Dáil Éireann Debate, Thursday - 7 October 2004
118 Ms Shortall asked the Minister for Finance if his attention has been drawn to the revelations regarding endowment mortgages in a television programme (details supplied); his views on same; the plans he has to introduce legislation to deal with this problem or change the regulatory regime; and if he will make a statement on the matter. [23985/04]
Amharc ar fhreagraRecent publicity in relation to endowment mortgages has focused on the possibility that a significant number of holders of such mortgages will have a shortfall of funds when the mortgage reaches the end of its normal term. These types of mortgages operate on the basis that instead of making capital payments on a mortgage, the client pays only the interest on the mortgage, therefore the capital amount owed does not decrease. However, the client also makes an investment with a life assurance company, the aim of which is to cover the mortgage and, possibly, provide some additional benefit beyond that. The products provided additional benefits, for example, in the form of higher tax relief, which were attractive to borrowers.
These products inherently require customers to take some risk; they are exposed to market fluctuations, just like any market-based life assurance investments. It should be stressed, therefore, that the fact that a person does not gain as much as expected is not in itself an indication of any inappropriate practices on the part of the bank or insurance company concerned.
The Consumer Credit Act 1995, which commenced in May 1996, contains specific provisions regarding endowment loans and in particular prescribes certain information which must be included in any application form or information document issued to consumers applying for such loans. For example, since the commencement of the Act all endowment loan application forms must contain a prominent notice to the effect that there is no guarantee that the proceeds of the insurance policy will be sufficient to repay the loan in full when it becomes due for payment. The Act also obliges that in instances where there is a possibility during the lifetime of an endowment loan that borrowers may be required to increase premium payments on the insurance policy relating to the loan, any document approving the loan must contain a prominent statement of this possibility. Similarly information documents on endowment loans must, where the possibility exists that early surrender of the insurance policy may result in a net loss to the consumer, taking into account premia and other charges paid in, contain a statement of this possibility.
The Act also places an obligation upon insurers underwriting policies relating to endowment loans to issue a statement to the consumer every five years setting out not only the value of the policy at the time of issue but also a comparison of this valuation to the valuation at such date projected at the time the policy was first written and a revised estimate of the valuation at maturity. In addition to the provisions of the Consumer Credit Act, the Life Assurance (Provision of Information) Regulations, which came into being in 2001, obliges insurers to provide policy holders, including holders of policies relating to endowment mortgages, with an annual written statement containing inter alia information on the current surrender or maturity value of the policy.
More recently, this Government very considerably enhanced the regulatory and supervisory regime governing the financial services industry, primarily through the enactment of the Central Bank and Financial Services Authority of Ireland Act 2003, which established the Irish Financial Services Regulatory Authority or IFSRA. IFSRA is now the competent authority in this area. The Central Bank and Financial Services Authority of Ireland Act 2004, complements the Act passed last year and further enhances IFSRA's powers and strengthens the regulatory environment.
Particular features of the 2004 Act are that it provides for an enhanced structure for dealing with consumers who have complaints about financial institutions and also provides consumer and industry consultative panels for the financial regulator. The consumer panel will have an important role in ensuring that the regulator is correctly reflecting the interests of consumers in its protective and educational roles, such as the issue of codes of conduct and information pamphlets etc. These provisions will help IFSRA to ensure consumers have all necessary information to allow them to make considered and informed choices between differing financial products including mortgages.
The establishment of IFSRA has provided a new focus for consumer concerns regarding financial services. IFSRA is already studying the situation, having commenced a survey earlier this year, to determine whether and to what extent there will be difficulties for customers. It would be premature at this stage to second-guess the outcome of the survey, but the results will be used to establish the nature of any appropriate action to be taken. While individuals with difficulties should go to the relevant institutions in the first instance, IFSRA can also assist where individuals are in dispute with their financial institution. Individuals with specific complaints may also have recourse to the appropriate ombudsman scheme, or ultimately to the courts. I will be monitoring the situation as the information developed by IFSRA becomes available.
