Committee on Housing and Homelessness díospóireacht -
Tuesday, 17 May 2016

Insolvency Service of Ireland

Chairman

Before we commence, I draw the attention of witnesses to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.

The opening statements will be published on the committee website after this meeting. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable.

I welcome Mr. Lorcan O'Connor, Ms Anita Jordan and Mr. John Warren from the Insolvency Service of Ireland and thank them for their attendance and the considerable documentation already submitted. I now invite Mr. O'Connor to make his opening statement.

Mr. Lorcan O'Connor

I thank the Chairman and the committee for the opportunity to contribute to its deliberations on the issues of housing and homelessness. I am joined by Ms Anita Jordan and Mr. John Warren. It is hoped that following the opening statements we will be able to answer any questions committee members might have.

As members are well aware, mortgage arrears is one issue among many that impacts on the issues of housing and homelessness. While it is not possible to keep every borrower who is in financial difficulty in their home, my message today is that there are a number of options open to such borrowers, that the personal insolvency Acts offer statutory protections to people in relation to their family home and that these should always be considered in advance of allowing repossession proceedings to commence.

I will start by giving the committee a brief overview of the Insolvency Service of Ireland, often referred to as the ISI. The Insolvency Service of Ireland is an independent statutory body established in 2013. Its main objective is to return insolvent persons to solvency. The service offers four debt solutions, including the debt relief notice, which is a solution for borrowers with very little income and few assets. This solution allows for the complete write-off of debts up to €35,000. The second solution is the debt settlement arrangement, which is a solution that allows borrowers to settle their unsecured debts for a period of up to five years, with any remaining balance at that point being written off. The third solution is the personal insolvency arrangement, known as the PIA. It is similar to the debt settlement arrangement in that it, too, deals with unsecured debts but it also settles or restructures secure debt, which includes family home mortgages. It also contains some specific protections for borrowers in mortgage arrears who wish to retain their family home. The ISI also administers the functions assigned to the official assignee in bankruptcy.

Personal insolvency can result in mortgage default and the ultimate loss of a home.

For tenants, personal insolvency can have a similar outcome due to an inability to meet rent obligations. The solutions provided by the Insolvency Service of Ireland, ISI, can help in either scenario. Our debt solutions deal with all levels and types of personal debt and they are life changing. In appendix 4 in our submission, I have shared some of the feedback from our customers on the solutions provided by the ISI and what it has meant for them. The reality is that thousands of borrowers in Ireland are insolvent and in fear of losing their home. For the short time I have today I intend to focus on the protection our solutions can provide to mortgage borrowers, in particular the personal insolvency arrangement, PIA, which enables a borrower to remain in the family home.

It is worth highlighting the importance of being able to remain in the family home and the fact that it is recognised in the PIA. A PIA is a court-approved agreement between creditors and a borrower that allows for the restructuring and write-off of debt while keeping the borrower in the family home in the majority of cases. We know that borrowers can feel intimidated at the prospect of dealing with a lender and we also know that when a person is behind on repayments, phone calls and letters from creditors can be overwhelming. Once a borrower decides to apply for a PIA, the personal insolvency practitioner will help in the negotiations with the lender. The first stage in the process involves the court issuing a protective certificate, which means the borrower is immediately protected from the lender, for an initial period of 70 days, from their creditors either enforcing their debts or contacting them while the personal insolvency practitioner works out an arrangement that will keep the people in the family home.

We give examples of successful PIAs in appendix 1 of our submission and features of many PIAs put in place to date include solutions like extension of mortgage term; a reduction in mortgage interest rate; and write-off of unsecured debts, with the average being 90%, which is important as the demands from unsecured creditors can often undermine an otherwise sustainable mortgage on a family home. We have also seen a large number of split mortgage solutions, with complete clarity as to what happens to the warehoused amount. That is certainly an important element and a necessity according to legislation. We have also seen some write-off of negative equity on the mortgage. In the minority of cases where creditors have rejected a proposed PIA developed by a personal insolvency practitioner, since the end of last year insolvent borrowers can now seek a review by the court. This legislative enhancement, in effect, means the so-called "bank veto" has been removed.

I will turn to the sensitive issue of repossessions. The fact that a borrower is facing repossession does not necessarily mean he or she will automatically lose the home. The Land and Conveyancing Law Reform Act 2013 contains a provision allowing for the adjournment of a home repossession case for up to two months to enable a borrower consult with a personal insolvency practitioner to explore if a personal insolvency arrangement can be put in place. Over the past year, representatives of the ISI, in association with the Money Advice and Budgeting Service, MABS, were present at courthouses around the country, providing borrowers attending repossession hearings with information on their options. It is important for borrowers to realise that even if they have received letters stating that their mortgage is unsustainable or threatening repossession, it is still not too late to sort out their financial difficulties. The first step is to contact a personal insolvency practitioner.

In the submission at appendix 1, I have included examples of some real-life cases where borrowers were faced with repossession and in court but, having contacted a personal insolvency practitioner, they reached a solution that kept them in the family home. The first case described is a husband and wife with two school-going children. They consulted with a PIP last summer but had resigned themselves to being homeless by Christmas. They had already contacted the local authority to see if alternative accommodation could be made available but were told that, unfortunately, the list was so long it would be highly unlikely to come about.

It just so happened that a personal insolvency practitioner was in court that day. Those borrowers had not been aware of the existence of a PIP or what they could do, but having engaged with that PIP, the PIP was able to put a solution in place and, I can only assume, the borrowers were able to enjoy that Christmas in their family home. They now have certainty in respect of that family home until the death of the longest-surviving spouse, so they no longer have to worry about losing that home, in effect, for the rest of their lives.

Where an insolvency arrangement under the personal insolvency Acts is not possible given a person’s particular circumstances, bankruptcy may be the right course of action for him or her. As members will be aware, the bankruptcy term has recently been reduced to one year and under the amended bankruptcy legislation the family home can revest in a bankrupt person in specific circumstances. The official assignee, the official who manages the estates of bankrupts, is based within the ISI. Appendix 2 in the pack given to members sets out how he deals with the family home in bankruptcy. I am happy to talk through this appendix if members wish me to do so. While there are specific statutory protections around the family home under the personal insolvency Acts, it is not correct to say that a borrower will automatically lose his or her home in bankruptcy.

I now wish to turn to the issue of communications and supports for debtors. Since our establishment, the ISI has directly assisted over 3,000 borrowers. When one considers the number of people often involved in respect of mortgages, including extended family and children, one can multiply the number of people affected. As members will see from the testimonials contained in their pack, the feedback from those borrowers who have availed of our services is very positive. While not everyone in financial difficulty will need to avail of our services, and borrowers should always try to resolve their difficulties with their lender in the first instance, it is also clear that the ISI needs to get the message out to those in need that there is help available.

In May of last year, the then Government agreed a number of measures to support mortgage holders who are in arrears. Included in these measures was a requirement for the ISI to have a sustained awareness campaign. The ISI recognises the importance of communicating effectively and we have developed a campaign specifically aimed at debtors, known as the “Back on Track” campaign, to drive awareness of our debt solutions. We have developed a new website and new materials that are easy to understand, copies of which I have left with the committee secretariat. A variety of outreach and awareness-raising initiatives are also ongoing, along with various activities, including advertisements in several media. The ISI continues to expand this campaign, with plans for a renewed campaign to be rolled out later in the year.

In January of this year, the Minister for Justice and Equality announced a new scheme of access to independent legal and financial advice for those in mortgage arrears. In recent months, the ISI has been working closely with a number of other stakeholders, including the Department of Justice and Equality, the Department of Social Protection, the Citizens Information Board, MABS, the Courts Service and the Legal Aid Board to launch the scheme. It is expected to be launched in the near future. I believe this scheme will play a very important role in helping to address the issue of mortgage arrears. Borrowers will now get the appropriate professional advice they need when they need it and there will be no cost to the borrower. MABS will act as the gateway to this service and will refer cases to personal insolvency practitioners where appropriate.

It was clear to all observers during the recent election campaign and during Government formation talks that housing and homelessness are at the forefront of people’s minds and, by extension, so was the issue of mortgage arrears. The debt solutions offered by the ISI, which I have briefly outlined, can help. Whether it be a mortgage holder in arrears or a tenant unable to meet their rent due to other debts, our solutions restore people to solvency, aim to keep them in their homes and allow them a fresh start.

Many of the 3,000 borrowers we have helped faced the threat of losing their home but no longer have the stress or the strain that insolvency can cause. I expect the numbers availing of our services to increase significantly in the coming months. This will be assisted by the new service of access to advice, to which I have just referred, further publicity campaigns, additional commitments contained in the new programme for Government and, no doubt, the valuable work of this committee.

I thank the Chairman for the opportunity to make these opening remarks. I am happy to take any questions.

Chairman

I thank Mr. O'Connor for his opening statement. I will take questions from a number of Deputies grouped together, following which I will call on Mr. O'Connor, Mr. Warren or Ms Jordan to respond. I remind colleagues that at the outset we agreed to keep the questions direct because of the time element and the fact that we are doing a double session this morning. I invite Deputy Bernard Durkan to commence.

Deputy Bernard J. Durkan

I welcome the guests. I note the reference to the gradual reduction in the number of mortgages in arrears. Can Mr. O'Connor give some indication as to the number of settlements reached by way of resolution to the satisfaction of the borrower or by way of repossession and the difference between the two? Mr. O'Connor mentioned that the Insolvency Service of Ireland assisted 3,000 borrowers. Can he indicate whether that was the totality of the number of cases it dealt with and what proportion of those cases was resolved to the satisfaction of the borrower? Will he also give some indication of the extent to which in the course of its work the Insolvency Service of Ireland has monitored the activities of lenders who have persistently pursued borrowers by way of telephone calls, e-mails and letters which would have the effect of intimidating and forcing the borrower into a situation where they were deemed to have voluntarily surrendered their home; in other words, it appears they voluntarily surrendered their home but did not?

To what extent did the Insolvency Service of Ireland examine a case with particular reference to the manner in which the borrowing was entered into in the first instance and the degree to which the lending authority applied good banking practice when awarding a loan which it is now vigorously pursuing in terms of potential repossession?

Chairman

I call Deputy Michael Harty.

Deputy Michael Harty

Two of my questions have already been asked.

Chairman

Ask a third one then.

Deputy Michael Harty

Is there a requirement on the banks to inform the client of the existence of the Insolvency Service of Ireland or do they have to find it out through advertising and local media? Is there an obligation on the banks to direct their clients towards the insolvency service?

Chairman

I thank Deputy Harty. I call Deputy Barry Cowen.

Deputy Barry Cowen

Many of us were disappointed that the issue of bank vetoes was not included in the initial legislation to establish the Insolvency Service of Ireland. Eventually there was a change to that legislation which allowed the courts to consider and make a judgment on the proposals that were forthcoming, but there was a delay with the court rules on the provision of that authority to the courts. Has that been rectified and, if so, can the representatives give an indication of any such veto by the banks having been subsequently overturned by the courts? Such cases would seem to indicate the folly of the initial decision but at least it has been rectified and there is potential for it to improve in the coming years.

Chairman

I thank Deputy Cowen. The final speaker in this group is Deputy Maureen O'Sullivan.

Deputy Maureen O'Sullivan

I have two questions. Mr. O'Connor mentioned the new scheme and said he envisages that the numbers availing of the services will increase. He mentioned a range of organisations in connection with the new scheme. Will he indicate how that will work in practice for the person who needs that service and if he has the resources and staff to deal with the increase in numbers? Mr. O'Connor mentioned that the ISI works with tenants and their rents. Perhaps he can provide some more detail on what exactly it does in that case?

Chairman

I thank Deputy O'Sullivan. I call Mr. O'Connor to respond to a range of questions.

Mr. Lorcan O'Connor

I hope I have jotted then all down and, if not, please raise them again. The first set of questions had to do with the lending practices of the banks.

From an insolvency perspective, I encourage creditors and debtors to always look forward rather than back. If one has a bad loan, it needs to be fixed. The reasons that gave rise to that loan going bad are - to a large extent - irrelevant. We do not look into the specific lending practices that gave rise to an arrears issue, but the personal insolvency practitioner deals with it in a way that returns the debtor to solvency.

In the context of engagement by the banks, I would have to say that it has been positive. We have been dealing with banks very closely in developing protocols that encapsulate the small print and the terms and conditions around our arrangements. We have had very constructive engagements with banks and all of other stakeholders, such as debtor advocacy groups, practitioners, MABS and the Courts Service, in the development of those protocols. We have also published statistics around the number of arrangements that failed to be delivered by personal insolvency practitioners when banks have chosen to vote against an arrangement. This pertains to Deputy Durkan's first question. Our statistics show that there is close to 80% acceptance rates for our arrangements. This would always be to the satisfaction of the debtor because it is the debtor who tables the proposal in the first instance. This is perhaps also linked to the so-called bank veto question. The relevant legislation was passed at the end of last summer. The Deputy is right to say that the court rules had to be developed to back it up but it went live at the end of November. We have a number of cases in the system of which only small number have come out the other end. As far as we are aware, there are just short of 50 court reviews in the system. These are 50 cases where a personal insolvency practitioner is saying to the court, "Judge, we do not think the banks or the creditors were acting reasonably and we would like you to review it. If you agree with us, impose the solution over the will of the banks." So far 11 cases-----

Deputy Bernard J. Durkan

This goes to the nub of the issue. Perhaps Mr. O'Connor could provide a quick clarification. Is there not a certain amount of timidity in the way the insolvency system approaches this? For example, I - and all of the members here - deal with cases on behalf of constituents. One of the issues that has arisen time and again relates to situations where the banks tell borrowers that they are insolvent and that their cases are unsustainable. However, four or five years previously, the same lending institutions deemed the cases to be sustainable and awarded loans that were way in advance of what could or should have been awarded under good banking practices. Unless the insolvency services challenge that in court, the borrower is always going to lose.

Mr. Lorcan O'Connor

I will finish my point on statistics and I will then return to Deputy Durkan's concern. Of the 11 cases that have gone through the process so far, one has been rejected by the court based on technical eligibility criteria. That leaves ten cases and in eight of these, the finding was in favour of the debtor. We are not aware of the outcome in the two other cases because they were withdrawn. However, eight have ultimately resulted in a solution that backs up the debtor's original position.

Deputy Barry Cowen

I do not want to cry over spilt milk but it is unfortunate that the same provision was not in the initial legislation in order to assist families which were not satisfied that the bank had exercised fair play in enforcing their power of veto.

Mr. Lorcan O'Connor

I would retain the hope that the actual number of court reviews will remain relatively low because it is to be hoped that those banks, faced with a similar solution in the future, will act differently. Ultimately, that would be in everybody's interest.

I will now turn to whether banks have an obligation to inform borrowers of the fact that the Insolvency Service of Ireland has solutions available. The banks have such an obligation and the Central Bank regulations, in the context of various notifications to borrowers, refer to our solutions.

However, I think it would be fair to say that it is in legalese and in a letter that runs to several pages, so there is room for improvement in trying to make those communications. The Banking & Payments Federation Ireland has indicated that it is open to any suggestions in that regard.

It is telling, and it is a challenge for the Insolvency Service of Ireland and stakeholders more widely, that we had two very successful events recently in Mallow and in Castlebar. We invited debtors to book a free session with a personal insolvency practitioner for an hour to get some advice as to whether a solution could be found for them. Both of those events were oversubscribed. More than 100 debtors and borrowers were met through those two events and in more than 80% of those cases we were able to identify a solution for those individuals. In the majority of those cases, they have already moved to the first stage of a protective certificate, and that is in the space of only two to three weeks, so there are real solutions there. We asked those people why they had not gone to a personal insolvency practitioner sooner. The feedback was "I had never heard of them" or "I never knew of the solutions that you provided" or "I thought personal insolvency practitioners charged hundreds of euro, or thousands of euro even, for the service". That is not the case. As I said, the challenge for us is to get that message clearly out to the public and those in difficulty.

The last question related to this new service and how it will operate. At its most simplistic level, hopefully the message will be clear for borrowers, which is that they no longer have to worry about what specific solution is best for them or about having any money to pay for that service and that they should simply call MABS, which will act as a gateway and refer them to the right person there and then. With regard to our sector, that would be a personal insolvency practitioner. However, that is not to stop debtors who are informed going directly to a personal insolvency practitioner where they will get all the supports available.

The kind of supports debtors would get is, first, a free consultation with a personal insolvency practitioner. The practitioner would do a full review of their financial affairs and produce what is called a prescribed financial statement, which is a sort of snapshot of their financial circumstances, and give them written advice on what are their best options. If that is one of the solutions we provide, the practitioner will run with that case through to finalisation. If not, the practitioner will refer them back to MABS, so they are not left in limbo. They are constantly looked after from within the overall service.

Then there are other supports to ensure that borrowers, if they need to take a court review or a bank has voted against a proposal, do not have to worry about the cost of the review. Also, if there is a specific legal issue at play, whatever it might be, with regard to their arrears problem, they will have a free consultation with solicitors. Whatever the professional advice needed, it is free and available at the point of need. The simplicity of the message will, it is hoped, engage those who, perhaps through fear or for other reasons, have not yet engaged. That simple message is to call MABS or the helpline number, which will put them in touch with the right person, or to go to their personal insolvency practitioner, PIP, directly.

Deputy Maureen O'Sullivan

I asked about tenants and rents and the work the service does with tenants.

Mr. Lorcan O'Connor

This is an issue we have seen in a large number of cases. Quite often a tenant might have several debts such as credit card debt, an overdraft, a personal loan or whatever it might be. These are people knocking on the door making demands. In addition, the landlord is saying the tenant owes him or her several hundred euro every month. The difficulty is the tenant is robbing Peter to pay Paul or just cannot pay all of his or her debts. What a personal insolvency practitioner can do is issue a protective certificate. This stops everyone from making contact with the tenant. If a creditor were to phone the tenant or even issue a letter of demand, that creditor would be breaking the law. This gives comfort to the debtor, who no longer has worries in that regard and the personal insolvency practitioner then can make his or her debts sustainable. Within that, they will always allow sufficient moneys to keep a roof over the person's head.

Therefore, let us suppose a person pays rent of €700 per month. They will allow that person to retain €700 per month before he has to offer anything to his creditors. The average write-off of unsecured debt is in the region of 80% to 90%. It a significant help to people who are renting.

Deputy Joan Collins

I thank Mr. O'Connor for his introduction. It seems that things are moving on and the situations now facing people in personal insolvency arrangements have changed. People seem to be in a better position to be able to negotiate with the banks through a personal insolvency practitioner. At the beginning, the belief was that it was only if a person had money that she could engage a PIP, but if she did not have money, she was high and dry. Who pays the PIPs now? Is it through the Insolvency Service of Ireland? Originally, it cost a great deal of money.

Mr. O'Connor stated that in 80% of cases the service deals with agreements are negotiated and the banks accept the proposals of the service. What happens to the other 20%? At the moment we are seeing many people who find themselves facing eviction and so on, particularly in rural areas. At what late stage can a PIP or the insolvency service intervene for those people in the courts? Can people immediately ring up the insolvency service for assistance or to enable them to stay for three or four months or whatever is necessary?

Does the insolvency service work with local authorities and, if so, how does the service find that interaction? I know of one situation involving a man whose mother took out a vast mortgage with a bank. The mother died and he is left with it now. The local authorities are telling us that they cannot put this person on the housing list unless he has a housing need and that this would only be the case if he loses his home through the courts. At that stage he would have to go on a local authority housing list. What is the interaction between all the agencies that need to be involved around these issues?

Deputy Fergus O'Dowd

I welcome the work being done by the insolvency service and the excellent results. Mr. O'Connor referred to some statistics on pages 12,13 and 14 of his document. If I am not reading these correctly, please tell me straight away. However, if I am reading the first statistics correctly, it seems that people with mortgage difficulties in certain counties have a higher chance of success than those in other counties. That seems to me very strange. People in Waterford seem to have a 22% success rate in doing deals, if that is the correct way of reading the figures, compared with those in Dublin city who have a 6.2% rate of success. Are there geographic issues? The insolvency service seems to have worked out the figures nationally by county. Why did the service do that?

Are some mortgage lenders far more open to doing deals than others? My colleague, Deputy Durkan, raised the question of people who may have overstretched or borrowed from a difficult financial base and who may have got more money than they should have got from some of the less-well-known mortgage companies. They borrowed at extremely high rates even at the best of times. Does the service have issues with companies which will not do business? Does the service tend to do less business with some companies compared with others? Should we not go after those? I have no wish to name names, but I know there are some companies which charge higher interest rates than others. Are they inclined to do deals or do they push the client to the wall? Perhaps Mr. O'Connor will comment on that.

Deputy Ruth Coppinger

I am sorry I missed Mr. O'Connor's introduction. I have one question about the take-up of the person insolvency arrangements. Mr. O'Connor was referring to them as I joined the meeting. Given the level of indebtedness in respect of mortgages, we have to acknowledge that there has been a low take-up of the scheme. The point is important because this is one of the major Government-initiated schemes to deal with mortgage debt. If people are unable to participate or are not attracted to it, then we will continue to have a problem. At the end of 2015, a little under 62,000 owner-occupier mortgages were in mortgage arrears as well as 23,000 buy-to-let arrangements.

Of 85,000 mortgages in arrears and 105,000 restructured, only 1,000 or 0.5% have involved a PIA. Why is there such a low take-up? The Government abolished some of the costs but people have other costs, such as an initial consultation fee and other fees. Even given that the Government abolished some costs, there has not been a huge take-up, as shown on the ISI graph. Is it so low because the terms of the PIAs are too punitive? For example, a single person with no car is allowed €218 a week to live on. Everything else must go into repaying debts for six or seven years while the PIA is in force. Some people might take the attitude that they will stay in arrears in the hope of getting a better job with an increase in income and sort out their debts later rather than live under a punitive regime, relatively speaking. It is not easy to live on approximately €200 a week, particularly in Dublin or any city. They may also hope that house prices will rise again and they can sell their houses. Would Mr. O’Connor agree that may be a factor, that people would find it difficult?

Does the ISI find any difference between State-owned and privately owned banks in their dealings with vulture funds, which now control 47,000 mortgages? How many dealings has ISI had with them? Does Mr. O’Connor agree with the Government’s allowing them into the system?

We need a write-down on mortgage debt to release people from the albatross. That would have a huge impact on society because young families would have money to spend on their children and so on. Does the ISI have any estimate of how much owner-occupier mortgage debt has been written off by the banks and how does that compare with the amount of developers’ debts the banks have written off?

Mr. Lorcan O'Connor

I will take the last set of questions first. We have helped more than 1,000 people do PIAs and more than 3,000 people overall in the suite of solutions we provide. For those people it has been hugely valuable. Much of the feedback we have received is that it is life-changing or has even saved lives in some cases because we are dealing with such a sensitive subject. I would, however, have expected the numbers to be higher than they are, given what we have come through in recent years. Ours is a new organisation and it takes time for people to become familiar with the solutions, but we do need to work on communications.

Since the ISI opened, approximately 120,000 informal deals have been done by creditors. That number was zero before we opened. When people in mortgage arrears rang their banks to ask to talk and do something about it, the banks said they would phone them back when they were ready. All the negotiating power was on the banks' side, whereas as soon as we opened, the debtors were able to tell banks they would like to meet to try to do a mutually beneficial deal, and if the banks would not, they could say they would go to the insolvency service. It was an important catalyst or change point whereby all of a sudden it was in the interests of banks to start doing informal deals. There is no issue with informal deals if they are sustainable, but at least people have the option of going to the personal insolvency practitioner.

Deputy Coppinger asked if the reasonable living expenses were feeding into the low numbers. We have found that in the majority of cases people have been living on far less than we would allow until they have engaged with a PIP.

As a result of the fact that they have been doing their best to pay off as much as possible every week, they have really been going in tight in terms of the amount of money they have available for food, clothing and so on. Our legislation specifies that a reasonable standard of living includes contributing to society and having an amount that can be saved each week for a rainy day, as well as social and other expenditure. It is not an easy amount to live on, yet we are finding that it is more than what a lot of people have been living on for the previous few years. It is a threshold below which no bank or creditor can force someone to live. That is not necessarily the case in other situations.

On fees, our feedback from debtors is a perception that it will cost money to avail of this solution. My message today is that it is free. It does not cost money to engage with a personal insolvency practitioner now that we have this new service. We will do our best to sing that from the rooftops because it will hopefully result in more and more people availing of the solutions.

Deputy O'Dowd mentioned the statistics relating to Dublin and Waterford. Perhaps we are not making it quite as clear as we should. The statistics do not identifying different acceptance rates. Rather, they reflect the number of people availing of solutions by county. In County Waterford, per 1,000 of population, there are three times as many people applying as is the case in Dublin. However, acceptance rates are not broken down by county. We do not have that information. It is simply activity levels rather than actual acceptance rates.

Deputy Fergus O'Dowd

That is what I thought.

Mr. Lorcan O'Connor

In terms of engagement on the part of lenders, it is constructive and positive to see it at this stage. Although we have this new phenomenon of the so-called vulture funds owning a number of mortgage books, the legislation does not make distinctions based on who is the owner of the loan. The solutions remain the same. Now that we have this court review process, if the personal insolvency practitioner, PIP, proposes a reasonable solution, then that is the solution that will be run with or imposed. As I mentioned, 11 or so cases that have gone through the court review process and many of these would have involved the so-called vulture funds. The legislation creates an even playing field for borrowers irrespective of who owns their loan.

Deputy Fergus O'Dowd

Mr. O'Connor is saying that regardless of who the lender is, there is a level playing field when one goes to court. It is a question of reluctance in that the lenders cannot not engage if the debtor goes through a PIP. Is that the point?

Mr. Lorcan O'Connor

Excuse me?

Deputy Fergus O'Dowd

If I have a problem with my mortgage and I go through a PIP, the lender must engage with me even though it may not want to. Is that correct?

Mr. Lorcan O'Connor

Correct.

Deputy Fergus O'Dowd

That is a very powerful tool.

Mr. Lorcan O'Connor

I worked on the corporate insolvency side before taking up this job and I advised companies that were in financial distress. Trying to get the lender to engage was very much down to whatever was the lender's preference. However, as soon as an examiner was appointed, the lenders would be breaking down the door to meet us because they realised that they only had a couple of weeks to influence what we might do. It is the same way now for a PIP. The lender will immediately engage with the PIP to try to work out a solution to the mutual benefit of all parties.

Deputy Fergus O'Dowd

That is the most important point of all for the public.

Mr. Lorcan O'Connor

On the question of the stage at which a PIP could help somebody in repossession, as is the case with many things, the earlier people engage the better. However, it is never too late. I cited an example of a couple who had resigned themselves to homelessness. They were in the repossession courts at the final stage. The court registrar was about to announce the date upon which the repossession order would be granted or become effective. However, the Land and Conveyancing Law Reform Act allows for a specific adjournment to consult a PIP. It is never too late, but the earlier the better.

We deal with local authorities on a number of levels.

One is ensuring they are an outlet for passing on the information and materials we have available for debtors. We are making sure staff dealing with those on the housing lists are aware of our solutions in order that they can pass on that information. We also deal with local authorities which are landlords and encounter people who are in arrears. It is very constructive and both parties always have the debtors' interests at heart. We deal with larger local authorities on a one-to-one basis. We have also attended local authority conferences and so on to ensure they are aware of our services. I hope that deals with the question.

Chairman

I thank Mr. O'Connor. There are one or two remaining questions that I will take at this stage.

Deputy Brendan Ryan

I have a quick question. I am delighted to hear Mr. O'Connor describe the process as reasonably successful. Is there anything he would like to do, in terms of solutions, for which the legislation does not allow?

Chairman

I find myself somewhat in agreement with the Deputy Coppinger. The service has dealt with 3,000 clients, and in his opening statement Mr. O'Connor referred to the case of a couple who were in court and happened to bump into a PIP. It shocked me to think that somebody would end up in the courts having been unaware of the supports that are available. Mr. O'Connor went on to say the service had a section on communications, but referred he specifically to a promotional campaign for quarter one of 2016. Will that be a sustained campaign over the course of the year? Undoubtedly, the solutions have been successful but many potential clients do not seem to be aware of the service. I ask Mr. O'Connor to address that.

Of the 3,000 clients with which the service dealt, how many, in percentage terms, had issues that were primarily caused by their private residences, in other words, mortgage debt rather than additional loans? Everybody has credit cards and so forth, but for how many was the substantial issue principal private residences rather than buy-to-let mortgages or anything else? I think that concludes the questions.

Deputy Ruth Coppinger

On vulture funds, I understand they have to engage but are they willing to do so?

Deputy Bernard J. Durkan

The word "sustainability" is used regularly. The lender determines whether an individual's capacity is sustainable. Deputy Cowen referred to the right to appeal to the courts. What has been the experience of those who have done so? The banks said three, four or five years ago that mortgages were sustainable and awarded loans on foot of that. Now that they are totally unsustainable, there has to be an answer to the question that arises.

Chairman

Mr. O'Connor can correct me, but I understand that in his reply to Deputy Cowen he stated that eight of the 11 cases taken found in favour of the home owner rather than the banks. Mr. O'Connor can reply to that.

Mr. Lorcan O'Connor

That is correct. In terms of sustainability, the personal insolvency practitioner must undertake a number of statutory steps or duties under the Act as he or she is advising a debtor. One of those is to certify that the person returns to solvency, thereby underwriting the sustainability of the arrangement. Whether a bank or anybody else opines on what might be sustainable now or what may have been sustainable in the past, it is the personal insolvency practitioner, carrying out his or her statutory role, that ultimately determines that.

Deputy Bernard J. Durkan

That has not answered my question. I find it difficult to understand how a lending agency can have decided three, four or five years ago that a particular application for a loan was sustainable - it must have been because otherwise it would not have been approved - but has now determined that it is unsustainable and can demand repossession, the sale of the asset or whatever the case may be. I would be very interested in hearing a response to that point. I have dealt with many such cases.

Mr. Lorcan O'Connor

I suggest that question is probably more appropriate for creditors. The insolvency service does not have a remit to examine the origins of a loan, nor does it.

However, as I said, as soon as a person engages with a personal insolvency practitioner they will fix that loan, whatever about its history. They do in the sense that over 80% of proposals are approved in the first instance and now we have the court review for the remaining portion and we are seeing that at least eight out of 11 of those are resulting in the outcome that works for the debtors.

In terms of the other issues raised, and the so-called vulture funds, it is fair to say the legislation that we now have protecting debtors in the sphere of personal insolvency goes beyond that which exists in all other common law jurisdictions. Where vulture funds arrive - let us say it is the first time they have bought a loan book - there is a learning curve. We do as a matter of course as soon as we become aware of their activity contact them to make them aware of the protections that are there for debtors and what the operation of our insolvency legislation means for them. Once we have had that engagement, there is a respect for that and they would respect the protective certificate which stops those lenders from making contact with the debtor. We would have had instances where unbeknownst to them, they have continued to make contact, unaware that the legislation prevents them from doing so, but once we have told them, we are not aware of instances where they would continue to breach that.

Chairman

Is that the point Deputy Collins wishes to raise?

Deputy Joan Collins

When the vulture funds buy a loan book of distressed mortgages, let us say the majority of those mortgages would have been worth approximately €300,000 at the top of the boom, and they buy it at half the price, does the insolvency service negotiate on that amount or on the original mortgage?

Mr. Lorcan O'Connor

One negotiates at a level that is sustainable for the debtor, whatever that might be. However, it would be fair to say that if one has bought the loan at a lower amount, there is more room to do a deal because one is not looking at the amount it was lent out for initially, one is only looking at what one bought it for. My experience in the past was that in those scenarios it is easier to do deals, but it does very much depend on a case-by-case basis. It is not a hard and fast rule.

To return to the other issues relating to communications - it is correct to say that we reference our activities for quarter 1 - it is important that we do get the message out. It is important also that we move up a further level in terms of how we get that message out there, particularly now that we have this new service which is free for debtors. I welcome the fact that the programme for Government contains a commitment to an information campaign. We have ideas and plans in place and were we to receive a budget, we would be able to leverage off those to ensure that debtors are aware of them. We do have plans for later in the year-----

Chairman

I am sorry to interrupt, but if the workload doubled, does the service have the capacity to deal with it?

Mr. Lorcan O'Connor

Yes, we have the capacity and that is because we have authorised approximately 150 personal insolvency practitioners around the country. Some of those are local operators and others are national operators. There is ample capacity in the system and likewise in the Courts Service where there are specialist judges availing of this.

Finally, in terms of suggestions around legislative change, from a policy perspective - to repeat the point I just made - I think we already go beyond what is in existence in other common law jurisdictions. The ISI would not have any fundamental policy changes in mind. We do have a function to contribute to the development of insolvency policy but we have listed a number of operational tweaks or changes that could be made to the legislation that would make the operation that bit smoother. Those suggestions are with the Department of Justice and Equality and it is considering them now. In terms of communications, we would be supportive of a general enhancement of an information campaign to ensure debtors are aware of the solutions that exist.

Chairman

Could Mr. O'Connor address the percentage of the 3,000 debtors whose debt was primarily on the principal residence and for whom difficulties arose?

Mr. Lorcan O'Connor

Invariably, people have more than the one debt so the mortgage probably dwarfs all others by a significant margin but, typically, they may have four or five other debts. Quite often, although one's credit card or credit union loan is only a few thousand euro, the fact that they are actively pursuing one for payment can mean that, unintentionally or otherwise, one's mortgage comes under threat simply because one is trying to pay other debts.

In that case, a personal insolvency practitioner can deal with all those smaller distractions and focus on the mortgage. What a PIP can usually do in those circumstances is make that sustainable through various tweaks or adjustments to the mortgage. It is rare that it is a family mortgage and nothing else but in the vast majority of cases, it will always be the largest loan.

Deputy Joan Collins

I asked earlier who pays for the PIPs. Does the State pay for them through the insolvency service?

Mr. Lorcan O'Connor

Through the service, there will be a payment to PIPs from the State but the bulk of that fee is paid by the creditor. The banks, through the arrangement and other creditors, would fund the PIP.

Chairman

I thank Mr. O'Connor and his colleagues, Ms Jordan and Mr. Warren, for their attendance, the documentation and their opening statement. The direct answers they have given have been helpful and useful to the committee.

The committee went into private session at 11.31 a.m. and resumed in public session at 11.35 a.m.