I move: "That the Bill be now read a Second Time."
With the agreement of the House, I wish to share time with Deputies Calleary, Cowen, Browne and Dooley.
Regulation of Debt Management Advisors Bill 2011: Second Stage
Is that agreed? Agreed.
I welcome the opportunity to introduce this Bill on behalf of the Fianna Fáil Party. My party colleague, Deputy Michael McGrath, was due to introduce it but he is attending a public meeting in County Louth at which he is promoting a "Yes" vote in the referendum to be held on 31 May next. The Deputy will obviously be studying the transcripts of this evening's proceedings, particularly in the context of the response from the Government side. He will bring the debate to a close tomorrow evening, at which point he will reply to the various points raised.
I wish to pay special tribute to my friend and colleague, Senator Thomas Byrne, who did most of the work in terms of drafting the legislation. The Senator put a great deal of effort into putting the Bill together last year following the collapse of a number of businesses to which I will refer in greater detail later. I thank Senator Thomas Byrne for his outstanding work on this comprehensive 11-page legislation, which deals with all the relevant issues and which relates to a vast variety of areas that have remained unregulated up to now. There is general agreement in society that the overall area of debt management requires regulation.
I take this opportunity to acknowledge what I believe to be the Government's general acceptance of the Bill. I understand the Government will allow it to proceed to Committee Stage for a detailed debate. I appreciate that the Government is not taking the usual knee-jerk reaction of opposing something because it is coming from this side of the House. This is a good and detailed proposal and it has attracted the support of a large number of people. The Government is wisely allowing the Bill to proceed. I look forward to ample time being allocated for a detailed debate on Committee Stage. I am not stating that the first draft of the Bill is perfect and, like all legislation, I am of the view that it can be improved and amended. Fianna Fáil will take on board all the points made during the Second Stage debate in the context of evaluating what amendments might be tabled on Committee Stage. It would be good if the Bill could be passed into law before the House rises for the summer recess. With the Government's support, this will hopefully be achieved.
The Title to the legislation states this is a "Bill entitled an Act to make provision in relation to debt management advisors and for the authorisation and supervision of debt management advisors by the Central Bank of Ireland and the Minister for Finance and to provide for related matters." The details of what the Bill involves are spelled out in full in the text. However, its key provisions are that debt management advisers will be subject to regulation by the Central Bank and will be required to have an authorisation therefrom - the definition of such a debt management adviser includes individuals offering advice on people's credit or debt; a debt management adviser will be required to set out all fees at the point of engagement; and a debt management company will inform all potential clients of the services offered by the Money Advice and Budgeting Service, MABS.
The latter is an important aspect because MABS provides advice to people but does not manage their cash. MABS provides an excellent service and there has been an increasing level of demand for this in recent times. An obvious alternative to what is proposed in the legislation would be to increase the number of MABS companies. However, there are already 53 independent MABS companies which have voluntary boards of management, which employ 277 money advice staff and which operate on a nationwide basis. The Bill will ensure that debt management companies will be obliged to inform all potential clients of the services offered by MABS in order to given them the option to approach the latter in the first instance if they so desire. In order for what is envisaged to be successful, it is important that people should be aware of their options. If everyone were to seek the advice of MABS, it is obvious that there would be serious additional resource requirements.
Under the Bill, debt management advisers would be prohibited from handling clients' moneys. MABS would, however, be excluded from this prohibition. The Bill stipulates that the Central Bank should publish a code of practice concerning debt management advice within six months of its coming into force. It also sets out the penalties that will apply to persons found guilty of an offence under its provisions. Those are the key points which arise in respect of the legislation.
A great deal of comprehensive analysis, discussion and consultation took place during the drafting process relating to the Bill. Fianna Fáil has brought this legislation forward in order to place the spotlight on a sector which has expanded dramatically in recent times but which remains unregulated. This lack of regulation has resulted in consumers' money being put at unnecessary risk. Vulnerable consumers are being taken advantage of by some unscrupulous, cowboy operators. The Bill will bring debt management advisers and household budgeting services under Central Bank regulation, provide for transparency in respect of the setting of fees and protect customers by prohibiting debt management advisers from handling client funds.
We are not seeking to outlaw the debt advice industry or to make it impossible for those within it to operate. There are, however, growing levels of concern with regard to these companies, particularly in respect of the fees they charge and in the context of transparency. There is a legitimate role for professional advisers in this area but the sector is urgently in need of regulation to ensure that consumers are protected. Many distressed borrowers signed up to seemingly attractive offerings of some providers in this area and subsequently found themselves in further financial trouble and in a less secure position. Up-front fees of as much as €750 are common and ongoing monthly fees of 15% of the customer's payment go to the advisory firm in some cases. In other words, there is an immediate payment and then the companies or entities involved charge up to a further 15% to manage people's credit card debts and payments relating to hire-purchase agreements, energy bills, the household charge etc. In some instances, the first three months' worth of payments may go to the adviser and the customer may not be aware that it has not gone to the company or entity to which it is due. During this period, additional interest and penalties may accrue. The Bill will require that advisers set out all fees clearly at the beginning of the process. As already stated, the sector will be governed by a code of practice to be published by the Central Bank within six months of the legislation being enacted.
There have been a number of high profile cases in this area, such as that relating to the collapse of Home Payments Limited in August 2011. Many people will remember the latter being the subject of many television news reports at the time. Home Payments Limited owed its customers €6.17 million when it ceased trading, a fact that highlights the disastrous consequences for ordinary people when something goes wrong in a sector that is entirely unregulated.
At present, people who offer advice on debt are considered to be offering a customer rather than a financial service. This means that they are not subject to regulation by the Central Bank and the Financial Regulator, although they can be prosecuted under consumer protection laws, including the legislation relating to misleading advertising. The real reason we have brought forward the Bill is as a result of the fact that offering advice on debt is considered a customer service. As a result, consumer law applies and, in some cases, such law is not the strongest in the context of enforcement before the courts. It would be to the benefit of consumers if the service to which I refer was recategorised as a financial service because it would then come under the remit of the Central Bank and the Financial Regulator.
It is difficult to ascertain the prevalence of these companies although an Internet search shows dozens of providers purporting to offer debt advice. One industry source suggested individuals who were previously operating as mortgage brokers have moved into the area of debt advice. It is ironic that those responsible for brokering deals with some of the more expensive mortgage companies, for which they received commission while getting people in large debt, are now coming back as the cavalry to rescue these very people while charging them for managing their debts.
While there is general agreement at political level for the need to introduce this legislation, it has also been raised in other arenas. The Law Reform Commission published a consultation paper on personal debt management and debt enforcement in September 2009 which made provisional recommendations for reform. It concluded a strong case existed for the introduction of a regulatory system for debt management companies as vulnerable clients and the potential for predatory practices raised concerns. As stated earlier, some of these advisers are cowboy operators with only an Internet presence and no face-to-face meetings. The commission also recommended standards should be established with regard to the quality of advice given by requiring a minimum level of training and skills following consultation with the industry.
The Free Legal Advice Centres also commented on commercial debt advice companies:
Whilst responsibility for ensuring that inappropriate cases do not come to court must rest with the creditor, the State must ensure that proper money and indeed legal advice are available to enable early resolution of debt cases to take place. Whilst we have been unfortunate in this country to have outdated debt enforcement and bankruptcy procedures, money advice has been consistently funded. However, that service [MABS] and its hard-pressed staff is now severely stretched to cope with increased demand and must distinguish itself and even compete with some debt management companies offering services in return for fees. The existence of State funded money advice and a for-profit sector is not necessarily mutually exclusive but unless such companies are properly regulated and monitored, there is a significant danger that already vulnerable clients desperate for solutions to their financial problems will grasp at expensive straws.
In the Dáil recently, the Minister for Finance noted "consumers can confirm whether or not a financial service provider is authorised by checking the register of financial service providers on the Central Bank's website". However, in practical terms few will actually do this. It is actually difficult to navigate that part of the regulator's website and find out under which category an adviser falls.
There are legitimate providers in the industry and there is a role for debt advice. We are not seeking to outlaw the industry but want it regulated. The Debt Management Association of Ireland stated any new regulation must cover areas including training, marketing, advertising and publicity, information to be provided to customers, dealing with vulnerable customers, their contract terms and their accounts.
The segregation of clients' money from commission fees is another important issue. We examined bonding these debt management companies to ensure customers would be protected. However, having considered it in detail, we do not believe this would be a sufficiently robust way of dealing with this issue. Instead, we believe regulation by the Central Bank is the best way.
There has been a positive response from the industry to our proposals. A broad consensus exists that this sector needs to be regulated. The Central Bank, the National Consumer Agency, Free Legal Advice Centres, the Law Reform Commission and Deputies on all sides of the House agree on this. If the Minister is not opposing the Bill, I hope he will make time available in order that it can be swiftly progressed. We all want to see a situation where potentially vulnerable customers are not subject to unnecessary and unjustified financial risk. This Bill provides the means to ensure this is the case.
I join Deputy Sean Fleming in thanking our colleagues, Deputy Michael McGrath and Senators Byrne and MacSharry, for the work they have put into this Bill. It is interesting to note this Bill was taken in the Seanad last year. It was promised at the time it would be brought forward this year. However, it has not as we come towards the midpoint of this session. I endorse Deputy Sean Fleming's point that, while we welcome the Government accepting the legislation, we need to see it passed before we break for the summer. It is not too much to ask that the Bill be enacted when we break for the summer two months from now.
Up to 1.5 million people owe money on an unsecured credit product such as a credit card or personal loan. Senators Byrne, MacSharry, Darragh O'Brien and Deputy Michael McGrath have introduced a suite of measures such as family home protection. While there is a significant focus on mortgage debt, we have a major problem with unsecured debt. This is the area rogue operators are targeting and which our legislation is trying to regulate. Conor Pope in The Irish Times described the field of debt management as:
A less exciting version of the Wild West and there are no rules governing the dozens of companies which have set up in recent years offering to help people scale the personal debt mountains they have created through a combination of reckless borrowing and reckless lending.
We all know the advertisements for these companies which are generally targeted at a UK audience but are relevant here. Unfortunately, in recent months with the publication of the personal insolvency Bill, a new trend of advertisements is running, claiming the Government insolvency Act will wipe 75% off one's debt. These are promises that cannot be achieved. It is not just politicians saying this but MABS. MABS, a fantastic organisation and the unsung hero of dealing with the carnage of people's personal debt stories, has stated it would be extremely unusual, if ever, that debtors with personal debts achieve write-offs of this scale.
Various consumer credit codes are in place for financial institutions contacting individuals, but these are really only there in spirit. When a person is put under pressure about unsecured debt by a financial institution, he or she will seek some relief from a debt adviser. Unfortunately, there are some unscrupulous companies in this space, those that we are trying to put manners on in this legislation, which will feed that need. While the consumer is looking for short-term relief, unfortunately due to the lack of regulation, these advisers will only add to the consumer's debt burden.
In the case of Home Payments Limited, the consumers had their cash cleaned out, leaving them exposed to further debts with utility and other companies for which they had signed payment arrangements, thus compounding their problems entirely. The difficulty with Home Payments was, because it provided the service under the radar for many years, the age profile of those affected was older. Many of those affected had no capacity to get their money back or pay their bills. We surely should have learned from this. As Deputy Sean Fleming said, it happened last summer. With the reams of financial legislation introduced in this House since September, we should be able to put in some checks and balances in the debt management advice area.
When the history of the past ten years is written, part of it will deal with legislation and the protection it afforded. We have already discussed banking regulation or the lack thereof, and everybody would agree on the matter. It was not just an Irish problem as it was evident across Europe and the world. We have a chance to start putting in place regulation so we do not return to this scenario in ten or 15 years. God forbid this crisis would ever recur to this magnitude but if any crisis comes about, there should be a protection in place for future borrowers and consumers from a complete lack of regulation in the bank or in this sector. We have a chance, before this sector takes complete hold of people's lives and futures in this economy, to regulate it, and we should take that opportunity quickly.
We do not know how many hundreds of families around the country tonight have been sold a pup by signing up to arrangements made by debt management companies, paying interest rates way in excess of what they should be in a completely unregulated set-up. There is no consumer law or prohibition on consumer contact in this regard. We do not know where these people will go if a company decides to close shop, and we could be leaving families and people exposed to debts from utilities, credit cards and banks; essentially, they would go back to square one.
In January, the Minister for Finance, Deputy Noonan, stated he had received advice from the Central Bank and agreed that debt management and advice service firms should be subject to regulation. He asked his officials to prepare the necessary legislation, which would be brought forward as a Committee Stage amendment to the Central Bank (Supervision and Enforcement) Bill 2011. That did not happen and we have had to force this Bill on the agenda tonight to try to elicit some action.
I refer to Deputy Fleming's proposal, and the entire protection it affords, which we can see through if we want to. Unfortunately, more and more people will seek these services. We are looking for every debt management adviser, DMA, to be subject to regulation by the Central Bank and to be required to have an authorisation. We include a pretty tight definition of a DMA, which includes people offering advice on a person's credit or debt or providers of household budgeting services. Fees should be laid out before entering into an arrangement, and the fee for the service should be laid out in a clear and understandable fashion for everybody. Debt management companies should inform all potential clients of the services offered by the Money Advice and Budgeting Service, MABS, which is a public service that does fantastic work. Those services should be made available to everybody. As a House, we must agree that MABS needs more resources in the form of people and funding. The DMAs should be prohibited from handling client moneys, and client money would be protected by keeping it out of the equation. The Central Bank should publish a code of practice concerning DMAs within six months of the enactment of the Bill, and there is a range of penalties outlined in the Bill.
If we can get through Committee Stage of this, it would send out a very strong signal that we will not tolerate cowboy or wild west behaviour and will instead offer protection to those people who are under a significant burden of personal debt. As Mr. Conor Pope mentioned, the less exciting version of the wild west should get a sheriff.
As my colleagues have noted, the area of debt management advice and household budgeting services is largely unregulated, and this is a growing cause of great concern among us and throughout the country. Many distressed borrowers have signed up to what seemed attractive offerings with some providers and found themselves in further financial trouble and a less secure position. We are not seeking to outlaw the debt advice industry or make it impossible for operators to function but as we have said, there are growing levels of concern about these companies and, in particular, the fees they charge and the transparency that is evident. It has been reported that some financial institutions have gone as far as to say they would not deal with many debt management companies, which is a great cause of concern and brings about the reason we are here this evening, following on from what was brought to the Seanad last year.
Currently, those offering advice are considered to be offering a customer service, as has been noted by Deputy Fleming, rather than a financial service. Consequently, they are not subject to regulation by the Central Bank and the Financial Regulator, although they can be prosecuted under consumer protection laws, including legislation dealing with misleading advertising, as mentioned by Deputy Calleary.
This Bill would bring debt management advisers under Central Bank regulation, providing for transparency in fee setting and protecting customers by prohibiting debt management advisers from handling client funds. I will deal with the Money Advice and Budgeting Service, MABS, as it is relevant to the responsibilities of the Minister for Social Protection. The obvious alternative to debt advisers is MABS, and as Deputy Calleary alluded to, its personnel are the unsung heroes in the past number of years who have worked tirelessly to deal with some crazy issues in a professional, capable and understanding manner. There are 53 independent MABS companies with voluntary boards of management employing some 277 money advice staff, operating nationwide.
In 2010, the MABS helpline took over 27,700 calls, compared to 24,737 calls in 2009, with 16,620 calls in the first half of 2011. They are the most recent figures and they indicate close to a 20% increase year on year. If that is the case, we can expect at least in the region of 40,000 calls this year. The demographic profile of MABS clients has remained relatively stable, with almost 70% social welfare recipients, growing from 63% in 2007. The majority are aged between 26 and 40 and female, with over 60% having children. The number of budget negotiable clients is increasing, which means MABS is now negotiating arrangements with creditors for a higher proportion of clients.
Recently in the Dáil the Minister for Social Protection stated she was satisfied that MABS had sufficient resources to continue to provide a high quality personal service to assist people in overcoming their indebtedness and managing their finances. Our Bill would ensure a debt management company would inform all potential clients of the services offered by MABS but in order for that to be successful and be taken in the way it is intended, additional resources must be made available to local MABS branches. Deputy Calleary mentioned this.
Although I quoted the Minister, I do not believe her comment reflects reality; the requirements of the service should be audited. Representatives should come before a committee or the Minister should come before the Dáil and state categorically that sufficient funds, services and facilities are available to the staff which will allow them to carry out the functions for which MABS is designed. Based on the figures made available to us and members of our party when we prepared this legislation, the numbers of people seeking the service are rising at such an alarming rate that they cannot be matched by levels of funding and personnel.
In supporting this Bill, I ask the Minister of State to indicate to the Ministers for Social Protection and Finance the strong message from this side of the House that additional funds and services are required at the coal face. It is incumbent on this Government, if it is as compassionate as it portrays itself to be, to implement those amendments in order to meet the needs of those who deserve these facilities. In the absence of such action, the prevalent rogue trading which forces exorbitant fees and further indebtedness on those whom they seek to represent will only continue to gain momentum. We are closing one loophole in bringing forward a Bill like this, and we would make it law for such characters to inform people of the facilities that can be availed of from the State.
For that to be practical and professional, it is imperative the Minister for Finance and the Minister for Social Protection come forward with new proposals and updated facilities, services and funds to give the service that is necessary.
I thank Deputy Michael McGrath and Deputy Seán Fleming for bringing this Bill before the House. It gives us an opportunity to debate the serious situation for families who are severely indebted. It is also an opportunity for the Government to accept this Bill, which it has done, and to implement it as quickly as possible. If the Government feels changes must be made to the Bill, so be it, but it is important, as Deputy Calleary said, that it is enacted between now and the summer so people have the chance to sort out their difficulties.
The area of debt management, advice and household budgeting services is largely unregulated at present and is a growing cause of concern. Many distressed borrowers have signed up to what are seemingly attractive offerings but then found themselves in further financial trouble and in a less secure situation. This cannot be allowed to continue. We are not seeking to outlaw the debts advice industry, or to make it impossible for it to operate, but there are growing levels of concern about these companies, particularly the fees they charge and the lack of transparency. It is important the Minister of State looks at the exorbitant fees being charged and that the whole situation is made more transparent. Some financial institutions have gone as far as refusing to deal with debt management companies. Some mortgage brokers have, in fact, gone into debt management, a matter of concern to me. The mortgage brokers operated during the boom and secured loans for people who could never meet the repayments.
The banks are not very helpful to those customers who have found themselves in financial difficulties. People are being bullied, getting phone calls in the morning and late at night. In many cases, the banks gave out loans to people without any investigation of the family's ability to pay them back. As a Deputy who has represented Wexford for many years, many people come into my clinics in serious financial difficulties. Often, when their difficulties have been teased out, the problem is that they should never have received the loan in the first place; they were never in a position to meet the repayments but got a 100% loan on a low income and were never going to be able to meet that repayment. Now the banks are looking for their pound of flesh, and bullying people into making repayments they cannot make, driving them further and further into serious financial difficulties.
The banks should provide advice centres for their customers. At present, if I ring the bank in Wexford, I am told an issue is being dealt with in Dublin. No one knows better than the local bank manager of the circumstances of a family in the area. When I try to ring the bank in Dublin to arrange a meeting, I get short shrift and rarely do I get the meeting. In some areas in Wexford, some bank managers are very helpful and supportive but when it is necessary to go to Dublin to resolve a problem, it becomes impossible. The banks must provide an advice centre in every county where local families can discuss their loans and see how the situation can be resolved.
Deputy Cowen mentioned MABS, which has been a great organisation in good and bad times. The difficulty is the lack of staff in the MABS offices. There is a very good MABS office in Wexford headed by Mr. Nicky Rossiter but he and his staff can only do so much. The demand for the services of MABS, however, is way above what it was previously. The service does its best to resolve difficulties. I tell people to discuss their problems with the staff of the MABS advice centre in Wexford, who are doing a great job in providing a service. The Minister of State is tonight representing the Minister for Finance, the Minister for Public Expenditure and Reform and the Minister for Social Protection. These are the Ministers who will provide the staff and resources and the Minister of State must bring the message back to them that we need extra services and support in the MABS offices to ensure ordinary people, not those who are well off but those on social welfare benefits or on low incomes, who find it impossible to meet repayments, receive the necessary advice and assistance.
About 40% of those who owe money or who are in serious debt have not gone to anyone at present. It is important that we have a public awareness campaign to tell people in financial difficulties to go to the local MABS office and their bank manager to discuss their difficulties because the problem will not go away. It is important people are advised to go as quickly as possible.
In some circumstances people might not be able to get out of their problems because of the fall off in the value of houses. I have come across cases where people who owed the bank €200,000 handed back their house to the bank, the bank sold the house for €150,000 and then continued to seek the balance from the customer. It is important that people, before they hand back the keys, try to do a deal with the lender to write off the balance. In many circumstances the person should never have received the loan in the first place and the banks are not blameless.
The Regulation of Debt Management Advisors Bill is a move in the right direction. They must be regulated and brought within a legislative process. They cannot be allowed to charge exorbitant fees or prey on the vulnerability of families that owe huge amounts. That is what is happening, they are preying on the vulnerability of ordinary people, charging them exorbitant fees and giving them the wrong advice. In many cases, the families end up owing more money than they did initially.
I welcome the Bill. It is essential legislation. The Government promised a personal insolvency Bill but we are still waiting for it. Perhaps when the Minister of State is replying, he might tell us if the Bill will be introduced before the summer recess because we need it as quickly as possibly, particularly in conjunction with the Bill we are putting forward tonight. Between the two Bills, there is some hope for those families who owe money and who are finding it difficult to deal with banks and building societies.
I thank Deputy Michael McGrath for introducing this Bill and Deputy Seán Fleming for his speech this evening. I support its provisions in principle. These provisions reflect the Government's published amendments that will ensure proper regulation of this sector. I listened actively to the last speaker. I am advised that the insolvency Bill will be published by June.
Hear, hear.
The protection of the consumer-----
Will it be June of this year?
Yes, that is the advice I have been given.
It is the fault of those in Fianna Fáil. They are the reason we need it.
Protection of the consumer is paramount. The Government is committed to ensuring that a robust system of regulation is in place for debt advice, debt budgeting and debt management firms. Following the failure of Home Payments Limited last summer, the Central Bank inspected the bill payment and debt management sector to assess whether firms providing these services are carrying out any activity that falls to be regulated by it and to ascertain whether consumer funds were at risk. Following identification of 12 companies providing these services, the first phase of the Central Bank's review concluded with the bank writing to several firms notifying them that their activities are subject to regulation by the Central Bank and requiring that immediate steps be taken to provide additional protection for client funds.
Some debt management firms which process payments on behalf of clients are subject to regulation under the EU payment services directive. The directive was transposed into domestic legislation by the European Communities (Payment Services) Regulations 2009 and came into effect in November 2009. Any firm that provides payment services, as defined by the legislation, requires authorisation to trade from the Central Bank. Payment services covered include credit transfers, direct debits, standing orders, money remittance, debit and credit card transactions and certain services provided by mobile phones and other digital and information technology devices. The companies subject to regulation by the Central Bank must determine whether they wish to apply for authorisation from the Central Bank or, alternatively, whether they wish to change business model. The payment services regulations set out the respective rights and obligations for the users and providers of payment services. The regulations provided, however, for the granting of certain exemptions which may have caused some confusion in the sector.
I wish to provide the House with some background to the issue highlighted by Deputy Michael McGrath's Bill. Deputies will be aware that the Law Reform Commission's consultation paper, Personal Debt Management and Debt Enforcement, was launched in September 2009. The Law Reform Commission's interim report in May 2010 concluded that money advice undertakings should be subject to a regulatory regime. While the risks associated with debt advice and debt budgeting management firms have come to public attention in the wake of the failure of Home Payments Limited last year, it appears a small number of private firms have been providing these services for some years. Clients of these firms are often more vulnerable than consumers generally and many are struggling and in difficulty. Thus, they need to rely more on third parties to assist them in managing their financial affairs. The Central Bank has conducted research into this sector and has identified three categories of firms.
The first category, debt advice firms, provide advice on legal rights and bankruptcy. They also advise on the best options available to consumers based on their individual circumstances. They do not take payments from consumers although it must be assumed that consumers pay for the advice. The Central Bank has advised that the majority of these firms do not appear to charge for debt advice provided but charge if the individual undertakes a debt management or settlement plan. In such circumstances, these firms would be deemed to be operating as debt advice or debt management firms. Fees and charges appear to generally consist of a lump sum fee of €800 and a monthly fee of €30 or 15% based on the percentage of overall debt. In the case of firms providing debt advice only, the consumer continues to pay the creditors directly. The Central Bank has estimated that there may be in the region of 30 to 40 such firms operating in the State.
The second category covers budgeting firms. These firms provide advice and money management services to consumers. They may also take money from consumers on a monthly basis, sufficient not only to pay bills due but also to cover bills arising in the coming months. Therefore, the amounts of money at risk can be greater than one month's payments. This activity raises concerns since it could be viewed as deposit-taking, as per the definition of banking business in the Central Bank Act 1971. It appears there is a small number, possibly two or three, of such firms operating in the State.
The third category covers debt management firms. These firms provide advice, money management services and debt management services to clients. They assist consumers who are struggling with debt and try to negotiate a more favourable repayment schedule with lenders and creditors etc. These firms take payments from consumers and use the money to pay off the debt owed to various creditors. This activity raises concerns since it could be viewed as deposit taking as per the definition of banking business in the Central Bank Act 1971. The amount paid over by the consumer is the total monthly repayment due to creditors and, therefore, this is the amount at risk to the consumer until the bill is paid. If the monthly amount is not paid, the creditor will be aware of it and will seek the payment from the consumer. It appears there may be approximately 20 such firms operating in the State in this area.
As I stated at the outset, I support the objectives of the Private Members' Bill, which amount to the effective regulation of this sector and the protection of vulnerable consumers. Deputies will be aware that the Central Bank (Supervision and Enforcement) Bill 2011 is currently before the House. Last month, the Government approved the inclusion of provisions for the regulation of debt advice, debt budgeting and debt management firms on Committee Stage. To this end a consultation document was published on the Department of Finance website at the end of April. The document outlines the proposed regulation of the sector and requests observations on the proposals to be submitted by Friday, 25 May. The window for receipt of observations will close on that date. Discussion on the matter is ongoing between the Department and the Central Bank. The Minister for Finance will examine the proposals in the Private Members' Bill and he will ensure its objectives are taken into account in the finalisation of Committee Stage amendments.
The Government has published proposals for legislation to regulate this sector. Part V of the Central Bank Act 1997 will be amended to provide for a regulatory regime for the services of debt management firms and bill payment firms which currently fall outside existing regulatory regimes. This will be achieved by incorporating a new category of regulated business into the existing regulatory framework in Part V, thereby extending the application of provisions of Irish financial services law which apply to regulated financial service providers to debt management and debt advisory firms. This means that existing provisions in Part V of the Central Bank Act 1997 relating to the imposition of conditions and the revocation of authorisations, etc. will apply to the firms in question.
These firms will be subject to the range of Central Bank powers. They will be subject to fitness and probity powers under the Central Bank Reform Act 2010 and to administrative sanctions powers under the Central Bank Act 1942. They will be subject to direction-making powers under the Central Bank (Supervision and Enforcement) Bill 2011 once it is enacted. It is proposed to amend the existing definition of money transmission services in Part V of the Central Bank Act 1997 to cover money transmission services provided by such debt management firms where such money transmission is not covered by any existing regulatory regime. This will ensure it is made clear that where debt management firms provide such services they will fall to be regulated.
The proposed regime will cover those persons or firms which provide debt management services to consumers for remuneration. This includes those who provide advice on budgeting or other similar advice on money management issues to consumers in respect of their financial affairs. It includes those who provide advice to consumers about the discharge of their debts to any creditor. It includes those who negotiate with any creditor or creditors the terms for the discharge of a consumer's debt. Finally, it includes those who take over the consumer's obligations to discharge a debt to any creditors of that consumer.
I assure the House that Deputies will have a further opportunity to debate this issue when the Government brings forward its proposed amendments to the Central Bank Acts, which will take account of the ongoing public consultation. I commend Deputy McGrath on using valuable Private Members' time to highlight this important matter. I assure the House that when enacted, the Government's provision for regulation of this sector will be robust and one in which consumers will have confidence. I assure the House also that the Central Bank will have the necessary powers to ensure compliance. That will be welcomed by all sectors.
I listened carefully to Deputy Cowen's comments about MABS and agree that it is a critical service. The facilitation of MABS for the consumer is important in terms of the huge demand for its services. I support the Deputy's view and will raise it with the Minister, Deputy Noonan.
Deputy Browne made the point that the pillar banks should have an advisory role to advise people who have restructuring requirements and that they would enter into meaningful negotiations with them and give them a sympathetic ear. That is an important service from the point of view of banking and also the MABS service. Those points are well made and I will convey them to the Minister, Deputy Noonan.
I compliment all Deputies on their valuable contributions to which I listened carefully. It is important that we do not lose sight of the consumer. There is immense pressure on a huge number of people but this Bill will be important in that regard. I am certain that once the consultation is concluded the Minister, Deputy Noonan, will be concerned to get the legislation into this House as quickly as possible. That will be made clear tomorrow evening when the debate is concluding.
I thank Deputy Fleming for moving this important Bill. We are very conscious of the need for such a Bill.
I welcome the opportunity to speak on this Private Members' Bill. The Bill seeks to create a new regime for the regulation of debt management, including debt payments. It is a sensible Bill on which I compliment the proposers because it deals with an issue that affects a huge number of people. Being in debt troubles families and creates a great deal of pressure. The use of Private Members' time to introduce this legislation is worthwhile and is something from which we should learn. Both the Opposition and the Government should be commended for doing something so simple.
In early August last year we saw the collapse of Home Payments Ltd. That company helped households to budget and spread out their payments over two different companies. The National Consumer Agency estimated that thousands of people were affected after their household budgeting service ceased to trade. The biggest fear expressed by consumers at the time of the company's collapse was that they would be hit twice by losing their money while still owing their banks and utility providers directly.
What was evident once the company ceased trading was that there was no protection or regulatory framework in place to protect those vulnerable customers who had made the decision to pay into that company weekly or monthly and for it to handle their household bills. Those people were trying their best to meet their debts, as all people do. Along with the Minister of State, Deputy Perry, I support the objectives of the Private Members' Bill which are to provide for effective regulation of this sector and protect its vulnerable customers.
Everybody in this House is aware of the huge number of people who are in financial difficulties. I support the efforts of the Minister, Deputy Noonan, on that issue. He has already brought proposals to Government for regulation of such firms. At the end of April the Minister for Finance issued a consultation document on the proposed Committee Stage amendments to the Central Bank (Supervision and Enforcement) Bill 2011. I understand it is the intention of the Minister, on the conclusion of that consultation stage, to bring forward legislation to regulate those firms. I see no reason the Minister will not ensure the objectives of this Bill are taken into account at this stage.
The Government is already facing up to this problem and has already in place proposals to regulate debt management. I hope the Government will be sensible and listen to the proposals from all sides of the House on this Bill.
It is already proposed to amend the Central Bank Act 1997 to provide for a regulatory regime for the services of debt management and bill payment firms that currently fall outside the existing regulatory framework. That will be done by incorporating a new category of regulated business. I welcome that, as I am sure will the Opposition, as it will ensure budgetary and debt management firms will be subject to the powers to which other institutions are subject in other legislation such as fitness, probity and administrative sanctions and powers by the Central Bank in the various items of legislation.
In these difficult economic times it must be acknowledged that people might be availing of the services provided by these companies now and in the future. It is important to ensure, therefore, that a robust and consumer driven regulatory regime is put in place to protect consumers and that we do not have a repeat of what happened to the customers of Home Payments Ltd.
MABS has provided a huge number of services in the past but in recent years the pressure on the staff in MABS has been enormous. Most public representatives have dealt with MABS. Its staff give a very fine service but it, in turn, must have the support of proper regulation. People can be good at managing their household and rearing their children but some people need help and advice on handling their finances.
When the Minister is considering the regulation I ask him to ensure it contains a section on handling banks. On several occasions I have seen at first hand people who were under huge financial pressure going to financial institutions for help. When people are in a weak position they need that support, and some of that should be built into the regulation to ensure that when they put in an effort they are offered a cut in interest or whatever. That would make it easier for people. If people are given some sort of a break when times are difficult and they are under pressure they can deal with their family finances.
I welcome the opportunity to speak on this Private Members' Bill and thank our colleagues for bringing it forward. They must have read the Official Report of past Dáil debates because I raised this issue almost 12 months ago and was invited by the Taoiseach at that time to make a submission on it. The issue had been brought to my attention in my work with MABS about which many Members have spoken in the debate.
When most people look for information their first port of call is Google but if one "Googles" MABS, unregulated debt management agencies are the ones that pop up first. They also advertise themselves as being State sponsored. Both the Financial Regulator and the Department of Finance have expressed grave concern that those firms can do that. In terms of the way they operate, they ask people to forecast how much they are earning and to come up with an on-line plan as to how they will be able to pay back their debt. People do that because it is anonymous. They feel great shame when they are unable to manage their own finances and they submit their details on-line. That is followed up by a call from an agent from one of these firms and it is only then that a cost is discussed.
I do not have any proof but I have been told anecdotally that many of the people who have reinvented themselves as debt management agents are the very people who got our citizens in this trouble in the first place. They were mortgage brokers in a former life. I do not want to be ageist but how many people of my age who entered the property market in the past ten years were told by a mortgage broker that they could rent out a room or two, which would increase their income on paper and allow them to borrow more than they could actually repay? These same individuals have rebranded themselves as debt management agencies and now charge people for the honour and privilege of using their services.
This debate should be used to inform people that the Money Advice and Budgeting Service, MABS, is the only State sponsored and endorsed organisation for dealing with debt. Not even in their wildest dreams would some have believed it would ever become necessary to negotiate with the MABS, a wonderful and professional organisation which is aware of people's needs and handles cases in a most sensitive manner.
Government measures to deliver on the regulation of the debt management sector are welcome but not before time. I commend the Minister for Finance for including debt management agencies within the scope of the Central Bank (Supervision and Enforcement) Bill 2011 because until now such companies have fallen outside the scope of legislation.
People will often choose the services of a debt management company having seen an advertisement on a website because online interaction affords them anonymity. Help is available, however, not only from the Money Advice and Budgeting Service but also from private banks which offer free debt restructuring services. People should seek help as there is no shame in doing so.
While there is a place for regulated companies of this kind in the case of persons who can afford their services, they do not provide an answer for those who do not have resources. Unscrupulous private debt management agencies are taking advantage of some of the most vulnerable families and young people. I welcome the progress made thus far on this issue and will follow with great interest developments in the coming weeks and months.
I welcome the Minister of State, Deputy John Perry, and the Bill. While I compliment the Deputies opposite on their contributions, lest they believe they can get away scot-free, I remind them that the reason this Private Members' Bill is before the House is the arrogance shown by the Fianna Fáil Party during its14 years in power, the "spend all" mentality it displayed and the lack of regulation, accountability and probity associated with those years. It is an appalling tragedy that we are dealing with the issue of debt. We must bear in mind that the most important person in this scenario is the consumer, each of whom represents a family with a husband, wife and children. Debt is having a profound effect on the quality of life of ordinary citizens. People did not go berserk or mad and must be placed at the centre of our efforts.
Let us reflect for a moment on the issue under discussion, namely, debt management and the impact of debt both psychologically and on relationships. The very fabric of society is being attacked and undermined by debt. At the bottom of this issue is not a cold computer print-out or statistic on a spreadsheet but human lives. For this reason, I welcome the Minister of State's statement that a personal insolvency Bill will be brought before the House.
Just this week in Cork, Bord Gáis cut off people's gas supply for non-payment of bills, while the "Neil Prendeville Show" revealed that a young child was attending school malnourished. No child should be attending school malnourished in 21st century Ireland. No one's gas or electricity supply should be cut off and no house should be repossessed by a bank that we own. One does not need to be a genius to accept that logic. Let us cast aside for a moment the political jerseys we all wear. As civic leaders and individual citizens, we must raise families, run GAA clubs and other sports groups and rebuild the country. It is also imperative that we vote "Yes" in the referendum on 31 May.
While I welcome the introduction of regulation for debt management companies, we must also address the role of the debt adviser, which is, unfortunately, extending. As Deputy Tom Hayes noted, it is important that advice on debt issues is provided for citizens because we must enable people to manage and cope. For the past week callers have been contacting local radio programmes in Cork to discuss how they are unable to manage. I refer to Cork because I come from the city but the problem transcends Cork, as Deputy Barry Cowen is aware.
Deputies meet people in their weekly constituency clinics or while canvassing who are struggling because their discretionary income is being fast eroded. Given the strain debt is imposing on people, the fundamental premise of the Bill is important. I am pleased the Minister recognises the need to address this unregulated business and welcome the contribution of the Minister of State. I look forward to the publication of Government legislation in time. However, as the Minister of State noted, legislation on the regulation of debt advisers cannot be introduced in isolation but must be enacted in conjunction with reform of personal insolvency legislation. The personal insolvency Bill is important because debt management and settlement plans are only one part of the equation.
Utility companies, banks, credit unions and other lending institutions must work with people. They need to appreciate that many citizens are experiencing economic difficulties as a result of personal debt arising in many cases from decisions to purchase property at inflated prices or, in some cases, as a result of extending themselves beyond their means. It is important that forbearance is shown when dealing with those who are making genuine efforts to address their difficulties. The Minister of State who has responsibility for small and medium-sized enterprises encounters many people who are making great efforts to continue in business and maintain and create employment. We must work with such individuals rather than focusing solely on the banks and financial institutions. We must address the circumstances of householders, families and businesses.
Addressing personal indebtedness requires regulation in conjunction with reform of our antiquated personal insolvency legislation. I am heartened, therefore, that the Government is taking action in this regard. It must remain a priority and action must be taken promptly because a rolling stone gathers no moss. The Deputies opposite may not like it, but it is their fault that we are in our current position and that so many have emigrated or are unemployed.
The Fine Gael Party was a cheerleader.
They must never be allowed to forget their legacy. It falls on the Government and the Opposition to ensure we get the country back to work. Some of the Deputies who will speak later talk much but offer little. It is important that we continue the journey.
The Deputy always brings a smile to my face when he speaks. He is continuing with the rhetoric he used in the Seanad.
The Deputy was missing for a long time. He is welcome back. Was he sidelined?
No, as the Deputy is well aware, I was absent for a couple of weeks after my father passed away and I have been involved in the campaign against austerity. While he is correct about the legacy of the Fianna Fáil Party, the Government will leave the same one. Its actions in the past year are the reason people are emigrating. That said, I welcome the opportunity to debate this Bill. We, in this institution, face many problems which appear insurmountable and divisive. Occasionally, however, an issue arises on which we all agree and which should, on the face of it, be simple to fix. The regulation of debt management agencies is one such issue. It is crucial we tackle this now and do not leave it any longer. To do so puts more vulnerable people at risk of agencies which are operating as rogue agencies or are operating ineptly.
In 2009, the Law Reform Commission called for regulation of debt advisers and set out proposals on legislation for the issue. Groups like these have always existed but there is no doubt their number has increased and they have become more prominent in recent years. This is a response to the economic crisis which has seen more people struggling with the cost of living. I heard the Deputy speak of people in his constituency in Cork who are struggling to get by, and I am not sure if he was talking about his Fine Gael colleague, but he will understand that if she is struggling on €96,000 per year, then people who have lost their job and who have seen their disposable income cut by the previous Government and this Government are finding it very difficult to get by, and they have turned to these agencies to manage their debts. The previous Government not only drove most of these people into debt, but also during the 14 years in which they governed, as it watched these agencies increase and prey on vulnerable people, it refused to regulate them.
In 2010, the Department of Finance said it had no plans to regulate the sector, despite receiving submissions on the issue from financial commentators. My own colleague at the time, former Deputy Arthur Morgan, raised the agencies issue on numerous occasions, but to no avail. The money advice and budgeting service warned that debt advisers were making false claims that they could have 75% of debts written off for heavily indebted consumers . In preparing for this debate, I did a Google search of debt management companies and I saw one firm's advert stating: "The Irish Government Insolvency Act Can Wipe Up to 75% Of Your Debt". That is what these agencies are doing on the Internet: preying on vulnerable people. The Minister of State knows as well as I do that no such Act exists. We talk about false advertising, and there it is. It tries to pretend there is some type of magic solution and these agencies will solve all problems.
This issue came to boiling point under the previous Government. It was warned about it in 2009 and in 2010, yet now in 2012 it is bringing forward a proposal on it in opposition. That said, we have to leave aside Fianna Fail's attempt to rewrite history and this Government's foot dragging on the issue, and we must deal with this issue now because it is too important to delay it. The collapse of Home Payments Limited and Dunne & Maxwell, trading as Your Money, highlighted the urgent need for regulation of debt management agencies. These firms sell debt management plans to distressed consumers who are often already in crisis. Since 2009, under the European payment services directive, firms such as these should be regulated and authorised by the Central Bank. However, regulations allow firms to establish whether they should be authorised. Being authorised would undermine the profit model of such agencies which depend on hefty fees deducted from money handled for consumers.
The Consumer Association of Ireland has weighed heavily into the debate, stating it is seriously concerned at the lack of consumer protection. We know there is huge money in the debt management game. The reporting skills of some financial journalists have exposed universally high fees of as much as €750 for an upfront fee and average monthly fees of €50. If that was the only problem, we might be able to deal with it, but the risk of these companies actually shutting up shop and losing people's money has already come to pass in some cases. Dunne & Maxwell disappeared overnight, leaving hundreds of customers not knowing how much they owed to debtors. The Central Bank and the National Consumer Agency have been proactive in seeking to assist these people by asking their creditors to deal with them sympathetically, but that is not enough. Prevention is better than cure.
The people who were victims of Dunne & Maxwell should have been aware the director of the company previously had his credit licence revoked in Britain because he had undisclosed convictions. The customers with the company were not aware anything was wrong until the Central Bank wrote to them and warned them about lodging their money with the company. It emerged afterwards that the director of Dunne & Maxwell had his licence for a previous debt management company investigated and revoked by the British Office of Fair Trading as far back as 2005. Having had his licence revoked in Britain, this man could move his business interests legitimately to Ireland and suck people into trusting his company, and there was no one from the State to protect the ordinary people. The Home Payments collapse left 2,300 customers owed more than €6 million. I know of one constituency case where a woman lost €2,000 to the company. This woman was doing her best to manage her debts in straitened times and this was a heavy blow. The company collapsed last year, but the woman only received a letter last week from the liquidators asking her to account for how much she had with the company. In the interim, she has had to deal with a range of outstanding bills she thought were being taken care of, but from an even worse financial position this time.
These human stories make the headlines when the event happens, but afterwards, the people involved are left to their own devices. They are left with the aftermath and very little is done to help them. It must have particularly stung the customers with Dunne & Maxwell that such a thing could also happen to them after the experience of Home Payments. There is nothing to say it cannot happen again. A customer of Dunne & Maxwell told the newspapers she had paid in excess of €1,000 to the company a few years ago to pay a loan on her behalf, but was contacted four months later by debt collectors for the lender to say no money had been received, meaning she was even deeper in arrears.
Many customers of these two companies not only lost money on deposit but also found out the agencies had not been paying their bills for months. The experience in Britain has been these companies offer poor advice, do not offer solutions in the best interests of the consumer, and instead offer advice which is the most profitable to the agency. The fees are consistently high, with the agencies' fees front-loaded and the customers' creditors not receiving any bill repayments until at least after the first two months, while the agencies are engaged in cross-selling both debt management and loans. It should not have been rocket science for us in this State to look at what was happening across the water and to legislate to protect our own citizens from these agencies. The Law Reform Commission has all the work done on legislation, a fact acknowledged even by the Central Bank. There is, therefore, no need for the Government to stall on the issue. Sinn Féin will engage constructively on any Bill that will put it on the agenda. We support the Bill before the House.
Furthermore, we want the Government to start taking the issue of personal debt as seriously as it is taking the issue of bank debt. Since it took office, it has put €24 billion of the people's money into the banks. Meanwhile, there are over 100,000 households in mortgage distress. We have people struggling with credit card bills and turning to moneylenders to make ends meet. These moneylenders can legally charge interest rates of up to 188% per annum. I questioned the Minister for Finance time and again on this issue, but he is doing nothing about it. The biggest initiative taken in the last year was to ask moneylenders to tell customers the loan to which they were signing up, at 188%, was a high interest loan. This is wrong. The system has to change.
The reason people are accessing moneylenders and debt management agencies cannot be ignored. Over the course of four years we have had five austerity budgets which have severely impacted on the living standards of ordinary people and a large section of society. I cannot say every section of society because not everyone has been impacted on. We know certain people at the upper echelons have been protected. We have seen social welfare cuts, increased taxes lessening take home pay and growing bills. The Government plans more of the same type of austerity measures for the next three years and, let us be honest, if the treaty is passed on 31 May, for a number of following years.
Sinn Féin agrees there is a need for deficit reduction, but there is a way of doing this. One can, as the Government and its predecessor believe, cut and tax the lowest paid, or one can, alternatively, introduce a fair tax system, eliminate spending waste and, more important, invest in job creation to get people off the dole and back paying into the Exchequer.
For years we have been warning that the Government's approach is not only harming the economy but also forcing people into debt. The social consequences are something we do not talk about enough. We talk about figures and how the State's books will look at the end of the day, but the social consequences of this policy are atrocious. Earlier this morning my party leader spoke about the number of people who were emigrating every day. Yesterday I asked the lady who works in my office about her weekend. She said she had been to a going-away party. Three people from her parish left yesterday to go to Australia. I spoke to someone else in the neighbouring parish who told me six people had left yesterday. I spoke to a young lad in my office to gain work experience. He plays in a band and says he is flat out as a result of playing at going-away parties. Everyone is going to Australia. These are the social consequences of what is happening.
We have heard about the austerity treaty and why we should support it. The parties which are now cheerleaders for it are the same one which ensured the debt was placed on the people. Fianna Fáil, Fine Gael and the Labour Party have all supported austerity policies, and the debt management agencies about which we are talking are the outplaying of their political choices.
The strain people are under is evident in every county in the State and it is essential that the Government does what it can to reduce it and assist people to get help. As a first step, we must ensure the Money Advice and Budgeting Service has sufficient resources to be the first point of call for people struggling to meet debts in order that they do not fall victim to moneylenders or fraudulent debt management agencies. I support the contents of the Bill and appeal to the Government to deal with this problem now. Let us not have more headlines in the newspapers about people who were caught out and lost their savings. This measure is long overdue. I commend the Bill to the House.
I am delighted to be able to speak to the Bill brought forward by my namesake, Deputy Michael McGrath. I commend him, as I commend anyone who makes a reasonable effort to lessen the savage impact bank lending and lending of all forms have had on the nation, the people and families. This lending is continuing unabated.
The Bill is an effort to regulate those who have set up as money advisers, of whom there are hundreds. There are all kinds of experts. However, if we check their credentials, we find they do not have many. Of those who do, we ask where they were during the boom. They were the ones who advertised that anyone who could not get a mortgage should come to them. They massaged figures and presented repayment structures to encourage people to borrow more money than they could repay and more than they wanted or needed. Having received bonuses on the big loans they forced people to take out, they are now back as money advisers. Deceit and fraud are widespread and we are allowing them to go unregulated. The Minister of State, Deputy John Perry, is a business man and knows about bankers and lending. He has been in office for one year and two months and had the opportunity, with his Government colleagues, to do something about this problem, but he has not done anything.
We are completely preoccupied with paying off the unsecured debts of failed banks which robbed the people. Bank robbers used to be outside the banks, but they were working inside during the boom years. They robbed from within and put their hands in my pockets and those of everyone else. We are now being forced to pay the unsecured debt, but there is no support for ordinary Seán Citizen and his wife and family who are struggling with their debts to rogue banks and cowboy operators. In the last number of budgets one austerity measure after another was imposed, for what? It was to pay back the unsecured loans of bankers and gangsters who had left our shores and gone abroad where they had wealth. Even when they face the courts, they will still have their wealth.
I do not know what kind of democracy this country is or what the people think of us, but morale is low among the people. It behoves every Member of the Oireachtas to deal with this problem. People with shady pasts who had had their licences revoked elsewhere came to our shores and set up as lenders and advisers. Small business people face a plethora of legislation and regulations. This morning, at the meeting of the British-Irish Parliamentary Assembly, we heard from companies about nonsensical regulatory legislation in the European Union and the British Isles, but there is no legislation to deal with the cowboys and multimillionaire bankers who robbed the State or the smarmy brokers who said, "I can get you a mortgage, with a new SUV and a foreign holiday included in the package." These brokers received their commission, of course. They escaped unscathed, while ordinary people are hurting and a number have committed suicide. Ordinary, decent, law-abiding people who wanted to pay their way and were doing so were caught in the trap set by predators who went from door to door and advertised easy mortgages. Lack of regulation allowed the cowboys to move in and they are still there. I often wonder if the lunatics are in charge of the asylum. No one wanted to deal with this problem and no one has dealt with it.
Debate adjourned.
The Dáil adjourned at 9 p.m. until 2.30 p.m. on Wednesday, 16 May 2012.