Dáil Éireann Debate, Tuesday - 15 June 2004
75 Mr. Rabbitte asked the Minister for Social and Family Affairs if she has received a response from the Irish Financial Services Regulatory Authority to her letter concerning protection for elderly persons in financial dealings; her views on whether anything can be done to protect the elderly from losing out on pension schemes by borrowing money against their homes; and if she will make a statement on the matter. [17705/04]
Amharc ar fhreagraI wrote to the Irish Financial Services Regulatory Authority with regard to the situation of people who borrow against their home to free up equity and whose entitlement to a pension may be affected as a result. I was interested in particular in the issue of independent financial advice in such cases, including advice on the possible effects on pension entitlements. I have received a reply from the Irish Financial Services Regulations Authority and I am informed that the position is as follows.
There is currently no obligation or requirement on the financial institution to advise a customer to take independent financial advice on lifetime mortgages. However, the authority has informed me that it is currently developing codes of conduct for all financial services providers and has included in its consultation process issues with regard to the protection of financially vulnerable persons. It hopes to have this code finalised before the end of the year.
At present two companies offer equity release type products on the Irish market, known as home reversion schemes. Since these products involve selling part of a person's home, rather than taking out a loan, I am informed they do not fall within the remit of the financial services regulator. My colleague, the Minister for Finance, is aware of and considering this issue which was brought to his attention by the regulator.
I am aware from documentation received in my Department from one of the two companies that it does draw customers' attention to the possible effect on social welfare entitlements. I would also like to make clear that my Department has always set out its position in reply to any queries received over the years.
The issues raised overall in this regard in respect of consumer protection are of serious concern and I am awaiting the outcome of consideration by the Irish Financial Services Regulatory Authority and the Department of Finance in this regard.
The equity release type policies are a new phenomenon and many people could be vulnerable in this position. They may have bought their homes 30 years ago and are now in their 60s. Their home is now a significant appreciating asset against which they may be borrowing substantial sums. Codes of practice are all very well but there have been some fairly drastic revelations over the past six to 12 months regarding financial institutions advising people or not advising them. When all hell breaks loose, there is only one loser and it is the ordinary people who are left carrying the baby. The borrowers or the investors in the various financial institutions always seem to get off scot free. There are many harrowing tales of other people suffering. We do not wish to see a repeat of that in this type of new phenomenon. It is useful, provided the necessary protection is afforded to people.
I suggest that the Minister has a meeting with the Minister for Finance and IFSRA and that the code of conduct which is a voluntary code, should be put on a statutory footing to ensure that those elderly people in particular who might be vulnerable are clearly informed of their rights and their responsibilities and what may happen in the future. Independent advice regarding the legal situation and their pension entitlements should be proffered to them at each and every step. In particular, the impact on non-contributory pensions of borrowing substantial amounts of money should be explained. This could affect people's livelihoods and life experience for years.
I agree wholeheartedly with the Deputy. It was on the basis of my concerns that I raised this with IFSRA. We will continue to keep on eye on this matter. This matter was also raised in the United Kingdom and was the cause of serious concerns. A code of conduct and consultation process has been instituted there and we will monitor progress made as it is of interest to us. It is my intention to keep a very close eye on this issue. The Deputy is correct in saying that people do not realise capital means are being taken. They do not realise that they would be better off taking out a loan for such a short-term gain.
With the credit union.
They are not aware that this capital will be reassessed against them for any means-tested social welfare payment.
I wish to compliment The Sunday Business Post which reported the case of a couple who along with their daughter borrowed €250,000. Due to the fact that they had a Bank of Ireland Life loan they lost their weekly pension of €260. People have to be protected. We saw the code of practice which applies to banks. It is time the Minister and the Minister for Finance introduced the necessary legislation which includes plenty of penalties for banks if they do not obey the law of the land. Elderly and vulnerable people and everyone borrowing money from banks must be protected by the State because banks cannot be depended upon any longer.
Will the Minister accept that this is a problem affecting the elderly that goes beyond pensions and mortgage products which are being marketed? Will she agree there might be a role for MABS, given other press reports that some banks have encouraged elderly people with current accounts to take liquid assets out of safe investment products and put their savings into risky investment products? There is a need not only for a code of conduct but strong regulation in this area.
It was on the basis of my concerns that I raised it with the regulator and the Department of Finance. At present, credit is very much in your face. Despite all the supports and regulations and warnings to read the small print, people panic. MABS is at hand to give financial advice and people should obtain independent financial advice either from a professional or from the service provided by the Department. There are people who are not accustomed to dealing with red tape and do not realise the implications of what they are doing. It is my intention to pursue this matter vigorously and to ensure that people are aware of the implications of their decisions.
