Consumer Protection (Regulation of Credit Servicing Firms) Bill 2015: Second Stage

Question proposed: "That the Bill be now read a Second Time."

I welcome the Minister of State, Deputy Dara Murphy.

I welcome the opportunity to address the House on this important legislation which is a priority for the Government. The purpose of the legislation is to protect consumers whose loans are sold by regulated financial service providers to unregulated firms. It will address concerns surrounding the continued applicability of the Central Bank's codes and access for borrowers to the Financial Services Ombudsman after loan books are sold. It provides that borrowers, whose loans have been sold, retain the protections they had when their loan was with a regulated lender. For example, they will retain the protections provided by the Central Bank's codes such as the code of conduct on mortgage arrears, known as the CCMA, the consumer protection code and the code of conduct for business lending to small and medium enterprises. Consumers need protection when taking out credit, during the course of holding credit and when they are repaying credit. It is not equitable that some of these protections can be avoided owing to the regulatory position of the entity which owns the credit. For this reason, consumers should maintain the protections they had before their loan was sold. This is what the proposed legislation seeks to achieve.

As Senators know, unregulated financial institutions are not bound by the Central Bank's codes. In addition, while customers of unregulated financial institutions have access to the courts, they do not have access to the Financial Services Ombudsman. Although, as the House will be aware, many purchasers of loan books have already agreed voluntarily to apply the Central Bank's codes when managing loan books, voluntary compliance is not enforceable. As a result, the Government committed to ensuring these protections would be made available for all consumers whose loans had been sold.

Senators might ask why loan books are sold. It is generally accepted that there is a need for financial institutions to be able to deleverage and restructure their loan books so as to return to their main business of supporting the economy through the provision of financial services, including credit for SMEs and consumers. We do not intend that this legislation will inhibit that process, but, more importantly, we do not want borrowers to lose protections because of a change in ownership.

This has been complex legislation to prepare. Department of Finance officials have carefully considered how best to protect consumers and, as is often the case when preparing legislation, their thinking has evolved during the course of the preparatory phase. Last July and August the Department of Finance ran a public consultation process to seek views on the proposed legislation. Some 19 submissions were received from a range of respondents, including the financial services industry, consumer groups, public representatives, individuals and other stakeholders. These submissions are available on the Department's website. Department of Finance officials subsequently met some stakeholders to clarify submissions and the technicalities of how the credit servicing industry operated. The officials also discussed the issue with the authorities in the United Kingdom, as they had faced similar policy challenges in recent times.

Officials in the Department of Finance have carefully considered the submissions and have been working intensively with the Central Bank and the Office of the Attorney General to progress the legislation.

This experience has underlined the value of the public consultations process. It means legislation is prepared in an open and transparent manner and also plays an important role in contributing to understanding the issues and avoiding unintended consequences. When work began on this Bill, the initial thinking was that the ownership of credit should be regulated to ensure borrowers continue to receive the same protections they enjoyed prior to the loan book sale. However, the public consultation process highlighted an issue with this approach, namely, that it was possible to envisage cases where owners would effectively function as passive special purpose vehicles, SPVs, and, where they outsourced servicing of loans to a firm, that would not be regulated. It became clear from the consultation process that if we were to protect consumers effectively, it was better to regulate the process of credit servicing as that is the customer-facing activity. However, if owners do not outsource credit servicing and instead undertake the activity themselves, they will be required to be regulated. Furthermore, if a regulated financial service provider outsources its credit servicing, it will be obliged to ensure the firm credit servicing on its behalf is compliant with Central Bank regulations. In other words, a regulated entity will be responsible for all credit agreements.

I will now turn to the details of the Bill, the Title of which was agreed following consultation with the Office of the Parliamentary Counsel and reflects the approach being adopted to protect consumers. The legislation will amend the Central Bank Act 1942, Central Bank Act 1997, Central Bank (Supervision and Enforcement) Act 2013 and Consumer Credit Act 1995 and provide for related matters. It is proposed to amend section 28 of the Central Bank Act 1997 by inserting definitions of the terms "credit agreement", "credit servicing", "credit servicing firm", "creditor" and "relevant borrower". The term "credit servicing" is being tightly defined in order that a firm which communicates with relevant borrowers in regard to their credit agreement will require authorisation. As mentioned earlier, the legislation will also require owners who do not outsource credit servicing to another party to be regulated. The Bill ensures there is only a limited number of actions an owner can take without needing to be authorised as a credit servicing firm by the Central Bank.

The effect of all this is to regulate the activity of credit servicing, and the credit servicing firms engaged in such activity, in order that borrowers retain the protections they have before the loan book was sold. All consumer and relevant small and medium enterprise, SME, loans that are sold will be covered by these amendments and will retain the protections they currently have. First, the code of conduct on mortgage arrears, CCMA, sets out the framework lenders must use when dealing with borrowers in mortgage arrears or pre-arrears. It requires lenders to engage positively with the objective of helping borrowers to meet their obligations. Under the CCMA, borrowers must be dealt with in accordance with the mortgage arrears resolution process, MARP, which sets out the steps to be followed on communication, gathering financial information, assessing the circumstances of borrowers and proposing a resolution. Procedures for complaints and appeals are also provided.

Second, the consumer protection code provides protections such as limits on communications, personal visits and other contacts, complaint resolution processes, error handling, compliance of outsourced activity with the code, and post-sale information provisions, including warnings on switching from a tracker mortgage to a variable rate mortgage. Third, under the code of conduct for business lending to small and medium enterprises, SME customers of regulated financial institutions enjoy protections in respect of arrears handling, complaint resolution and so on.

Breaches of the Central Bank codes can lead to sanctions for the regulated entity. As credit servicing firms will become regulated financial services providers under the new legislative regime, all appropriate supervisory powers of the Central Bank will be applicable to them as regulated financial service providers, including the administrative sanctions procedures regime. Customers of regulated financial institutions also have access to the Financial Services Ombudsman whose role is to investigate, mediate and adjudicate complaints about the conduct of regulated financial service providers. All personal customers, unincorporated bodies, charities, clubs, partnerships, trusts and limited companies with a turnover of €3 million or less can complain to the ombudsman. This is a very important protection for borrowers.

With regard to credit union credit, we must ensure that where credit union loan books are sold outside the credit union movement, the borrowers in question are afforded the same protections as other borrowers. This requires an amendment to the Consumer Credit Act 1995. Therefore, the relevant codes will apply to credit which is initially advanced by a credit union but is subsequently sold. We are not aware of circumstances where this has arisen, but it is considered prudent from a consumer protection perspective to provide for it.

Section 1 amends section 28 of the Central Bank Act 1997 by inserting definitions of "credit agreement", "credit servicing", "credit servicing firm", "creditor" and "relevant borrower", as I have mentioned. The activities of credit servicing have been defined to ensure the entity managing the relevant borrowers' credit agreements is regulated. Owners who do not outsource credit servicing will be required to be regulated in order that a regulated entity will be responsible for all credit agreements. The effect of the amendments to section 28 of the Central Bank Act 1997 is to regulate the activity of credit servicing and the credit servicing firms engaged in such activity in order that borrowers retain the protections they have before a loan book is sold.

The definition of SMEs, which comes within the definition of "relevant borrower", ensures SMEs that borrowed from regulated firms maintain the protections they had, while SMEs that borrowed from legitimately unregulated firms are not captured. Such unregulated firms are an important source of funding for SMEs and we do not wish to restrict the flow of funds to such businesses in any way. The Bill will ensure the status quo is maintained. As a result, 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 services provider that is covered by this Bill. Essentially, SMEs will be restored to the protections they currently have, including under the code of conduct for business lending to small and medium enterprises, when they borrow from regulated lenders, but we are not extending the remit.

Section 2 amends the Central Bank Act 1997 in respect of the Central Bank's powers to grant and refuse applications for authorisation. Section 3 amends Section 33A of the Central Bank Act 1997 to enable the Central Bank to impose conditions or requirements on authorised credit servicing firms.

Section 4 amends the Central Bank Act 1997 by inserting two new sections, 34E and 34F, with transitional provisions for retail credit firms and credit servicing firms, respectively. Existing retail credit firms or credit servicing firms are taken to be authorised under this Act provided the person applies to the bank for authorisation no later than three months after the legislation is enacted. However, these firms will "stand authorised" on an interim basis during that period and will be obliged to comply with relevant financial services legislation. They will fall under the supervision of the Central Bank which can immediately step in if there is a problem with a firm's actions. The Central Bank does not have to wait three months to have this power. It will have it as soon as the Bill becomes law. In addition, a regulated financial service provider authorised before or after the enactment of the legislation to provide credit in the State is taken to be authorised to carry on the business of a credit servicing firm by virtue of the amendment this Bill makes, in section 1, to section 28 of the Central Bank Act 1997.

Section 5 was introduced on Committee Stage in the Dáil to strengthen protections for borrowers further. It inserts a new section in the Central Bank Act 1997 that is a statutory obligation on both owners and credit servicing firms. The statutory obligation will ensure a credit servicing firm cannot do something, or fail to do something, that would be a prescribed contravention if performed, or not performed, by a retail credit firm. It also prevents the owner of credit from instructing a regulated credit firm to perform such an action. This obligation is considered necessary to return borrowers to the circumstances they were in prior to the sale of the loan book. It strengthens the protections for borrowers and also effectively closes off possible behaviour by owners instructing firms to carry out inappropriate activities. It also strengthens the position of an upstanding credit servicing firm as it legally obliges it not to carry out such instructions. Furthermore, the obligation makes the issuance of such instructions by an owner an offence.

By this obligation, we are specifying an offence for the unregulated owner but also ensuring the breach cannot be implemented by the regulated servicer, over whom the Central Bank has oversight as a regulated entity. This will mean a quicker response to possible breaches. Furthermore, this oversight will allow the Central Bank to investigate in a case where an unregulated owner instructs a credit servicing firm to do something that would be a prescribed contravention if done by a retail credit firm. Such a breach is actionable by the Central Bank against the credit servicing firm. In addition, the owner could also be liable for credit servicing without authorisation. The obligation on the regulated credit servicing firm not to perform the action also means that the borrower has access to the Financial Services Ombudsman.

Section 6 amends section 3 of the Central Bank (Supervision and Enforcement) Act 2013 to amend the definition of "customer". We are adding paragraph (c) to include people whose loans are being serviced by a credit servicing firm.

Section 7 amends section 57BA of the Central Bank Act 1942 to ensure relevant borrowers whose credit agreements are being serviced by an authorised credit servicing firm are considered eligible consumers for the purposes of the Financial Services Ombudsman. Customers of regulated financial institutions have access to the Financial Services Ombudsman, whose role is to investigate, mediate in, and adjudicate on complaints about the conduct of regulated financial service providers.

Section 8 amends section 3 of the Consumer Credit Act 1995, which concerns the application, to ensure that the relevant Central Bank codes will apply to credit union credit that is sold to an unregulated entity. With regard to credit union credit, it is necessary to ensure that where credit union loan books are sold, those borrowers are also afforded the same protections as other borrowers. This issue was raised by the Financial Services Ombudsman in the consultation process. Credit union credit sold outside the credit union movement should be regulated so an amendment to the Consumer Credit Act 1995 is needed. Therefore, the relevant codes will apply to credit that is initially advanced by a credit union but subsequently sold to an unregulated entity.

Section 9 contains the Short Title and collective citation. The Bill will commence on its signature by the President.

The Bill is important because it addresses the concerns of borrowers whose loans are sold to unregulated entities. It will give consumers a legally enforceable right to complain to the Financial Services Ombudsman and it will ensure consumers whose loans have been sold will have the benefits of the Central Bank codes, and those dealing with those consumers will have to be authorised by the Central Bank.

The Minister for Finance, Deputy Michael Noonan, looks forward to a constructive debate on the Bill. There is broad agreement in the House on the need to ensure borrowers will have the same protections as they had before their loan was sold. We can all agree that this important legislation needs to be enacted as soon as possible in order that borrowers are protected without delay. While the Minister and his officials have been extremely careful and diligent in the drafting of this legislation to ensure it restores protections for borrowers, they believe that if issues emerge regarding the legislation, they may, if considered necessary, be dealt with at a later stage through amendments to the Act. The priority must be to enact the legislation to ensure that protections for borrowers will be in place as quickly as possible. I commend the Bill to the House and ask Senators to give it their full support and consideration.

The Minister of State, Deputy Dara Murphy is very welcome. I am puzzled as to why he is not in the Department of Finance. He is responsible for European affairs and data protection. I would have believed the Minister for Finance, Deputy Michael Noonan, or his Minister of State, Deputy Simon Harris, who are responsible for this legislation, would have been here. That they are not is no reflection on Minister of State Deputy Dara Murphy, who does a good job and is more than welcome here. However, I would have believed that if the legislation was as important as stated and if, as stated, the Minister looks forward to a good, constructive and forthright debate on the Bill, he or his deputy, Minister of State, Deputy Simon Harris, would have come to the House to hear it.

This is not great legislation. It is important but it is drastically watered down by comparison to what we expected. I would oppose it on Second Stage only that I have a series of amendments prepared for Committee Stage. The Bill is deficient and watered down. The watering down is akin to the watering down of the code of conduct on mortgage arrears that the Minister of State referred to in this statement, which is obviously prepared by the Department of Finance. The Bill will not achieve what is required.

When mortgage books are sold, it is a big issue for those concerned. The mortgage holders will not be afforded the protection required based on the way this legislation is framed because the owner of the loan books, which could be a vulture fund that is not administering the mortgages, will not be covered by it. If vulture fund ABC plc from the USA bought a loan book here but did not administer the mortgages, it would not be covered by the Central Bank or this legislation, as drafted. It is mentioned in the statement prepared by the Department of Finance and read by the Minister of State that the Department of Finance consulted widely, there were concerns within the industry that what I suggest would be too complex, which is why the changes have been made. I believe the changes have been made because the financial institutions and those who purchase loan books did not want the legislation to be as strong as it should be. I could be wrong about this, but it is more than likely the reason.

The Senator is judging us by his own standards, I am afraid.

There is a real issue. We have 11 or 12 amendments to the Bill that we will table. I do not doubt the Government's desire to afford protection to mortgage holders but I believe the legislation needs to be strengthened sufficiently.

The Minister of State referred to the question of why loan books are sold. We understand why they are sold. Mortgage holders wonder, in connection with the IBRC and Irish Nationwide Building Society book of residential mortgages that was sold, why the affected mortgage holders were not afforded the opportunity to purchase their own mortgages at a discount. The Government saw fit to sell those mortgages as a block at a substantial discount, yet the mortgage holders, even if not in arrears, got no opportunity to make an offer on their mortgages. My proposal might not seem realistic, but I have dealt with people with Irish Nationwide Building Society and IBRC mortgages who were angry because their mortgages were sold by the Government to what is effectively a vulture fund and because they were not offered any discount. Moreover, they were never told the discount at which the mortgages were sold. People refer to a discount in the region of 50%, and this is more than likely the case. This is a problem because the code of conduct on mortgage arrears is not as strong as it used to be. It is welcome that the Government is seeking to remove the bank veto, but its proposals do not do so.

The problem concerns areas where house prices have risen.

Last year, more than 10,000 repossession orders were issued as a result of the Land and Conveyancing Law Reform Act, which the Minister of State's colleague, Deputy Alan Shatter, brought in, which the House passed, and which set aside the Dunne judgment and made it easier for financial institutions to repossess people's homes. At the time, many people warned that we should expect a raft of repossession orders, and this has happened. If a vulture fund in New York has bought my €100,000 mortgage for €50,000 and thinks it can get full redemption of it, particularly if I am in arrears, it will go after me. This is happening. People who are paying their mortgages but who have an amount of residual mortgage arrears are being moved against, not just by vulture funds but also by Irish-owned banks. The code of conduct on mortgage arrears is irrelevant.

Today's report by the Central Bank states there has been no financial penalty against any financial institution. I have frequently had occasion to write to Bank of Ireland to ask why it has not offered a split mortgage to a client. The answer is that the bank did not and will not, and that is the end of the matter. The Minister of State should not wonder if I take the legislation and the Government's statement today not just with a pinch of salt but with a bucket. The Government's track record on protecting people who have mortgages and are in mortgage arrears has been abysmal. The legislation will let the people who own the mortgages off scot free. Only the administrators of mortgages, not the owners, will be covered by this. There are major deficiencies in this half-baked piece of legislation. It is 100 million miles away from what the Minister, Deputy Michael Noonan, said he would produce.

The Minister could be elsewhere in the European Union and I understand there are important negotiations ongoing which he must attend. While I do not cast aspersions on the fact that the Minister of State, Deputy Dara Murphy, is present, and he is more than welcome, I am slightly bemused as to why the Minister State, Deputy Simon Harris, is not here. The Leas-Chathaoirleach might insist that the Leader ensure a Minister who has responsibility within the Department attends Committee Stage here and hears the amendments we plan to table. We plan to table at least 12 amendments and I assume others will also table amendments.

Can anyone tell me why those who purchase distressed mortgages will not be covered by the legislation? I do not understand why one would bother bringing the Bill forward without it. There are issues with SME debt and certain anomalies within the Bill will cause difficulties for some major companies in Dublin in particular of which I am aware and I will try to address them by way of amendment. The Department and Minister are aware of unintended consequences which may befall some SMEs as a result of the legislation and I hope this will be tidied up on Committee Stage.

I thank the Minister of State for outlining the Bill. I appreciate that he has taken the time to do it. It is vitally important that the Minister, Deputy Michael Noonan, or the Minister of State, Deputy Simon Harris, be here for Committee Stage. Although I would be inclined to vote the Bill down on Second Stage, we will take the opportunity to strengthen the legislation on Committee Stage rather than oppose it now. I hope the Minister will examine the amendments we will forward this evening. I assume the Bill will be taken on Committee Stage next week.

I would give the legislation score of four out of ten, based on what was proposed at the start and what could have been done. That is my humble opinion. Senator John Gilroy will disagree with all of this, which is fine.

I will not disagree.

We should try to explain to people why, when the Government sells their mortgages to a vulture fund, they have no opportunity to get a discount on their mortgages in the same way multi-billion dollar enterprises did when the Government sold the IBRC residential mortgage book at a substantial discount. People included in the portfolio will have their houses repossessed on the back of it.

I welcome the Minister of State, Deputy Dara Murphy, for this discussion on the Consumer Protection (Regulation of Credit Servicing Firms) Bill 2015. The Bill aims to ensure borrowers whose loans are sold by a regulated entity to a currently unregulated entity maintain the same regulatory protections as they had before the sale, including under various Central Bank codes and the code of conduct on mortgage arrears. I share Senator Darragh O'Brien's concern and outrage at the Central Bank's report yesterday on how seven of the regulated entities are treating people in arrears and breaking the rules set by the regulators. It is disturbing that some of these banks are continuing with legal action to repossess homes, despite the fact that revised deals had been agreed with struggling home owners. Other banks are withdrawing Central Bank protection for mortgage customers because they did not agree to a repayment schedule over the phone, despite the fact that banks are required to communicate a revised payment arrangement in writing, as the Central Bank has indicated.

Seven banks are involved, none of which has been named. This morning I heard an interview with a representative of the Central Bank and it is unfortunate the banks were not named and that stronger sanctions are not being imposed on them. The Central Bank's report also showed that some banks were seeking irregular payments from stricken mortgage holders on top of agreed revised payments. There were cases in which lenders continued to call borrowers directly rather than liaising with nominated third parties. Some banks were not adhering to agreed timeframes for dealing with distressed borrowers. These issues should be highlighted, as the Minister of State said.

Customers need protection when they take out credit, during the course of holding credit and when they are repaying credit. It is not equitable that some of these protections be avoided due to the regulatory provision of the entity that owns the credit. The legislation rightly seeks to ensure customers retain the protections they had before the loans were sold. Despite what Senator Darragh O'Brien said, the legislation is timely and urgent. Of the 760,000 mortgages on primary dwellings in the State, approximately 102,000 are in arrears. Thankfully, the figure has dropped significantly from 120,000 in February. This is a positive development. Deals are being done and people are returning to work and are, therefore, in a position to make the repayments. The reduction in the unemployment rate from 15% to 9.8% is contributing significantly to the fact that more people are in a position to meet their revised mortgage commitments. Of these 102,000, 5,000 to 10,000 do not enjoy the protection of the code of conduct on mortgage arrears. This is a significant number. The proposed legislation would bring peace of mind to many families.

Protection became a major issue when the Ulster Bank loan book was sold by IBRC. As public representatives, we have all heard harrowing stories from constituents about how they have been treated by lending agencies after the crash. These agencies have taken no consideration of the parts they played in getting many people into severe financial difficulties. I applaud the wonderful work being done by the Money Advice and Budgeting Service, MABS, and the credit unions and the support they have given many people who have been in great difficulty.

The Bill will extend the regulatory remit of the Central Bank and ensure the applicability of various protections for consumers of financial services. I have already referred to the code of conduct on mortgage arrears. The consumer protection code and the code of conduct for business lending to SMEs and the Financial Services Ombudsman also apply. In addition to primary dwellings, the legislation will apply to SMEs to facilitate access to credit for sustainable and productive business propositions. The consumer code is essential in this regard. While the primary purpose of the Bill is to provide protection for mortgages, many people have found themselves in great difficulty with loan sharks, properly known as regulated moneylenders, whose interest rates can be as high as 188%. I very much welcome the announcement by the Government during recent days of the micro loans scheme and I applaud the work done by the Minister of State, Deputy Kevin Humphreys.

These loans will provide up to €1,000 to 40,000 low to middle income families at an interest rate of 12% as opposed to the 188% provided by moneylenders. It will be administered through local credit unions and post offices. I welcome the fact that it will be piloted by September. Some people may have concerns that the loans will be given to people who may not be in a position to repay, but repayment is guaranteed because the payments can be taken through social welfare. There will be involvement from the Money Advice and Budgeting Service and the Society of St. Vincent de Paul to ensure people do not seek loans they cannot afford.

It is welcome that this will be a hassle-free process whereby moneylenders will be taken out of the loop. It should be a great boost to the credit union movement also. I come from a town that has a strong credit union which currently has plenty of money available to loan to business and borrowers. As a Government, we need to strengthen the credit union movement to ensure it continues to play its rightful role in society and in our community, as it has always done. While a few have run into difficulty, the majority of credit unions have run their businesses in an exemplary fashion. It is welcome that the protections in the Bill will cover loan books sold on by the credit union movement. As the Minister of State said, it is important to ensure borrowers will have the same protections they had before their loans were sold on. It is welcome that the legislation is to be enacted without delay. I commend the Minister for Finance for the work he has done in this regard.

I welcome the Minister of State, my constituency colleague, to the Chamber. I also welcome Senator Darragh O'Brien's thoughtful and measured contribution, articulated in his normal coherent and clear style. However, I am a little disappointed with regard to his comments, which may surprise some. He seemed to suggest the legislation was constructed to satisfy the concerns of the financial industry. Let us consider some of the publications which came before the Joint Committee on Finance, Public Expenditure and Reform during pre-legislative scrutiny. They clearly outline in a transparent way most of the questions laid out by the very actors we are seeking to regulate. The suggestion that there has been a lack of transparency in the process is probably the complete opposite to what I sense in this legislation. It has been outlined publicly in a public document and we can see the contributions and concerns of named companies, including Mars Capital, FLAC, Vivier Mortgages and the Irish Debt Securities Association. These are the agents we seek to regulate. They have all clearly laid out what they are seeking. We can compare clearly what those agents seek and what is in the Bill. If anyone can demonstrate to me that there has been a lack of transparency, they will have done a good job in the public interest.

This legislation is a welcome development. It has been the topic of much comment and concern in recent times. We have heard this articulated in the media and through consumer organisations. The sale of loans has a tendency to create uncertainty and concern among borrowers. While it is commonplace in other countries, it is a relatively recent phenomenon in Ireland. Up to now, borrowers in Ireland have had a reasonable expectation that they would continue to deal with the people who lent them money, that is to say, the financial institutions from which they borrowed the money. Our domestic lenders are bound by the Central Bank of Ireland codes but up to now the so-called unregulated financial institutions have not been. While borrowers from unregulated financial institutions have access to the courts, up to now they have not had access to the Financial Services Ombudsman, whose role is central in resolving disputes and complaints between customers and the lending institutions. Many of the unregulated financial institutions have agreed to accept the voluntary code of the Central Bank of Ireland. This voluntary code is a form of compliance, although it is not enforceable.

I suggest that relying on the goodwill of international and mobile investors is not the most prudent course of action. We have seen a stark example of this in the past week with the owners of Clerys. They have strictly abided by the letter of company law but have shocked everyone with their ruthless application and disregard of the spirit of that law. This is probably the first time we have seen international asset strippers arriving into the country to make a pure clear profit only to be gone as quickly as they came while using our laws to their advantage. It is not the most prudent course of action to rely on the voluntary goodwill of financial institutions. The Consumer Protection (Regulation of Credit Servicing Firms) Bill 2015 gives statutory protection to customers and will prevent this type of asset stripping. It will go a long way towards reassuring customers that their loans and the conditions under which the loans were borrowed will retain the protection they have enjoyed up to that point.

Before the economic implosion on a global scale we saw how the financial markets in the Americas, and the United States in particular, had securitised or bundled up various financial products, for example, life insurance policies, sub-prime mortgages and other financial instruments and derivatives, before selling them on in the secondary market. In many ways this was the cause of the great crisis that has visited us in the past decade. Does this Bill speak to any of those concerns in respect of financial institutions which might be tempted to securitise other products, including some of our non-performing mortgages in arrears?

My second question for the Minister relates to credit union loan books being sold. I was unaware of this practice or if I was, I had not given it much thought. I do not imagine many people in the country are aware of this. Will the Minister of State inform the House how prevalent is this practice in the country? Is it something we are likely to see more of?

Senator Darragh O'Brien made a reasonable point. He asked why people in mortgage arrears are not allowed to buy their mortgages, while multinational companies are allowed. Is this anything to do with the fact that people who find their mortgages being sold on are, by definition, in arrears and do not have access to capital to buy them? Where can these people raise the capital if their primary asset is in trouble already? Is that one of the reasons, or is it simply utilitarianism, that is to say, it is simply too difficult to administer? If this were the case, it would be unacceptable. Perhaps the Minister of State might comment on those points.

We look forward to discussing the sections of the Bill in detail. I presume the Minister, Deputy Michael Noonan, will come to the House when the Bill is before us again. I look forward to further engagement. I also look forward to hearing details of the Opposition amendments to strengthen the provisions. Senator Darragh O'Brien, in particular, has referred to this. We look forward to discussing them at length at that Stage.

The Minister of State is welcome. I realise it did not sound as if he was being made welcome by Senator Darragh O'Brien earlier.

I did not mean anything by it.

No, the Senator did not. He was careful about the way he worded it. We have seen the Minister of State in the House on several occasions recently. On this occasion he is wearing a particular hat.

I welcome the Bill which aims to give more protection to individuals and small and medium-sized enterprises.

There is a loophole whereby certain loans that are bought by third parties may not be covered by current legislation. The Minister of State explained that very clearly. The original Bill was extensive as it was intended that it would apply to all credit agreements, including where an SME entered into a loan with an unregulated lender. However, the amendments of 27 May have the effect that loans originally entered into between SMEs and unregulated lenders are not covered. The provisions will only apply to regulated financial service providers. I understand the purpose of the Bill was to cover loans subsequently acquired by an unregulated entity but perhaps we might find a middle ground in order to offer some protection to SMEs and other customers. I would appreciate it if the Minister of State could comment on that issue. People may face an increased risk of losing their family homes if an unregulated firm holds their mortgage. I am aware that there was discussion about the possibility that mortgages may still be a grey zone. Perhaps the Minister of State might clear up any misunderstanding that may exist in this regard. It would be useful to have clarity on how the so-called vulture funds will be regulated in respect of mortgages.

I recently drafted a Bill that would empower the Central Bank to force banks to reduce variable mortgage interest rates. The Minister for Finance is aware of the bad behaviour and profiteering of banks in this respect. While the Minister for Finance has done some work in this area, KBC Bank, Bank of Ireland and Ulster Bank ruled out the possibility that they would cut their variable mortgage rates. A recent article in The Irish Times reported: "The Minister reminded the banks that Senator Feargal Quinn’s bill to give certain powers to the Central Bank to fix interest rates has been published in the Seanad, where the Government does not have a majority." Where does the Minister of State stand on this issue and how does the Government intend to deal with financial institutions which do not pass on interest rate cuts to customers?

The ultimate purpose of the Bill is to give people access to credit and to protect borrowers. One way that SMEs and individuals can get easy access to credit is by releasing some of the cash locked up in their pensions. The Minister for Finance introduced a progressive measure which allowed people to access some of the cash locked up in their additional voluntary contributions for a three year period from 2013. The scheme expires in less than a year, however. The access to cash changed people's lives and it provided crucial cash flow for businesses. By September of last year, more than 12,000 people had availed of the scheme, more than €90 million had been released and €36 million had been paid in taxes. It was a win-win for the Government and borrowers alike. However, I was disappointed to learn that the Minister had no plans to extend the scheme, even though it had been a massive success, with a significant take-up. We have to treat people as adults. The banks are still reluctant to offer loans, while people are unable to access money locked up in their pension account to put their children through education or their businesses back on track. Will the Government consider extending this very worthwhile scheme in the next budget? If people knew they could access part of their pension funds for the rainy day, it would encourage them to invest in their pensions. This has been done successfully in Britain and the ability to access pension funds may have been vital for more than 12,000 people in Ireland. Anecdotal evidence indicates that the scheme has changed lives.

I hope the Minister of State will agree to the amendments that can improve the Bill. I am confident that he has listened carefully to our arguments. Senator Darragh O'Brien indicated that he intends to table a number of amendments. I like to believe this House will be able to improve the Bill.

I thank Senators for their contributions. As Senator Darragh O'Brien noted, the Minister for Finance is at a meeting in Brussels, but he has indicated that he will engage with Senators at a later stage.

The Minister of State is very welcome. I did not mean any offence to him.

I should have explained the reason for the Minister's absence at the outset of my contribution. He is looking forward to engaging constructively on Senators' amendments.

The purpose of the Bill is to protect consumers whose loans are sold by regulated financial service providers to unregulated firms. Senators offered broad support for the Bill's overall objectives. While a number of purchasers of loan books have voluntarily agreed to apply Central Bank codes when managing loan books, the Government is introducing the Bill because voluntary compliance is not enforceable. The Bill provides that borrowers retain their protections after their loans are sold, thereby addressing concerns about the continued applicability of the Central Bank's codes and access for borrowers to the Financial Services Ombudsman. I have noted the points raised by Senators during the course of the debate and they will be considered carefully prior to Committee Stage, when they can be further explored.

On the issues raised by Senator Darragh O'Brien, it was initially believed the best approach was to regulate the new owners of loan books but the approach evolved on foot of the public consultation last July and August, which sought a broad range of views. Further consideration on Committee Stage may be warranted. The Bill also benefited from input from the Central Bank and the Office of the Attorney General. The public consultation process highlighted an issue with the original approach which would facilitate the use of special purpose vehicles and the outsourcing of loans to unregulated firms.

Senator John Gilroy referred to sales of credit union loan books. This is not known to have happened and, while that is not to say it could not happen, it would be an unwelcome development. We are taking a belt and braces approach in this respect.

In order to further strengthen the protections for borrowers, a new section 5 has been added to provide for a statutory prohibition on a credit servicing fund doing something which is a proscribed contravention if performed by a retail credit firm. This provision also prevents the owners of credit from instructing a regulated credit firm to perform such an action.

This copperfastens the protections for borrowers and ensures owners' hands are very much tied in terms of what they can do in order to ensure that they do not act in a way that needs authorisation as a credit servicing firm and that they do not commit an offence by instructing a firm servicing their credit to do something or fail to do something which would be a proscribed contravention. On the question of interest rates, they are not and were never intended to be covered by this legislation. A number of Senators posed questions relating to the SME sector. It is the intention that individuals, as well as small and medium enterprises, will be the greatest beneficiaries of the protections provided in the Bill and the Minister is very eager that it will become law at the earliest possible opportunity in order that this will be the case.

I thank Senators for their constructive engagement on this very important Bill. Most of those in opposition have engaged with it, although Sinn Féin Members were not particularly engaged with our deliberations today which is unfortunate because broad engagement by Members enables us to arrive at the best possible legislation. I hope priority will be given to the Bill and know that the Minister and his Department will engage fully on Committee Stage.

Question put and agreed to.

When is it proposed to take Committee Stage?

Next Tuesday, 30 June.

Committee Stage ordered for Tuesday, 30 June 2015.
Sitting suspended at 1.45 p.m. and resumed at 3 p.m.