Select Committee on Enterprise and Economic Strategy díospóireacht -
Wednesday, 6 Jul 1994

SECTION 42.

Mrs. O'Rourke

I move amendment No. 125:

In page 29, subsection (2), line 28, to delete "total cost of credit" and substitute "hire-purchase price".

By virtue of amendment No. 13 the term "hire purchase price" has been defined for inclusion in section 2. It is the term properly used in a hire purchase agreement. The reason for the amendment is that some hire purchase agreements provide for a deposit payable by the consumer. Such a deposit forms part of a hire purchase price in accordance with the provisions of section 58 and, therefore, the words "total cost of credit payable under the agreement" are inappropriate in hire purchase agreements. I will propose similar amendments to sections 59, 72, 73, 76 and 77.

Amendment agreed to.

Section 42, as amended, agreed to.

NEW SECTION.

Mr. Rabbitte

I move amendment No. 126:

In page 29, before section 43, to insert the following new section:

"43.—(1) A creditor shall publish a Code of Practice setting out the procedures to be followed in the event of default on a debt.

(2) The Code of Practice shall be in such form and include such information as the Director of Consumer Affairs may specify, but shall include the following matters—

(a) the procedures to be used prior to any judicial process,

(b) sources of independent advice for borrowers who may have difficulty in meeting repayments.".

The amendment proposes the publication of a code of practice setting out the procedures that would obtain in the case of default. It proposes that the code of practice shall be in such a form and include such information as the Director of Consumer Affairs would specify, but would include the following: procedures to be used prior to any judicial process, and sources of independent advice for borrowers who may have difficulty in meeting repayments. There are no provisions for default on a debt. In the case of low income consumers in particular, there may be very little point in hauling them before the court. I think all Members have had experience of such cases where the judicial process is not very effective.

The main purpose of the amendment is to introduce and early warning system so that consumers who default are advised of the implications and warned in advance of the steps that will be taken in the event of them defaulting. Those procedures would be clearly set out in the code of practice so that the credit institution would be required to advise people that they are falling into arrears and if they do not deal with it the consequences might be very serious. There are exclusions from the remit of this Bill. For example, a number of Deputies on this committee have dealt with cases of local authority arrears where the position becomes so serious that local authority tenants are threatened with eviction without due warning. Similar circumstances may arise in terms of credit agreements. The submissions made to us by one or more organisations recommended, as did Mr. Fagan, that a code of practice be introduced such as contemplated here to advise people that they are falling behind and inform them of the consequences.

Paragraph (b) of the amendment refers to sources of independent advice for borrowers who may have difficulty in meeting repayments. The organisations concerned with low income consumers, who do not have access to the normal credit sources for obvious reasons, believe there should be independent recourse to advice —I think they are called money advice agencies — such as that recently put in place to a minimum extent by the Department of Social Welfare to advise people who face problems.

Mrs. O'Rourke

They deal with budgeting.

Mr. Rabbitte

Yes. When people fall into arrears it is brought to their attention and they are told that advice is available on how to manage the debt and so on.

Mr. R. Bruton

I attempted to raise a similar matter earlier when talking about the role of the Director of Consumer Affairs. I see merit in some such system——

Mrs. O'Rourke

We accepted Deputy Bruton's amendment No. 43 which is very effective, but Deputy Rabbitte's amendment is more precise.

Mr. R. Bruton

There seems to be lack of use of mediation services by credit collection agencies. Experience of mediation is that the debtor seeks the service before the problem gets out of control. A code of practice involving mediation may be very helpful. Experience is that agencies dealing with low income families— law centres and the Combat Poverty Agency — see a need for some pre-judicial process arrangement which would be more personal and less frightening to people who get into debt and would be better for both sides involved. There is no advantage to the lender to let the matter evolve to such an extent that it goes to court, which involves heavy legal costs, and achieves nothing in the end. When borrowers get into dificulties they leave it until the last minute to look for help — fear prevents them from seeking help. A code of practice involving mediation would be very valuable. I take it that is what Deputy Rabbitte has in mind. I see merit in the amendment and I would be interested to hear the Minister's comments.

Mrs. O'Rourke

Deputy Bruton's amendment No. 43 proposes to publish codes of practice setting out conduct regarding credit agreements, to secure transparency and fairness in relation to the terms of credit agreements and the conduct of agents dealing with the consumer. I was glad to accept that amendment because, as a general principle, codes of practice, while they must be backed up by good statutory arrangements, are part of the staging posts along the way and, if correctly promulgated and carried through, are most effective. Many credit institutions, to their credit, are beginning to consider that system as a good way to do business.

Deputy Rabbitte's amendment states:

A creditor shall publish a Code of Practice setting out the procedures to be followed in the event of default on a debt. The Code of Practice shall be in such form and include such information as the Director of Consumer Affairs may specify, but shall include the following matters—

(a) the procedures to be used prior to any judicial process,

(b) sources of independent advice for borrowers who may have difficulty in meeting repayments.

I would agree with the spirit of Deputy Rabbitte's amendment but it should be up to various Government Departments, such as the Department of Social Welfare, to help consumers in this regard. While the banks, building societies, finance houses and other institutions will, over time, adopt decent codes of practice — if only because the threat of legislation hangs over them — I do not think they will enter into the spirit of this amendment in the way the Deputy would wish. The Department of Social Welfare introduced measures in specified areas — which have been extended — and it has now introduced advice on budgets and on moneylending arrangements. I believe the system operates very well in Cork. I met the person in charge of this service in Cork and he works in tandem with the Department of Social Welfare. It is working out very well.

I do not think it would be correct in this Bill to make this a requirement on the providers of credit. We will have to find another route to achieve what the Deputy proposes, for example, through the Department of Social Welfare, information from my Department, or the Director of Consumer Affairs. Perhaps the Director of Consumer Affairs would take it upon himself to encourage the growth of such help. I am in agreement with the proposed code of practice but I do not see it sitting neatly with creditors and I have grave doubts that it would be implemented in the way the Deputy envisages. Their bottom line is making money and preserving their investors' money. While many deal humanely with people that is not their modus operandi.

Mr. Rabbitte

The Bill is about transparency and clarity.

Mrs. O'Rourke

In the terms of the contract.

Mr. Rabbitte

I would have thought that the requirement on the creditor to publish a code of practice is in keeping with that requirement for clarity.

Mrs. O'Rourke

We have adopted that.

Mr. Rabbitte

I looked at Deputy Bruton's amendment but in this case an element of that code of practice would be the provision to set out the steps that will be taken in the case of default.

While the Minister has been speaking I have been desperately looking through my file for some of the submissions made by agencies on this point. Deputy Bruton made an important point when he says that some of the creditors themselves may welcome such a provision. Sometimes recourse to the judicial process is not very profitable from the point of view of the creditor, because at the end of the judicial process the goods are confiscated, somebody is put in Mountjoy Jail and when the wherewithal is not there to discharge the debt it is not a very productive course of action. If there were clearly laid down procedures made known to the debtor as well as access to some kind of mediation service and independent advice agency, it might minimise a great deal of this. The relevant paragraphs of the submission from the Coolock Community Law Centre states:

We also note that the Consumer Credit Bill as drafted does not deal with existing provisions in relation to debt collection or enforcement of debts. If the provisions in relation to debt enforcement are not to be updated in this country, we would argue at the very least that there is a role for money advice agencies. This role should be acknowledged in the Consumer Credit Bill. We would also argue strongly for adequate funding of such services. In any case in which a default notice is served on a consumer pursuant to the Bill, addresses of such agencies should be furnished to consumers.

As the provisions in relation to debt enforcement are not being updated at this time, we would argue strongly that the credit industry should enter into discussions with money advice agencies, with a view to setting up a voluntary code of practice in relation to debt enforcement.

Mrs. O'Rourke

I received the same subission.

Mr. Rabbitte

This kind of organisation is at the coalface in the area of consumer credit. Clearly it does not apply with the same force across the board but they are at the coalface in dealing with people who find themselves before the courts. Very often it is not a very productive resort for either the borrower or the lender. Similarly the European Anti-Poverty Network in its submission states:

a major weakness in the Bill is the limited reference to default procedures, beside section 44 (harassment)...

It goes on to spell out a number of steps that the European Anti-Poverty Network believes would strengthen the Bill. It states:

Providing for debt as an intrinsic part of consumer credit legislation should include the following elements:

—a requirement that all credit agreements carry a warning of the risk of falling into arrears and give details of what should be done if debt occurs...;

—a requirement that creditors have an early warning system for advising of the build-up of arrears and of the consequences of such an occurrence and that they encourage debtors to contact creditors or to seek independent help from a money advice agency;

—a requirement that creditors prepare an agreed code of practice (sanctioned by the Director of Consumer Affairs) governing the issuing of default procedures, including court action, repossession of goods and withdrawal of services;

—the establishment of a mediation service on the lines of the small claims courts system whereby creditors could draw-up an agreed repayment procedure and thus avoid the formality and limited compliance associated with court appearance;

I saw one of the Minister's officials smiling when by way of illustration I drew attention to the local authority system. I drew it in because I recognise that Deputies Lawlor, Flood and I frequently have the experience of local authority tenants appearing before the courts.

Mrs. O'Rourke

So have I.

Acting Chairman

In our case you could multiply it by 800.

Mr. Rabbitte

In ours you could add a multiplier. At the end of the court procedure the judge says they must go away and talk to the local authority——

Mrs. O'Rourke

And come back in six months.

Mr. Rabbitte

——and hammer out an agreement. After all the expense, the tying up of people's time it ends up as a case for mediation. I am saying that the analogy holds sound for the kind of credit agreements low income borrowers have with other agencies and that some kind of mediation service and explicit procedures with access to independent advice is necessary. It would not really be an onus of any import on the lending institutions to be required to have such a code of practice. A common code of practice across the credit institutions could be made available to consumers in that situation.

Mr. R. Bruton

I am sympathetic to the idea that we need a mediation service. I too read the submission from the European Anti-Poverty Network and the Coolock Community Law Centre and I am aware that in places such a the Community Law Centre creditors are coming at the very last minute when very little can be done.

If we had some type of mediation service, the likelihood is that the creditor would get more out of the arrangement and that consumers would not let their affairs get completely out of hand.

The issue raised by Deputy Rabbitte's amendment relates to the onus for creating this mediation service. I understand the attraction in saying that it lies with the banks, building societies and credit institutions but the difficulty is that the credit institutions would simply refuse to provide any credit. That will mean the very highest cost of credit is the only credit available to the lowest income families.

If I were trying to exact some concession from the banking system, I would encourage them to make credit accessible to low income families at reasonable rates. Many low income families are not getting a great deal from the banks and building societies; the credit unions are their sole fallback. I attempted to deal with this in amendment No. 44 where I felt the Director of Consumer Affairs should initiate the establishment of a mediation service. Whether the Minister accepts the argument advanced by Deputy Rabbitte that it should fall to the credit institutions or whether it be left to the Director of Consumer Affairs, we should not let this Bill go through without making some attempt to provide an alternative to the court procedure for the enforcement of loans. It has been reported to me by those dealing with these matters that the courts system is not working satisfactorily, the best way forward is for the Minister to consider the various points and to come up with a suggestion as to how we could advance the case that we all want to see advanced.

Mr. Flood

In regard to Deputy Rabbitte's proposal concerning the mediation service we should ensure that account is taken of the need for this type of approach. I differ with Deputy Rabbitte, however, concerning the need to have a separately established service. We should ensure that a particular procedure is followed between the borrower and the lender. In the past there has been a gulf in the relationship between the borrower and the lender, the onus should be on the lender to be more conciliatory towards the borrower at certain times, and there must be proper and adequate communication. The problem is that some institutions — if the terms are right from their point of view — are anxious to lend money indefinitely, that is the height of the communication. There is no substantial communication until there is a breakdown in the repayments. Even at that stage the communication would simply involve a statement or a reminder being sent to the borrower and no effort is made by the lender to contact the borrower to discuss the difficulties that have arisen and make some effort to resolve those problems bearing in mind the personal circumstances of the borrower.

The idea that there should be mediation is correct but it should take place between the borrower and the lender, it should be genuine and the onus should be on the lender to ensure that there is good communication at all times with the borrower, particuarly when difficulties arise. Such communication on the part of the lender should not be left until the last moment when the matter is almost in the hands of the Sheriff or at the door of the courts. That is where many of the problems seem to arise. I agree we should have mediation but it should take place genuinely between the lender and the borrower far sooner than currently is the norm.

Mrs. O'Rourke

Clearly for me to reply would involve exceeding the allocated time.

Acting Chairman

I take it the Minister is not accepting Deputy Rabbitte's amendment?

Mrs. O'Rourke

I accept its thrust but not the wording because I do not believe that this matter rests in the hands of the credit institutions or that it would happen the way the Deputy expects and I genuinely believe that the amendments we accepted earlier from Deputy Bruton — No. 43 and some of the provisions in No. 44 — go a long way towards what Deputy Rabbitte is seeking here. The Director spoke to me twice about this matter — once at a seminar in UCD and on another occasion — and he wants to see that type of arrangement also whereby early mediation can help in cases such as this. I fear that this might cut off credit rather than having the effect of making it easier for people to get out of difficulties. The Deputy referred to problems in the county councils and the Deputy would have those on a much larger scale than I would have in Westmeath, but every week we have a horrendous pile-up of cases and no effort is made to resolve them until they are clearly no longer bearable and the tenants are required to appear before the courts. I would like to have the opportunity to discuss this further. I am not prepared to accept the wording of the amendment.

Acting Chairman

Could we get agreement from Deputy Rabbitte that he will withdraw the amendment if the Minister agrees to examine it further?

Mr. Rabbitte

I would be happy to do that if the Minister examines it with a view to coming back with some proposal.

Mrs. O'Rourke

I cannot come back with a written legislative proposal but with ideas whereby what the Deputy and all Members want could be worked through existing arrangements in the social welfare area, with the Director of Consumer Affairs and the network we agreed earlier to set up.

Mr. Rabbitte

On the point of the mediation service which is a separate aspect, I am not suggesting in my amendent that we set up a separate advice agency here. The amendment merely requires that this code of practice would include information on sources of independent advice for borrowers who may have difficulty in making repayments. If there was a money advice agency, or such independent service, in existence, we are merely requiring that that information be brought to the attention of the consumer and that it would be known to him or her that they could resort to that agency for advice. That is an important point and not a quango we are trying to put in place. The proposal in my amendment is not covered adequately at present although I accept it relates to some extent to matters dealt with in the Department of Social Welfare. I am not sure whether the amount of money — leaving aside the question of quantum — is adequate.

The Minister for Social Welfare made money available to keep people out of the clutches of moneylenders and this was given to the Society of St. Vincent de Paul for disbursal — a society which does valuable work and with which we are all familiar. However, I am not sure that was the correct way to proceed. Some people seeking advice in this area might not wish to handle it through this kind of system. Similarly in this case access to independent advice could obviate many of the problems experienced. I am not sure what the Minister means when she says she will come back on the matter but perhaps not in legislative form.

Mrs. O'Rourke

What are we setting up? Another group to give advice? The next thing is there will be money advice experts whizzing around saying they will reschedule your debt, give advice on A, B, C and D. That is why I go back to the Department of Social Welfare.

Mr. Rabbitte

I do not know if that is what the Minister is doing.

Mrs. O'Rourke

I am not saying we are doing that.

Mr. Rabbitte

It does not say that. It states that information will be made available to consumers on the existence of these sources of independent advice. It does not state we shall set up such an agency.

Mrs. O'Rourke

The Director of Consumer Affairs would be the best person to advise.

Acting Chairman

The validity of the point is obvious. We all agree something should be done but it is difficult to take it in an amendment to the Bill now when we have not thought it through.

Mrs. O'Rourke

The Deputy is asking the creditor——

Mr. Rabbitte

I am not asking that we make law today. I am unhappy with the distinction the Minister makes between ruling out such a legislative proposal which encompasses this idea and saying she will come back with ideas. I am not being pedantic, it is an important distinction. We are making law and it is desirable that we give it expression somewhere in the Bill.

Mrs. O'Rourke

I accepted half of amendment No. 44 in the name of Deputy Bruton. It sought: "to establish a network directly or in co-operation with others, as he sees fit, to inform the public of their rights under this Act, and of the relative costs of alternative sources of loans,". I did not accept the part which sought "to provide a forum through which the public could seek advice on appropriate redress and to mediate in respect of difficulties in loan repayments". The Deputy asked for credit institutions to take that upon themselves. That does not fit in with their role.

Mr. Rabbitte

I ask them to publish a code of practice which provides information on where this independent advice will be available. The Department of Social Welfare has established such a facility in a limited way. As part of the code of practice referred to that should be expressly brought to the attention of the consumer in trouble who could have resort to the agency.

Mrs. O'Rourke

The Bill deals with consumer credit and is concerned with openness about credit arrangements. It is proper that, as public representatives, we discuss difficulties which people encounter as a result of getting into debt. It does not sit neatly with the role of the credit institutions who, as Deputy Flood said, should constantly interact with their customers and deal appropriately with them. I am not in favour of the way it is worded.

Mr. Rabbitte

I am not insisting on the way it is worded. I am not so sure that lending institutions automatically rule it out. Deputies often end up as mediators between the consumer and lending institution. I would have thought some of the lending institutions would be happy to have such a service which would mitigate the problem they frequently deal with.

Mr. R. Bruton

In my experience what drives lending institutions into court is that they do not hear from the consumer in any shape or form for months. All they know is they are not getting their money. If you present the consumer's case to them they know they cannot get breeches off a Highlander. They will say to give them £1 or £2 a week. In support of Deputy Rabbitte, he is not asking the banks to set this up but rather to avail of it where it exists. Hopefully it will exist on a widespread basis after the passage of the Bill. All the code of practice might do is establish a procedure whereby the bank might at a certain point, send a customer a letter saying he is now in default and that there is an advice centre at such and such an address to which he should turn because he is now in danger of going to court.

Mrs. O'Rourke

Yes, except a creditor shall publish a code of practice setting out the procedures to be followed in the event of default on a debt. He is leaving the onus on the publication of a code of practice with the credit institutions.

Mr. Rabbitte

Is it so onerous to require a lending institution to publish a code of practice which states that in the event of you not repaying this debt I want to advise you that you will end up in the clink.

Mrs. O'Rourke

I am not saying it would be onerous; that is the least of my worries though I am sure they would profess it would be horrifically onerous. I do not know if it rests correctly there since their main intent is to get their money.

Mr. Rabbitte

The obligation cannot be imposed on the lender or on the Director of Consumer Affairs. I am seeking to require them to advise the consumer that if he does not come to a new rescheduling of the debt with them, what faces him is a court summons, a court appearance, possible conviction, imprisonment, heavy fine, eviction, chattels being seized or whatever. Deputy Bruton referred to the phenomenon of constituents coming to us and when you ask what the building society said they say they are ashamed to go back. There is a very frosty wan with glasses — you know what women are like — and that kind of thing.

Mrs. O'Rourke

So the Deputy is sexist.

Acting Chairman

We have all had that experience.

Miss Flaherty

Put him in the clink.

Mrs. O'Rourke

"A frosty one with glasses", how dare the Deputy?

Mr. Rabbitte

I knew that would liven up the discussion.

Mrs. O'Rourke

A frosty man with glasses.

Acting Chairman

The starting point is the Department of Social Welfare. There is need for that kind of practical advice but I do not know if we will be able to accommodate it in this legislation.

Mr. Flood

The second part of the Deputy's amendment falls into the lap of the lender. If a person is in trouble the lender will tell him or her to go to the advice centre and to come back when it is resolved. That is what used to happen with semi-State bodies. One in particular used to say to people in my constituency: you have a problem, go down to the community welfare officer, the Eastern Health Board or the Society of St. Vincent de Paul and when you have the money come back to us. I had desperate rows with the people who said that.

Therefore, I am saying that this provision could be used by lenders. I would much prefer to push away those in genuine difficulty, or perhaps difficulties brought on themselves through their own carelessness. I would like to see the onus clearly put on the lender, not merely to give a loan and forget about it until repayments went into arrears but that, if the borrower appears to be in difficulty, to maintain this level of contact, be prepared to talk to the individual or borrower who is experiencing such difficulty, if you like, just as compassionately as a mediator in the case of the type of service Deputy Rabbitte seeks. I have no difficulty with the first part of the amendment which talks about spelling out the overall procedure——

Mrs. O'Rourke

——and what faces a person, the rights and obligations of those who borrow, as distinct from those who lend. I do not have any difficulty with that either. I am thinking of the prospect of businesses growing, with people telling borrowers that they will advise them and reschedule their debts, and contending that, thereafter, the borrower will encounter no difficulty. I recently met a constituent who had been prevailed upon by a so-called financial wizard to put all his debts together, that it would be much easier to repay them. It was, except for the fact that the person concerned was paying almost twice as much afterwards. It was that type of person about whom I was thinking in relation to section 43 (2) (b) of Deputy Rabbitte's amendment as distinct from others spoken about.

Acting Chairman

We had an agreement to conclude at 4.15 p.m. Is Deputy Rabbitte agreeable to withdraw his amendment on the basis of a need for further exploration, since the Minister has said there is such need but that perhaps we are not dealing with it in the right fashion here?

Mr. Rabbitte

I am, the only reason I am persisting is because of my very high regard for the Minister. I have been through this procedure with her a number of times. She tends to use a form of words which mean that, when we get to Report Stage, there is not anything there and, when one reminds her of an apparent agreement with her in spirit on Committee Stage, she slaps you on the knuckles and the Bill is enacted before you have time to say Jack Robinson——

Mrs. O'Rourke

——or Major Robinson.

Mr. Rabbitte

I should like a commitment by the Minister that she will seek to give expression to the concept enshrined in my amendment. I am not wedded to my phraseology, framing of the amendment, or anything like that, but I should like the Minister to give expression to it in some fashion that would have effect; that is all.

Mrs. O'Rourke

My honour is being besmirched but I will overlook that. Yes, I shall come back with my thoughts on the matter, if possible in written form.

Amendment, by leave, withdrawn.

Acting Chairman

We agreed earlier that this committee would reconvene for the Competition (Amendment) Bill with the Minister for Enterprise and Employment on Thursday, 14 July at 10.30 a.m.

I thank the Minister of State and Members of the committee for their deliberations today. It is intended that this committee will reconvene on Tuesday and Wednesday, 19 and 20 July to resume our consideration of this Bill. Members will be advised in the normal way.

The Select Committee adjourned at 4.35 p.m. until 10.30 a.m. on Thursday, 14 July 1994.