As you will be aware, both officials and I have engaged and will continue to engage extensively with the Banking and Payments Federation (BPFI) and the banks directly in relation to supports for personal and business customers affected by the COVID-19 crisis. Officials in my Department are alert to issues raised directly by the public and these inform the Department’s ongoing engagement process and policy formation.
Notwithstanding this, it is important to highlight that, as Minister for Finance, I cannot mandate or overrule the internal risk assessment processes in any bank, even one in which the State has a shareholding. Furthermore I am specifically precluded from intervening in the case of any individual customer with any bank, even one in which the State has a shareholding. Decisions in this regard are the sole responsibility of the board and management of the banks which must be run on an independent and commercial basis. The independence of banks in which the state has a shareholding is protected by Relationship Frameworks which are legally binding documents that cannot be changed unilaterally. These frameworks, which are publicly available, were insisted upon by the European Commission to protect competition in the Irish market.
Furthermore, the banking crisis we faced over ten years ago was fuelled by unsustainable lending. There are now thankfully far firmer regulatory controls and restrictions on lenders. Speaking on this particular issue, on 7 May 2020 the Governor of the Central Bank publicly noted that if an individual borrower’s circumstances have changed such that doubt is cast over the sustainability of potential borrowing, it is in the best interests of the borrower and the bank if the situation is reviewed.
The European Union (Consumer Mortgage Credit Agreements) Regulations 2016 (CMCAR) apply here. These mandate that before concluding a mortgage credit agreement, a lender must make a thorough assessment of the consumer’s creditworthiness. That 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. The CMCAR also 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. The assessment of creditworthiness 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.
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.
This overall regulatory framework means a decision to grant or refuse an individual application for mortgage credit is a commercial decision to be made by the regulated entity. Where a formal loan offer is made by a lender, the loan offer may contain a condition that may 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. In such cases, the decision to withdraw or vary the loan offer is also a commercial decision for the lender.
These overlapping and complimentary regulations are designed to protect consumers, prevent risky unsustainable lending, protect the integrity of the financial system and preserve competition in the market.
Officials in my Department did request a comment from Bank of Ireland on the impact of Covid-19 on the processing of mortgages and received the following response:
“At Bank of Ireland we are very conscious of the potential impact of COVID-19 on income levels and we assess each application carefully taking individual customer circumstances into consideration. Where customers are progressing mortgage applications and have affordability to do so, the Bank continues to support those applications.
Where income has changed or where we are aware of potential challenges to a customer’s income as a result of COVID-19, we are liaising with customers to understand their circumstances and assess if these are expected to change again in the future. This process has always been followed as it wouldn’t be responsible to provide somebody with a mortgage at a level that they may struggle to afford now or in the future.
We engage closely with our mortgage applicants on an ongoing basis to ensure we fully understand their circumstances. As part of this engagement we ask employers to confirm if their employee’s income is supported by a Government scheme due to COVID-19. The Bank does not seek any information about financial support that may be provided to the employer.”