Amendments Nos. 92 and 94 in the name of the Minister are related. I suggest that they be discussed together. Is that agreed? Agreed.
SECTION 22.
I move amendment No. 92:
In page 21, subsection (1), lines 19 and 20, to delete "annual percentage rate of charge" and substitute "APR".
The purpose of these amendments is to ensure consistency throughout the Bill, to encourage the use of the term "APR" at all times for "annual percentage rate of charge", the intention being that the public at large, and especially consumers of credit, come to recognise the term as the unit of measurement of the cost of credit. Henceforth it is our hope that this term — as more usage comes into play — will be a very useful guide to prospective consumers of credit who wish to compare the packages on offer to them.
I appreciate the Minister's desire to be consistent throughout the Bill and the reason she advanced for the use of the term "APR". However, I have come to the conclusion that, increasingly, we take the easy way out when disseminating information to the general public. We continuously use abbreviations, capital letters such as those here. I could give many other examples. While politicians become fairly familiar with abbreviated terms — that is our business — we assume it will be just as easy for the general public to come to the same understanding. However, when one reads any information designed to be of help to the consumer, one becomes increasingly frustrated by the usage of this abbreviated form of terminology. I am sure the Minister would prefer to spell out such information clearly and precisely for the general public, rather than abbreviating it, expecting the general public to ascertain what precisely is meant. Before I fully understood what "APR" meant I had to spend a long time endeavouring to ascertain what precisely it meant. It used to appear in various financial documents with which I was involved relative to borrowings and so on. We should endeavour to move away from this abbreviated form of information because I do not consider it to be helpful to the general public. The full term "annual percentage rate of charge" would seem to be reasonably easy to understand by someone borrowing money or whatever; much easier than the term "APR". There is no doubt that anybody confronted by the term "APR" for the first time would be confused.
Deputy Flood has made a very valid point because, as politicians, we tend to speak in clichés among ourselves, use terms like "APR" which bewilder people.
And think everybody understands them.
The Chairman, will know from his experience as a public representative in Cork city that, when one brings young couples to a building society or a bank to initiate the purchase of a house, it is a most tortuous, complex and convoluted process, necessitating them wading through all the documentation issued by the relevant local authority. A person must seek a loan from a bank or a building society before he or she can obtain a loan from a local authority. This is followed by a visit to the local income tax office to complete certain forms and have them duly stamped. At the end of that process, the young couple concerned will have become bewildered and overawed. If some of the abbreviations referred to by Deputy Flood, are mentioned people are almost helpless in the hands of such financial institutions. Therefore, anything we can do to streamline that process, rendering it easier to understand the implications of the commitments they are taking on in applying for such loans, will have been a good day's work. I agree that such terminology should be consistent throughout the Bill because there is no point in having two or three different terms meaning the same, making it even more difficult for people to understand.
I suppose it is impossible to go through modern life without a certain amount of this but there is scarcely any term as important as "APR" when one is taking out a loan, especially within the moneylending sector whose percentage rates have run into hundreds of percentage points in the past. Then it becomes particularly important. I take Deputy Flood's point. Of course, the most striking illustration of this point is the current advertisement for a certain very large building society which features a very famous footballer telling us what is the APR. A comedian, who I do not think is a big favourite with the Government parties, but who is with me, Mr. Dermot Morgan——
Depending on who comprises the Government of the day.
——has taken the mickey out of the advertisement by asking the footballer concerned what is the APR. The footballer engages in a lot of humming and hawing but has no idea what is the APR and clearly thinks it refers to the month after March——
Or an abbreviation thereof.
The point is well made. Indeed, it is somewhat like the recent European elections, of which Deputy Kemmy and I have some knowledge, when the number of abbreviations used added to the obfuscation and people's difficulty about the issues involved. In this case, APR is particularly important. I do not know what we can do to render it more readily understood by the people likely to enter into this type of credit agreement.
Deputy Flood raised an interesting point. I suppose it begs the question whether advertisements should explain in some form what the APR is designed to achieve. For example, if an advertisement quotes 10 per cent and then an APR of, say, 11.6 per cent, what exactly is that advertisement trying to tell people? Looking at the Fourth Schedule, where the method of calculating of the APR is explained in some detail by about 40 symbols, I am not so sure that will be an easy job.
Certainly that is not going to be very helpful. I have already voiced that opinion in my Department.
We are all agreed with what the Minister seeks to do in terms of transparency, clarity and everything else, yet one comes up against a key term like this. We all know the facts of life are that we all have a habit of not admitting when we do not understand certain things. The people most likely to be subjected to this kind of credit agreement may not understand the term, may not feel in a position to explain why they do not understand it, or think it stupid to ask that it be explained to them.
They may be afraid to ask because it seems so authoritative since it is written in large capital letters. Discounting what is contained in the Fourth Schedule, which is certainly overlaid with a lot of gobbledegook, section 2 states:
"APR" means the annual percentage rate of charge, being the total cost of credit to the consumer, expressed as an annual percentage of the amount of credit granted and calculated in accordance with section 9;
Deputy Flood has raised a legitimate point about the letters APR, in large capital letters, being used consistently throughout the Bill — as we seek to do — and that the people who want to avail of such a credit facility may not know what the term means. Therefore, would they be better served if we specified "annual percentage rate"? I do not think so; they would be better served by using the term "APR" consistently. We could also make very clear, in leaflets, in the dissemination of information and so on, what the term means so that people would reach the stage where they would know what the term meant and would feel free to inquire about the APR. I know what Deputy Flood is getting at — and in a sense he is right — that people are inclined to be submissive when they see such large authoritative capital letters used in documentation, rather than probe and inquire. Our task in this Bill, and others, is to so imbibe consumers with confidence and knowledge that they will stand up for their rights, seek information and demand to know the meaning of all such terms.
I support the point of view that if we use APR consistently and if it is explained in the end the consumer will be better off having come to recognise the term. It is dependent on information giving and on explanation of it. We all listen to the advertisement. It does a disservice to consumers and makes them out to be gombeens.
Perhaps the best way to get over this would be to require advertisers to put in, after they quote the APR, a sentence such as: "This is the only reliable way to compare the costs of borrowing from different sources". We are trying to have a consistent measure that will be applied uniformly, otherwise people can quote rates such as 8 per cent by calculating them in a very perverse way and make it appear cheap.
In other words, the elucidation and education would be within the advertisement.
It is a good point.
I understand what the Deputy is saying. As APR is the most important symbol we will encounter in this Bill, I will certainly look at it.
I am confused by the symbols at the back of this document. Deputy Rabbitte made the point that even a professor of economics would have difficulty in interpreting those symbols. I have in mind an ordinary person attempting to buy a house.
He would interpret them but he would tell you there are two answers.
It is gobbledygook.
Amendment agreed to.
I move amendment No. 93:
In page 21, subsection (2), line 22, to delete "(other than one relating to a housing loan)".
In section 22 (2), which deals with what must be contained in advertisements, we exempt housing from the need to include any charges other than the repayment of capital and interest. The area of greatest confusion in the eyes of the consumer, as regards additional charges and loopholes in which they may be caught, is that of housing. It is the single major investment which most people make. An advertisement where the credit offered is subject to conditions involving the payment of any charges other than the repayment of capital and interest on the sum borrowed, should specify those conditions, particularly in the area of housing.
Perhaps this exemption refers to a later section in the Bill. Housing advertisements should not conceal charges which are not brought to attention. I ask the Minister either to take my amendment on board or to give us an assurance that elsewhere in the Bill there is a provision that advertisements for housing loans will be as transparent as we would wish any other advertisements in relation to credit to be.
Unless there is some very good reason, I do not see why the Minister should not take Deputy Bruton's amendment on board. Notwithstanding the fact that it is likely to be the single most important credit agreement most consumers will make during their lifetimes people still have, for whatever reason, a tremendous ability to ignore the small print. Take for instance, the old HFA loans, administered through the local authorities, which would have the least vested interest in confiscation on misrepresentation. On more times than I can recall, constituents who have an income related loan under the HFA have come to me. These were ordinary industrial workers, bus drivers and so on who had been doing an inordinate amount of overtime and suddenly found that the greater portion of their earnings, after tax, was absorbed by an increase in the mortgage repayments because it was related to income. When asked if they understood the type of loan they were entering into they said either they did not or that they did not appreciate the significance of it, or that they took out the loan at a time when interest rates were exceptionally high but now the situation has changed. They were working excessive overtime. It was a once-off situation for that given year and they were being punished severely.
If their income is reduced their repayments are reduced accordingly.
Of course we never hear about that side of it. I do not readily understand why something as important as a housing loan should be excised from the advertisement requirements that apply to other kinds of loans.
I have listened to the discussion on this matter with interest and I look forward to hearing from the Minister the precise reason the housing loan is excluded from the advertisement. When a young married couple go to a building society or a financial institution to take out a loan to buy a house they may be operating under considerable pressure. They make their application and think everything is going fine. When they are about to sign on the bottom line accepting the loan they are told by the manager that they will have to take out an insurance policy. At that point they are in no position to say they do not want to deal with that firm. They do not have the freedom of choice. Second, the local authorities, of which I have experience, insist that those who take out a loan must obtain an illness protection policy. This means that if a person is ill and cannot work the financial institution will make the mortgage repayments to the local authority until that person returns to work. My experience of the operation of that system is appalling. A number of constituents have come to me complaining that although they made their payments the insurance company put so many obstacles in their way that they could not draw down the benefit of the subscription they had paid. These are the points which arise when a person is about to take out a housing loan in a number of cases. I ask the Minister to have another look at this matter.
In the private sector many of the lending institutions, specialising in house lending have now become involved in the insurance area. Only the other day, according to the media, an insurance company as acquired by one of our major building societies. The banks too are moving into the house lending area by establishing or becoming involved in building societies. There appears to be a concerted campaign by lending institutions to take as much as possible of the financial benefit from a housing transaction. This leads me to the conclusion that the protection policies and insurance policies of one kind or another are all part and parcel of the housing loan and are basically conditional. If a person does not agree to take out a policy the lending institution will state there is a reason it cannot give the loan. This therefore constitutes an additional charge. That is the reason I ask the Minister of State to take another look at this matter.
Deputies Rabbitte and Flood have made a very good point. As a humble backbencher——
The Deputy could never be humble.
——and member of the Labour Party which is in Government with the Minister of State's party, I often feel helpless even though I voice my opinions as best I can when legislation is being enacted.
At the last minute young couples who come to see me may be subject to extra charges of which I may not have thought. When this happens I feel responsible and blame myself for not having had the vision to prevent this exploitation. When I consider the salaries of some of the executives in building societies, their lifestyles and the houses in which they live, I ask myself how did I allow this to happen. On the one hand we have young married couples who build their own houses and pay through the nose over a long period and, on the other, executives in positions of leadership in building societies who show cynicism and never seem to wonder what may be happening at the other end of the scale.
It is important that the Minister of State brings as many of those institutions as possible within the ambit of the legislation so that they can be held accountable at all stages. There should be transparency and openness. If money is to be extracted at the last minute it should be done openly and people should know beforehand to what they are entitled and what are their rights. Apart from the exploitation there is cynicism and large profits are being made by those societies. It is important that Parliament should have control over all these operations. I am not saying we should act as "big brother" or enact irksome or frivolous legislation but we need to protect the rights of the consumer and house buyers.
We have had an interesting debate on this amendment. Deputy Kemmy spoke about the lifestyles of building society executives. Clearly there is a need to have a much wider philosophical debate on the moral argument. The Deputy was correct to make the point as one often feels in representing a constituent that it is very difficult for the people to whom one is making the plea to put themselves in the place of the constituent as they have never experienced these circumstances. I often feel like beating my hands against the wall when this happens.
Deputy Bruton's amendment would have the effect of requiring any advertisement for a housing loan to specify in detail all charges relating to the loan. I refer the Deputy to section 112 which deals with the advertising of housing loans. As it is acknowledged that a house is likely to be the largest purchase anyone is likely to make and because of the essential difference between the housing loans and ordinary consumer credit, a separate section was written into the Bill to deal specifically with housing loans. For that reason this section deliberately does not deal with housing loans.
The conditions involving the payment of any charges other than the repayment of capital and interest on the sum borrowed in relation to ordinary consumer agreements would be a substantially different category than that of pertaining to housing loans. While one would not normally expect to find such additional charges included in a credit agreement, there are a number of conditions and charges which may apply to a housing loan and not to an ordinary credit agreement. I think the Deputies will accept this.
Inclusion of this amendment would make the advertising of housing loans on television and radio in particular extremely long and cumbersome. When we reach the section dealing with housing loans perhaps we can incorporate a provision which would meet the concerns which have been expressed without having to go into detail on every single charge. Perhaps we could devise an all-encompassing sentence or sentences.
There is a range of non-interest rate charges associated with a mortgage, such as acceptance fees, valuation fees, commission payments, legal expenses and so on and it would be difficult to imagine an advertisement, written or aural, in which all of these factors would be taken into account. It would not be in anybody's interest, least of all the consumer, to insist on unrealistic requirements. I take the point, however, that all prospective loan applicants should be fully informed of all charges before thay decide to take out a loan.
I condemn the linking of a loan with a policy by the same institution. The company is entitled to offer policies for sale but not to link the product to the loan so that the applicant is made to feel that the loan is linked with the product when a cheaper and better product is on offer in another institution. I have spoken openly about this matter.
Part IX of the Bill tackles the issue of disclosure. Sections 108 and 109 provide for the full transparency for the benefit of consumers in relation to fees and charges in all documents issued by lenders relating to loans. In the case of a telephone application, the applicant must be informed in writing of the charges associated with the mortgage within ten days. In the interests of consumers we should consider what Deputy Bruton has put forward when we reach the section dealing with housing loans. We cannot do everything he asked us to do as this would be far too technical. Perhaps we could devise a sentence or sentences to make it incumbent on those who advertise such products to make it clear that there are associated charges.
I can see that it would be difficult for someone trying to compose a jingle to make reference to acceptance fees, valuation fees, legal expenses and still get a footballer to reel it off for them. Nevertheless this goes to the heart of what advertising is all about——
It calls into question the philosophy behind advertising.
While I accept there would be complications, acceptance fees can be an effective way of concealing the true cost and defeating the purpose of the Bill. We need to make some effort to distil some of the charges. I fail to see why acceptance fees should not be reflected in the APR. Financial institutions should be obliged to do this.
The Minister of State referred to section 112 and stated that it will provide protection. Under this provision the director will only be able to force the withdrawal of an advertisement which he finds offensive. In that sense it will provide minimal protection. Would we not be better if the section was more positive——
Is the Deputy referring to section 112?
The Minister of State in saying that my amendment was unnecessary referred to that section. Would it not be better if section 112 were couched in such a way as to provide for a positive code of practice in respect of housing loan advertisements?
Is the Deputy suggesting that this might be a satisfactory way of dealing with what he put forward?
Yes.
I did not study that aspect of the matter when drafting the Bill. The Deputy's amendment relates to advertising in respect of housing loans and as we have included a section in that regard I thought we might examine the matter under that section bearing in mind that there are cross-party reservations in regard to the exclusion of some advertising requirements. As this is an important matter we should put our heads together and examine the section to ascertain whether the concerns expressed here could be encapsulated in it. Will the Deputy agree to await until then?
Is the amendment being pressed?
I am happy to withdraw it at this stage and wait for the Minsiter's views on section 112.
Amendment, by leave, withdrawn.
I move amendment No. 94:
In page 21, subsection (6), line 35, to delete "annual percentage rate of charge" and substitute "APR".
Amendment agreed to.
Question proposed: "That section 112, as amended, stand part of the Bill."
Under section 112 the director can instruct the withdrawal of an offensive advertisement in respect of housing loans. Should we not provide a similar provision in respect of non-housing loans? In other words, if the director felt that a hire purchase advertisement was misleading or unsatisfactory, could he not have the power provided in section 112 to require the advertisement to be withdrawn? Rather than trying to dream up the possible flaws in advertisements under section 22, could we not give the director greater power of initiative subsequently to respond to evolving circumstances in relation to advertisements for non-housing loans? If we do not insert in the Bill the flaws in advertisements which would be illegal or unsatisfactory, the director will not have the power to challenge them later. Would it not be more satisfacory for the director to have a reserved power in that regard?
Should we alert consumers to default provisions in regard to advertising? This is provided for in section 24 only in cases where a house is at risk. Under hire purchase agreements furniture and so on can be repossessed. Should we require that a warning be given to people in advertisements about default provisions? Section 22 (5) deals with restrictions in access to credit which must be advertised. What does that cover? Is it not common practice that building societies do not give a person a loan unless he or she has so many thousands of pounds on deposit with them for a number of months? Will similar restrictions be inserted in advertisements? Will the provision be that broad?
Advertising should take two forms. A code of practice should be set down for people advertising in this area and the director should publish advertisements setting out people's rights. Recently there was aggressive advertising in the media by An Post about avoiding inefficient mythical "cowboy carriers". The director could set down his terms to which people would have to adhere. He could also ensure that people who advertise conform to a uniform code of practice which would avoid the trend of well known tenors or footballers reeling out jingles by way of advertisements while in effect, covering the small print. It is important that we have a uniform code of practice enforced by the Minister and that the director set out alternative advertising measures to protect the rights of the consumer.
Having regard to the complexities of advertisements and documentation presented to people when they visit an institution, it would be regrettable if this legislation were passed and forgotten about, apart from the policing provisions. Would the Minister consider drawing up a charter of rights for borrowers setting out a clear series of rights to which they would be entitled in respect of agreements into which they enter? I accept it would be difficult to give that a legal basis, but it could be mandatory for lending institutions to provide a standard charter of rights for people doing business with them. The production of charters of rights on a voluntary rather than statutory basis is becoming very popular. Having regard to the complexities of advertising, will the Minister consider moving in the direction which would be most beneficial to the users of lending institutions and would be an added protection for both sides?
This verges on the role of the advertising industry which is extremely imaginative and sophisticated. I fail to understand how we can enshrine a section in the Bill which encompasses all conceivable eventualities. I am interested in the question of enforcement. Suppose the ingenuity of advertisers comes up with an advertisment that is transparently in breach of the spirit of the legislation, how will the legislation be enforced? Who has the power to say misleading information must be stopped?
The director.
Deputy Bruton suggested that a provision be inserted to allow the director to act in that regard. That is not provided for in section 22, but is it provided for elsewhere? If it applied to political parties, many of us would be in trouble.
In respect of election posters such as "Simply the Best".
That was not in my slogan, I would not have the temerity to suggest that. If I had been asked I would have given my advice.
If the trade description Acts applied to politicians many of us would be behind bars, but perhaps we will leave out that area.
Deputy Rabbitte raised some of the points I wished to mention. PR companies have to inform people about the end product, and this is a difficult job. I agree with making as much information available as possible but eventually the onus falls on consumers to inform themselves about the legislation. We can ensure the information is in as simple a form as possible. We sign insurance agreements for our cars, but do we read the small print? There is a slight overkill in making the information available in that we assume the consumer reads everything. There must be some balance. The main point of the legislation should be outlined to the consumers; if further information is included it may complicate matters instead of keeping it simple. I urge caution in this area in line with Deputy Rabbitte's point about the spirit of the legislation. We could spend a day having an aesthetic discussion about what should be contained in information leaflets.
The old adage of caveat emptor must hold. In the compilation of the Bill I was conscious of achieving a balance about that. We are allpro bono publico. As this is a consumer credit Bill, one is inclined to veer in that direction. When I replied to Deputy Bruton about the need for extensive information on housing loans under section 112 I thought a few bullet points outlining the position could be set out.
Regarding Deputy Bruton's point about whether the restriction requiring a borrower who applies for a housing loan to have £1,000 or £5,000 invested with the building society, that is covered in section 22 (5). It states that where an advertisement refers to the cost of credit, and the availability of credit at that cost is subject to restrictions, those restrictions shall be clearly indicated. The director does not have the same powers in relation to housing loans because the Department of Finance, the Central Bank and the Department of the Environment, with whom we dealt with on this Bill, have responsibility for that legislation.
Deputy Bruton is correct in saying that this section may be the most important. We must guard against giving too much information which will obscure the main points we wish to set out. Consumers must decide if they wish to read the available information. We cannot bring them by the hand when they apply for loans and ask them if they understand points a, b and c. We must ensure that information is made available and that the main points are set out clearly in a form they can easily understand.
If a person is restricted in that they must have money invested in a credit institution before they will be eligible for a loan that information should be clearly set out and the person should not find it out when they apply for a loan. The availability of such information enables borrowers to decide where to apply for a loan.
Will the Minister reply to the point about the director having the power to require an advertisement to be withdrawn?
An earlier EU Directive on misleading advertising sets out that the director is empowered to investigate misleading advertising.
Under section 112 in relation to housing, the power of the director does not cover only the position where a mortgage advertiser attempts to mislead people but also cases where the presentation in some way distorts the position. I do not believe the directive covers positions where people deliberately mislead others and are economic with the truth. Is the protection under the directive adequate? The Taoiseach introduced the directive in 1988. It appears the Director of Consumer Affairs has extensive powers under it. One clause states that in determining whether advertising is misleading account should be taken of all of its features and in particular of any information it contains concerning all the matters needed. The directive was implemented by regulation not legislation.
Does the director have the power to withdraw the advertisement?
Yes.
Is the act of advertising misleading information punishable?
Yes.
Question put and agreed to.