Dáil Éireann díospóireacht -
Tuesday, 29 May 1984

Vol. 350 No. 12

Ceisteanna—Questions. Oral Answers. - Industrial and Provident Society.

2.

Mr. Molony

asked the Minister for Industry, Trade, Commerce and Tourism whether he is aware that a society (details supplied) which is registered under the Industrial and Provident Societies Acts issued letters to potential investors before it went into liquidation stating that the security of its investors is guaranteed by investing in a group with assets in excess of £7 million: that within its group, there are two deposit-taking institutions, which are registered under Government-enacted legislation; and that the State-appointed registrar is responsible for ensuring that every society operates in a manner which is consistent with the provision of maximum security for depositors; whether he is satisfied that such societies should use the fact of their registration as an industrial and provident society in such a way as might mislead members of the public that their investment is in some way guaranteed or secured by the State; and if he will make a statement on the matter.

3.

Mr. Molony

asked the Minister for Industry, Trade, Commerce and Tourism if he is satisfied with the legislation governing industrial and provident societies in view of the fact that the management of a society (details supplied) now in liquidation, positively encouraged some investors to change their investment from the registered society to an associated company, some few months before going into liquidation, as a result of which, some depositors may be seriously discriminated against, and may have lost all or the greater part of their investments, while the depositors who switched their investment, having been advised to do so, to an associated company, may be re-paid in full; and if he will make a statement on the matter.

4.

Mr. Molony

asked the Minister for Industry, Trade, Commerce and Tourism if he is satisfied that the type of advertising engaged in by some societies, registered under the industrial and provident societies legislation and, specifically, if he is aware that a society (details supplied) is now in liquidation, distributed a publication which did not contain any clear indication that it was published by that society although the publication described the activities of it as being surely one of Ireland's success stories, and that in the present economic climate, it was indeed a pleasure to see such an outstanding home-based achievement; if he is satisfied that such advertising by a provident society should take place; and if he will consider introducing legislation obliging all provident societies to clear in advance of publication their advertising with the registrar of provident societies.

Minister for Industry, Trade, Commerce and Tourism (Mr. J. Bruton)

I propose to take Questions Nos. 2 to 4, inclusive, together.

I have no proposals to amend the existing legislation governing deposit-taking industrial and provident societies in view of the fact that the Industrial and Provident Societies (Amendment) Act, 1978

(a) remove the scope for the establishment of any new deposit-taking societies and

(b) provided for the winding down of the then existing societies.

With regard to the points made by the Deputy in his questions in relation to advertising by societies, it should be noted that the Act of 1978 provides that no society could advertise for the purpose of raising funds or accepting deposits except under and in accordance with the written permission of the registrar of friendly societies. Since the enactment of the legislation in November 1978, a number of societies, including the society which is the subject of the Deputy's questions, sought the permission of the registrar to advertise but all such applications were refused. The controls requested by the Deputy are already embodied in legislation and are being actively enforced. I should also point out that the letter to which the Deputy refers in one of his questions was not issued by the named society but rather by an associated company. Similarly, the give-away newspaper referred to by the Deputy was published by the group of which the society is a member and not by the society itself. This once again demonstrates the lengths to which societies went to thwart the legislation.

The transfer of depositors funds to an associate company referred to by the Deputy involved a debenture issue by the associate. The matter of the debenture issue was referred by the registrar of friendly societies to the Director of Public Prosecutions and in the circumstances it would not be proper for me to make any further comment on the matter.

Mr. Molony

I accept the Minister's reply in so far as the last point is concerned. If that matter is still continuing it is obviously difficult for him to comment on it. However, in relation to the advertising point I raised in Question No. 2, will the Minister ensure that in future any society registered under the Act will not use any device such as the formation of an associated company or other society through which it could advertise or issue letters like the letter I referred to in my question? It has the effect of seriously misleading the public if these societies use their registration under the Act to suggest that in some way the State is a guarantor or an additional form of security to their operation.

Mr. J. Bruton

There are two questions involved, the question of the implied guarantee by the State and the question of advertising at all. As to advertising by the mechanism used, which was through an associate company, I have to say that it is regrettable that it was not possible to sustain a prosecution in that case. On reading the report on the matter my first reaction was that such a prosecution should have been issued but I understand that the legislation, while it is generally quite effective, does not allow a prosecution where it was not the society itself that placed the advertisement. If a review of the legislation is to take place that will be one matter that will, obviously, be taken into account but it is unlikely that one would promote legislation just for that sole purpose. As far as the other matters are concerned, I should like to tell the House that I understand that the advertisement in question was rather cleverly worded. There was nothing said which could be strictly interpreted as being untrue. However, misleading advertisements of any kind are capable of being pursued criminally as a result of the Consumer Information Act. The Director of Consumer Affairs could be asked to investigate any allegation of misleading or untrue advertising of this or any other product or service.

Mr. Reynolds

The Minister said that if a review of the legislation is to take place he will do something but I should like to know if he envisages such a review taking place? If so, will the Minister correct the weaknesses that have been shown to exist in the existing legislation which allowed this matter to go on?

Mr. J. Bruton

I have stated that I do not envisage such a review taking place for a number of reasons. Most of these societies have either been wound up or are in the process of being wound up. They were given a five-year life cycle commencing in 1978 with the result that most of them will be gone within a relatively short time. There was a delay as a result of constitutional actions and so on — the Deputy may be familiar with them — but they have only a limited time to run. To sponsor a whole corpus of new legislation just to cope with a few loose ends would be hard to justify in terms of parliamentary time. For absolute clarity in respect of my last response to Deputy Molony I should like to say that the Director of Consumer Affairs examined the matter at my request. He said that while there were grounds for believing that the circulars were misleading in view of the collapse of the group in question he saw no point in pursuing a prosecution of a group that was no longer trading.

Mr. Molony

That is the whole point. Is the Minister aware that there is one individual who was associated with all those companies? The Minister has said that he regrets a prosecution did not take place but would he accept that it reflects seriously on the system of registration we have for these societies? Will he agree that it reflects seriously on the legislation governing the registration of these societies that the law can be abused? Will the Minister agree that notwithstanding the fact that this was done through an associate company that nevertheless the deposit holders who lost thousands of pounds do not draw such fine distinctions?

Mr. J. Bruton

I agree with the Deputy that the use of the loophole provided in the Central Bank Act, 1971, which allowed deposit-taking institutions to be established as industrial and provident societies and thereby escape the controls of the Central Bank Act is an abuse. That was recognised by the Oireachtas in 1978 when legislation was enacted, one provision of which was to wind up all these societies within five years. There is no dispute about what the Deputy has said and there has not been any dispute by either side of the House since 1978. It is simply a question of sorting out the remaining problems and have them all wound up.

Mr. Molony

I should like to ask the Minister to consider introducing legislation whereby any advertising either directly in the media or to individuals by way of mass circulation letters by any provident or friendly society should be approved by the Registrar of Friendly Societies?

Mr. J. Bruton

There is a provision, as I indicated, whereby a society to undertake an advertisement must get the consent of the registrar.

Mr. Molony

What about an associated company?

Mr. J. Bruton

I am anxious to answer the Deputy's full question. The societies must get permission and I accepted that in response to the Deputy's first supplementary. There was a certain hiatus in the legislation in that that did not extend to associate companies. I also said in response to Deputy Reynolds that while I could see that in theory there was justification for introducing legislation to close that loophole, because we are winding up this subject area questions must be asked as to whether promoting such legislation to fix up the few small remaining loopholes would be the best use of parliamentary time. However, I am prepared to have the matter reviewed further but I would not hold out any great hopes that we will introduce legislation. The best answer is to enforce the legislation as it stands as rigorously as possible.

Mr. Reynolds

Is the Minister satisfied that the money of existing or future depositors will be safe in the timescale it will take to wind up the rest of those societies?

Mr. J. Bruton

Repeatedly in this House warnings have been given to people that they should not invest in these societies. Since 1978 they have been given the indication that it is not wise or prudent to invest in these societies because the same guarantees do not exist in respect of the safety of people's deposits as exist in respect of deposit-taking institutions which come within the provisions of the 1971 Central Bank Act.