FLAC urges caution on banking sector initiative for voluntary debtor deals

31 January 2013

Legal rights group FLAC (Free Legal Advice Centres) today expressed its concerns around yesterday's announcement by the Irish Banking Federation of a new initiative ostensibly designed to help distressed borrowers maintain home loans by restructuring additional unsecured debt.

"There is of course nothing wrong in principle with credit institutions voluntarily agreeing to look at writing down the unsecured debts of borrowers in mortgage distress," said FLAC Senior Policy Researcher Paul Joyce. "However, we find the timing of this announcement curious, a matter of months before the Personal Insolvency legislation is to be rolled out and just as the Central Bank is about to publish a Consultation Paper to review the Code of Conduct on Mortgage Arrears.

"As far as FLAC is aware, no consumer advocates were consulted about this development and that includes the Money Advice and Budgeting Service (MABS) with whom the IBF already have an operational protocol on handling debt cases," Mr Joyce added, pointing out that the IBF do not seem to have consulted other creditor groups or utility companies about their plans.

"What incentive could there be for creditors not in the IBF and who do not provide mortgage loans to voluntarily agree such write-downs?" queried Mr Joyce. "Equally, borrowers in arrears should be wary of what might be seen as an attempt to hijack the personal insolvency legislation and undermine the independence of both personal insolvency practitioners and MABS money advisors. In FLAC's view, insolvent debtors need sustainable, legally binding arrangements that deal with all debts and ensure a reasonable standard of living while debt is being repaid and written down.

"While these provisions are at least to some degree built into the Personal Insolvency scheme, this IBF initiative would seem to herald another unregulated, one-sided process that is pretty much based on trusting in the banking sector's ability to deal fairly with debtors and other creditors. FLAC would have very serious concerns around that, as should all debtors and policy-makers," he concluded.




Editors' notes:

  1. FLAC (Free Legal Advice Centres) is a human rights organisation which exists to promote equal access to justice for all. As an NGO, FLAC relies on a combination of statutory funding, contributions from the legal professions and donations from individuals and grant-making foundations to support its work. We offer basic legal information through our telephone information line and free legal advice through a network of 80 volunteer evening advice centres. FLAC also campaigns on a range of issues including personal debt, fairness in social welfare law, public interest law and civil legal aid.
  2. The IBF's protocol was announced 30 January and is available online.
  3. Recent FLAC releases on personal debt law reform are available on our website, including comments on the new Personal Insolvency law, the government's information initiative around mortgage debt and Central Bank mortgage arrears statistics.
  4. FLAC's most recent submission on the Personal Insolvency Bill (November 2012) is available to download.
  5. A briefing on the background to the legislation (June 2012) can be accessed here.