THERE ARE, apparently, a lot of unhappy people involved in regulating our banks.Various reports ranging from meetings of the Joint Oireachtas Committee on Finance in January, more recent comments by Central Bank Governor Patrick Honohan and today’s intervention from An Taoiseach reveal that practically everyone is unhappy with how lenders are dealing with their customers’ over-indebtedness. It seems that they are even telling the banks how unhappy they are, on a regular basis. They are requiring the banks to submit their proposals on how to deal with over-indebtedness.
They have been doing this for months, even years now. All of this is to try to persuade, cajole or badger banks into doing the decent thing and dealing fairly with customers who are severely over-indebted and need fair, structured solutions.
But for all the misery that they feel, these regulators and authorities seem to be incapable of imposing any limits on the banks. A government action plan on mortgage debt - conceived some 18 months ago and meant to pump into action last autumn – delivered almost no long-term restructuring of mortgage debt by the end of 2012. It produced precisely two cases where mortgages were converted to lettings under the mortgage-to-rent scheme. To date, the plan hasn’t even delivered any changes in the only instrument wielding any influence over banks’ relationship with their over-indebted customers, that being the code of conduct for lenders on handling mortgage arrears.
So everyone is agreed that the banks aren’t doing enough for their customers. But there is no real discussion of exactly why this is. A substantial part of the answer is that our government has opted to let lenders deal with each borrower on his or her debt on a case-by-case basis. What this means in practice is that the banks have full control of every case. They are in charge.
If the banks are in charge, then we have to ask, what are they likely to want? Above all else, most banks and lenders just want their money back, or at least as much of it as they can get. They do not have a duty to keep people in their houses. It is not their job to be society’s watchdog. That role belongs to our government and to our regulatory authorities.
Insofar as banks are restricted at all, the restriction is the code of conduct mentioned above, not laws or regulations. In fact, the monitoring of even that code has been very light, to say the least. The Central Bank tells us that it examined how the banks were implementing the code about a year ago. How was this done? By asking the banks to show their files. The Central Bank promised a further monitoring exercise to hear the customers’ side of the story. No results of that exercise have ever been published, if it actually took place. It all looks like a very weak, watered down effort to make banks care about or act on over-indebted customers’ needs in a fair, balanced way.
Rather than codes of conduct, lenders need rules and regulations, with sanctions to define their limits. In this area, as in all other areas of life, there needs to be repercussions for those who flout the law. And people need independent advice and support as they negotiate the terrible pressure of their debt burdens.
Despite the fact that it was hurried through the Oireachtas at breath-taking speed in order to make the publication deadline of end of 2012, the much-needed new personal insolvency legislation isn’t operative yet. It was to be operative in January, then February, then April. Now the Taoiseach says it will be ‘early summer’.
Even though it will only help those who are actually insolvent, this new law may give relief to some people. But even then, the main creditor – which will normally be a bank – will be able to veto any insolvency proposal. For those who are not insolvent and could repay if all their debts were treated together in a comprehensive restructuring, there is the Money Advice and Budgeting Service. This great facility consists of about 50 tiny companies countrywide staffed by experienced but over-worked money advisors facing a steadily growing workload.
What is needed, then, is adequate and thorough monitoring for lenders, a comprehensive scheme of advice and support for debtors and a clear framework of legally binding rules and obligations for all.
Banks are only doing what banks are supposed to do when they seek the repayment of money. Now it’s up to government and our financial regulation regime to do their job to protect consumers and get this society past the awful misery of over-indebtedness which is poisoning our society.
Noeline Blackwell is Director General of FLAC. Prior to this role, she worked in general practice as a solicitor, with a particular interest in family law and in human rights law in general, refugee law in particular. She is a former chairperson of the Law Society’s Human Rights Committee and of the Irish section of Amnesty International. Noeline is a trustee of Front Line, the Dublin-based international foundation for human rights defenders at risk, and sits on the boards of the Immigrant Council of Ireland, the Irish Refugee Council and the Citizens Information Board.
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