Government needs to support borrowers too

22 December 2008

The government's plan for recapitalising the Irish banks is a shot in the arm for financial institutions - but does precious little for the customers of those banks who are also under financial pressure, noted FLAC (Free Legal Advice Centres) today.

As part of the package of recapitalisation, the Minister for Finance, Brian Lenihan TD, has secured an undertaking from the three banks involved that they will not take repossession proceedings for 6 months. FLAC notes this undertaking, but the legal rights organisation says that this is entirely insufficient to meet the needs of hard-pressed borrowers.

According to FLAC, such an undertaking is inadequate to meet the needs of individuals at risk through mortgage arrears. It is clear from the terms of the package announced by the Government, and also from Thursday's Framework for Economic Renewal, that no effective steps will be taken to curb loans which were - to use the words of Minister Lenihan - issued in an excessive and irrational way. To deal with irresponsible lending, FLAC says that lenders must be forced to share the consequences when things go wrong and the mortgage goes into serious arrears.

A proper scheme would include legal provision to reschedule loans which were granted irresponsibly. It would also give courts the power to place appropriate a moratorium on loans rather than for the set 6-month period as is now proposed. The restructuring needs to be for whatever period is appropriate to meet the needs of the borrower as well as the bank. The principal aim should be to keep borrowers in their own homes who are doing their best in difficult times.

For further comment, see also the FLAC press release of 19 December 2008.