Oireachtas Briefing re Irish Credit Bureau presentation
11 November 2008
Briefing by FLAC (Free Legal Advice Centres)
to the Joint Oireachtas Committee on Economic and Regulatory Affairs
on the occasion of a presentation by the Irish Credit Bureau on 11 November 2008.
FLAC, the Free Legal Advice Centres, is an independent human rights organisation dedicated to realising equal access to justice for everyone. It has a network of centres around the country which operate mainly in conjunction with Citizens Information Centres and which, through its 400+ volunteer lawyers, supplies first stop legal advice to those who need it.
Where necessary, FLAC volunteers refer clients to the State funded Legal Aid Board Law Centres for representation in court etc. FLAC's head office also supplies legal support to MABS, the Money Advice and Budgeting Service.
FLAC notes that the current monetary difficulties have exposed severe flaws in the protection of vulnerable consumers of credit products. This submission focuses on perceived gaps in the assessment of credit risk which may have contributed to the very difficult situation in which many now find themselves. It is sent to Committee members to coincide with their discussions with members of the Irish Credit Bureau. Following the presentation, FLAC will be releasing this submission to the general public.
The Irish Credit Bureau (ICB) is a private database that contains information on the performance of credit agreements between financial institutions and borrowers. A financial institution can apply to become a member of the ICB. This gives that member the right to register information on the performance of borrowers under credit agreements provided by it and, in turn, the right to access information provided by other members, in order to assess the creditworthiness of applicants for loans. Such information includes any legal actions taken by a lender against a borrower.
All the main banks, mortgage lenders, sub-prime lenders, finance houses and credit card companies are members. Lately, some 30 credit unions have also joined. However, this leaves over 500 credit unions who are not members, as well as the large number of licensed moneylenders who do not subscribe to the Bureau. Thus, it is clear that the ICB cannot necessarily provide a complete picture of a person's financial commitments in every case.
The Bureau does not make decisions about who can and cannot access credit and get a loan. Such decisions are at the discretion of the members themselves. Thus, the assessment of creditworthiness through the ICB is an exercise in self policing. This raises concerns in two specific areas:
- firstly, the extent and the timeliness of the information provided by any particular member; and
- secondly, the extent and rigour of the credit check carried out by a lender/credit provider and the subsequent decision to loan or not to loan.
It should be noted that the members have been (and continue to be) in competition with each other throughout the biggest boom in consumer credit that this country has ever experienced. It is worth questioning, therefore, whether competition for market share has led to inadequate assessments of credit history by some lenders in some cases. This is particularly of concern in the area of sub-prime mortgage lending where it is apparent that a number of large 'consolidation' loans have been issued to borrowers who were already in substantial arrears under a number of credit agreements. These consolidation loans purported to make life easier for borrowers, by putting all the loans into one big loan, even if at higher rates. It is also apparent that personal loans, car loans and credit card advances have been made to borrowers already substantially committed, sometimes over-committed.
Conclusions and Questions
Currently, there is no national database to which all lenders of money must subscribe. The current ICB is entirely voluntary. Members themselves choose to join and choose to consult it or take it into account when they lend. The danger then for a vulnerable consumer is that the much stronger lender can lend recklessly, often on the security of the borrowers' home, without taking the precautions that a prudent lender would take. FLAC does not say that those who borrow recklessly should not be answerable for the consequences. FLAC says that the borrower alone should not be answerable for the consequences of reckless lending, as is currently the case.
In light of the above, some questions arise that the members of the Committee might consider addressing:
- Is the current system of credit checking in Ireland adequate to protect borrowers and Irish society in general from the consequences of over-indebtedness and reckless lending/borrowing
- Would a national database to which all lenders of money must by law subscribe and provide full and timely information (with appropriate data protection safeguards) be preferable?
- Should such a database, if it were created, also oblige all lenders to carry out a specific credit check according to set criteria prior to making a decision to lend?
- Should this information be available to courts in making assessments of ability to repay in debt enforcement proceedings and to other decision making bodies (Financial Regulator, Ombudsman for Financial Services) for the purpose of better regulation?