 2008, 2009 and 2011. The first phase was constructed in 2013 and comprised of works to attenuate flood flows upstream of Harmonstown Road Bridge. Progression of a further Santry Flood Relief Scheme to augment the existing Scheme was identified as part of Fingal East Meath Flood Risk Assessment & Management Study (FEM FRAM). The proposed further scheme consists of flood walls and embankments and will protect 41 properties when completed.

In May 2018, 29 Flood Risk Management Plans were launched for the main river basins in Ireland, identifying a total of 118 flood relief projects to protect the main flood risk areas throughout the country including the proposed further works for Santry. These Plans and projects are a key part of the overall flood risk management strategy set out in the National Development Plan 2018 - 2027, involving total investment of almost €1 billion over the ten-year timeframe of that Plan.

As it is not possible to implement all of the 118 projects at the one time, a total of 60 projects have been prioritised for the initial tranche of investment and delivery, based on the level of risk and number of properties to be protected. While the proposed scheme for Santry is not in the first tranche of projects to be progressed, the OPW and the local authority will work closely to ensure that they will be commenced as soon as possible within the 10-year timeframe for the programme of investment.

Once consultants are appointed to progress the scheme, consultation with statutory and non-statutory bodies, as well as the general public, will take place at the appropriate stages to ensure that all parties have the opportunity to input into the development of the scheme.

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