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Ó Caoláin calls for regulation of sub-prime lenders

2 April, 2009 - by Caoimhghín Ó Caoláin TD

Sinn Féin Dáil Leader Caoimhghín Ó Caoláin TD, speaking during a debate which he secured on the adjournment of the Dáil this evening, called on the Government to introduce legislation to regulate sub-prime mortgage lenders. During his contribution to the debate Deputy Ó Caoláin described the predicament of a constituent who faces losing her family home due to her lender’s predatory practices and inflexibility.

He said, "Last week, in reply to a Parliamentary Question about sub-prime mortgage lenders, the Minister referred to the Financial Regulator’s Consumer Protection Code which, he stated, requires lenders to "act honestly, fairly and professionally in the best interests of their customers". I would like to give the Minister an example of how that requirement is being adhered to in the real world.

"I was contacted by a constituent who, like so many others, is struggling to make ends meet in the current economic downturn. She and her partner bought a house during the so-called ‘boom years’, when young adults came under intense pressure to get onto the property ladder. In their particular circumstances they felt they had no option but to turn to a sub-prime lender for their mortgage.

"Now, with her partner having recently been made redundant just a month before the birth of their third child, they are both out of work and unable to meet their mortgage repayments. They went to MABS for assistance, who contacted their lender to ask for a six-month moratorium on their mortgage. Their lender’s response was, ‘we do not do moratoriums’. The lender would offer nothing but to reduce the mortgage by half for six months – not as a discount but as a deferral. Under the arrangement they were offered, they would have to repay the difference over the following six months – in other words, half a mortgage now, the full mortgage to follow – plus a €100 additional sum per month to cover the difference until cleared. That was the only option open to them and I think the Minister would agree it is no option at all. But they had to take it. They are desperate.

"Their lender, unsurprisingly, has also refused to pass on most of the recent interest rate cuts. As of last month, they were paying a rate of 8.45%, only a half percentage decrease since the ECB first began cutting rates in October. Their lender has simply refused to pass on the other reductions in the lending rate. Today the ECB rate was brought down a further quarter per cent and I fear the lender will not pass on this cut either.

"It is clear that the sub-prime leopard has not changed its spots. For all the opprobrium it has rightfully received, the industry is still engaging in predatory practices aimed at squeezing every last penny it can from those with the least ability to pay.

"The Government’s response to this crisis has been entirely inadequate. Indeed, it has made matters worse by ensuring that low-income people have even less money to pay their mortgages, through the income levy, the so-called pension levy and the increase in VAT. It has refused to insist that interest rate decreases are passed on. It has refused to legislate for a moratorium on repossessions, apart from the minimalist six-month moratorium which applies only to banks benefiting from the recapitalisation scheme. It has offered no protection whatsoever to people who simply cannot pay. We are already beginning to see the consequences of this in the increasing numbers of repossessions coming before the courts. How many people will have to lose their homes before this Government finally decides that something must be done?

"If the current global economic crisis has taught us anything it should be that a ‘hands off’ approach to the private sector simply does not work. There must be a point at which the Government steps in and insists that private industries operate not only according to an aspirational ‘code’ but under firm and clear regulations. A mandatory two-year moratorium on repossessions, for all mortgage lenders, should be the urgent first step. We must also look at legislation to allow the victims of aggressive lending practices to renegotiate their mortgage terms, including allowing people on fixed rates to change to variable rates without incurring the extortionate penalties some lenders are charging.

"I am appealing to the Minister to consider the issues I have raised. There are thousands across the state in a similar situation to the constituent who contacted me and their numbers will only increase in the coming months and perhaps years. The refusal to properly regulate this industry played an enormous role in leading us into this crisis to begin with and it is inexplicable that this Government has not learned from this mistake." ENDS

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