Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach díospóireacht

Investment Funds: Discussion

An Cathaoirleach (Deputy John McGuinness)

We have received apologies from Senator Higgins. Deputy Durkan is in the Chamber and Deputies Doherty and Farrell will be here shortly. I want to record the minutes of the joint committee's meeting on Wednesday 1 March and Thursday 2 March. These were agreed at the committee's earlier, private meeting.

Today we are dealing with submissions from FLAC and MABS. We are joined by Ms Eilis Barry, Mr. Paul Joyce, Mr. Dermot Sreenan, Mr. Gerard O'Brien and Dr. Amie Lajoie. I welcome the witnesses.

I remind members and the witnesses about privilege. Attendees who are present on the Leinster House campus have full privilege. If not on the Leinster House campus, they may only have a limited privilege. They are reminded of the long-standing parliamentary practice that they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable. We will commence our meeting with the opening statements, after which members will put questions to the witnesses.

Dr. Amie Lajoie

The Money Advice and Budgeting Service, MABS, very much welcomes the opportunity to contribute to the committee’s deliberations on this important topic. I am joined by my colleagues, Mr Dermot Sreenan, business manager of MABS Support CLG, and Mr. Gerard O’Brien, national development officer of MABS Support CLG.

Nonbanking entities, also called vulture funds or shadow banks, play an increasingly prominent role in Ireland’s financial services sector in direct lending to individuals. Our reflections in this opening statement are based on the practical experience of MABS providing casework support to borrowers of all debt types. For this discussion, we focus on the particular activities of nonbanks in the areas of mortgage lending and the servicing of non-performing loans, NPLs, to individuals. We further support the contributions from our colleagues from FLAC who are also speaking about the rise of these firms in the space of new lending and unsecured debts.

In Ireland, there are two categories of nonbanking entities regulated by the Central Bank that lend to individuals, retail credit firms and credit servicing firms. These firms include both those entities which own the in-scope loans and those who manage or administer these loans. It is important to note that credit servicing firms have been subject to regulation since 2015. This was in direct response to the sale of distressed loan books by regulated banks to nonbanks that were, at the time, unregulated. Today, the borrower has rights to consumer protections from the onset of a lending agreement and these protections continue in the event that the loans are sold to nonbanking lenders. On this topic, MABS has made a formal response to the Department of Finance’s consultation on the transposition of the EU credit servicers and credit purchasers directive and we base our opening statement on this submission.

The deadline for that was today; we made our submission last night.

According to the Central Bank, nonbank lenders have increased their share of new mortgage lending from 3% in 2018 to 13% in 2021. They are responsible for a third of new lending in the re-financing and buy-to-let segments of the market. As of September 2022, nonbanking entities own over 56% of all domestic mortgages in arrears. This is up from 43% in March 2021 and 37% in March 2019. Nonbanking entities also hold higher proportions of those mortgages that display the highest level of arrears. In total, nonbanking entities held a significant 74% of all domestic mortgage accounts in arrears for more than one year in September 2022, up from 54% in March 2021.

There are several important points of note regarding the rise of nonbanks in this sector. First, the choice to sell these portfolios en masse is a concerning activity of banks, in our view, as it would appear that these creditors "lose patience" with the process of engaging with borrowers through alternative restructuring arrangements and would rather "cut their losses and sell". We cite the work of FLAC in that part of our opening statement.

MABS would question what such behaviours say about banks, their appetite to support customers in distress, and their policies and procedures in terms of credit assessment in the first instance. EU Directive 2021/2167 on credit servicers and purchasers cites the need for these entities in the case when "institutions face a large build-up of NPLs [non-performing loans] and lack the staff or expertise to properly service them".

There are also ongoing concerns over the consequences of banks severing the relationship with borrowers through loan sales, in particular for how these borrowers will bank and access credit in the future. These nonbanking entities also purchase mortgages and other non-performing loans, including SME loans, at discounted rates. Accordingly, any classification of their market share as growth has to be compared with the equal decline in the market share of the selling banks.

Since 2017, MABS and Banking and Payments Federation Ireland, BPFI, have had an agreed protocol in place to ensure that all lenders - banks and nonbanking firms - work together with MABS to help resolve mortgage debt problems practically and sustainably, ensuring borrowers that their rights to consumer protection are safeguarded throughout this process. MABS can report that we have had a number of positive dealings with nonbanking entities in cases of mortgage arrears, in particular through the Abhaile scheme. Some of these funds have agreed to arrangements that are more favourable for borrowers facing mortgage arrears than a traditional bank.

However, nonbanking entities can also act in a manner that further penalises consumers. MABS staff have observed that the overall behaviour of nonbanking entities towards clients, such as the decision to enter into insolvency arrangements, depends on the entity and its own internal protocols, as well as the amount of documentation received from the original mortgagee bank. We would like to highlight four points of contention that can arise from working with these lenders.

The first is loan transparency and communication. In cases where their loan books are sold, clients receive the details of these sales via post, and have no legal basis to appeal the sale. This is true of all loans, regardless of whether they are in arrears. In MABS's experience, relevant loan documents and statements are often lost during the loan sale process, and this makes it difficult to validate the accurate accrual of debt and arrears balance.

The second is a chain of loan ownership. In supporting borrowers, MABS does much more than budgeting and rescheduling of debts. It uses, as relevant, legislation and regulation in a model which reflects both client responsibilities and their rights as consumers. Therefore, it is very important for MABS to be able to locate responsibility and accountability within the credit "supply chain", and draw on related regulation and legislation to support its clients to uphold their rights.

The third is recent interest rate hikes. Over the past six months, MABS clients servicing mortgage debts with some retail credit firms have faced an interest rate spike to over 6% - well over, in some cases - more than twice the European Central Bank, ECB tracker average of 3%. This includes those clients with voluntary alternative repayment arrangements, ARAs, and with statutory insolvency arrangements sanctioned under the current Personal Insolvency Act 2012, options which serve as a lifeline for MABS clients in mortgage arrears. The interest rate hikes serve as a particularly alarming trend during a cost-of-living crisis and are having disastrous effects. With another 0.5% rise in mortgage interest rates indicated by the ECB, we are wary that the situation will continue to worsen.

The fourth and final point we would like to raise is the lack of public accountability. From our 30 years’ experience working with borrowers facing the stressful situation of arrears, we assert that the more direct engagement between purchaser and credit service providers, the better the outcome for all parties. Traditional, mainstream banks have, notwithstanding their responsibility for regulatory compliance, a level of cultural or public accountability in Ireland and a history of engagement with MABS. Moreover, they offer a suite of supports for clients in financial distress. In many cases, nonbanking entities do not have these traits and in our experience, this can indicate a lack of willingness to accommodate clients and their needs.

At MABS, we recognise the importance of regulatory frameworks that best serve the needs and rights of our clients. Some argue that this new secondary market for non-performing loans provides a valuable service and increases competition within the Irish financial industry. MABS supports competition, in particular where it broadens access to necessary and affordable credit, including for mortgage lending. However, it must be accompanied by appropriate regulation to ensure, first of all, that all consumers are informed in plain language about all aspects of the finance from the outset. Creditors should also readily communicate with borrowers that they have rights and can exercise their rights when things go wrong.

We maintain that nonbanking entities must work towards a demonstrable, affordable and sustainable solution for borrowers that reflects the fact that the loan has been purchased at a discount from the original loan provider. MABS and other supportive debt and client advocacy organisations play a crucial role in ensuring the realisation of this goal. Therefore, credit servicers must engage with MABS meaningfully and regularly in our work on behalf of clients. We enjoy a positive working relationship, built over years of mutual trust and respect, with mainstream Irish retail banks. It is imperative that this relationship continues in our engagement with nonbanking entities.

I thank the committee, and we very much look forward to our discussion.

An Cathaoirleach (Deputy John McGuinness)

I thank Dr. Lajoie and call Ms. Barry.

Ms Eilis Barry

Free Legal Advice Centres, FLAC welcomes the opportunity to contribute to today’s discussion alongside MABS, with whom we have a very long association.

We recently published a series of four papers on matters relating to a wide range of consumer debt issues called Pillar to Post, PtP, compiled by my colleague Mr. Paul Joyce, who is with us here today. The fourth paper is a blueprint for reform, and we draw on some of the recommendations today. I am happy to forward the contents of the report to this committee.

The No Consent, No Sale Bill 2019 broadly sought to reverse the position that the original lender could sell on his or her loan to an entity of its choosing without consultation or consent, explanation or justification. We made a submission on the Bill and attended a sitting of this committee back in March 2019, but the Bill did not progress. In an opening statement supplied to the committee, the former Governor of the Central Bank, Philip Lane, suggested that:

Given that the consumer protection framework is identical whether a loan is held by a bank or a nonbank, the Bill would not add any extra degree of regulatory protection for consumers. At the same time, it would severely damage resilience, since the transferability of loans is a central feature in a modern financial system.

We do not agree with this. Brendan Burgess of AskAboutMoney.com recently pointed out that some 113,000 mortgage loans have been sold by the main banks to vulture funds in recent years, with a reassurance that such customers would not lose out by having their loans sold. He cited an example of the significant disparity between the variable interest rate currently charged by one fund and the far lower rate currently provided by the bank that sold a significant portfolio of loans to that fund. We agree with Mr. Burgess's suggestion that the existing variable rate should travel with the loan.

Such failure is indicative of a standard of consumer protection that is subservient to servicing the needs of the economy, the financial system and the institutions that serve it. The sale of loans, whether impaired or not, is now endemic in the financial system. Over the past decade, we have had three separate items of legislation further facilitating the growth of a loan sale and loan servicing infrastructure. These are the Consumer Protection (Regulation of Credit Servicing Firms) Acts 2015 and 2018, and the Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Act 2022. Each of these statutes, ironically, leads with the words "Consumer Protection", when its primary purpose is to facilitate the development of a loan sale industry, while maintaining minimum standards of protections for borrowers through regulation.

The 2022 Act is a prime example, in our view, of our concerns. After years of allowing nonbanking entities to provide sub-prime, hire purchase finance agreements without any requirement to be authorised, these providers must now become authorised as retail credit firms regulated by the Central Bank. The legislation, however, allows that a hire purchase agreement offered by a retail credit firm may charge up to an astonishingly high rate of 23% annual percentage rate, APR, for what are car finance agreements.

The principal area of concern in the context of the migration of housing loans to funds remains the fate of family home mortgages that have been in arrears for lengthy periods. Many of these are now owned by funds. The most recent figures available from the Central Bank are set out in our submission. I do not propose to read them. What is clear from the figures is that the number of accounts in arrears has been decreasing, but only slowly. There was no significant reduction in arrears cases during Covid. The number in arrears at the end of quarter 3 of 2021 was 47,681, compared with 45,746 at the end of quarter 3 of 2022. The proportion of loans owned by funds grows with each quarter. It was close to 56% at the last count. At the end of 2021, 21,234 accounts, 45% of the total in arrears, were deemed to be co-operating with their lenders but had no restructures in place, which is an indication of financial incapacity rather than an unwillingness to pay. Spikes in the cost of living and interest rates threaten an increase in new arrears cases. In From Pillar to Post, we recommended that the Central Bank publish two separate figures, one for accounts that go into arrears in a given quarter and one for accounts that exit arrears in that quarter. However, the Central Bank continues to publish a net figure only.

The next table relates to loans in legal proceedings and the time since the first hearing. These figures show us that funds now own close to seven in every ten accounts that are in the repossession process. A substantial number of these cases have been in the legal process for a lengthy period of time. Of the 435 sets of repossession proceedings said to have been resolved, that is, concluded, in 2021, 80% did not result in possession orders being granted. The attrition, distress, cost and economic loss that results from lengthy repossession cases is both regrettable and unnecessary.

In From Pillar to Post Paper Four, we propose that a mortgage arrears review office be established to review long-term legacy mortgage arrears cases outside the court. We believe that the proposal we made may possibly circumvent perceived constitutional difficulties and act as a carefully balanced and strictly proportionate intervention that takes full account of the respective rights and obligations of both lender and borrower. Thus, we propose that the review office could act as an avenue of appeal or review for borrowers who are unhappy with their lender's handling of their case under the mortgage arrears resolution process, MARP, of the Central Bank's code of conduct on mortgage arrears. The review office could oversee efforts to resolve long-term arrears cases, working in conjunction with the borrower’s advisers and the lender’s staff and representatives, by modelling the application of resolution options to specific accounts in arrears. It could also have the power to grant leave to a lender to bring repossession proceedings in the courts against a borrower in arrears, but equally could refuse to grant such leave on the basis that the lender had made insufficient efforts to resolve the case and avoid legal proceedings. An appeal would be available to the Circuit Court for the lender in that event. Where a personal insolvency arrangement, PIA, proposal is made on behalf of the borrower in arrears and is rejected by the lender, the current right to seek a review in the Circuit Court under the Personal Insolvency Act 2012 could continue to apply. Thus, the integrity of the personal insolvency regime would remain unaffected.

On the other recommendations, in the final paper the From Pillar to Post series, we are critical of the slow progress being made with the Department of Justice review of the Personal Insolvency Act 2012. We pinpoint that a significant number of older borrowers are in long-term arrears but that their properties are also in positive equity. This makes it very difficult for them to obtain PIAs without creditor consent. We also express concerns about the limitations of the Abhaile scheme. The final paper also contains a section on the mortgage-to-rent scheme, which is a valuable option in some cases but which is still delivering quite low numbers.

Loan sales are not entirely confined to buy-to-let and family home mortgages. Hire purchase agreements and credit card balances in particular have also been sold over the past decade. It is conceivable that the number of sales of impaired loans in the unsecured debt space will increase, with the consequences that may have for households in difficult financial circumstances. There is also a significant data deficit here. There is no data published on unsecured credit agreements in arrears. Without data, it is impossible to gauge the potential extent of the problem. My colleague, Mr. Joyce is here to answer questions.

Deputy Mairéad Farrell

Gabhaim buíochas leis na finnéithe as ucht teacht os comhair an choiste inniu. I thank the witnesses for coming before the committee. I am very much aware of the support that the organisations represented give to so many people. I want to recognise that. The witnesses and many of us know the real impact that the issue has on so many people. My first question is for the representatives of MABS. It was mentioned that as of September 2022 the vulture funds own over 56% of all domestic mortgages in arrears, up from 43% in March 2021 and 37% in March 2019. I must say that I find that really shocking. It is definitely a statistic that jumps out at you. Do the witnesses have any idea of what the percentage was in 2017 and 2018? I know that 2019 was also pre pandemic, but I am wondering if vulture fund ownership of domestic mortgages in arrears was something that was already increasing significantly, or if it got worse over the course of the pandemic. The organisations represented here deal with so many different people and obviously they deal with different funds, but how many funds would the witnesses say are the majority of people dealing with? I will leave it at that for now before asking more questions.

Mr. Dermot Sreenan

First, I want to contextualise the work that is being done by MABS, because that will frame the response to the question. In 2022, MABS helped more than 42,000 people. On clients and calls to the helpline, we had our busiest August on record with the helpline. That puts it into context. This problem has been ongoing for quite some time.

The Abhaile scheme, which the Deputy is familiar with, has dedicated mortgage arrears advisers. It has processed over 13,600 case since it was established in 2016. We are currently experiencing an increase in the numbers trying to access our services, which means that there are service delivery managers who are now taking caseloads because there is a real need for it. It is an all-hands-on-deck situation.

On the Deputy's question on the trajectory we are on in respect of the loans and who actually owns them, the best information we have on that comes from our court mentor system. I ask members to bear with my while I explain it, because not a lot of people understand the intricacies of it. MABS has a representative in every courthouse in all the repossession courts in the country. If people show up there, often the county registrar will direct them to MABS and they become part of the service and we offer them support. Our key message to people when they contact the helpline or whatever is to always show up in court and to engage.

There were 9,763 court possession orders in process last year. The cases could have started much earlier than that, but the court records state clearly that 49% of these orders are owned by nonbanking entities. The figures are as follows: Start Mortgages owns 20%; Pepper Ireland owns 10%; Mars Capital Finance owns 10%; and Promontoria owns 9%.

From talking directly to court mentors, the trajectory is only going upwards because, as we mentioned in our opening statement, the shrinking of the retail banking market means that there are inevitably cases where two of the banks that are exiting that will go into the nonbanking entities. That is the trajectory we are on.

However, I want to say that though MABS is a service that is incredibly busy, it has 30 years experience; I want to assure people listening at home that they should contact MABS. We want engagement from everyone who is receiving a letter from those such as the nonbanking entities because we want to represent these people and advocate for them. We are not part of the problem that we are experiencing now but we are definitely part of the solution because MABS acts in the clients' best interests and we establish what the actual affordability is. That is a really important point. I encourage anyone listening to take that on board. I want that message to go out strongly from this meeting to the general public.

Deputy Mairéad Farrell

That is a really important point and it leads on to my next question. I was dealing with a woman who received a letter from one of those funds. It was a really bad time in her life. The letter told her basically that she needed to vacate the house in ten days or something. It was only that her daughter contacted me and I was able to contact the Irish Mortgage Holders Association which was able to say that there was no legal standing to that letter, or else she would have thought she had to get out of the house in ten days. To be honest, I would have thought that too. That really showed me something. There were people here last week who said the same thing about the importance of engaging. These entities have no morals and they will just do that kind of thing to people and not care about their situation or the impact it can have on people’s lives. Would MABS see that people get these types of letters a lot? It terrifies people. It has a huge impact on people’s lives. There does not seem to be legal basis for it. There may be other letters that do have a legal basis but that particular one did not.

The opening statement said that banks do not seem to have any patience to try and deal with borrowers in distress. Is there just a reflex that they should try and sell and get rid of the problem? In this State, businesses can carry forward losses basically indefinitely which can be offset against future profits. Does the sale of such mortgages usually take place at a loss and one which could be carried forward to be offset against future profits? If that is the case, does it create a perverse incentive to dispose of the problem rather than resolve them? When I ask questions, anyone can answer.

Mr. Dermot Sreenan

The statistics can be overwhelming and people can be frightened and alarmed. It is much easier to talk in specific instances. The Deputy is quite correct about the way the nonbanking entities work. Last week or this week, there was a call to our helpline where someone’s loan was sold by one of the banks that is exiting the market to a nonbanking entity. The client, who was a MABS client, received a letter and was told to apply for mortgage-to-rent. I think they had 21 days to respond to the letter.

Two things in this instance are appalling to me. First, that was a MABS client and they were going directly to the client and putting pressure on them to make that decision. Also, the way that the letter was worded had no options. We talk about having meaningful engagement with all creditors and nonbanking entities. We have enjoyed that in the past with the banks but we have also managed to have the same kind of relationship with some of the nonbanking entities. It is somewhat nuanced. We cannot put all these in the one category.

We have managed to put some arrangements in place with nonbanking entities too. What we are looking for is meaningful engagement. That is something that is lacking with certain nonbanking entities and is causing a great deal of frustration among money advisors on the ground. That is what I am here to talk about today. We are also concerned about the rising interest rates because we feel that will pull more people into default and then they will be pushed into the process of the mortgage arrears protocol which is concerning to us.

We are at pains to meaningfully engage with these nonbanking entities to negotiate and to advocate on behalf of the client. That is the job of MABS. We are doing it for a long time; with 30 years experience. For everyone who gets one of those letters, the message is: “You need to be in contact with MABS.” Nobody should be walking into a courtroom for the repossession of their home without MABS being present. We would ask everyone to support the advocacy.

Deputy Mairéad Farrell

Mr. Paul Joyce

It is a list of retail-credit and home-reversion firms. There is also a separate list of credit servicing firms. What this is doing is essentially giving regulatory status to these outfits to conduct their business. To our mind, it is facilitating the growth and continuation of a loan-servicing industry, under the guise of consumer protection. It is quite correct that the vast number of the current list of retail credit firms are transitional. Only a number of them are authorised. What is happening with the Central Bank in terms of those firms' transition is not really clear, but it is important to emphasise that a firm can continue its operations while it is transitional. A firm's operations are not suspended pending the grant of the authorisation. It continues to operate until it transits to full status.

It should also be said that the growth in the number of retail credit firms here has come about directly as a result of the latest legislation, that is, the Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Act 2022. Part of that is, at long last, the decision by the State to finally regulate providers of hire purchase finance and personal contract plan, PCP, finance which are nonbanks. For a considerable period of time, there has been what we would refer to as sub-prime hire purchase, PCP lending going on and the providers were not regulated by anybody. Such finance and hire purchase agreements are now being regulated.

I saw the Deputy's reaction to the 23% APR limit. It is quite extraordinary that the 2022 Act regulates previously unregulated providers and sets out that the maximum APR that can be charged on a hire purchase agreement. Hire purchase also includes PCP. Apparently, the Attorney General's advice is that a PCP is a hire purchase agreement. The provider is allowed to charge up to 23% APR. Hire purchase PCP agreements run from three to four to five years. An APR of 10% on a three- or five-year agreement would be an extremely high cost of credit. Thus, it is beyond belief how this is being allowed to happen.

The Deputy mentioned a person who got in touch with her, who was told she had to be out of her house. This kind of thing happens when people are vulnerable and do not have access to advice. People will tend to believe or worry about what has been said to them. The truth of the matter is that the process to be granted a possession order in the courts is quite lengthy. The lender must issue a civil bill for possession in the Circuit Court office, which has to be served on the borrower or borrowers by registered post. It sets out a return date before the county registrar who is an officer of the court in the Circuit Court. There is a so-called practice direction that allows for an automatic adjournment to take place on the return date for another three to six months because, depending on the area, the courts are extremely busy. If people stand up for themselves and check out their options, a possession order will not be granted quickly.

Mr. Sreenan mentioned the court mentor scheme that MABS runs. What happens is that in most repossession cases, there are several adjournments and the county registrar is generally looking to see whether anything can be done to improve the amount of money the defendant borrower can offer. Many of these cases are in the courts for a long time. The Deputy will see some statistics in our opening statement about how long cases have been in the courts. They are on page 5. Some 2,203 cases have been in the repossession process for more than five years. That is a considerable number of hearings, back and forward and to and fro. I say this to reassure the Deputy that if people get advice and assistance, a possession order will not be granted quickly. The problem is that this process goes on and on. The attrition for people and dependent children, the opportunities that are missed and the frustration and illness that ultimately arise from this need to be carefully considered.

Deputy Mairéad Farrell

That is a question I had. The witnesses are on the front line. They see the impact. Will they touch on the physical and mental health impacts they see? We can often talk about numbers, but they do not have that same real-world impact, because people do not realise the numbers are about people.

Mr. Dermot Sreenan

I wish to answer the question. I will try to cut through the sheer weight of numbers with stories. Two stories came from the court mentor I was talking to this week. They refer to the granting of two possession orders in the Dublin courts. One of them was on the basis that less than €6,000 was owed on the mortgage and it was granted. In another story, less than €11,000 was owed and the mortgage was being paid. It was also granted. Those are two possession orders.

The key component of both of these stories was that the person was not present in the court. I echo what Mr. Joyce says. If people get a summons to go to court, they need to show up. They will be met there by somebody from MABS, whereby they will become part of the system and the process. We can bring them into the wealth of experience that MABS has and work with them on our holistic approach to looking at debt budgeting, what is affordable and everything else. If people engage with the process there is a very strong likelihood they will not end up in such situations.

It is important for people to understand they should engage with the process all the time and engage with MABS, because there is a fundamental power imbalance at the heart of what is going on.

Maybe I would be concerned if I were him.

What is the key legislation that is needed? Mr. Joyce mentioned the courts. What are the key aspects that need to be discussed? Ultimately, Mr. Joyce is here because we are the ones who can put the legislation together. Maybe it will be a combination of the Cathaoirleach and I championing joint legislation; that would be funny. Will Mr. Joyce touch on that matter?

Mr. Paul Joyce

The Personal Insolvency Act needs to be amendment for a start. The Act dates from 2012. There were some amendments in 2015 and others in 2021, but they were very slow to react to the change of equity status of many properties. When the Personal Insolvency Act was first introduced, many properties were in negative equity, which made it much easier to get arrangements through and get the consent of the secured creditor. Now the situation has changed. Many houses have moved into positive equity and it is much more difficult to get the secured lender to consent to a proposal. That needs to be looked at in detail.

A problem that we all know is arising frequently now is that of rent arrears. We are seeing a lot of people who do not own their own homes but who have the same kind of problems as those in mortgages arrears and unsecured consumer credit arrears. Many people in rent arrears also have car loans, credit card agreements and so on. One of the things we underline in our opening statement is that no data are currently published by the Central Bank on a quarterly basis regarding the number of unsecured loans of all types that are in arrears.

MABS knows best because it deals with clients on the ground in its services all the time. It knows best what is happening in trends arising from the cost-of-living crisis. The State is not giving us any data about how to respond and react to this. If one has the data, at least one has a better chance of planning accordingly and introducing the relevant changes to legislation.

On the court process, to our mind, there has been a dubious bargain where the State does not want to see the widespread repossession of family homes but nor does it want to preside over the write-down of loans, particularly the write-down of loans of domestic banks. We have a had a stand-off where these cases come before the courts and the county registrar, who is not a judge or court official, but who has control of the files and tries to engineer, as well as possible in most cases, some kind of settlement that will see the case withdrawn. To be fair, some cases are indeed struck out on agreed terms but some are not and possession orders are granted. It is an ongoing situation, which as the committee can see from the figures, has been going on for a considerable period since the crash. It really started in 2011 and 2012. There is certainly scope for funds to do deals. They do deals at the moment, precisely because they have bought loans at a knock-down. The question is whether there is potential for a scheme outside of the courts where perhaps the State might also contribute on behalf of the taxpayer to resolving some of these long-term cases.

Mr. Gerard O'Brien

The Central Bank's code of conduct on mortgage arrears addresses alternative repayment arrangements or restructuring, whatever one wishes to call it, that people may avail of but those alternative repayment arrangements are listed in provision 39 of the code of conduct on mortgage arrears. Provision 39 states that lenders "may" explore those 12 options, not "shall" explore them, but "may". One of those options is permanently reducing the interest rate on the mortgage but the borrowers can only avail of that option under provision 39 if that option is offered by the lender. If it is not, they cannot. I hope the committee can take that away and have a look at it.

The other thing, which Dr. Lajoie mentioned in her opening statement, is the EU directive on credit purchasers and credit servicers. The Department of Finance asked MABS to make a submission and we did. We picked up on Articles 28 and 16a of the European directive. They list changing the interest rate as one of eight loan modifications that may be transposed into Irish law. However, the questions the Department asked us to address in the submission were about whether MABS agrees that those eight options, including the modification of the interest rate, should not be transposed. Our answer with regard to both Articles 16a and 28 was that we did not agree they should not be transposed into Irish law.

Mr. Dermot Sreenan

It is a double negative leading to the positive. That is really important legislation because we hope all the nonbanking entities will be regulated by that. We hope all that legislation will be enacted so if we come back here this time next year, we will be speaking on that legislation. That is definitely a request of MABS, that is, that the committee consider that and ensure it is enacted.

Mr. Paul Joyce

Mr. Dermot Sreenan

In the previous six months. One of the other fundamental points ties in with the point that Mr. Joyce was making earlier, which is that there is a real, fundamental need to address resources. Given the power imbalance that lies at the heart of this process, we need to have money advisers and dedicated mortgage arrears, DMA, advisers in the posts they are in to continue to deal with the volume. We anticipate when the moratorium ends on disconnections, which is at the end of this month, with evictions being another massive issue, that our services will see a huge uptake and increase. Again, I have to say clearly that everybody who needs MABS should have access to MABS. The power imbalance is addressed by ensuring that people have an advocate and a client-focused, holistic approach to debt and debt management with an organisation that has been around for 30 years. Some people not too far from me have been through one recession already. We were there in 2008 and 2009. We can get people through this but we need to be resourced appropriately. The DMA scheme is a specific case in point.

It was initiated in 2016 with the aim that in two years we would be back, have sorted it out and grasped the nettle around the repossession orders and that. We are here six years later and that is funded on the basis that we have a contract that is renewed until the end of the year. We do not know whether the DMA advisers that are doing a huge amount of work in this area will be around next year. It is currently under review by Indecon. I will not read it out, but basically the DMA funding and service was granted until the end of 2023, it is currently under review and we expect to hear an announcement on the scheme. Those jobs should just be made permanent. Those resources are desperately needed. The work that MABS, the DMA service, and Abhaile do is not going away; it is only increasing. We need to be resourced appropriately. That is a clear message that I hope the committee hears today.

Deputy Mairéad Farrell

I have a brief final question. How concerned are the witnesses about the lifting of the eviction ban?

Dr. Amie Lajoie

The issue with renters - I am sure Mr. Joyce could speak to this as well - is they present complicated cases for MABS casework. It makes the casework very complicated, especially those who rent in the private sector. We have a number of concerning tenants who are in receipt of housing assistance payment, HAP. I am sure we are familiar with the way that system works and how it is seen as a social housing solution but it does not actually operate in that capacity. We have a number of clients who have approached the services and the advisers are telling us they do not know how to help when people potentially will fall or are behind on their rent payments. It is not about not wanting to pay; it is about not having the ability to pay. If the situation worsens, we are afraid this could have a knock-on effect in other areas as well.

Deputy Mairéad Farrell

Mr. Joyce might want to come in on it briefly.

Mr. Paul Joyce

An Cathaoirleach (Deputy John McGuinness)

All added in, it is bleak outlook if something is not done, such as the suggestions that all the witnesses have made around this.

I have seen it.

Mr. Gerard O'Brien

I am sure the Cathaoirleach has seen it in his constituency down in Kilkenny. If there are repeated increases in rates, as we have seen, there will be hopelessness.

I am not putting the witnesses on the spot, but someone has to answer, and the Government is not answering.

Mr. Paul Joyce

It is more than fair as a question and is a particularly important question. I would suggest that consultation has decreased over the years since the global financial crash rather than grown. It is almost as if the world of loan servicing, sale of loans and travelling on of loans is considered to be a fait accompli which cannot be disturbed at this stage and that it is in the interests of commerce that this continue.

Speaking of the credit servicing directive, it would be remiss of us not to point out the role the European Central Bank has played in creating a credit servicing and retail credit firm regime. This is happening all over Europe, perhaps to a greater extent in Ireland, but the fallout from the global financial crisis has led to this. What is highly ironic about it is that it was the reckless lending the Central Bank of Ireland itself facilitated prior to 2008 that gave rise to this. Yet we now find that that has not been properly solved after a decade because the measures that were taken were not adequate or radical enough to deal with it. Now, as a result of Covid and cost-of-living issues, we are looking at an increase in debt and we still do not have the infrastructure to properly deal with it.

I think I can say on behalf of FLAC that we do not get the same ear as we once might have got. The Central Bank of Ireland, for example, is conducting a review of its consumer protection code at the moment, and in the review document great emphasis is placed on protecting the consumers' best interests. It is hard to believe that the Central Bank actually thinks that that is what is happening for a great many people.

I return to a very important point made about the information that navigates from the credit institutions selling the loans to the outfits buying them. In many instances it is very cursory. I had the privilege for many years of doing tech support for MABS's money advisers until a few years ago and I certainly used to see cases in which the information provided to the particularly dedicated mortgage arrears advisers about a client's arrears was incomplete. A figure was just asserted and added to regularly, and a lot of it did not stand up to scrutiny. The problem is how you get to challenge that. If you are the defendant borrower and you wish to say, "The arrears figure you have quoted in your affidavit to support your civil bill for possession is incorrect", you would need a forensic accountant to be involved in looking at that. It is a different figure at different times. This is also reflected in the fact that such outfits are not prepared to come in and talk to the committee about what they do. It is hard not to be cynical about it and believe that it is a stitch-up.

An Cathaoirleach (Deputy John McGuinness)

A stitch-up is right. That hearsay evidence too has added to the imbalance. I did not vote for it, but a Bill to allow the courts to conduct some of their services by way of Zoom during the pandemic was passed in the Dáil late one night. Down in the body of the Bill there was this issue of hearsay evidence, and that, in my opinion, has further complicated the imbalance that is there.

Deputy Bernard J. Durkan

I apologise for arriving late but I was otherwise engaged. Whether I was engaged productively, I do not know. We will have to wait and see.

Mr. Joyce made an important point on indebtedness in general. It was bad lending that was visible to all and sundry at the time. It had to be. Otherwise, those concerned could not occupy the spaces they were in at the time. We should not forget that the Central Bank, which allowed all these things to happen, was also represented at the European Central Bank, further extending the ridiculous nonsense that went on and what they called hope value for property. Mortgages were granted on the basis of paying interest only. What was that about, for God’s sake? What did the lenders expect to happen? Did they expect the interest to go away or never to include the capital? If they did, why did they not say that? They did not do so. They quickly closed over and made sure the capital was involved as well, putting the borrower in a worse position than before.

Let me outline the problem I see at this stage. The unfortunate removal of the ban will have an effect it is not meant to have and people will get scared. They are scared enough already. On the way to and from work, we see people who live in tents on the footpaths and so on. That is not the way it should be. It is a reflection on our society, especially when we had many methods available to help people out until things got out of hand. The lending institutions felt that, after four or five years, people should be able to make all the payments all over again. It does not work that way. Massive borrowings multiplied on top of the unfortunate borrower. It does not go away.

I once knew a guy whose response to those in arrears with their mortgages was to increase them by a quarter to regain lost ground. I responded by asking how the people got into arrears in the first place and why a bigger burden should be piled on. It was the daftest thing I ever heard.

There are two or three points we need to be aware of. The local authorities largely opted out of the business of loaning, including to first-time buyers. All the initiatives such as private subsidised sites were phased out quickly, which was not right. Then the local authorities took the same tack as the banks. They have credit committees that assess the ability to pay of the individual householder or potential householder. That is fine but the only problem is that local authorities are not banks but housing bodies. They have opted out. The market was filled by a range of bodies, including those we are talking about, because they were the only ones available. It was not a good decision, and we will still be paying the price in another ten years.

Two points come to mind on solving the multiplicity of problems in front of us now. In this regard, consider the deposit required by people to house themselves for the first time, for whatever reason, even though they may have been in a rented property for five years, and in some cases ten, never having had arrears. They have to come up with a massive amount of money to buy a house. It is crazy stuff and totally contradictory. It is as if somebody designed the system in such a way as to ensure tenants could never get out of their rented houses. The other ridiculous situation is that, if it is possible to get an affordable mortgage, its value is less than rent would be in many cases.

I referred last week to the things that annoy me about the insolvency situation and drive me up the wall. Consider the circumstances that arise when six months, or maybe two or three years, are spent trying to put together something a borrower can live up to. That is the important part because it is no good coming to an agreement the borrower cannot live up to. One may be just about to close a deal on which everyone agrees when some insolvency group somewhere announces that a 95% write-off took place. The borrower immediately asks why he or she cannot have such a write-off. We discussed this here last week. When you dig deep, you find the borrower referred to by the insolvency group got no write-off as the debt was an impossible or residual debt sitting on the counter that nobody could deal with because it was uncollectable. The lending institution would have dug around the tree, taken away the assets and sold them off individually, with nobody knowing the price. Then, asset stripped, the property would have been in negative equity, with no collateral at all. Obviously, such a property would be a burden on the lender’s counter so the lender would decide to write it off as uncollectable, or as a debt that could never be paid off because of the lack of resources and assets. The problem, as we know, is that if one knew what was achieved through the sale of the various assets in the run-up, we would be in a better position to make a judgment, and so would the client.

Incidentally, not all the lending institutions were bad. Some of them went to great lengths to help out and recognised there was bad lending and that they had some responsibility for it. Occasionally, clients did not live up to scratch and decided they could do better. Usually, one did worse. Therefore, there are many issues. I recognise those lenders who were amenable to settlement and who met the client, with the public representative or other individual, to do their best to be accommodating. The crucial thing is the affordability of the settlement. It is no use at all if it is not affordable.

I refer to all the unfortunate people terrorised by the magnitude of the task before them. When the curtain was lifted, they discovered they could never repay their loans, amounting to multiples of what they ever had. Many of these people had been visited by gurus from the financial institutions who told them they were sitting on a goldmine, that they were wasting their money and that they should invest it so as to live happily ever after. The sellers knew full well what they were selling at the time. Then the crash came and the borrowers owned nothing, but the lending institutions knocked on their doors fairly quickly. I, and I am sure the Cathaoirleach, have dealt with cases in which the banks were on the telephone three, four or five times every day and visited borrowers at home, and in some cases their workplaces, to remind them of their responsibilities. In other words, the banks were terrorising the borrowers into circumstances in which they would be frightened.

Some borrowers were so frightened that the whole scenario ended up, unfortunately, in disaster and serious issues took over where people were not able to live with it. These are statistics. Nobody says anything about these people and they have vanished into oblivion. When I talk to staff of lending institutions about what happened, all they say is, "That was really unfortunate, that is the best we can do about them." In some cases, people up to nearly 60 years of age were inveigled into arrangements to buy a house that they did not need because they already had quite a good house. When it was all over and done, the house that these people had was gone and the house that they borrowed against was also gone because it was full of negative equity.

The first thing that should always be remembered is that a full and final settlement is the only way to go about any of these cases The financial gurus tell me that it is not the way and there are other ways. My answer to them is that there is no other way because when a full and final settlement is not effected, there is always the possibility that the lending institution will come back, even though it is invisible. In those situations we must be vigilant again because these kinds of things will all happen again.

Like everyone else, I have talked to clients. I have no way of verifying this because there were fraught family law cases going on at the same time where everything became unclear but one half of the family were disinherited to the extent that they were homeless or near enough homeless afterwards. All of that was because maybe the other partner in the household had where he or she may work for a lending institution or have major interests in that area. All kinds of funny things occurred. By saying that I do not mean funny as in mirthful but peculiar things happened regarding the signing of documents and the discovery of documents that never took place. Last night I had to deal with such a case. All the people who were involved in that, except the borrower, disappeared. They could not be met at a counter or at a meeting. One could not meet them anywhere full stop. That situation still exists when we approach for a full and final settlement and people will be asked whether they have an offer. I do not know what I am offering so I need to know the following. What is their attitude? Who is going to make the decision? Is it the guy upstairs or the person on the front desk who will make the decision? I know that it is not the poor, unfortunate person on the front desk. Some of those people are very nice, very compassionate and very anxious to help people but that is not the same when a matter goes to the gurus upstairs who say that a loan is unsustainable. It was unsustainable on the day the money was lent in the first place but there is no penalty for that but there should be. I believe action should be taken because people were led astray, particularly when the lending institutions were in possession of financial knowledge that was good or bad.

Finally, like the Chairman, I have no problem with the committee inviting various groups to come in here. We will certainly find people who will give us examples of cases that they dealt with. If people do not want to come before the committee, we can talk about these matters in their absence but it is fine as long as they have been informed.

An Cathaoirleach (Deputy John McGuinness)

I ask the Deputy to take the Chair because I have a meeting and there is a delegation of people waiting for me. Deputy Crowe is next to contribute. I sincerely thank Deputy Durkan for his contribution. Like many other Deputies, he has my full support for the work that he does.

It would be great to put a human face on what is a tragedy in society and a poor reflection on the Government. I ask the witnesses to do that. If FLAC can add to that then its representatives are more than welcome to do so. Finally, I thank everyone for coming here today and hand over to Deputy Durkan.

Deputy Bernard Durkan took the Chair.

Deputy Cathal Crowe

I welcome all the witnesses. I am not a member of this committee but the Oireachtas committees allow non-members to attend from time to time. Earlier I was across the corridor attending another committee where we were dealing with the issue of national car tests but I had to attend this committee meeting as discussing investment funds is very important.

A couple of weeks I was invited to visit the MABS office in Ennis, County Clare where I met Elaine Clifford and her excellent team. She is regional manager for Clare and Limerick MABS. I had never set foot inside a MABS office before but routinely my office sends people to MABS to get support for people who are struggling hugely. On the day of my visit I became aware that the dedicated mortgage advisers are on hand to help people struggling with mortgages. The staff deal with a very niche difficulty being experienced by people. Of course that assistance is appreciated by all the people. The great efforts by MABS staff keeps many people in homes at a time we have a national debate every day about homelessness and families struggling to keep a roof over their heads. On the flipside, a lot of people end up in the courts system because their debts are choking them. The presence of a DMA is very much appreciated by the courts system as well because, despite what people think, they too are human and do not want to face someone down in the witness dock and be punitive. Everyone wants to work out a nice solution.

My visit to the Ennis office was my first time meeting a DMA and I was hugely impressed by the caseload because that person is grappling with 130 cases at this time. I know that everyone talks about the topline figure of homelessness and the number of people looking for housing but to have to deal with 130 cases of people grappling with mortgage difficulties and guide them through that is immense.

The witnesses have explained it well, and it is certainly the take home point I got after visiting the offices in Ennis. I met with Elaine Clifford and her colleagues.

On the figures, if I understand correctly, there were 40 dedicated mortgage advisers. There are now 32. That means 20% have left the workforce because of uncertainty. I fear a lot more will be lost because, using County Clare as the example I am aware of, there are companies tripping over each other to recruit at the moment. People with financial qualifications can snap up any type of job at the moment. However, when I visited the office, I heard they are more invested in this work because they can put faces to a lot of struggling families. There is a strong social dimension. This is not just about crunching numbers. There is almost a counselling dimension to this, if you like, and guiding vulnerable people through it. I worry MABS will lose more because the current risk is these dedicated mortgage advisers will themselves be in financial peril with their own families if they continue with this, which is a tragic irony in itself.

The Minister said the early weeks of 2023 should bring certainty to this. We are now approaching St. Patrick's Day. The Dáil will go into recess after tomorrow. We will come back for two weeks before going into recess for Easter. It is not good enough. The headline figure of €2.246 million is what it costs to have 40 people in employment. If we drill down into that figure and look at Clare, which is the example I gave, the DMA is supporting 130 families. If that is multiplied across all the other DMAs, the support network being provided is immense. The reality is that if this folds or funding ceases to continue into winter months, we will see a huge amount of outright mortgage defaulting. We will see repossessions of homes, families in the dock of the courtroom, passing their keys back over the threshold to bailiffs, and the pathway afforded to them by MABS will be gone. I want this on record and I will be pursuing this in Government.

I will say one final thing. I was shocked when I was in Ennis. I was introduced to all of the staff and they went back to what they were doing. However, I quickly noticed that they were spending huge amounts of time on phone calls to Eir, Bank of Ireland and Permanent TSB. They were on to everyone. They were having to press option 4, press option 5 or press option 6. It was absolutely crazy. As Members of the Oireachtas, we have access to an Oireachtas specific email with most companies, such as Vodafone, Eir or Bank of Ireland. Most companies, State bodies and semi-State bodies have a small unit that deals with us. That is valued. We are able to pick up queries in the constituency and fire them in to get a detailed response back from the right person. I think it is wrong how MABS needs to do it, and I think this committee could have some oversight on this. Any body or agency with which MABS needs to deal on somebody else's behalf should have a direct line for the MABS agent to get in contact with them. There should be no holding on the phone line for 30 minutes, only for the phone call to drop at the end of it. This is critical stuff. This is people's lives and finances. It is wasteful of MABS's time to be pressing options on the phone and listening to awful music. I do not sit on this committee, but I ask that the committee might lead this out as a recommendation that MABS would have a direct line with all of these bodies that bypasses everyone. Would that be helpful?

Mr. Dermot Sreenan

Most definitely. We were talking earlier about trying to have bilateral meetings with nonbanking entities. We are having difficulties with certain nonbanking entities when it comes to having a national meeting. We are progressing that through the existing protocols.

Dr. Amie Lajoie

Anything than could help make the work of the advisers and front-line staff easier would be-----

Mr. Dermot Sreenan

Welcomed.

Dr. Amie Lajoie

Yes.

Mr. Gerard O'Brien

To be fair, in this case to AIB, we have had two bilateral meetings with AIB in the past two quarters, and AIB did have a dedicated line for MABS. We brought it to its attention that it could have been resourced better, and it has recruited somebody in there to help. It shows the value of meeting the bank at that level.

Deputy Cathal Crowe

MABS has negotiated reasonable mortgage repayment rates for many people. Some families can take the hit of the recent mortgage interest rate hikes, but many more families cannot. However, it is certain that a family that has gone through MABS certainly cannot take the hit. From what I can see, all of the pillar banks have written to their borrowers stating that while they and MABS have agreed a rate of, for example, €250 per month, there is now a mortgage interest rise.

This totally flies in the face of what MABS has spent months negotiating. The pillar banks need to be aware that if there was an agreed maximum rate that someone was capable of paying, that that is the maximum rate, plus the European Central Bank, ECB, rate, plus 1%, plus 2%, or plus 3%. They cannot do this as it is only spiralling debt further for these people. It also needs to be a consideration of this committee that the banks are not following the agreed and knocked-out deal with a client but are using that deal as a baseline on which to hike up every ECB rate, which is wrong. I thank the Leas-Chathaoirleach.

An Leas-Chathaoirleach (Deputy Bernard J. Durkan)

We will push on and I now call Deputy Doherty to speak, please.

Deputy Pearse Doherty

I thank the Leas-Chathaoirleach and I thank our guests for coming before the committee. I have missed some of the earlier interaction but have read our guests opening statements and I have been briefed. Unfortunately, I was at another engagement.

I wish to tease some matters out and if I am going over ground already covered, I can look over the transcripts, which I will do in any event. We can skip over matters if the answers have already been given.

Obviously, there is much deep concern and anxiety among borrowers at this point in time as we see interest rates increasing and different financial institutions passing on those interest rates in a non-uniform way. For the most part, what are known as the vulture funds, the institutional funds or the non-bank lenders, whatever version of name one wants to call them, have, in the main, passed on those interest rate increases. These are the ones which they are not only obliged to because of tracker loans, but also in respect of variable rates. It is a very significant worry that families are expecting to see another increase come 16 March, just in time for St Patrick’s Day. It is a horrible gift to be handing to them, to tell them that their mortgage is going up again, given the comments of former Governor , Philip Lane this week that there is more pain to come.

In all of this we are asking how do we deal with this issue. I have very strong feelings and views in respect of the fact that 113,688 mortgages are held by vulture funds in the first instance. This is something that should never have happened. I sat in this or perhaps the next room and said very clearly that selling long-term products for one’s family home to entities which have short-term interests is a recipe for disaster. That disaster is being visited on family after family as they are receiving their fourth or fifth letter to tell them that their interest rate is going up. Unfortunately, they are likely to get a sixth and seventh letter before the year is out.

MABS mentioned that it has direct involvement with individuals who have distressed mortgages with vulture funds and with other lenders. I am interested in the comments made by Ursula Collins, the South Munster MABS regional manager, that vulture funds and credit servicing firms which manage the loans should be forced to offer fixed rates. She suggested that a 3% rate would be a reasonable rate of return, given that these mortgage loan books were bought at a discount.

When I am engaging with individuals whose loans were sold the vulture funds, the one thing they say is that they cannot fix the loan rates. In case anybody is watching, I have letters here from people who would had split mortgages with Permanent TSB since 2014 and have not missed one single penny of a payment in nine years. Their loan was sold on because Permanent TSB made a hash of how they split the mortgage, and it was deemed to be non-performing, even though the loan was being met. Now those individuals are paying thousands of euros more.

As indicated by Ms Collins, is it the view of MABS that these funds should be offering fixed rates? Has there been any engagement with the Central Bank in that regard?

Mr. Dermot Sreenan

I thank Deputy Doherty. We have covered some of this ground already. With regard to the comments mentioned by the Deputy, MABS addresses these through social policy submissions. We made such a submission in the past year with respect to the mortgage measures framework, where we spoke about the loan book being sold on to non-banking entities.

Our opening address is based on the credit services directive which is coming in and the submission, which the Deputy will know about, was due today. We addressed the issue in that way.

The core business of MABS, however, is in delivering the independent confidential money advice and budgeting service throughout the country and, as much as people are aware of it, to a certain extent we do not recognise the value of what we have in that regard.

We have dealings with what we prefer to call the nonbank entities, because we enter into bilateral negotiations and talks with them in respect of trying to secure affordable and sustainable repayments with those entities. We have been told by the Central Bank that it is the ultimate regulator in this and that the bank is not prepared to fix interest rates.

We can elaborate on the extent of the problem and can look for meaningful and positive engagement from the nonbank entities. I have said before that we have had positive results in respect of advocating on behalf of clients with nonbank entities. We have also had positive results with the banks and we are hoping to replicate that with the nonbank entities.

I also read to the committee the timeline of a specific case which speaks to the level of inflexibility that we are getting from the nonbank entities in respect of dealing with what we believe is affordable and sustainable, and on their passing on of interest rates.

Deputy Pearse Doherty

In Mr. Sreenan’s experience, is it better to have one’s mortgage with a bank or a nonbank entity?

Let me put it like this, if he was taking out a mortgage today, where would Mr. Sreenan rather have his mortgage? Would it be with a bank, a vulture fund or, as he calls it, a nonbank entity, or does he believe that there is no difference and that he would be protected in either scenario?

Mr. Dermot Sreenan

The way I would answer that question for the Deputy is that MABS has dealt with banks and continues to do so, and we continue to deal with the nonbanking entities where the banks sell on their loan books. In all of our dealings, we are advocating on behalf of the client and we see MABS as being an integral part of the solution because one would not go in to a court-----

Deputy Pearse Doherty

I appreciate that and I made representations to banks and to vulture funds also. In some cases, one gets positive solutions from both of them. I also have a view that in the main, it is hard to get solutions or even engagement, in some cases, with all of the rest. This is what I am trying to ascertain from Mr. Sreenan because the vulture funds are not coming before us and are refusing to appear before this committee. We have a vulture fund which says it will not appear and has given this committee the two fingers for the past five years. It has access to the Central Bank and to the Department of Finance but it will not be held accountable by our committee.

I have told the Central Bank that we get letters from individuals, but it is always from people who are really struggling. We do not have a full bird’s eye view because we do not usually get letters from people saying that my loan was sold off and that that was brilliant. It is always from those who are very much struggling, and all of the rest.

MABS has a better view of this because it is dealing with this across the State. I am asking our guests to try to elaborate on the differences between the banks and the nonbank entities in that regard.

Dr. Amie Lajoie

In the opening statement, we had that challenge of trying to phrase this. We came up with this term of public or cultural accountability which mainstream banks seem to have in the Irish context. When a mainstream lender gets into difficulty, where we see what happened recently with AIB in the public domain, there seems to be a great deal of conversation in the Government, in other sectors of society and in the media, where they seem to have that piece of the term which we use, which is public accountability. We did not know how else to phrase this with regard to Irish society whereas the issue with funds is of their being based elsewhere and of their profits going elsewhere.

They do not seem to have that level within the State itself or within Irish society, but maybe more is coming to the fore as we discuss it in this way, and they are becoming so prominent. We referenced that 74% of all mortgages in arrears for more than one year are now being owned, operated by and serviced by these firms. For us at the Money Advice & Budgeting Service, MABS, we have been active in that space for more than 30 years. We will be engaging with these entities more and more. It is very important for us to keep the door open to them so they continue to engage with us, and that we do not close that off in any way.

On the previous question, a number of people are refinancing with these entities because they are offering lower fixed rates than banks. They are providing that competitive edge, fortunately or unfortunately depending on one's outlook. It is up to one third on new lending for that segment. One third of all refinancing in buy-to-let segments of the market, as we refer to in the statement, are now going to these firms. They are playing an increasingly prominent role in that way as well. We see people opting to refinance with these entities because their rates are lower.

Deputy Pearse Doherty

It is interesting that Dr. Lajoie mentions this. AIB was probably a good example in terms of its attempts to withdraw cash services. Those main street banks are susceptible to public pressure. It is why they spend money on advertising and on sponsorship. It is because they want us to feel good about their business and because they want people to open their children's accounts with them. They want us to open the account with them for the farm, or take out a car loan, the mortgage or life insurance with them. They want us to do that, whereas a lot of these vultures have no interest in that. They are just picking from the carcasses of the main banks, in the main, despite the fact that they are looking at refinancing. That is always a problem. This is why it is a very dangerous place to have those long-term products and products that are so important to people, if it is from some entity that is only interested in one thing, which is the bottom line and trying to recoup as much as possible.

I will move on. The witnesses mentioned that nonbanks can also act in a manner that further penalises customers and consumers. Will the representatives from the MABS give the committee an example of that further penalisation, as was said in the opening statement?

Mr. Dermot Sreenan

Provision 39 of the Central Bank’s code, the code of conduct for mortgage arrears, which is grounded in the Central Bank Act, is something that could be looked at in terms of letting borrowers in distress avail of a remedy on interest rates, particularly in this instance.

Deputy Pearse Doherty

There has been much political discussion by different Governments that it was supposed to be forced and all the rest or that there would at least be a suite of options that every single entity would have to offer. That does not exist. It is great to say that the code of conduct on mortgage arrears applies to everybody. If you look at the fine print, however, it is clear that it only applies to what the bank or nonbank actually offers people. If they do not offer fixed rates, people do not get it. They have no right to it. They do not offer a permanent reduction on interest rates. As I said to the representatives from the Central Bank, it should point me to one of these arrangements the vulture funds offer that does not create more debt for a family eventually. They are all more expensive. I take Mr. O'Brien's point, however. It is a solution. It might be that part of the solution is here and that the other part might be in terms of the Central Bank. I go back to my original point, namely, that these loans should never have got to where they are today.

I will move on to FLAC. Ms Barry mentioned the comments of the former Governor, Mr. Philip Lane, that the same protections borrowers enjoyed with banks would continue to be enjoyed following the sale of mortgage loans to vulture funds. She stated that these assurances have not been not borne out. Such assurances were not just given by Mr. Lane; they were also given by the Minister for Finance and the Taoiseach at the time. They were given directly to assure these homeowners that their loans were going to be okay. Does FLAC believe that they were false promises. Why does it say that they are not being borne out?

Mr. Paul Joyce

They are not being borne out because mortgages that were on fixed rates were sold to funds and they are offering variable rates only. Mr. Brendan Burgess, Mr. Padraic Kissane and, Mr. David Hall appeared before the committee last week. Evidence was provided of increases of up to 3% between the rate on the original loan and the rate being offered by the fund. It is clear that it is very easy to sit at a certain juncture and state that the consumer protection framework is identical whether a loan is held by a bank or a nonbank, but this has patently not been borne out over time. One wonders whether that was really just stated as a badge of convenience at the time or whether, in fact, the former Governor actually believed that this was how things would spin out. We know that has not been the case, however. It is not just with regard to rates of interest but also how alternative repayment arrangements are dealt with.

It is ironic that it has been almost four years since the Deputy's No Consent, No Sale Bill 2019 was debated. We probably would not have thought then that, four years later, the landscape would have changed so markedly in terms of the cost of living, interest rate rises and so on. Here we are again in a bind whereby people not only do not have the financial capacity to make mortgage repayments but they also cannot make rearranged mortgage repayments or honour alternative repayment arrangements. Obviously, as the Deputy noted, with continual interest rate rises being passed on to the borrower, the situation is unsustainable.

At the other end of the spectrum, we have all the cases that are before the courts. Many of those are legacy cases that resulted from the follow-up to the global financial crash. It looks like another wave of new mortgage arrears cases could be in the pipeline. We made the point earlier about the Central Bank's quarterly figures. We would prefer if it noted accounts that go into arrears for the first time, on the one hand, and accounts that exit arrears, on the other.

During Covid-19, obviously, some people were able to sort out their mortgage arrears problem. Instead of having this net figure, can we have two separate figures to give us a better idea of what is actually happening? How do we deal with this? The code of conduct on mortgage arrears has been mentioned. The mortgage arrears resolution process has been mentioned. Again, will it be a realistic assessment of what people can afford to pay this time? In 2013 and 2014, banks said that they would put people on interest-only arrangements and see what happened. Many of those cases worsened. If they had been dealt with in a radical way from the get-go in terms of a realistic assessment of where households stood, the outcome may have been better.

The code of conduct on mortgage arrears should have an independent appeal mechanism; it does not. The suite of arrangements are set out as potential scenarios and the lender gets to choose which one of those suites of arrangements they potentially offer. They should all be available and looked at. We suggested in the series of four From Pillar to Post papers we produced in the past couple of years that maybe it is also time to try to look at taking mortgage arrears cases out of the courts and get involved in a concentrated but balanced look at how these cases can be resolved by working with funds, lenders, insolvency practitioners and, obviously, MABS in the context of trying to work these out once and for all. The Deputy mentioned mortgage interest relief. It almost seems inevitable that the State is going to have to contribute to this through the taxpayer in some shape or form.

Deputy Pearse Doherty

We put forward a proposal in the those terms. I told the Minister that we could introduce baselines whereby it would not kick in until a certain point. I refer, for example, to trackers and so on. The Central Bank is not going to intervene with regard to these interest rates, which will continue to go rise over the coming period. This relates to the €6,000 or €7,000 a person interviewed on RTÉ earlier in the week referred. His mortgage repayments are going to increase again next month, and will do so again if we are to believe the comments made by the chief economist of the ECB. There is a breaking point in respect of all of these cases.

It appears that the focus of the Government and the Central Bank, which has a duty here, should be to ensure that the code of conduct is sufficiently robust that when people fall into arrears, they will have all their protections, etc., in place. The key thing is that none of these families wants to fall into arrears. The reason these pressures are being put on them is primarily because of the war in Ukraine. There is an issue of fairness in the way we are supporting businesses with the €1.2 billion and the way we have supported the hospitality sector with lower VAT rates, households with regard to energy costs and renters. There has to be something for mortgage holders because they are experiencing the highest increases of all. Am I right in saying that nobody is experiencing similar increases? Is MABS seeing energy prices or food prices increase by €7,000 per household per a year? This is the single biggest shock and single biggest bill that inflation and the war in Ukraine have brought to any family. People have been left to paddle their own canoes. I am sorry; I am digressing again. We need to try to find solutions, that is one solution.

This is my view of the former Governor's statement. The code of conduct on mortgage arrears applies to everybody, but the fine print was never explained to people. Those involved knew that fine well as they were making their statements. However, they have not offered solutions. That is the problem. AIB, Permanent TSB and Bank of Ireland can do the same thing that Pepper Ireland does. They could have passed on all of these interest rate increases to their customers. We could have done nothing to stop them. We have a sense that they are not going to do that, however, because they want our custom and there is a bit of competition, even in the current climate. These guys do not want our custom because they are not offering us these solutions. That is the problem and that was always the difficulty.

Mr. Joyce made a point in terms of FLAC's From Pillar to Post series. From Pillar to Post Paper Two: Ten Years and Counting - Conclusions From a Decade of Attempting to Resolve Family Home Mortgage Arrears in Ireland, states:

In our view, regulated lenders should be obliged to work to find an alternative repayment arrangement with borrowers whose capacity to repay is impaired by loss of income due to Covid or other significant factors beyond their control, and should not be allowed to sell such loans on to third parties until they have demonstrated that every effort has been made to agree a sustainable restructure. for this purpose, there should at the very minimum be a compulsory time period during which the existing lender must work with the borrower to reach an accommodation before a loan can be sold on.

I am not in any way negating the fact there are hundreds, if not thousands, of other customers whose loans have never been sold but who are also feeling the financial pressure, and we are only focusing on those that are most acute because they are up at 7.5% and going to 8%. How realistic do the witnesses believe it is to strengthen the code of conduct on mortgage arrears and what Mr. O'Brien was talking about in terms of the suite of options that are there? It has been talked about before. When Shane Ross’s crowd of Independents went into government, they made a statement that they had this agreement that all banks would be forced to offer certain types of arrangements, but that never materialised.

An Leas-Chathaoirleach (Deputy Bernard J. Durkan)

I think that could only be done by legislation. I mentioned it at the time. It was the right thing to do but the financial gurus came in and they were offering services and offloading the services. I think it was the right thing to do to put a template on each of the loans, put notes on it in regard to its functionality and allow the ability to repay. At the end of the day, over X number of years, the loan would be paid.

We have to move on because the witnesses have been here since 1.30 p.m.

Deputy Pearse Doherty

That is my final question. I thank the witnesses for all of the work they do. Unfortunately, I am sure they will be before the committee again. At the same time, there is hopefully some brightness on the horizon. If we look at the ECB projections, by 2025 inflation should be under control and these interest rates may be coming down, which is another argument to intervene now to help with the shock to these families.

Mr. Paul Joyce

There is X billion for rainy day funds. Is this a rainy day scenario? If people do not have the capacity to meet their repayments, given the increases in repayments, what happens next? It is that legal proceedings are issued and the number of the people in the courts increases. Something has to be done to stem the flow of difficulty here. As the Deputy said, if it is temporary and finite in some way, as the European Central Bank is suggesting, then whatever the investment is at the taxpayer’s expense may be worth making.

It is also very important, as the Deputy knows very well, that the European Central Bank has had a huge role in ensuring in some way that there is a credit servicing and loan sale infrastructure right across Europe. The reason the domestic institutions sold off loans to funds in the first place is that pressure was put on them that if they did not sell these loans and get them off their loan books, even more strict capital provisioning requirements would be imposed upon them which would affect their ability to carry out banking services in the first place.

There is a European dimension to this, as is shown by the credit services directive. I do not know whether the Central Bank of Ireland has approached the European Central Bank and let it know the extent of the difficulty we may be facing and that assistance is needed to deal with that.

An Leas-Chathaoirleach (Deputy Bernard J. Durkan)

We also need to be careful. The Minister for Finance at Question Time yesterday indicated our borrowing levels, our national debt and the extent to which that is now the highest in the world, which is a very precarious place. If something comes around the bend that we do not anticipate now, we could have a very serious problem on our hands all over again. Let us remember we have had the effects of the financial crash and Covid, all in the space of ten years or so, and we are trying to put it all to bed. It needs careful footwork and we need to proceed with caution.

Dr. Amie Lajoie

It is important to note that the European Central Bank does not have a specific customer protection mandate but our Central Bank does, so even though they are in the same pillar, there could be a conflict there.

Mr. Dermot Sreenan

We do not get the chance to be called in front of this committee very often, so I would like to take the opportunity to say to people that if they are getting these letters, when they open the letter, they should make a call to the MABS helpline. We are there to help, even though we are busy.

On a personal note, I am going to attend the funeral of a friend of mine who died in tragic circumstances. I have gone to a lot of funerals in the last three years. We had a celebration in Dublin Castle to celebrate 30 years of MABS. What I wanted to do was bring some of the testimony of the MABS clients, the interviews that happened and the audio clips from that. What came across is that MABS provides a life-changing service for people. We are there to lift the burden. Nobody should do this on their own. It is no exaggeration to say that it actually saves lives. With this opportunity, when we get to talk to the Oireachtas Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach, what we would ask is that it would resource us to do that job.

Deputy Pearse Doherty

Well said. Thank you.

An Leas-Chathaoirleach (Deputy Bernard J. Durkan)

Thank you. I thank the members and each of the witnesses. We are sorry for the duration of the meeting but things tend to do that in this House and in all Houses, incidentally. Thank you for your very constructive input. Keep watching this space to see how the performance goes along. If you feel you have the need to make a comment or an input, do not be afraid to do it.

The joint committee adjourned at 4.27 p.m. until 1.30 p.m. on Wednesday, 22 March 2023.

Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach díospóireacht - Wednesday, 8 Mar 2023

Investment Funds: Discussion

Dr. Amie Lajoie

Ms Eilis Barry

Mr. Dermot Sreenan

Mr. Dermot Sreenan

Dr. Amie Lajoie

Dr. Amie Lajoie

Dr. Amie Lajoie

Dr. Amie Lajoie

Mr. Dermot Sreenan

Dr. Amie Lajoie

Dr. Amie Lajoie

Mr. Dermot Sreenan

Mr. Paul Joyce

Mr. Paul Joyce

Mr. Paul Joyce

Mr. Paul Joyce

Mr. Dermot Sreenan

Dr. Amie Lajoie

Mr. Dermot Sreenan

Mr. Paul Joyce

Mr. Paul Joyce

Mr. Gerard O'Brien

Mr. Dermot Sreenan

Mr. Paul Joyce

Mr. Dermot Sreenan

Mr. Dermot Sreenan

Dr. Amie Lajoie

Mr. Dermot Sreenan

Dr. Amie Lajoie

Mr. Dermot Sreenan

Dr. Amie Lajoie

Mr. Paul Joyce

Ms Eilis Barry

Mr. Paul Joyce

Mr. Dermot Sreenan

Mr. Dermot Sreenan

Mr. Dermot Sreenan

Dr. Amie Lajoie

Mr. Dermot Sreenan

Mr. Dermot Sreenan

Mr. Dermot Sreenan

Mr. Dermot Sreenan

Mr. Dermot Sreenan

Mr. Dermot Sreenan

Mr. Dermot Sreenan

Mr. Paul Joyce

Mr. Paul Joyce

Mr. Dermot Sreenan

Dr. Amie Lajoie

Dr. Amie Lajoie

Mr. Dermot Sreenan

Mr. Dermot Sreenan

Mr. Dermot Sreenan

Mr. Gerard O'Brien

Mr. Gerard O'Brien

Mr. Dermot Sreenan

Mr. Dermot Sreenan

Mr. Dermot Sreenan

Mr. Dermot Sreenan

Mr. Paul Joyce

Mr. Paul Joyce

Mr. Paul Joyce

Mr. Paul Joyce

Mr. Paul Joyce

Mr. Paul Joyce

Mr. Paul Joyce

Mr. Paul Joyce

Mr. Paul Joyce

Mr. Paul Joyce

Mr. Dermot Sreenan

Mr. Dermot Sreenan

Mr. Dermot Sreenan

Mr. Gerard O'Brien

Mr. Gerard O'Brien

Mr. Dermot Sreenan

Mr. Dermot Sreenan

Dr. Amie Lajoie

Mr. Dermot Sreenan

Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach díospóireacht -
Wednesday, 8 Mar 2023