Dáil Éireann díospóireacht -
Wednesday, 2 Jun 2004

Vol. 586 No. 6

Central Bank and Financial Services Authority of Ireland Bill 2003: Report Stage (Resumed).

Debate resumed on amendment No. 52:

In page 41, line 32, after "it" to insert the following:

"and in the case of a Credit Union has made reasonable efforts to use fully the dispute resolution options which are available to the consumer as a member of the Union".

—(Deputy R. Bruton).

Minister of State at the Department of Health and Children (Mr. B. Lenihan)

Subsection (6) lays down the general principle that before the Ombudsman can consider a complaint the consumer must have given the financial service provider concerned a reasonable opportunity to deal with it. This is as it should be. The aim is that financial service providers should avoid causes for complaint and when complaints are made make a real effort to deal with them in a way that is satisfactory to their customers. If one examines the legislation as a whole and the particular sections, one can see clearly where they fit into the scheme and context of this Bill. In Section 57BX one will see that section 6 as drafted is an integral part of the overall scheme of how complaints are conducted. I am authorised to say that subsection does apply to the credit union movement.

The amendment moved by Deputy Richard Bruton seeks to include the words "and in the case of a Credit Union has made reasonable efforts to use fully the dispute resolution options which are available to the consumer as a member of the Union". Deputy Burton tabled a similar amendment. Deputy Ó Caoláin also referred to the exhaustion of all dispute resolution options available to a complainant under the credit union rules.

The substance of this is included in the more abstract language of subsection (6) which provides that a consumer is not entitled to make a complaint unless the consumer has previously communicated its substance to the regulated financial service provider concerned and has given that financial service provider a reasonable opportunity to deal with it.

The credit union movement is to be much commended for having such detailed procedures in place in its internal rules and that very much protects its position under the new subsection (6). However, when drafting legislation, it must have general application. I join in the tributes which other Deputies have made to the credit union movement. The Minister had very detailed discussions with the credit union movement about the substance of this Bill. It does not mean that one must include it by express reference in every subsection of the Bill. The Bill, as drafted, meets any legitimate concerns it has. One cannot after subsection (6) state that as well as covering every financial institution it also covers the credit union movement. Clearly the language of section 6 as drafted covers that. It provides that any financial service provider, including a credit union, should have a reasonable opportunity to deal with matters. What constitutes a reasonable effort is something the Ombudsman would examine in co-operation with IFSRA's consumer director.

Clearly the fact that the credit union movement has a detailed code on this matter is very much in support of its position. It has already gone to the trouble of laying down a detailed internal code on this matter, and there will be a presumption in favour of that, although the Ombudsman can review these codes or determine that they should be improved in certain respects. I am not clear on the position in other financial institutions, whether their codes are as well developed. I suspect they are not. The position regarding credit unions is that they are fully protected.

I hope complaints against credit unions are few, given that their customers are also members. For the same reason every effort can be made by a credit union to settle complaints in preference to going to the Ombudsman. However, if a consumer is not happy with the way the credit union has dealt with the complaint that person, having exhausted the internal procedures of the credit union, has the same right as a customer of any other financial institution to have a complaint dealt with by the Ombudsman within a reasonable period.

I hope Deputies can appreciate that I cannot accept amendments that would prevent a consumer from bringing a complaint to the Ombudsman until unspecified dispute resolution procedures have been exhausted.

Mr. R. Bruton

I am willing to accept that the Minister's interpretation of subsection (6) will mean that members of credit unions must have made reasonable efforts to use the dispute resolution machinery within the credit union movement. On the basis of the Minister's assurance that this will in practice protect credit unions and that the rules of membership must be availed of before having recourse to the Ombudsman, I will withdraw the amendment.

Amendment, by leave, withdrawn.

Acting Chairman

Amendment No. 53, in the names of the Minister for Finance and Deputy R. Bruton, arises out of committee proceedings. Amendments Nos. 54, 56 and 66 are related. Amendments Nos. 53, 54, 56 and 66 will be discussed together.

Mr. B. Lenihan

I move amendment No. 53:

In page 41, line 44, to delete "and the Regulatory Authority".

These amendments address concerns expressed by the present voluntary ombudsman schemes that giving information on individual complaints to the regulatory authority might be seen as compromising the confidentiality of such complaints. The regulatory authority is satisfied the provisions of section 57CQ for co-operation between the Ombudsman and the regulatory authority as strengthened by amendment No. 66, will give it sufficient information to permit it to adequately discharge its statutory consumer protection mandate.

The new power proposed for the authority to require the Ombudsman to provide it with specific information is a quid pro quo for the elimination of the present requirement that copies of all complaints and of the Ombudsman’s decision on them be automatically copied to the regulator. We must remember that the Ombudsman’s remit essentially is to deal with individual complaints from customers of financial institutions and, if necessary, to direct that a financial institution compensates such an individual. It is the authority’s responsibility and specifically that if its Consumer Director to deal with general issues relating to the protection of consumers. The authority will also now have the power to penalise financial institutions in cases where their actions breach regulatory requirements. It is important that the authority be able to draw on information available to the Ombudsman for dealing with individual complaints. It is not possible to be explicit on what information might be required. For example, it would be important that the Consumer Director be alerted at an early stage to emerging problems so that they can be addressed by the issue of codes or regulatory directions. Such information might also be needed in connection with the authority’s use of its new sanctioning powers.

The Minister is satisfied the arrangements provided for by these amendments strike a reasonable balance between, on the one hand, respecting the necessary autonomy of the Ombudsman and on the other, ensuring that the authority can discharge its consumer protection functions in a way that draws on the Ombudsman's experience.

The amendments were put to the Department of Finance by the regulatory authority as an agreed package following consultation between the authority and the existing ombudsman schemes. The authority is satisfied this gives all the power it needs to discharge its responsibilities. The important issue is that consumer complaints are dealt with promptly by the ombudsmen and that the consumer benefits from a virtuous cycle whereby complaints are judged against standards laid down by the regulator and in turn these complaints influence those standards in a way that benefits the consumer.

Mr. R. Bruton

I am glad this amendment is being made. It is important that privacy be protected when someone makes a complaint. When a complaint is made to an ombudsman, that is where it should lie.

I would like to take the Minister up on an issue he raised. It relates to what happens when a consumer complaint unearths malpractice. We have seen in recent days that consumers could be the victims of malpractice that occurred not only within the past six years but even further back. Where a complaint relates to malpractice dating back a long time and has only recently been uncovered, what is the system for alerting the regulator, the Revenue and whoever else must investigate it? That is the first issue.

The second relates to what happens regarding the consumer who made the complaint. On a strict reading of the Bill, the consumer is not entitled to make a complaint if the event occurred more than six years before the complaint is made. However, if the consumer only discovered the malpractice in the past 12 months but the malpractice predated it by more than six years, would the consumer still have his or her complaint heard by the ombudsman and hope to get a reasonable settlement or will malpractices that date back a considerable period be deemed to be outside the remit of the ombudsman?

The Minister of State knows more about common law than I but is it not correct that if one only discovers a malpractice now, under ordinary law it can have occurred more than six years ago? Am I correct that the restriction to six years applies to the discovery rather than the act? Will the Minister of State respond to these issues? The first relates to ensuring that malpractices are notified and that there is a communication system, without necessarily naming the complainant, which gets to grips with the malpractices. We need to provide protection for the consumer whereby if a malpractice comes to light and they make a complaint, their complaint, because it was only discovered within a period of six years, can be adjudicated by the ombudsman even though the event occurred more than six years ago.

Mr. B. Lenihan

I am glad Deputy Bruton welcomes the substance of the amendment. However, I have bad news in respect of the time limit. The Bill provides that the consumer is not entitled to make a complaint if the conduct complained of occurred more than six years before the complaint is made. The key word is "occurred". If it occurred more than six years ago, one cannot go to the ombudsman.

The regulatory authority can examine conduct which occurred before the six year period and recommend a code of practice on such conduct. However, the jurisdiction of the ombudsman is limited.

Mr. R. Bruton

Why has that been done?

Mr. B. Lenihan

That is the balance struck in the legislation. That is the time limit for a complaint.

Mr. R. Bruton

The malpractice we are seeing now only came to light recently. It has alerted the Oireachtas more sharply to this matter than when the Bill was discussed on Committee Stage. That is the difficulty.

Mr. B. Lenihan

I accept there is a point in that regard and we will have to reflect on it. In the general law there has always been this difficulty with the Statute of Limitations and when the injury becomes apparent. Divergent judicial opinion has been expressed on that. This legislation is clear in that it refers to the event having occurred more than six years before the complaint is made. It does not mention it coming to light or one becoming aware of it. I accept the Deputy has a point and I undertake to have the matter re-examined before the Bill goes to the Seanad.

Ms Burton

This could be partially addressed by giving power to the regulator to refer a complaint, regardless of the time lapse. Take the example, as happened this week, of matters coming into the public domain which refer, as do many of the recent disclosures at Allied Irish Banks, to events that occurred more than ten years ago. In the foreign exchange overcharging scandal, much of the overcharging occurred outside this Statute of Limitations period which is the concept the Minister of State is applying. I assume the concept is partly based on that and also on the desire for finality with regard to certain events. We are aware that people can get caught up in complaint situations that go on for years and can become vexatious.

On the other hand, however, much of what has been disclosed about recent financial scandals, particularly those in AIB, relates to matters that occurred more than ten years ago. AIB has said in its public statements that it will make restitution voluntarily to the people who have suffered, provided they can be identified. Deputy Ó Caoláin and I were confident from the start, given our knowledge of banking, that identification of a high percentage of the currency transactions which were overcharged was highly achievable. Subsequently, AIB and the regulator have indicated that this is the case.

Nevertheless, it remains the case that while the people subject to the foreign exchange overcharges will be recompensed voluntarily by AIB, and I understand that the regulator will also have the power to do this, there is also the right of an individual who was so wronged or overcharged by the bank to make a complaint. Aside from being reimbursed, they might wish to make a complaint. The Minister's most recent amendments changed the Bill significantly and this is one of the issues about which I complained. He made a number of the penalties or sanctions discretionary. He also said that if the banks admitted to the fault, a discretionary and contractual arrangement can be entered into between the financial services regulator and the offending financial services institution.

That is fine and dandy, but for the individual who was the subject of the wrongful act by the bank, personal compensation for the money lost might not be the full issue. They might wish to pursue a complaint. In the context of this week's events, the six year limit is unnecessarily short, especially in view of the trawl by the Revenue Commissioners. They wrote to more than 120 people whose names cropped up in a trawl of people who had overseas accounts which appear to give rise to tax issues. Many of these people are tax compliant because they legitimately held those accounts. A number, however, are not. Many of them are elderly and we have heard on the Joe Duffy programme and many others the distress caused to them and their families. In some cases, the account holders are deceased and this has caused distress to their heirs.

The banks say they settled their responsibilities to the Revenue Commissioners via the DIRT and other inquiries and made significant settlements in some cases. However, the individual customer, who might be an elderly person and who, rather like Mrs. Scanlon, expected their bank to look after them, accepted its advice and put their money in a bogus non-resident account, is now facing heavy penalties. Since all this occurred more than six years ago, they will not be able to pursue a complaint to the ombudsman when this legislation is enacted. The complaint they would pursue would be, I assume, that they were consciously and negligently misdirected by the bank into a product which had serious tax implications, was not in line with tax law and about which they were not advised.

The problem with the ombudsman scheme is that such people are obviously barred. The regulator and the Revenue Commissioners are not barred but the individual elderly lady or gentleman is. I know the Minister is a fair-minded person. The banks can be addressed through the system but there should be recourse for individuals. Many of these people were encouraged to avail of non-resident accounts, although we do not know by whom. Perhaps they were encouraged by counter clerks who were receiving bonuses. People did not run into the Bank of Ireland in Blanchardstown and ask for a bogus non-resident account. They did not even know of such a thing. It was a matter of a word in the ear. Customers were told that the bank knew of a way of getting a good rate of interest.

These people are definitely liable to refund the tax evaded, plus whatever penalties are due to the Revenue Commissioners. However, they should also be given — although they have not been so far — recourse in the matter of the banking structures that put them in this pickle. In any fair system, they should have some redress. If a patient suffered in this way at the hands of a medical practitioner he would have recourse to the courts. I hope by the time this Bill goes to the Seanad the Minister and his officials will have thought this out and decided that individual customers should be allowed redress.

Mr. B. Lenihan

It is important to bear in mind that a person may complain to the regulator about a matter that occurred more than six years ago and the regulator may take it up with the institution. That facility is still there.

Ms Burton

I know that.

Mr. B. Lenihan

I was glad to hear Deputy Burton acknowledge that. It is also important to remember that the ombudsman must have his or her own system. Six years is the normal and reasonable compromise that has been inserted in the pensions legislation for the pensions ombudsman, so this time limit did not fall out of the sky. There is a balance to be struck. The ombudsman must be allowed to run his or her office. As Deputy Burton acknowledged, complaints can go back a long time. There must be some reasonable limitation.

In the AIB case, the regulator ordered refunds using moral suasion. This legislation expressly provides the power to do that. I do not agree, although this is not directly related to the Bill, that the statute of limitations necessarily bars claims arising out of the recent saga. There are many intricacies in how the statute applies to old accounts and the question of whether there has been movement in the account for many years. There are also claims and contracts involved. The issue is not clear-cut. There is a clear-cut provision in the legislation, however, and the regulator will be empowered.

The suggestion was advanced by Deputy Burton that a discretionary power should be given to the regulator to enable him or her to filter cases.

Ms Burton

The regulator could then pass them to the ombudsman.

Mr. B. Lenihan

I will certainly have that option examined.

Amendment agreed to.

Mr. B. Lenihan

I move amendment No. 54:

In page 41, lines 45 to 50, to delete all words from and including "This" in line 45 down to and including "Part" in line 50.

Amendment agreed to.

Amendment No. 55 not moved.

Mr. B. Lenihan

I move amendment No. 56:

In page 49, to delete lines 9 to 11 and substitute "relates.".

Amendment agreed to.

Amendment No. 57 not moved.

Acting Chairman

Amendment No. 58 arises from committee proceedings. Amendments Nos. 58 to 64, inclusive, are related and may be discussed together by agreement.

Caoimhghín Ó Caoláin

I move amendment No. 58:

In page 51, line 27, to delete "High" and substitute "District".

We went through the detail of the arguments for this change on Committee Stage, but I will briefly refer to them again. As we know, the recourse of appeal to the District Court is already provided for in legislation relating to credit unions. This Bill prescribes recourse to a court of higher standing, the High Court.

This is an inconsistency. All legislation should refer in the first instance to the District Court. This is important because of the matter of affordability. People cannot, as a rule, afford to go to the High Court. Many people will be debarred from seeking referral to the courts in exercise of their right of appeal against the findings of the Financial Services Ombudsman. We must ensure that legislation accommodates the interest of the consumer and, importantly, that justice is available to the least well off in our society, as it is to those who can afford to buy their way to having their cases heard.

We must recognise the importance of affordability. We cannot place obstacles in the way of people seeking to exercise their right of recourse to the courts. I recommend to the Minister that he accept the proposal, as presented in amendments Nos. 58 to 63, inclusive, to substitute "District Court" for "High Court", and, as in amendment No. 64, to delete "Supreme Court" and substitute "High Court". In this way we can ensure equity of opportunity to all citizens, which the Bill as presented clearly does not. People have the right to have their cases heard.

There is also concern about how the courts may judge cases that are presented to them. However, there will undoubtedly be a significant drawing of breath on the part of many who may wish to have their cases referred if they find out that the High Court is the first court to which they can address the matter. I strongly urge the Minister to accept the amendments and to recognise that equality of opportunity and access to the law is the constitutional right of every citizen. We should ensure this is upheld in this legislation rather than placing obstacles in the path of the referral of any finding of the office of the financial ombudsman. I recommend these amendments to the Minister and hope he will accept them.

Mr. B. Lenihan

I regret that I cannot accept the Deputy's amendments, although I understand his motivation. Chapter 6 seeks to establish a judicial appeals procedure for the Financial Services Ombudsman. The Deputy referred to the Constitution, but the High Court is the constitutional forum to which citizens have a right to have recourse. The District Court is a court of local and limited jurisdiction, while the High Court is a national court. The District Court sits in many different districts around the State transacting a great volume of business of a general character, such as routine criminal matters, road traffic offences, minor civil claims and certain matrimonial proceedings. The district judge sits in an assigned district or, in the case of Dublin, a number of judges are assigned to a metropolitan district. Clearly, substantial unevenness and inconsistency would develop in the application of the law if appeals to the District Court were to be permitted. It is important to realise that what is at stake is an appeal against a question of law being referred by the ombudsman to the courts. The High Court is uniquely qualified to make authoritative pronouncements on matters of law. It is not envisaged that there will be a substantial number of appeals from the ombudsman. It is important if they take place that they do so before the forum, which is the authoritative exponent of the law in the State. While I commend district judges on the enormous volume of business they must transact, it is not an appropriate forum for an appeal on a difficult question of financial practice and management on an application by the ombudsman under legislation of this character. Such an appeal would come at the end of a process where a complaint had been examined by the institution's internal dispute settlement procedure. There would then be an attempt by the ombudsman to mediate and, finally, there would be a formal determination by the ombudsman.

The precedent set in the pensions legislation was that the High Court should review the ombudsman's final determination, which is appropriate. It must be done out of respect for the office of the Financial Services Ombudsman, a position which is being created in the legislation. If the appointment of the ombudsman is to be reversed, it should be reversed by the court established under the Constitution to make authoritative pronouncements on issues of law. It should not be left to the vagaries of decision-making in a wide multiplicity of District Courts.

I appreciate the spirit with which the amendment was tabled, namely, that justice should be accessible and decentralised as far as practicable. However, there must be a consistency in the application of the legislation and I do not believe that consistency would be secured if I accepted the amendment.

Caoimhghín Ó Caoláin

I may be corrected because, unfortunately, I do not have the salient notes from my earlier presentation. I recall in the credit union legislation that recourse is prescribed through the District Court as the court in the first instance. I am trying to establish that this should be reflected across the board. The credit union movement is incorporated within the legislation. The legislation would have deleterious effect in regard to what is being provided for in terms of disputes arising from within the credit union sector. I understand the District Court is the court that was prescribed in that case. Is it being suggested that this only satisfies a certain level of financial interest, that it is just a particular sector of society that can have its business or financial issues and differences dealt with at that level, while across the rest of the financial services sector, the High Court is the appropriate body? The Minister of State should look again at this aspect because I do not have the material with me today to confirm for certain, but this is what I recall from my preparation for Committee Stage.

I was interested in the Minister of State's reference to the importance of evenness and consistency. Is he not reflecting a questionable view of the exercise of law and justice at District Court level? Surely all our courts should operate on the basis of evenness and consistency. I would be concerned if the Minister, who has a professional interest in the area of the courts, took the view that the District Courts do not apply evenness and consistency in terms of their judgments across the jurisdiction. They are not autonomous independent courts, they are part of the entire judicial system and process. Surely evenness and consistency is what is expected and required before the law for all citizens. I would be concerned at that response and the inferences that could be drawn from it.

The High Court is a very prohibitive course for many citizens to take when one recognises that one is taking a case not against the finding of the Financial Services Ombudsman per se, but the financial institution against whom the complaint is made. Taking on a financial institution through the court system is a formidable and prohibitive process. What hope would one have taking on that process in the High Court, where the financial institutions can buy the finest judicial brains in the land? I again emphasise that we should consider approval of the District Court as the first court of referral on the basis of its affordability. I reject the notion of its unevenness or inconsistency. It is well placed to make an initial judgment call. It is a testing ground if a further appeal is required. I have accommodated this aspect in amendment No. 64 where further reference to the High Court is offered. This just relates to a point of law.

I appreciate that the Minister of State understands why I make the case but I fear he will not accommodate what is in my view a very reasonable proposition, which is designed to secure the equal rights of all citizens before the law. Sadly and regrettably, recourse to the High Court has become the preserve of those who can afford to lose a case. Most citizens would be financially ruined if they did not succeed. This is a huge impediment and obstacle, and invariably people will not take that course. The financial institutions will be able to buy their way through the system because the fear of taking them on at High Court level will be the great impediment to justice.

Mr. B. Lenihan

I would not like the Deputy to be under the misapprehension that I was suggesting that in general the District Court is inconsistent in its decision-making process. As I pointed out, the District Court must conduct a vast amount of business, much of which is of the same character. We are dealing here with the Financial Services Ombudsman. The ombudsman is the specialist in this area. He or she is the person who will constantly deal with financial institutions, building up a picture of the type of complaint he or she receives, making determinations about it, seeking to mediate in the first instance and then making determinations.

An appeal against the ombudsman in the context of the legislation is entirely different from the type of high volume business the District Court routinely transacts. This is the point I was seeking to make to the Deputy, not that the District Court is inconsistent in its decision-making procedures, but that it might become inconsistent when faced with a specialised ombudsman in very detailed financial matters, where infrequent appeals will be taken. The ombudsman will build up confidence among consumers and recipients of financial services because he or she will have his or her volume of expertise. When an appeal is by a bank against a consumer, the ombudsman can be involved. In the case of a consumer who does not have means, the ombudsman will stand over his or her determination and protect the consumer. This position is safeguarded in the legislation.

The appeal in this instance must be an appeal to a specialised tribunal. As I said in my reply to the Deputy, the High Court is the tribunal that authoritatively lays down the law in this country. While there can be an appeal against the determination as well as on a point of law, the nature of an appeal in this context will be very much based on legal grounds, not a fresh fight as Deputy Ó Caoláin appears to insinuate.

Caoimhghín Ó Caoláin

Will the Minister of State address the apparent contradiction in regard to the Credit Union Bill?

Debate adjourned.

Sitting suspended at 1.30 p.m. and resumed at 2.30 p.m.