Amendment No. 1 has been ruled out of order.
Consumer Protection (Regulation of Credit Servicing Firms) Bill 2015: Report and Final Stages
Amendment No. 1 not moved.
Amendments Nos. 2, 4 and 5 are related and will be discussed together.
I move amendment No. 2:
In page 4, line 18, after “restructuring” to insert “where the credit agreement is in financial difficulty”.
We had a discussion on this and several other amendments tabled by Fianna Fáil on Committee Stage. There is merit in the Bill in so far as it goes and nobody disagrees with the contents of the Bill. The main thrust of our amendments was to extend its provisions further and to include some items that should have been included. We discussed our various amendments at length on Committee Stage so I will not repeat what is already on the Dáil record. When the Minister of State at the Department of Finance, Deputy Harris, was summing up on Committee Stage he argued that this Bill was a first step and that if some of the issues I had raised needed to be dealt with, that would be done on another day. He agreed that those issues could be looked at down the road but said that it was important to get this legislation through the Houses as quickly as possible, notwithstanding the shortcomings I highlighted on Committee Stage.
We have not tabled all of the amendments that we discussed on Committee Stage again, even though some of the discussion on them was not concluded to our satisfaction. We have submitted just a couple of amendments on Report Stage, one of which is amendment No. 2. This follows on from the Committee Stage debate and seeks to insert "where the credit agreement is in financial difficulty". Amendment No. 4, in the name of Deputy Naughten, is related, as is amendment No. 5 in the name of my party colleague, Deputy Michael McGrath. The essence of this Bill is to protect mortgage holders and that point cannot be over-stressed. However, an issue arises where loan books are being sold off which include loans to the small and medium business sector. The Minister knows that this is an issue which needs to be addressed although he may argue that he cannot do so with this legislation. I believe it is the perfect vehicle for so doing but if the Minister is not agreeable to doing it here today, he might agree to addressing it separately at a future date.
An issue arises where an investment organisation similar to Goldman Sachs buys a loan book from one of the banks to which we have been referring. We have discussed the issue of mortgage books in some depth but I am referring now to loan books with performing loans belonging to the small and medium business sector. Some vulture funds can come into the market and actually trigger a default. We have seen high profile court cases dealing with this issue and some of the biggest clients in NAMA have taken the agency to court in this regard. There have been various discussions and court rulings on the matter. The essential issue is that under the terms of many loan agreements the loan provider can call in the loan within 14, seven or even one day's notice. I have criticised anyone who ever signed up to such a loan but people were told that such terms were standard and would never be invoked. However, that power is being invoked.
There are many cases of vulture funds coming into the market, examining the underlying asset value of loans and calling in the loan in order to seize the assets. They are not here to finance the business that is trading and using those assets. Vulture funds do this even where loans are performing. They have the ability, under the loan agreements, to trigger a mechanism demanding that the loan be paid in full in 24 hours or seven days. Obviously companies which may be performing in terms of paying their loans and trading profitably do not have the ability to clear the loan at such short notice. That puts small and medium businesses in Ireland at an enormous disadvantage. The bigger companies can fight their corner and might have the resources to mount a challenge in court. Indeed, some cases have been taken to court, especially in the NAMA context.
Will the Minister accept the principle of this amendment? It covers mortgages, where such mortgages are performing and the credit agreement is not in financial difficulty. The issue is that a default can be manufactured when investors take an aggressive approach to the loan in an effort to seize the underlying assets, regardless of the consequences. Many of these investment companies are not based in this State. While they are operating here, they are not regulated to the extent that they should be and that can have a detrimental effect on many businesses and mortgage holders. I ask the Minister to take that into account and I look forward to his response.
I support Deputy Fleming's comments on amendments Nos. 2 and 5 in the name of his party colleague, Deputy Michael McGrath. The objective of amendments Nos. 2, 4 and 5 is to broaden the application of this Bill. The economy is improving at the moment and dramatically so in Dublin, but one of the downsides of that is the fact that capital assets, including commercial property and family homes, are increasing dramatically in price. As they increase in price, the holders of the loans against those properties are in a position to cash in. The banks are in this economy for the long term. If a loan is performing or can perform in the future and the banks can, in the longer term, be repaid, they will probably stick with it. The difficulty with vulture funds is that when they can see that there is a quick buck to be made, they will grab it. That is the enormous downside of the improving economy, particularly the improving price of property.
The greatest fear for people in this country is that they will lose their family home and they will do everything and anything to retain it. As the Minister knows, the latest figures show that four family homes are being repossessed in this country every day. Homes are being sold off to investors for less, in many cases, than people could afford to pay if they were given reasonable solutions to their financial difficulties. Home owners are ending up out on the street, dependent on their local authorities which have overflowing housing waiting lists.
I am disappointed that amendments Nos. 1 and 8 were ruled out of order. I tabled those amendments specifically to deal with vulture funds. One can reasonably deal with most of lending institutions in this country, with only one or two exceptions. I am dealing with a case at the moment involving a widow whose husband died only a few weeks ago. Her family home is under threat because a business went to the wall due to her husband's ill health. She has two school-going children. Her mortgage was taken out with a company that operated in this jurisdiction but that company sold on the loan to a vulture fund. That vulture fund is going to put that woman out on the street. If her mortgage was with any of the major banks in this country, a deal would be done to ensure that she could remain in her own home. However, because we are talking about a vulture fund, we do not have the same level of leverage. That fund is only looking at the bottom line, at the quick buck it can make and at turning around that portfolio as quickly as possible.
On Committee Stage, Deputy Tóibín gave the example of a constituent who had offered 30 cent in the euro for a loan and yet it was sold off by a bank for 15 cent in the euro to a vulture fund. Once that property increases in price to the equivalent of 20 cent in the euro, the property will be sold and the vulture fund will make a profit, but that family will turfed out on the street.
I tabled the amendment to ensure families cannot be put out on the street without having adequate provision for accommodation. We are in a very serious housing crisis that will not be solved easily and the Government alone cannot solve it. The worst thing we could do would be to put fuel on that fire by putting people out on the road and leaving them homeless. Housing lists are increasing daily. It is not a question of whether someone can afford private rented accommodation; it just cannot be got at any price at the moment.
It is encouraging vulture funds to sell these properties. Investors see an opportunity for them to rent that property out. It is a seller's market at the moment. Families are being put out on the street when their homes are bought by an investor. It is put on the rental market at €200 or €250 a month in excess of the rent allowance cap, meaning that the family cannot afford to rent that house and they have no short-term accommodation. We need to put a safety net in place, particularly when it comes to these vulture funds and credit companies outside the jurisdiction that are not operating here on a day-to-day basis. They are not concerned about brand reputation and are only concerned about turning that money around.
I urge the Minister to consider my amendment No. 8, if not in this legislation then in forthcoming legislation, to ensure the courts have the power to refuse repossession of a family home where the family does not have the resources available to access the private rental sector or where the family cannot get access to local authority housing. The vast majority of families at the moment are throwing in the towel. They are not going to court to contest the repossessions. The lack of engagement with the lending institutions before they get as far as court means there is no point trying to make a case. If this provision were put into legislation to allow the safety net that a repossession could not proceed without consideration being given to the family's housing situation, it would be an additional tool in helping to support families in a housing crisis.
When responding, will the Minister clarify a matter I raised in the House last week regarding IBRC? At present IBRC is not honouring bonds taken out by developers for the completion of housing estates. A number of housing estates throughout the country have been left half-completed-----
I ask the Deputy to bring his contribution to a conclusion.
-----some of them in an unsafe situation. Will the Minister engage with the receivers to ensure those bonds are upheld in order that the resources are given to the local authorities to complete those estates?
I wish to speak to amendments Nos. 2 and 5. The purpose of these amendments is to highlight the serious situation involving private equity interests that purchase loans sold by Irish banks.
I have met a range of company owners, some of whom have had the ability to go to court and win their case, but most do not have that ability. They have described in detail the position their successful businesses were put in after loans with Irish-based and headquartered banks were sold to private equity funds, one backed by Goldman Sachs, but this would not be unique to that organisation.
I wish to quote from correspondence from one firm outlining its experience with a private equity fund:
It has become increasingly apparent that the acquisition of our loan was not done with a view to honouring the facility agreements, but instead with a view - we believe - to enforcing security in respect of our loan, so that the asset itself will become available to the private equity acquirers of our loan. A 'loan to own' strategy.
The purchaser of the loan insisted on a consultant attending board meetings, sought to have an outside consultant appointed at a cost to the company to review the business and engaged in a very aggressive manner in its communications with the business. This is line with what was reported by Tomlinson when he investigated similar practices involving RBS in the UK. His report stated:
1. The bank artificially distresses an otherwise viable business and through their actions puts them on a journey towards administration, receivership and liquidation.
2. Once transferred into the business support division of the bank the business is not supported in a manner consistent with good turnaround practice and this has a catalytic effect on the business’ journey to insolvency.
This has an impact on employment and on SMEs. At the moment, Ulster Bank is involved in an aggressive sale of its loan portfolio, especially of small loans to outside capital companies. These are small companies employing ten, 20 or 30 people with no protection. It is no wonder we are such a target for these US investment funds when there is no protection for the people whose loans they are buying. We need to ensure we have the maximum protection available. It is all very fine for those with the ability and resources to go to the High Court to defend their right. They should not have to in any event. However, most companies do not have that ability and those companies that have the ability want to spend that money on something far more productive that might expand their business and increase employment. At the moment we are forcing them to go the High Court.
I appeal to the Minister to look at the amendment or give some indication that the Government is working on giving protection for those loans that are being sold down the Swanee. We have spoken about the extension of the credit guarantee scheme to allow for this, but that seems to be parked up. Therefore, we are looking for legislative protection to protect business people and, more importantly, their employees.
I mentioned this the last day and an Teachta Naughten referred to it. There are examples of firms that are doing their best to function and provide a service, employing workers in a fair and decent manner. If given an opportunity, they would trade out of the difficulties they are in.
On Committee Stage I gave the Minister the example of a firm in County Meath that is seeking to negotiate a fair resolution of its debt. However, that debt has been sold to a company that was not even registered on the day the sale took place which adds further complication. It is alleged that the staff of the particular company, the new company, are former members of the original company and yet the details cannot be found. The names are opaque and it is murky. We are told the debt ended up being sold at a discount to even what the business owner was trying to negotiate. The view would be that a liquidation process would commence and the assets would be sold off.
Here we have the dismantling of a functioning business for the purpose of firms selling off the constituent aspects of the business as scrap.
Ideally, the State should orientate all of its laws to ensure we have functioning, productive businesses that add significantly to the State. If this is happening to the particular gentleman in County Meath, there is no doubt that it is also happening to people in other counties. Given that most of the damage done to the State is the result of the murky opaque nature of relationships in the past, I cannot understand why any Minister for Finance would not want to make the system as clear as crystal in order that everybody would know exactly who was operating where and what the process being undertaken was. I ask the Minister to take this into consideration when dealing with these issues.
Also, one in six mortgage holders in my county-----
As the Deputy's time has expired and much of what he is saying is relevant to amendment No. 8 which has been ruled out of order, I must ask him to conclude.
Okay.
I thank Deputies Michael McGrath and Denis Naughten for tabling thee amendments and all of the Deputies who have contributed to the debate thus far.
On amendment No. 2, I understand the Deputy's intention is to impose regulation on firms which take an active role in managing their relationships with borrowers, even when a borrower is not in financial difficulty. However, I am glad to be able to inform him that the amendment is unnecessary because the definition of credit servicing is broad enough to capture what is proposed. What we all want to do is strengthen protection for consumers whose loans are with unregulated entities by restoring them to the position they were in before the loans were sold.
We have been careful to ensure clarity in the Bill on what is and is not credit servicing. There is a specific set of activities outlined in the Bill which, if performed, are considered to be credit servicing. If a firm is carrying out any one or all of these activities on behalf of an unregulated owner, it must be authorised as a credit servicing firm. The definition of credit servicing is deliberately broad and means "managing or administering the credit agreement". It includes a non-exhaustive list of specific actions which are credit servicing, one of which is managing or administering any alternative arrangement for repayment or other restructuring. In addition, owners of loan books who deal directly with relevant borrowers, namely, those servicing their own loan books, will be regulated. Otherwise, they can have the loan book serviced by a regulated credit servicing firm. A situation could also arise where an owner appoints a regulated credit servicer but is also actively involved in managing or administering the loan and, therefore, needs to be authorised. The transfer of a loan from one entity to another does not change the terms of the contract and the borrower's rights and obligations under the contract cannot be changed without agreement. Enforcement of security on a loan is subject to the conditions of the contract and can only happen in accordance with it. The sale of the loan book does not impact on this.
On page 4, lines 17 and 18, of the Bill credit servicing is specified as any alternative arrangement for repayment or other restructuring. What the Deputy is suggesting is that this be limited to situations where a credit agreement was in financial difficulty. If the proposed amendment were to be accepted, it would restrict the action of managing or administering any alternative arrangement for repayment or other restructuring to those restructuring arrangements which resulted from financial difficulties. This would have the unintended consequence of managing or administering any alternative arrangement for repayment or other restructuring in respect of an agreement that was not in financial difficulties not being included in the definition. Therefore, it could be argued that this activity was not credit servicing and did not need to be authorised because it was not a regulated activity. That would weaken the position of the borrower. We want to ensure borrowers, whether in financial difficulty, retain their current protections. The Bill, as drafted, provides for this. I am unable to accept the amendment because it would not strengthen the position of the borrower, as appears to be the intention.
Similar arguments apply to amendment No. 5. Enforcement only arises where a lender goes to court for failure to comply with the terms of a credit agreement. As I have said, the transfer of a loan from one entity to another does not change the terms of the contract and the borrower's rights and obligations under it cannot be changed without the agreement of both sides. We have deliberately left only a limited number of actions which an owner can perform without requiring authorisation. These can only be performed if they would not amount to a prescribed contravention if performed by a regulated entity.
We have also strengthened the protections for borrowers by way of inclusion of the new statutory obligation in section 5 which prevents an owner from instructing a credit servicing firm to do anything that would be a prescribed contravention and also prevents the credit servicing firm from carrying out such an instruction. Essentially, we have cornered owners on this issue in that they must be regulated or appoint a regulated credit servicing firm to service their loans. On this basis, I am unable to accept the amendments.
I understand the Minister's point about the impact of what is proposed in a situation where a credit agreement is not in financial difficulty but is restructured for business development purposes. However, the point I made was related specifically to the original loan agreement. I am aware that it is not possible to vary a loan agreement without agreement. Often, despite the fact that people have read the conditions outlined in the small print, they will have missed the point that a loan can be recalled at short notice, which is regularly the case. Most people, to their detriment, sign agreements in the belief that while this is standard banking practice, once they meet the conditions of their loan this punitive provision will not be implemented. In the normal course of events it will not be implemented and banks are happy to have loans repaid in the normal way taking into account the fact that if they get a bad name, they will not get new customers.
My concern is that, notwithstanding the conditions attached to the original loan, some of the vulture funds acquiring these loans books are doing so in order to take ownership of assets. In many situations, because loans are being written down by a figure of 50% to 70%, the asset value is greater than the discounted value of the loan. These vulture funds have no interest in the loan being repaid. All they are interested in is seizing the assets as quickly as they can, which they may be entitled to do by law under the original agreement, resulting in the closure of the business. This is an unsatisfactory consequence of the sale of loan books to people who have no vested long-term interest in the economy.
The Minister might come back to me at some stage on the IBRC issue.
On amendment No. 4, the fundamental difference between a vulture fund and a bank or other credit institution operating in Ireland is that the latter is here for the long term, bearing in mind the need to maintain brand reputation. In the case of a vulture fund, as soon as house prices increase, as is the case, a bubble is created in the market, thereby providing a financial incentive for it to cash in and put people out on the street. The purpose of my amendments is to put in place an additional safety net to ensure that, as part of the repossession process, families would not be faced with homelessness or having to secure temporary accommodation. It is important it be stated in law that where a family home is to be repossessed, a court must give due consideration to whether the family has the financial resources required to find private rented accommodation in what is a very challenging market or an assurance from a local authority that it can provide them with accommodation.
This additional tool would be beneficial towards ensuring that vulture funds, in particular, do not put the squeeze on families, repossess their property, sell it off to an investor and cash in and get out of the country. It would ensure there would be consideration for the long-term impact they have on the particular family and the economy as a whole.
I thank the Deputies for their contributions. Going back to first principles, the purpose of the Bill when it becomes law is to ensure that if loan books are sold from a regulated entity to a non-regulated entity that we extend the regulation mandate to the non-regulated purchaser. The Bill fulfils that purpose.
Some issues have arisen in regard to the Bill. One is the belief among many people that the new owner of the loan book can vary the terms of the contract. The new owners cannot do that. When they buy the loan book, they must comply with the terms of the original contract and there is no variation on that. In regard to the question on bonds, when bonds fell, insolvent companies were not able to finish estates and contracts because the bond was not available. Now, the liquidator is working his way through the assets and it appears quite clear that he will be in surplus once he deals with all the creditors. When he has worked through, there will be a residue of creditors such as local authorities. Therefore, it is the local authorities that will be at a loss where the bond lapses. However, it appears now there will be sufficient moneys to repay the local authorities if they are an unsecured creditor, because the funds available now are sufficient to cover unsecured creditors. The same will apply, for example, to credit unions which invested. Some 14 or 15 credit unions invested moneys and they are unsecured creditors. It appears now they will get their money back, but it is up to the liquidator to work his way through the process.
The ideas in the Deputy's amendment do not really run from the Bill. They are certainly a subject for debate, but they do not constitute an amendment for this Bill. Perhaps they should be included in a Private Members' Bill or some such mechanism.
I was trying to flush out the Minister's view on them.
There are some interesting ideas there.
Amendment put and declared lost.
I move amendment No. 3:
In page 5, line 9, to delete “to which credit has been provided” and substitute the following:
“but only to the extent that the credit granted to it under the credit agreement concerned was provided”.
The aim of this part of the Bill is to ensure that SMEs which have borrowed from regulated firms maintain the protection they had. It was never the intention to capture SMEs which borrowed from legitimately unregulated firms. These firms are an important source of funding for SMEs and we do not wish to restrict the flow of funds to SMEs in any way. Therefore, this amendment is largely technical in nature and serves to ensure the definition of the SME credit covered by this Bill is as intended. This is done by amending the definition of relevant borrower to restrict it to credit provided by a regulated financial service provider.
This amendment restricts the definition to ensure that where credit has been granted to an SME by a number of providers, both regulated and unregulated, it is only the credit that was originally provided by an authorised or regulated financial service provider that is covered by this Bill. The amendment is intended to ensure that SME credit which is sold by regulated entities is protected without impacting on other SME credit. Therefore, the amendment ensures that SMEs will continue to enjoy the protections they currently have when they borrow from regulated lenders, for example, the code of conduct for business lending to small and medium enterprises, but we are not extending the remit.
Amendment agreed to.
Amendments Nos. 4 and 5 not moved.
I move amendment No. 6:
In page 6, between lines 10 and 11, to insert the following:
“(2) Section 33A of the Central Bank Act 1997 is amended by inserting the following subsection after subsection (5):
“(6) The Bank shall also impose, on a debt management firm and or a credit servicing firm, a condition that a customer shall, within 30 days of his or her credit agreement being sold be—
(a) advised of the terms on which his or her credit agreement was sold,
(b) advised on any material change to the terms under which the credit agreement is serviced,
(c) advised whether the loan was sold at a discount, and
(d) provided with details of his or her rights under—
(i) the Code of Conduct on Mortgage Arrears 2013, and
(ii) the Financial Services Ombudsman.”.”.
This amendment arises from Committee Stage debate and concerns the provision of information. We suggest that when a loan is being managed by a credit servicing organisation, the bank shall also impose on the debt management firm or credit servicing firm, a number of conditions to be fulfilled within 30 days of their appointment advising them to advise the customer of the terms on which his or her credit agreement was sold and advising of any material change to the terms under which the credit agreement is serviced.
The Minister will probably say there cannot be changes to the agreement as the original loan had been sold. Therefore, perhaps subsection (b) may not apply - material change to the terms under which the credit agreement is serviced. The customer should be advised whether the loan was sold at a discount and provided with details of his or her rights under the Code of Conduct on Mortgage Arrears 2013 and on the responsibilities of the Financial Services Ombudsman.
The essence of this amendment is that if a person's loan is being sold on, that person is entitled to know whether it was sold at a discount. For example, take the case of somebody who borrowed €1 million from a bank and that loan was sold off, although the customer had been prepared to pay a discounted rate for it but that was rejected. The banks, through laziness - they should not be facilitated for laziness - bundles a group of loans and sells a package of 50 or so loans at a discount of 80%, despite the fact some of those loans will perform better and some worse than that. Rather than work through the agreements individually, the banks sell them off as a bundle so that they do not have to bother working through the details, having earned interest on the loans up to the time of their sale.
If a person's loan is being sold, he or she is entitled to know that. If I had a mortgage of €300,000 on a house and was in financial difficulty and my loan was sold off as part of a bundle, with a 50% discount given on it to the person taking over the new agreement, while I was willing to pay 80%, I should be entitled to know that. People are entitled to know whether their loans are sold at a discount. We must get back to basics on this. While there is some merit in this legislation, it does not go far enough. I believe that when a bundle of loans is being sold off, the borrowers should be notified in advance it is intended to sell the bundle including their loan and they should be entitled to submit an offer to buy their loan at a discount. Ultimately, the Irish taxpayers will benefit if distressed borrowers are willing to remortgage and buy their loans at 80% or 90% and have some of the arrears written off. That option should be available to them, rather than the loan book being sold over their heads.
I know the Minister will say it was always part of the original agreement that loan books could be sold off, but I believe that because of the impact the financial crisis has had on society, people should be informed of the sale value of their loan. If the bank is willing to accept a 50% write-down on a loan by selling it off to a third party, why would it not go at least some way towards dealing with the borrower who lives in the house? That would be the sensible route. I believe everybody would agree with this solution and see nothing wrong with the principle. This might cause some work for the banks. Perhaps they should be forced to do some work and to disaggregate some of these bundles.
They are just taking the lazy approach. One of the problems we have had coming out of the recession is that some of the banks did not do their job when they gave out the loans initially, but they should be forced to do their job when it comes to dealing with the difficult loans they gave out in the first place. Facilitating them by allowing them to bundle 500, 1,000 or 10,000 mortgages in one big lazy bundle is a reward for the banks for laziness. I have a fundamental problem with that.
People are entitled to know if their mortgage has been sold at a discount and they should be given to first option to buy it. That is the essence of the amendment. Even if people are not given the option, they should be told their loan has been sold and what the discount was because it puts them in a strong position. When the company comes back to a person to enforce repayment of a €300,000 mortgage, or whatever is the nominal value of the mortgage, he or she will be in a strong position to say the bank has paid only €150,000 for it and that is an acceptance that it is the fair value of the mortgage, which puts the borrower in a much stronger negotiating position. As we come out of the recession we do not want to further weaken the bargaining position of borrowers who might be able to make a better contribution than the discounted value of the loan, which would ultimately be to the benefit of the taxpayer. Everyone would agree with such a principle. It would be a pity to take such an approach. It is one of the shortcomings of the legislation that it did not take that into account.
Aontaím go huile agus go hiomlán leis an leasú seo. Why should a home owner or business person not know everything about the loan that pertains to their property? Given modern technology, there is nothing to stop the bank from barcoding and individualising loans to ascertain the details and to manage the loan and disaggregate it for management purposes.
I have dealt in my office with approximately 150 distressed mortgages in the past two to three years. At least 50 of the cases involved difficulties created by the lack of effort by the banks in dealing with citizens. The citizen should be at the heart of the process. Unfortunately, the way the Bill has developed ensures the citizen is not at the heart of the process, it is the bank, financial institution or vulture funds.
I appreciate the aim of Deputy McGrath’s amendment is to ensure the consumer is correctly informed and protected, but I am not accepting the amendment because the consumer is already sufficiently protected under the terms of the Bill. Essentially, the amendment seeks to impose obligations on credit servicing and other terms in relation to credit which is sold. The first set of obligations concern commercial information on the deal to sell the credit, that is, the terms on which it was sold and whether the loans were sold at a discount. However, the terms of the individual’s contract with the lender are not changed by the sale of the loan. It is therefore difficult to see any benefit in making this information known to the borrower, as it essentially concerns the contract of sale between the two private entities. The terms of the contract do not impact the borrower’s contract with the person who owns the mortgage and so their obligations under such a contract remain the same. For example, even if the overall loan book is sold at a discount, the amount owed by the individual borrower is not changed nor are the other terms and conditions governing the loan.
It is also worth remembering that usually the loans are bundled for sale at an aggregate price and individual loans are not separately priced, making it difficult for the customer to be advised of the exact terms or price under which his or her loan was sold. The bundles are often made up of non-performing loans as well as performing loans, so the overall price of sale takes into account such factors. In any event, the price at which a loan is sold does not change the circumstances of the borrower because the amount they owe on the loan, which is of course the bottom line, remains the same, and it is not affected by the sale.
The second set of obligations mentioned in the amendment concern a borrower’s rights under the code of conduct on mortgage arrears and access to the Financial Services Ombudsman. Following the enactment of the Bill, the rights of a borrower under the code of conduct on mortgage arrears and the right of access to the Financial Services Ombudsman will be the exact same as when the loan was with the originating bank and are not changed by the sale of the loan book. Therefore, I do not consider it necessary that the borrower be given an additional reminder of their rights in light of the fact that they have not changed. In fact, such a reminder may serve to frighten the borrower into assuming their circumstances have changed when the rights they had before their loan books were sold remain the same after the sale is completed.
The Minister’s answer confirms my original allegation that we are rewarding banks for being lazy. The Minister said it would be difficult to disaggregate loans as they are sold as a bundle. Let us put a bit of difficulty on the banks. They are paid well enough and they should be able to do a difficult job. If the essence of what the Department of Finance says is that it would not want ever to do anything that would make life difficult for a bank, then we have lost the plot entirely. We should do everything possible to assist the banks in helping the economy but we should assist them to help the public as well.
I accept loans are sold as a bundle but the people who are buying them will look at the loan book and take an estimate of how many are non-performing and where they will get very little. They will look at the loans that are performing very well and they will come in with an aggregate price. Even though the loans are not individually priced, the people who are buying them and selling them have worked out some rule of thumb as to what each of the individual loans are worth because they are not buying them just in the hope that they will make a profit. Let us put a bit of difficulty on the banks. Let us force them to disaggregate loans into much smaller groups and give individuals the opportunity to bid. The banks should put the loans out for open tender and not just as one job lot and let people make an offer. If the offer is not acceptable, at least people have been given the opportunity.
I contrast the treatment with the way NAMA has been treated. When it bought a loan at a discount, for example, in the case of a loan sold to NAMA for €35 million, it would boast forever and a day if it got €40 million for the loan and made a profit. NAMA does not go after the full original value of a loan. It is happy if it gets above the discounted value it paid for it, and it brags that it made a profit. The same principle should apply to mortgage loans. Let us make life a little bit difficult for the banks when it comes to dealing with customers because they are the ones who pay and they are entitled to be treated as individuals, not as a job lot.
Amendment put and declared lost.
I move amendment No. 7:
In page 7, between lines 13 and 14, to insert the following:
“(3) A person who carries on the business of credit servicing exclusively for an already regulated financial service provider shall be required to be regulated under this Act.”.
I discussed the issue at length on Committee Stage so we will not go through all the points again. Essentially, we wish to include in the Bill reference to: “A person who carries on the business of credit servicing exclusively for an already regulated financial service provider shall be required to be regulated under this Act.”
On Committee Stage the view of the Minister was that either the owner of the loan or the financial service provider is regulated. However, there should be no reason both could not be regulated. The owner of the loan and the person to whom I refer as the local agent - the person who engages with the individual borrower – should also be regulated. I made the point on Second Stage that I am concerned that it would suit some banks or regulated Irish financial institutions to sell a bundle of troublesome loans and make an exclusive deal with a financial service provider to manage a particular set of loans. I refer to situations where a bank would sell 1,000 or 2,000 troublesome loans. The Minister's position is that because the bank is regulated and it has an exclusive deal with one company whose sole purpose is to service the loans and deal with the customers, the service provider does not require to be regulated because the original owner of the loan is regulated. It is essential that while the owner of a loan should be regulated, in all circumstances the person responsible for the provision of financial services should also be regulated specifically in those areas.
There is a lacuna in the legislation whereby this particular group of financial services providers are being let of the hook of regulation because they have an exclusive agreement with the original loan provider. This lacuna should be closed off.
Human nature and business being what they are, people in business often have an incentive to use the system to their own benefit and to ensure gaps that arise can be used to reduce costs or improve profit. It is human nature and how business works. This is why it is important the Government ensure such gaps do not exist. Decent, fair regulation is a good thing. The absence of decent regulation has been the cause of many of the woes we have experienced in this generation during the lost decade that has just passed. What is the difficulty with ensuring all players are properly regulated? What would the exact cost be? On the other side of the fence, business people often say over-regulation is a cost to their businesses. Do we know what the cost would be if we included all players under this regulation umbrella?
I thank Deputy Michael McGrath for tabling the amendment and Deputies Sean Fleming and Tóibín for speaking to it. Although the issue was discussed fully on Committee Stage, I am glad to have the opportunity to reassure the House again on the matter. The model which currently operates for regulation by the Central Bank is that a single entity is responsible and answerable to the bank for actions it undertakes or which are undertaken on its behalf. Given that the model works well, there is no reason to change it here, with the single exception of the need to address loan books which are sold. If a firm is undertaking credit servicing solely or exclusively for a firm which is already regulated, such as a bank based in Ireland, it does not need to be regulated itself. The regulated firm is answerable to the Central Bank for any actions it takes or that are undertaken on its behalf. The regulated financial service provider must ensure firms undertaking services on its behalf follow all relevant regulations. In this scenario, the borrower is adequately protected given that there is always one regulated entity dealing with its loan and, therefore, subject to Central Bank supervision. As such, I do not consider that the amendment is needed.
One might, therefore, ask why we do not regulate the owner outside Ireland that purchases new loans. I have already outlined that the policy decision was taken to regulate the credit servicing firm rather than the owner. This was considered to be the best way to protect the consumer given that it is the credit servicing firm that is interacting with the consumer. I fully appreciate that the model is different where the loan book is sold and the new owner does not have to be regulated if the servicing is undertaken by a regulated credit servicing firm. This reflects the new scenario of loans being sold and the new owner not necessarily needing to get involved in the relevant regulation unless it becomes actively involved in managing the loan. It is likely that firms which are credit servicing exclusively for a regulated firm, and therefore do not need to regulated, may nonetheless decide to seek Central Bank authorisation in order possibly to expand their customer bases.
In section 5 of the Bill, which was added on Committee Stage, there is a statutory obligation which strengthens borrowers' protections again. It will ensure that a credit servicing firm cannot do something, or fail to do something, which would be a prescribed contravention if performed or not performed by a regulated retail credit firm. This obligation also prevents the owner of credit from instructing a regulated credit firm to perform such an action. Under the terms of the amendment, if the unregulated owner instructs the credit servicing firm to do something which would be a prescribed contravention if undertaken by a retail credit firm, the credit servicing firm cannot implement such a decision. It is an offence by the unregulated owner to instruct the credit servicing firm to do this. For those reasons, I am not accepting the amendment.
Amendment put and declared lost.
Amendment No. 8 not moved.
Bill reported with amendment and received for final consideration.
Question proposed: "That the Bill do now pass."
As I have said consistently, there is some merit in the Bill and it contains elements which are important and which we support. On that basis, we are better having the legislation on the Statute Book than not. However, some issues should have been incorporated during the debate and we may return to those issues through further legislation, maybe from our side of the House. The issues are vulture funds which want to buy a loan in order to own an asset, walk in and close it down after seven days or at very short notice. The legislation should have provided for people whose loans are being sold at a discount to be given first opportunity to buy or to be made aware of it. Amendment No. 7 was defeated. Even if the owner of a loan is regulated, a credit servicing firm where there is an exclusive arrangement should be regulated. We may draft Private Members' Bills on those particular aspects. While there are some defects in the legislation, it is better to have it on the Statute Book than not.
Is dul chun cinn é an Bille seo, gan dabht. Bhí sé dochreidte gur fhágadh iadsan le morgáistí ón IBRC amuigh san fhuacht go dtí seo mar gheall ar rialachán morgáiste. Is fadhb uafásach mhór í fós an ghéarchéim morgáiste sa tír seo. Tá duine as seisear i mo chontae féin i bponc mar gheall ar a mhorgáiste. Is fadhb mhór fós í fiachas a bhaineann le gnóthaí thart timpeall na tíre. Tá an rud a tharla d'iadsan le morgáistí ón IBRC dochreidte, go háirithe i gcodarsnacht le daoine ar nós Denis O'Brien agus le Siteserv. Ní bhfuair siad aon ísliú fiachais ná aon ísliú sa ráta úis ar chor ar bith. Caitheadh amach iad sa cheantar, gan rialachán. Fuair na gnóthaí móra, iad siúd leis an airgead agus a chruthaigh na fadhbanna móra a chur an tír seo i ngéarchéim i dtús, gach cabhair ón IBRC agus ón Rialtas. Iarraim ar an Aire iarracht a dhéanamh as seo amach agus é i mbun na hoibre seo gach duine a chur ar an leibhéal céanna.
Question put and agreed to.