In the Dail: The Personal Insolvency Bill

Here’s my speech in the Dail about the Personal Insolvency Bill from Thursday, July 11, 2012. You can also read my article about it from the Sunday Independent here.

This is important legislation and has the potential to be one of the critical parts of the recovery of individuals, families, businesses and the State in general. I welcome the Bill as a much needed change. I congratulate both the Minister on a robust, quite radical legislative measure and his officials, who have been working very hard on this over the last year or more. I consider it a very solid measure.

A few months ago I introduced a Private Members’ Bill, the Family Home Protection Bill. I withdrew it so the essence of it could be considered for inclusion in this legislation. The justice committee looked at the Bill and made it its top recommendation that the family home be protected. I am delighted to see a substantive increase in the protection of the family home in sections 63 and 99, if memory serves. I thank the Minister and congratulate him. Obviously, all of that did not originate from me but I hope my contribution helped push the legislation that way. I discussed the Bill with the legal team in New Beginning and they warmly shared the same reaction, which is that this substantively increases the protection of family homes.

In the spirit of making the Bill even more effective, there are three matters I wish to raise with the Minister and to suggest for consideration as the Bill makes its way through the various Stages. The first is the review period. The Bill is due to be reviewed in ten years. The way it is constructed, of course, is that it is prescriptive enough but not so much that the courts cannot apply an amount of interpretation. This Bill will grow as the courts make decisions and set precedents. My understanding is that the processes in the Bill are new, not just to Ireland but internationally. The arrangements are very innovative internationally.

At its best, the court will interpret this legislation by deciding, where the borrowers have made a legitimate offer and are acting in good faith and the bank, in exercising its veto, is not being reasonable, it will grant bankruptcy. In three years this family will be out from under the debt and the courts will leave them with a reasonable standard of living. At its best, that is how I envisage it working. Indeed, at its best, I envisage that happening a few times, after which the banks will begin to act reasonably so people can avoid the entire process. At its worst, the court could decide that the family or individual is not being reasonable, that the bank has a legal call on the money owed and decide to leave the individual or family on social welfare. It could define living on social welfare as having a reasonable standard of living and not grant bankruptcy. If a bank did this, one would essentially be living on social welfare for the next six years. At worst, that could happen. The courts rightly have discretion to begin deciding what is appropriate. However, I suggest that where there is so much room for the courts to decide, an annual review by the Minister or Oireachtas, possibly including the committees responsible for justice and finance, would be very useful. On the basis that there is so much room for the courts to apply discretion, I would love to see an annual review, at least for the first few years, to ensure that a healthy balance between borrowers and lenders transpires through a precedent set in the courts.

The second issue, which is related to the first, concerns the phrase “reasonable standard of living”. Correctly, the Bill does not try to determine what is a reasonable standard of living. We have discussed this with banks on the public record at meetings of the Joint Committee on Finance, Public Expenditure and Reform. I and I am sure many others have had private conversations with bankers on the definition of “reasonable standard of living”. I am concerned in this regard because when I ask banks privately and publicly what they consider to be a reasonable standard of living, they obfuscate. They say it depends on the individual, his place of work and who he is, and that one must, as a consequence, work on a case-by-case basis. This is true to a point. However, when one asks the banks what guidelines they have given to their staff who are negotiating the deals, they state, more often than not, that they do not really get any guidelines. When one asks the banks what standardised training is being given to staff, they state they do not really give any such training. When one asks how many disciplinary proceedings have been brought against staff for misconduct, or intimidating or humiliating borrowers, the banks typically state they do not know but that there were probably none.

As Members of Dáil Éireann, we all know banks have acted absolutely despicably in some cases, although we accept banks have acted in good faith in many cases. I had a private conversation in which a senior banker obfuscated for quite some time on the question of how much his bank would leave an individual or family with. He eventually conceded that the bank would ultimately try to leave the individual with social welfare. The reason the bank would do so is not because it believes social welfare would result in a reasonable standard of living but because the individual or family would rationally declare bankruptcy if their standard of living were any lower, thereby leaving the bank with nothing.

If one wants an understanding of the mindset of at least some of the banks, one can read the public exchange between me and the chief executive of Bank of Ireland at a meeting of the Joint Committee on Finance, Public Expenditure and Reform. If one does so, one will see the attitude that this bank, at least, has to reclaiming its money. I pointed out that the bank, through PCAR recapitalisation, has had several billion euro made available to it just for mortgages. When I asked how much of this money had been passed on to borrowers, the delegates did not answer the question for quite a while. Having been asked about six times, including through an intervention by Deputy Alex White, the Chairman, they finally said that not a penny had been passed on to borrowers. We know the banks are acting like banks. I believe Mr. Boucher said to me, “I run a bank.” I asked him whether his bank had any liability or was culpable regarding the processes it changed, the negative equity and the arrears and he basically replied that he runs a bank. It is well known that the banks – perhaps not all but enough of them – will try to leave individuals, families and business people with nothing.

One of the most upsetting stories I heard in Wicklow was from two constituents with young children. They were in a restructuring process. The mother, who got very upset when telling me her story, said the bank had left her family with so little money that they must measure of the amount of toothpaste they put on their toothbrushes. She said the bank had not left them enough money for that. This is what the banks are capable of.

Perhaps the Minister should issue guidelines or a Government statement to guide the courts on what constitutes a reasonable standard of living. Getting this right will be very important. There is some solid research from the United Kingdom that suggests mortgage payments up to 35% of net household income are reasonable. This leaves individuals, parents and families with sufficient money to live their lives. They may still be paying a lot of money back to the banks but can still invest in their children, themselves and their jobs. If it is at all possible, I urge the Minister to think of a way of making it very clear to the courts, be it through additional legislation, a Government statement or another mechanism, that he does not believe some of the banks are trying to leave people with a reasonable standard of living. He should stipulate that a reasonable standard of living ought to be in line with the new EU directive on having a fresh start. This dictates that, when one has sold off everything one has and goes through a process, one must be able to start again and invest in oneself, one’s children and one’s business. The Minister should find some way of ensuring a reasonable standard of living is the standard that most of us in Dáil Éireann would choose rather than the standard that some of the banks would choose were they left to their own devices. They are left to their own devices at present.

The third issue concerns personal insolvency professionals. There is a very innovative approach. It is unclear who the professionals will be, what qualifications and training they will need, the regulation that will apply to them and how we will be able to insist on high quality and consistency nationally given the number of professionals. The audit processes, disciplinary processes, codes of conduct etc. should be clear. Something should be done to ensure the professionals are of high quality, are well trained and provide consistent advice to borrowers. Doing so would be very welcome. FLAC has raised concerns about this subject.

We must ensure the process itself is not too onerous. There are some interesting data from the United Kingdom that suggest one in three arrangements, based on the UK’s legislative type, fails because it is too onerous. I urge the Minister to examine the bureaucratic hurdles.

I congratulate the Minister and his officials. I thank the Minister for introducing the heads of the Bill first. From a non-Government perspective, this was very useful. I wish the Minister luck in bringing the Bill through the House. I hope some of the issues raised can make their way into the legislation that is ultimately enacted.