Tuesday, 7 February 1989
Dáil Éireann Debate
That building societies are always newsworthy is no surprise considering the important role they have come to play in modern life. Building societies impinge on the lives of hundreds of thousands of people through the savings and lending services they provide. In the past ten years more than six out of every ten persons who financed the purchase of their own houses have done so by means of a loan from a building society. Membership of societies is now about 1.25 million while the total assets of societies are in excess of £3.5 billion. They hold almost 20 per cent of the total accumulated savings of the community.
Building societies — a concept imported from England in the 19th century — had in the earlier years only a limited role in providing housing for various vocational groups. In 1922 there were 23 societies in the State with total assets of little more than £500,000: by 1941 their assets were at £1.5 million. Since then there has been a constant acceleration in growth. By 1961 their assets had increased to £19 million and had nearly doubled again by 1965 to £36 million. At the time of the last comprehensive piece of legislation in 1976 total assets amounted to £350 million, scarcely one-tenth of what they are today. While total assets were growing the number of societies has declined — from 17 in 1960 to ten now.
Clearly, building societies have grown in tandem with the rapid increase in the rate of home ownership and I think that the existence of a thriving building society  movement has been one of the major factors that have contributed to the fact that we have one of the highest owner-occupation rates in Europe. The present scale of operation of societies is a measure of the confidence which the investing public and house purchasers have come to place in them.
That is the success story of societies in historical terms. However, when I came into the Department of the Environment in the spring of 1987 I found the building societies in a state of considerable uncertainty. The dismal position of the national economy had driven up the mortgage rate by 3 percentage points at the end of 1986. Other countries where building societies are to be found had been modernising their legislation. At that time societies were feeling the effects of the termination of the beneficial composite tax rate on investments on the introduction of the DIRT tax. Finally, the banks were for the first time offering aggressive competition in a contracting mortgage market. In the circumstances the anxiety felt by societies was understandable. Since then other challenges have loomed much larger — the continuing and rapid changes in the financial services sector, new technology, the imminence of competition from abroad under the EC internal market.
One of my first decisions as Minister was to set up a working party in which the Government with the Central Bank and the Registrar of Building Societies would review, in consultation with the societies, the shape of the new legislation which was so obviously necessary. This Bill is the culmination of that process and I am pleased I have been able to bring it before the House in what is, by the standards of large Bills, a relatively short time. There is, in my view, a need to remove the present anachronistic legal restrictions on societies by having this Bill passed into law within the shortest time possible.
The fact that societies in the past thrived in a segmented financial system that is now undergoing radical change is no guarantee that they would survive in the new milieu. Indeed, it is difficult to see  how any participant in the very competitive financial arena could fight successfully in the straitjacket now worn by societies. It is to the credit of the societies that they are already responding so positively but they must be allowed to compete more effectively and that is what this Bill is all about. They must contribute to the changing structure of our financial system, and indeed be part of that change. The extra dimension which the societies will bring to competition in financial and property services will have benefits all round — in terms of quality of service, price and efficiency. Societies have considerable financial and human resources and they should, I believe, be given the opportunity to utilise these resources effectively not alone for the good of the societies themselves but also for the benefit of the country generally. There is, I believe, scope for societies to become involved in a broader and more direct way in the housing market and in the provision of services associated with it. I have in mind here the provision of rental housing and involvement with the voluntary housing movement, for example.
Developments abroad, particularly in the EC make it imperative that all sectors of the Irish financial services industry be in a position not alone to defend their home markets but also to avail of opportunities that will arise with the inter-nationalisation of financial services. A basic prerequisite for the development of societies to deal with these changes is a modern legislative code.
Therefore, this legislation is of necessity liberal in nature. It sets very few boundaries to the future role and scope of societies. The main constraint will be their own capacity to broaden and intensify their business without prejudicing the funds of their investors. A Bill which imposed absolute statutory limits on the pace or scope of future diversification could become outdated very quickly because of the unpredictable nature of future developments. The legal framework set up by the Bill will, I hope, be  broad and flexible enough to last for some considerable time.
Before outlining the main features of the Bill it might be helpful if I indicated the broad objectives I set myself in preparing the Bill. They were, first, to allow societies to compete and develop in the context of the internal market by offering new services and broadening the scope of their business. Secondly, to establish a modern and effective supervisory regime for societies. Thirdly, to improve the statutory provisions governing the running of societies, their accounts and audit. Fourthly, to put societies on the same footing as banks in regard to savings protection. Fifthly, to encourage societies to broaden the extent of their involvement in housing and, sixthly, to provide a satisfactory mechanism for conversion to company status.
Given the reasons why the new legislation is necessary and the objectives I had before me in preparing it, it will be clear that another Bill amending an outdated code was not the approach to adopt. Accordingly, the Bill now before you is large and comprehensive. It is a thorough modernisation of the law relating to building societies and takes into account current proposals in company and banking legislation.
As the explanatory memorandum circulated with the Bill is comprehensive I do not propose to give a blow-by-blow account of the contents of the Bill. I will, instead, try to give a general overview of the main provisions of each of the 13 parts with particular reference to those areas that are of major importance or where noteworthy changes are proposed.
Part I contains the usual general provisions. Having regard to the need for consistency in the legislation governing companies, banks, and building societies, section 5 will allow for the extension to societies by ministerial regulation of relevant changes which the Oireachtas makes in company and banking legislation in the future. Section 6, which repeals existing building society legislation, makes particular provision continuing in force, for existing and future  housing loans, those parts of the Building Societies Regulations, 1987, relating to property insurance, valuation reports, legal fees, mortgage protection and redemption fees. Borrowers, therefore, will continue to have the freedom to choose their own insurance company, obtain a copy of the valuation report and so on. Redemption fees will not be chargeable on variable interest rate loans but I do not propose to ban redemption fees in respect of fixed interest rate loans as such a ban militates strongly against the making of such loans. The other parts of the 1987 regulations relating to unsecured lending and the appointment of directors are superseded by other provisions of the Bill.
Part II deals with the definition and constitution of a building society, its formation, registration and authorisation to raise funds from the public. In addition to a set of rules, a society will also be required to have a memorandum setting out its objects and powers in much the same way as a company. Section 9 states that the objects must be within the scope of the activities permitted under the Bill but expressly requires that every society must have as an object the making of housing loans. Details of the matters to be covered by the memorandum and the rules are contained in the Second Schedule which may be amended by the Central Bank by regulation should this become necessary in the future.
The concept of authorisation is new in so far as societies are concerned. At present a society cannot advertise for funds without a specific approval from the registrar. Under the new arrangements a society will be required to obtain an authorisation from the Central Bank before it can raise or solicit funds other than its founding capital. The Central Bank will be able to impose whatever conditions it considers necessary on an authorisation which will, in fact, correspond to a banking licence. The approach proposed brings the procedure for authorising societies to raise funds into line with the requirements of the first EC Banking Directive. Existing societies that have permission to advertise for  funds will be deemed to have an authorisation and whatever restrictions or conditions the registrar has imposed on a society in relation to the permission will become conditions on its authorisation. The Central Bank will have power to impose conditions on an existing authorisation and these conditions may be of an extensive nature including, if necessary, the removal of a director or other officer.
Part III sets out the powers of building societies. As well as restating existing powers, it contains extensive and important new powers which, I believe, will enable societies to compete much more effectively in the marketplace, to offer a better service to their members, to the house purchaser and to the general public. These new powers, prudently undertaken, will enable societies to develop and thrive in the rapidly changing financial services sector and thus to continue to be a major source of funds for housing by providing mortgage loans and by direct investment in residential development.
Prudence by societies in responding to the opportunities created by the Bill is paramount. This means that diversification must be within the context of properly structured strategic plans, that costing and other implications have been fully considered and they have the human and financial resources to do it successfully. The new powers which societies will have can be considered under five broad headings.
First, secured and unsecured lending. The lending powers of societies are set out in sections 22 and 23. In addition to the traditional lending secured by mortgage of land, societies will be able to offer loans on second mortgage, bridging loans, loans for payment of a deposit for the purchase of property, loans backed by other securities or guarantees as may be approved by the Central Bank, unsecured loans to individuals for house improvement, unsecured loans and overdrafts for general purposes. However, the amounts of individual unsecured loans will be subject to specific Central Bank limits. These provisions will also  allow societies to offer more flexible types of house purchase mortgages such as low start, index linked and equity type mortgages.
Secondly, development of land and property. The direct involvement of societies in the development of land for residential and other commercial purposes is a logical extension of the traditional business of societies, namely, the provision of loan finance for such development. The new power to own and develop land will, I hope, be the basis for a new departure on the part of building societies in the housing sector. They will be able to invest directly in the provision of housing for sale or rent and I would hope to see them make a contribution to the urban renewal programme by becoming involved in mixed developments.
Thirdly, equity investment in subsidiary and other associated bodies. Section 28 will enable building societies to set up subsidiary companies or to take a stake in the equity of another company. It will probably transpire that the best way to provide some of the new services or to undertake some of the new activities that will be available to societies will be by the establishment of subsidiaries or involvement in joint ventures. The option to establish subsidiaries also offers the prospect of a means of raising some of the capital necessary to get involved in new activities. It should be noted, however, that the power to invest in companies is generally limited to companies whose objects do not allow them to engage in activities outside the powers of the society itself or to control further subsidiaries but the Central Bank may permit exceptions to this.
The setting up of subsidiaries cannot be regarded as a way of sidestepping prudential requirements or limitations upon the powers of societies themselves. The provisions of sections 118 and 119 of the Companies (No. 2) Bill, 1987, regarding the power of the court to require a holding company to contribute to the debts of a subsidiary will also of course apply, when enacted, to building societies. Section 28 will also permit societies to  link up with and assist voluntary housing bodies.
Fourthly, financial services. Under section 29 societies will be able to offer a wide range of financial services to members and other persons. Financial services have of necessity been defined broadly and flexibly in view of the continually changing nature of these services. However, the provision of any of the services listed in section 29 will be subject to the terms of the Central Bank approval and any other legislation that governs the activity in question. Lending services are excluded from section 29 since these are covered by the other provisions referred to earlier.
Fifthly, services relating to land. Part III also contains a number of provisions which will allow societies to provide a range of services relating to the acquisition, development and disposal of land. Again, this is a natural progression from the existing powers of societies based on their long experience in the housing sector. Section 31 will enable them to provide conveyancing services subject to regulations to be made by the Minister for Justice. Section 32 will enable them to provide auctioneering and other services relating to property such as valuation, surveying and management. Societies will thus be able to offer a package of services to the house buyer. The resulting increase in competition holds out the prospect of greater choice and lower prices for the consumer. However, I also recognise the potential for conflicts of interest in these areas and the need to prevent societies from taking undue advantage of their position in the housing market.
The Bill contains a number of provisions aimed at avoiding these problems. In the case of conveyancing services, the provision of such services to both the vendor and purchaser of the same property is prohibited, thus removing the greatest potential source of conflict of interest. The regulations which have to be made before societies can offer conveyancing services will be able to make further provision in relation to conflicts of interest, compensation for negligence,  qualifications of persons providing the services and so forth. Similar regulations can be made in relation to other property-related services if this is shown to be necessary. In addition, I have included provisions to ensure that societies do not engage in anti-competitive pricing, in the provision of conveyancing and auctioneering services. A society is also prohibited from requiring anyone getting a housing loan from it to use other services provided by the society or its subsidiaries.
Provision is also made in Part III for a number of other important matters. The requirements on societies in relation to the valuation and assessment of freehold and leasehold estate or interest as a security have been strengthened and will contribute to ensuring that conflicts of interest do not arise in cases where a society also provides auctioneering or valuation services.
Section 18 contains a very wide power for societies to raise funds in Irish or in foreign currencies. In addition to the traditional retail funding in which, incidentally, societies have been finding it increasingly difficult to maintain their share of the savings market, I expect that they will in the future also be looking to the wholesale market where they will be able to use their mortgages as collateral or even sell them off. However, there is a power for the Minister to regulate the securitisation of mortgages because of the consumer protection issues involved. For reasons relating to their mutual status and to the supply and cost of mortgages, societies will be required to maintain at least half of their total funding liabilities in the form of shares issued to members.
Provision is also made to allow societies to operate abroad. Even with this power a building society incorporated and authorised in Ireland could not at present operate in, for example, the UK on the same basis as a UK society nor could it set up a subsidiary to take deposits in the UK without authorisation from the Bank of England. However, with the implementation of the proposed EC Second Banking and Mortgage Credit Directives all this will change and an Irish building society will be able to  operate throughout the Community under the supervision of its home supervisor, namely, the Central Bank.
In referring to the range of new powers that will be available to societies, I would draw special attention to section 36 which imposes important disciplines in relation to the exercise of these powers. Basically, all powers other than secured lending must be adopted by special resolution and must have Central Bank approval. We must bear in mind that the diversification by societies into these new activities will involve new and different kinds of risks and raise prudential issues. Accordingly, the Central Bank will have wide powers to control the involvement of societies in the provision of new services and to impose whatever conditions and requirements it considers appropriate. Also, provision is made to allow the Central Bank to restrict exercise of certain powers to specified categories of societies.
While on Part III, I would like to refer in particular to section 24, since the question of tiered interest rates has been the subject of some comment — not to say misunderstanding — since the Bill was published. The 1986 Act banned both the introduction of tiered rates on existing loans and the charging of tiered rates on future loans. Although designed to stop the charging of a higher rate on larger loans, in effect it means that building societies must charge the same interest rate on all loans of the same type. What is the point of that when the interest rate as such is not controlled and a society can simply overcome it by putting up their rates across the board? It certainly could not have been designed to help the small borrower or the first time purchaser. Whatever justification there may have been for it in 1986 there is none for continuing the ban on future loans having regard to the substantial changes in the market conditions since then and to the whole thrust of this Bill which is to allow societies to compete on an equal basis.
The fact that householders are now enjoying the lowest mortgage rate in 20 years has nothing whatsoever to do with the ban on tiered rates. It is due to market  forces operating in the context of the Government's macro-economic policies. In our system interest rates will always be determined by market forces and artificial interventions of this type ultimately act to the detriment of a good mortgage market that serves to meet the need of the various types of borrower. Indeed, as if to prove this, competition over the past year or more has enabled many borrowers who had been legally liable for tiered rates pre-dating the 1986 Act to renegotiate lower rates on their mortgages. That said, section 24 contains important safeguards to ensure that existing loans are not affected by the removal of the ban and that future borrowers are not misled in any way. The mortgage rate on existing or future loans cannot be tired retrospectively.
Part IV contains the general provisions relating to the control and prudential supervision of building societies by the Central Bank. The statement of the Bank's general duty in regard to societies contained in section 37 makes it clear that the guiding purpose of the Bank in operating the supervisory system set up under the Bill is the maintenance of the good financial health of societies. Of course, this in no sense detracts from the inescapable responsibility of the directors to ensure that the affairs of each society are conducted in a manner calculated to maintain its financial stability and the protection of funds entrusted to it. The powers which the Bank will have are similar to those it already has or will have under the Central Bank Bill in relation to banks. In summary, the Central Bank will be able to
The powers which the Central Bank will have in relation to a society's authorisation, that is, the power to impose conditions, to give a direction to a society to cease raising funds and to revoke an authorisation are central to the enforcement of the Bank's supervisory functions. Section 40 lays down in considerable detail the circumstances in which the Central Bank may either revoke an authorisation or suspend operations. The Central Bank will also have wide powers to carry out inspection of a society's books and records, to obtain information relating to the activities of the society, to control the form and content of advertising by societies, and to call a special meeting to mount a formal investigation of a society's affairs. The Bank will also have the power, should it consider it necessary to use it, to seek a High Court Order to secure compliance with certain requirements. On the other hand, the Bill contains important safeguards by way of procedural requirements and ultimately appeal to the courts in regard to the exercise by the Bank of its powers.
It will be obvious, therefore, that the powers available to the Central Bank will be more extensive and flexible than those currently available to the registrar. This strengthening of supervisory powers is a necessary aspect of modernisation of the legislation, is a necessary concomitant of the broadening of the scope of societies and will bring about a substantial degree of uniformity in supervisory systems. All in all, I am confident that the Bill will provide the basis for an effective system of supervision that will be sympathetic to the developments needed by the societies.
Here I would like to place on record my appreciation of the valuable work done by the present and previous registrars of building societies. They have discharged their statutory duties fairly and efficiently and the ultimate tribute to them is to say that no investor lost money in an ordinary building society since the foundation of the State. It is no reflection  on the registrar's office that responsibility for the control and supervision of societies is being transferred to the Central Bank. As I have indicated, the transfer is being made for positive reasons and the registrar, I am sure, will be glad of the opportunity to redirect resources to the supervision of the many other varied organisations for which his office has responsibility.
Section 38 is a new provision which recognises the special importance of ensuring an adequate supply of mortgage finance for house purchase and improvement. It would be my intention under this section to regularly monitor the supply of and demand for mortgage finance in consultation with the Minister for Finance and to communicate the position to the Central Bank so that any impending shortage of funds would be anticipated and appropriate preventative action considered. It should be noted that we are talking here about the supply of mortgage finance from all sources, not just building societies.
Turning to the question of the running of societies generally, I have tried to strike the right balance between the role and responsibilities of directors and of the members. Boards of directors are responsible for the overall direction of the society and supervision of its day-to-day management and, as such, have a legitimate interest in the composition of the board so as to ensure that it will be capable of shouldering its responsibilities in a united fashion but in the final analysis it is the members who elect the directors and to whom the directors must account for their stewardship. Members therefore must be kept fully informed of major developments affecting the society, and members who have a commitment to the society must have a fair chance of putting forward a candidate for election as a director. Basically it is vital that societies should be seen to be run in the interests of their members.
Part V deals with the way societies are directed and managed. It requires every society to have a broad of directors elected by the members, a chief executive and secretary. It contains a number of  changes in existing legislative provisions and substantial new provisions relating to the election and conduct of directors. The provisions as drafted will, together with those in Part VI, enhance the confidence of members in the manner in which directors are elected and subsequently conduct themselves as directors.
Sections 50 and 51 contain extensive provisions in relation to the appointment of directors. In fact, building society law contained no particular provisions regarding the election of directors until regulations were made under the 1986 Act prescribing certain requirements in relation to the eligibility and nomination of candidates, the circulation of an election address and retirement of directors. By and large, these provisions have been retained in the present Bill but with certain changes. The effect of these changes is that a society may (a) increase the maximum shareholding that may be required to nominate or join in nominating a candidate for election as a director from £10 to £250; and (b) increase the maximum number of qualified members that may be required to nominate a candidate for election as a director from ten to 20.
The new limits will allow societies to require candidates to demonstrate a reasonable level of support and those nominating them to have a reasonable commitment to the society. The special provisions regarding directors or candidates over 70 years of age are dropped because they appear to me to be discriminatory as they have no parallel in any other corporate legislation.
On the other hand, there are important new provisions designed to enhance public confidence in the electoral process. Firstly, a poll must be held on a contested election. Secondly, societies will in future have to appoint an independent person to supervise the conduct of elections and to report to the Central Bank on the conduct of the election stating whether in his opinion the election was conducted in accordance with statutory requirements and otherwise with fairness and integrity. Thirdly, canvassing by employees at their place of employment  or at a meeting of the society will be prohibited. The Central Bank will also be able, if they consider necessary on the basis of the report from the person who supervised an election, to apply to the High Court for an order setting aside an election.
Sections 52 to 59 contain provisions on dealings between a society and its directors and correspond, with appropriate modifications, to those in Part III of the Companies (No. 2) Bill, 1987, as they apply to banks. They are designed to ensure that an unscrupulous director does not divert societies' assets for his own personal gain. The approach adopted is (a) to prohibit certain dealings between the society and a director or a person connected with him; (b) to require disclosure of all significant dealings between the society and a director or a person connected with him; and (c) to provide for civil liability and penalties in respect of dealings that contravene the requirements of the Bill.
In addition section 60 requires societies to maintain and make available for inspection a record of the amount of business being given by the society to any company or firm which has as a director or partner a director of the society. Although there is no corresponding provision in the Companies Bill, in my view such a provision is appropriate in the case of building societies.
Apart from the fact that these types of provisions should be the same in general terms as those which apply to companies, they are also particularly necessary in the case of large mutual organisations like building societies, where the accountability of directors to members is in practice much more diffuse than in the case of companies.
Part VI pertains to meetings, resolutions and voting. Section 69 increases  from £10 to £100 the maximum shareholding that can be required of a member to vote on a resolution or an election. The £10 requirement has become quite meaningless in terms of today's money values. Although the societies would like to see a higher figure, I think the figure of £100 proposed represents a minimum level of commitment to a society which merits enfranchisement. The section also makes it clear that in a special resolution or a resolution for the conversion of a society into a company each qualified member has one vote. This is in line with the court's interpretation of existing legislation. A special resolution may only be proposed in relation to certain major decisions such as changes in the memorandum or rules, the adoption of new powers and mergers.
Section 72 contains some new provisions to enhance public confidence in the voting procedures of societies. A society is required to issue one proxy form with the notice of a meeting but is prohibited from issuing further forms except at the written request of a member, and also to retain such forms and requests for a year to facilitate discovery by a court.
Section 74 gives any 25 voting members of a society the right to put forward a resolution on any aspect of the affairs of a society, except a conversion resolution. Subsection (9) of that section accommodates the unique position of the ICS Building Society which was recognised in the 1976 Act and reflects the agreement of August 1984 with the previous Government. In fact, under this Bill the ICS will be brought more into line with the generality of societies than heretofore.
It is important that the law protects the rights of the ordinary members of building societies as mutual bodies and gives them a democratic say in the running of affairs. At the same time societies, as major financial institutions  depending for their survival on public confidence, must not be made prey to irresponsible elements who have no real stake in the society. The difficult task facing us was to strike a balance between these two interests. I think that balance has been struck in this Bill.
Part VII contains provisions relating to the accounts and audit of societies and substantially updates existing provisions in these areas. It is very important that societies observe the best modern practice in keeping accounting records and publishing annual accounts. The provisions on these matters and relating to auditors in building society legislation have traditionally been based on similar provision in companies legislation and accordingly the provisions on accounting records, the appointment and removal of auditors, the rights of auditors and the auditors' report are based on similar provisions in the Companies (No. 2) Bill, 1987.
There are, however, additional provisions in this Bill: (a) it requires societies to have a proper system of control of their business and to have an internal reporting system to the board of directors; (b) it requires the preparation of a layman's summary financial statement for issue to members; (c) it gives the Central Bank power to veto the appointment of an auditor as is also proposed in the Central Bank Bill for banks; (d) it imposes special duties on auditors to report certain serious matters or to supply specified information to the Central Bank over the head of the society, as is proposed for auditors of insurance companies and banks; and (e) it requires that auditors be reappointed at every annual general meeting and does not provide for automatic reappointment.
I would make no apology for insisting that societies have proper systems of internal control and that auditors alert or assist the supervisor if something goes wrong. After all, no reasonable measure designed to protect the security of the public's savings should be omitted.
Part VIII contains a re-enactment of the existing provisions in relation to the settlement of disputes between the  society and a member under the rules. It also provides that the Minister for the Environment may make regulations requiring societies to set up, either individually or jointly, a scheme for the investigation and determination of complaints by customers in relation to the services provided by societies. This type of “ombudsman” arrangement would apply to consumer complaints in relation to services provided by societies and not to disputes between a society and its members under the rules. However, such disputes if covered by the terms of the complaints scheme, could, with the agreement of the parties concerned, be dealt with under the complaints scheme. It is my hope that societies will come together to set up a voluntary arrangement for dealing with complaints. While I am not aware of any existing similar schemes in the financial services area in this country I think it would be another feather in the collective cap of societies if they took the initiative in this area. If the societies succeed in setting up their own scheme and if I am satisfied that it constitutes a satisfactory arrangement I will be quite happy to forego the regulation-making power in favour of the voluntary arrangements.
Part IX provides for the extension to savings held in building societies — whether as shares or deposits — of the scheme proposed in the Central Bank Bill for the protection of deposits with banks. The trend internationally is towards the establishment of some form of protection for smaller deposits taken by financial institutions — and the EC has already issued a non-binding recommendation in this regard. While societies have a very good track record in so far as the safety of funds entrusted to them is concerned, I think the arrangement now proposed is an opportunity to further enhance the confidence of small savers in our financial institutions and to put societies and banks on the same footing in this important area. The contribution of societies to the protection account in the Central Bank is set at 0.2 per cent of Irish pound shares and deposits, which will mean that societies collectively will  have to maintain a deposit of something in the region of £7 million with the Central Bank as their contribution to the fund. This compares with £4.5 million currently maintained by societies under the 1976 Act. It should be noted that this is a once off deposit which will earn interest for the societies. Societies will only have to make further contributions in line with the growth in their shares and deposits or in the event of a payout from the fund.
Part X is essentially a re-enactment of similar provisions in the 1976 Act relating to the amalgamation of societies and the transfer of engagements between societies. The opportunity has been taken to clarify the process by which societies can amalgamate or transfer engagements. It is important that societies have a clear and well defined mechanism for effecting amalgamations and transfers particularly at a time when future developments in the financial area may give rise to some rationalisation of our existing building society configuration. By permitting the Central Bank to consent in certain circumstances to an amalgamation or transfer without having to go through the procedure of a general meeting, the Bill facilitates a quick rescue should such ever be necessary. Any proposed payment of compensation to directors or bonuses to members on foot of an amalgamation or transfer must be disclosed to the members or, as the case may be, must be acceptable to the Central Bank.
Part XI, which will enable building societies to change their corporate status and convert themselves into public limited companies, is a provision totally new to Irish building society legislation, but one that is now recognised in recent legislation in other countries where building societies are to be found — the UK, Australia and New Zealand. One could adduce arguments for and against conversion but in view of the changing nature of the financial industry and the impossibility of predicting its future shape, I think it would be inadvisable to exclude the conversion option from major new forward looking legislation like this.  However, as demutualisation would be a quite fundamental change in the nature of a society, it is important that the law should lay down certain safeguards to ensure that the decision is taken after due consideration of all the implications by all those concerned. Accordingly, the conversion process laid down in the Bill is as follows: first, the society must consult with the Central Bank; secondly, the board of directors must draw up a conversion scheme as the actual instrument of conversion; thirdly, the society must pass a “conversion resolution”; fourthly, it must obtain the confirmation of the Central Bank and, finally, it must register as a public limited company. Section 101 requires the conversion scheme to cover 11 specific aspects of the conversion including the rights of members of the society in relation to the equity of the successor company or any distribution of the society's reserves. No conversion scheme may be circulated unless the Central Bank is satisfied that it complies with the requirements of the Bill. In order to prevent disruptive movement of funds in the expectation of quick windfall gains, any priority rights that may be given to members generally will not apply to members of less than two years standing.
A “conversion resolution” is a form of special resolution in which the borrowers vote along with the shareholders on the basis of one man, one vote to adopt the conversion scheme. Before members vote on a conversion scheme they must be supplied with a detailed statement indicating, inter alia, the reasons for the proposal and the future policy of the company in relation to housing loans and mortgage interest rates. I think it is only equitable that borrowers should be given an equal say with shareholders in the decision to convert, since it is a matter that could have potential consequences for them. Also, it will ensure that any converting society do not ignore the legitimate interests of mortgage holders.
After adoption by the society a conversion cannot become effective until it is confirmed by the Central Bank. Essentially, section 104 states that the bank must confirm a conversion unless it would  be contrary to the public interest or unless it is unlikely that the successor would be granted a banking licence. The public interest safeguard is an important one since it would allow the bank to block a conversion if in the prevailing circumstances it considered, for example, that a conversion would be damaging to the overall financial system.
After conversion a society will become a bank regulated under company and banking legislation. However, in order to ensure that societies make their own decision on conversion without undue external influence and that they do not become subject to predatory attentions section 105 guarantees the continued independence of the successor company for at least five years. For the same reason the Bill makes no provision for the transfer by a society of their business to an existing company.
The net effect of all the provisions will I think ensure that conversion will be properly considered and carried through with due regard to the interests of all categories of members, that societies do not come under pressure to convert with a view to being taken over and that flows of funds will not be distorted by expectations of windfall gains.
Part XII is concerned with the winding up and cancellation of registration of a society and is mainly a re-enactment with modifications of existing provisions. The Central Bank is being given full standing in relation to a winding up, including the right to attend any meeting of creditors or to be a member of any committee of inspection. There is a new safeguard for mortgage holders in that a liquidator cannot sell off mortgage assets except on terms that the High Court considers just and equitable. Sections 111 and 112 are derived from the Companies (No. 2) Bill, 1987, and make provision in relation to the criminal and civil liability of any officer whose failure to keep proper accounts contributed to an insolvency.
 Part XIII contains a number of miscellaneous provisions. Included in this part is the requirement on the Central Bank to keep a public file relating to each society containing specified documents provided by the society. Members of the public will be entitled to inspect these files just as they can inspect files relating to companies in the Companies Registration Office. Provision is also made for necessary amendments to the Banker's Books Evidence Acts and Bills of Exchange Act so that societies will be able to provide banking type services. Section 127 is designed to give building societies the same status as banks as depositories of money, for example, to hold client funds and to accept payment of wages.
Deputies will have noted that some of the new provisions are similar to relevant provisions in the Companies (No. 2) Bill and in the Central Bank Bill. I was conscious when drafting the Bill that it should, where relevant and appropriate, correspond in so far as possible and reasonable with those two other Bills.
I hope the House has found my explanation of the thinking behind the Bill and of its major provisions useful and helpful. Due to its length, I regret that I was unable to go into more detail but I will try to respond to any points or queries raised by Deputies in my reply to the debate. I am also prepared to consider any well-founded suggestions by Deputies for improving the Bill.
I believe that this Bill is comprehensive, coherent and well balanced. It will allow the building societies to build on their past success. I think it achieves a good balance between supervision and commercial freedom, between the boards of societies and members, between the rights of investors and borrowers, between societies and their customers. It will also give a better deal to the house purchaser, to the building society investor, to the consumer of financial services. It can bring benefits to the housing area and the construction industry and, I hope, stimulate urban renewal. As I have said already, I believe that it is a progressive charter for the  development of the building society movement.
Mr. Shatter: On behalf of the Fine Gael Party, I welcome this Bill. A modern restructuring of the statutory provisions applicable to building societies is long overdue. In a modern world and in the Europe of the nineties when financial barriers come down, Irish building societies, if they are to compete, must be able to provide a diversity of financial services and should not be constrained by legislation enacted for a different time. Even without the prospect of 1992, reforming legislation is required to enable building societies to play a more comprehensive role in the financial services sector.
The general objectives of the Bill are supported by Fine Gael. I would have to say, however, that we do have serious reservations about some of its substantive provisions. I will come to deal with these in some detail shortly. First, I welcome the transfer of responsibility for the regulation and supervision of building societies from the Registrar of Friendly Societies to the Central Bank. Supervisory powers of the Central Bank will be stronger and should be more effective than those of the registrar and I believe are more relevant in the context of the extensive financial services that building societies will now be able to offer. The Central Bank's role will provide a more effective protection for depositors and will ensure that in the future we do not have a repetition of the debacle that we had with the PMPS.
This is a very extensive and lengthy measure, as the Minister quite correctly states. Throughout the Bill, there is a variety of enabling provisions and of protections. I want first to deal with the provisions contained in Part I. Part I, as the Minister correctly said, contains the usual definitions that one finds in such a measure, but there is also something a good deal more important in it than the definition sections. It confers on the Minister for the Environment, the Minister  for Finance, the Minister for Justice and the Central Bank a diversity of regulatory powers which appear to enable each Minister, and, indeed, the Central Bank, to make regulations for the general purposes or for any particular purpose laid down in the Bill. Fine Gael have particular reservations about the failure to spell out fully in the Bill the demarcation lines between intervention in some areas by the Central Bank and by Government Ministers. They are clearly laid out in some parts of the Bill; in other parts there is confusion. I shall come to deal with that in detail as we go through the Bill.
In the context of the regulatory powers, I want to refer to sections 4 and 5. These sections are what can be described as omnibus legislative provisions. This type of clause is normally devised by Government and all Governments in the past have sought to devise omnibus clauses of some nature in Bills as lengthy as this. This is to enable a legislative hole to be plugged if, following the passage of the Bill, it is discovered that something was omitted which should have been addressed, or something contained in the Bill was not quite working in the way intended.
There is a considerable difficulty with sections 4 and 5 because they go further than simply empowering a Minister to make regulations under the Bill. What these sections empower the Minister for the Environment to do is to modify any provisions of the Act as may be necessary or expedient for carrying such provision into effect. They also confer a direct power on the Minister, by way of regulations, to make consequential amendments or repeals of various provisions of the Act. It is not appropriate particularly in legislation as important as this, that a Minister by regulation and after such regulation has been lodged in this House for 21 days, should be able to bring legislation automatically into effect unless a motion to nullify it is successfully tabled. The Minister would, by use of this mechanism, be able, in effect, to amend the Act passed by the Oireachtas.
The Minister should have power to make regulations for the purposes of the  Act but not for the purpose of amending the Act itself. That gives rise to general concern about the possibility of a Minister at some future date amending some of the safeguards for the consumer contained in the Act; possibly a Minister might do this under pressure from building societies that discover that some safeguards are inconvenient for their general day-to-day operations. Further, I do not believe that a Minister should be able, by way of regulation to amend a provision in an Act passed by the Oireachtas. The conferring of such a power in legislation is probably unconstitutional. The powers to enact legislation and to pass amending Acts are conferred on the Oireachtas by the Constitution. There is substantive case law on this area. I would have considerable constitutional reservations about the all-embracing powers conferred under sections 4 and 5 of this Bill which would, in effect, enable the Minister, by regulation, to amend the Bill when it becomes law. I urge the Minister to have another look at that.
If following the passage of this legislation it appears in the short or long term that some provisions need to be amended, that should require an amending Bill. The powers the Minister can exercise under section 4 to act as a Member of the Oireachtas or as a substitute for the Oireachtas are only applicable for a period of three years following the enactment of the Bill. That is an indicator of doubt that may have existed in the Office of the Attorney General or in the Minister's Department as to the appropriateness of these powers. Section 5 has no such time limitation. I have no doubt that these were put in as enabling provisions, but the Minister should be aware that there are grave reservations both about the appropriateness of these provisions and about their constitutionality.
Section 6 deals with the question of redemption fees. The Minister has said that this Bill is designed to give a better deal to the House purchaser and the consumer. The case is made that it is appropriate in the context of fixed interest loans for building societies to be able to charge  redemption fees to the borrower who wishes to redeem his loan at an early date. The 1986 Building Societies Act prohibited the general charging of redemption fees by building societies. That Act was effective in curtailing building societies from exploiting their then dominant position in the domestic house market by penalising borrowers who sought to repay their loan at an early date.
There is an argument that there should be a different approach to loans based on a fixed interest rate as opposed to other loans, but I am not totally convinced that it is necessary under this Bill to reintroduce redemption fees which were abolished by the 1986 Act. I seriously question whether it is necessary to do so. I certainly question whether it should be possible for building societies to seek redemption fees in the context of loans which may have preceded 1986. I think the Minister intends to talk about future fixed interest loans. Perhaps he will clarify his intentions exactly. He did not give any detailed explanation as to why redemption fees are appropriate in this instance and why they should be brought back. The Minister should further explain this point. Fine Gael for the time being reserve their position on this matter.
Part II deals with a variety of matters relating to the formation of building societies and various authorisations building societies can be given. Much in this Part is welcome and we will tease out the details on Committee Stage. There are, however, a number of other issues which primarily arise under Part III. This Part confers a variety of new powers on building societies and deals with a number of issues which will become a matter of some public controversy when the minds of the general public are directed to the detail of the Bill.
The Minister raised the issue of tiered interest rates. It is worth nothing that some building societies, in what I would describe as an abuse of their then dominant position in the market, sought to impose tiered interest rates retrospectively prior to the enactment of the 1986 Building Societies Act. One of the  most important reforms introduced by that Act was the prevention of the imposition of tiered interest rates on unsuspecting borrowers, who were given no indication by the building society at the time they took up the loan that if they borrowed at a particular rate they might at some future date be penalised by the society by being required to pay higher interest rates than others who had borrowed different sums of money. The 1986 Act prohibited tiered interest rates in the context of previous and future borrowers.
The Minister talks about this legislation as assisting the consumer and he is making provision for the re-introduction of tiered interest rates under section 24. When the Bill was published the Minister issued an accompanying statement which justified the reintroduction of tiered interest rates on the basis that it would enable building societies who provide for large loans to impose higher interest rates on those who borrow large sums of money than they might impose on those who borrow small sums.
The Minister talked today about an evening out of the possible interest rates. There is a suggestion that those who borrow small sums in the range of £20,000 to £30,000 might at present by paying a bit more interest than they would otherwise be paying, due to the fact that somebody who borrows £50,000 or £60,000 from the society pays the same level of interest as those who borrow less. I am not totally convinced by this argument and I am concerned that the imposition of tiered interest rates might be another device used by building societies to get additional interest from borrowers which cannot be justified. I am more concerned about it in the context of additional functions and powers which this Part confers on building societies.
Under Part III building societies will be able to develop their own housing estates. I wonder how the tiered interest rate provision will apply in that context. Will building societies decide to provide a concession interest rate for those who  purchase houses which have been constructed in a building society development? Will they try to create a situation whereby they exercise such a dominant interest in the domestic house market that people who wish to purchase houses will know that if they purchase from somebody other than the building society as a developer they will pay a higher interest rate on their mortgage?
The whole issue of tiered interest rates is now moving beyond the question of whether building societies should be able in the context of the market to charge different interest rates for different levels of borrowing. There is the possibility that the building societies could use their position in the market to compete unfairly against other house developers by offering concession rate loans to those who purchase a house in a building society development. I would ask the Minister to consider that point and to look at the distortions in the construction industry which could be created by the building societies being empowered to exercise such an approach.
Let us leave aside for the moment the proposition that the building societies may abause their position in the context of their becoming developers of domestic housing estates. Let us put that on one side for the moment and assume the position will be that the building societies will simply apply tiered interest rates of different natures to different levels of borrowings regardless of whether they are the developers of the house for which the loan is being provided.
In the banking world very often the case is that the person to whom you provide the lower loan, because he might not have as good a credit standing, may be required to pay higher interest rates than the person to whom you provide the larger loan. The Minister's argument and assumption is that tiered interest rates will apply in the context of those who borrow large sums paying a higher interest rate than those who borrow lower sums of money. It could very well be that tiered interest rates will have the reserve effect, that the first time house purchaser,  because he does not have a record of mortgage repayments as he may be borrowing for the purchase of a house the value of which is unlikely to increase in the market at as great a rate as a more expensive house, will end up paying higher interest rates.
The person who borrows £20,000 or £30,000 will end up paying a higher interest rate than the person who borrows £50,000 or £60,000. The person borrowing £50,000 or £60,000 may have an AAA credit rating and will get a concession interest rate from the building society. Perhaps tiered interest rates will apply in a different way, perhaps building societies will provide lower domestic interest rates for the purchase of a house to those people to whom they provide loan finance in the commercial sector for major commercial developments because, under this Bill, the building societies will rightly be allowed to exercise many of the normal ordinary banking functions that our banks currently operate.
Who is to say that concession interest rates will not be provided for commercial borrowers in the context of the commecial borrower taking out a domestic loan for the purchase of a House? If the Minister wants to ensure that the person who borrows between £15,000 and £30,000 which, nowadays, is a fairly modest level of borrowing for a new house, is not penalised under the application of a system of tiered interest rates, far more elaborate provisions will require to be included in section 24 to deal with this issue.
I am not sure that tiered interest rates in the context of the housing market are justified or necessary. At the end of the day the building societies will check the security of the house for which the loan is to be provided. The building society's concern is to provide a loan, ensure that mortgage repayments are made, get a reasonable return on the loan provided and, in the event of the mortgage repayments not being paid, ensure that the security of the house is available to recoup the moneys lent.
I have not heard a convincing argument  from the Minister as to why the 1986 Act should be repealed. In the context of the current environment, in which the banks have become far more greatly involved in the domestic house market, I can see that the workings of the market itself and the competition may dissuade building societies from abusing their position. However, it is only in the last two or three years that the banks have become involved, to any major degree in recent decades, in providing borrowings for the purchase of new houses.
It was only in 1987 that they finally shook up the building societies and of course the banks did very well because until the Bank of Ireland took over the ICS and broke up the cartel, for a number of years the building societies not only exercised the dominant position in the market but abused their dominance by failing to provide a real service to their customers. The reason the banks did well in 1986-87 was because they were seen to be consumer friendly and to respond to the needs of their customers which was something the building societies did not do. The take-over of ICS and the large scale move of the banking sector into the domestic house market has shaken the building societies out of their complacency and indeed their attitude, to a certain degree.
I am not convinced that tiered interest rates are necessary and if the Minister's argument is that the market will take care of it, I still believe that the provision for tiered interest rates could result in building societies, if they take up the possibility of developing housing estates, exercising an influence on the house construction market which would create major difficulties. This provison could place at risk first time house borrowers who wish to purchase a house and who go to a building society to find they are required to pay a higher interest rate than might otherwise have been imposed. I would like to see fundamental changes in section 24 to confront some of those issues.
There are matters in Part III of the Bill which give rise to concern. Section 18 allows building societies to raise funds  and borrow moneys abroad, which is something that was not available to them previously. I am a little confused about this provision because at the start I welcomed the regulatory powers of the Central Bank and one would expect in the context of the Central Bank exercising regulatory powers that, in this area, the issue would be left to the Central Bank. Yet, in the context of this section, the Minister for Finance and the Minister for the Environment are enabled, to some extent, to interfere with the operation of the Central Bank. We may tease this out in more detail on Committee Stage. I ask the Minister for an explanation as to the reason for the specific powers conferred on him in this section.
Section 21 deals with building societies holding and developing land for residential, commercial and other purposes. We should go very carefully in the context of this section. Indeed, the building societies should also go carefully in the context of this section. A general query must arise as to the desirability of allowing building societies to diversify into some of the areas into which it is envisaged they will diversify under the provisions of the Bill. I do not know what expertise building societies have in the building and development of housing estates or in involving themselves in commercial development.
Building societies have been in a position where their expertise lies in providing loans for domestic houses and in ensuring that the necessary assessments are carried out to make sure, by way of survey, that there is a house which will provide adequate security for the loan being offered and, through solicitors, ensuring that the title is correct and that they have adequate security and correct title for the loan being made. In the United States, there was a rather unhappy experience when the American Savings and Loan Corporation collapsed due to getting involved in areas in which they had no expertise. I am concerned as to the powers conferred under section 21 and the extent to which the Central Bank will in practice be able to monitor the  exercise of powers that the building societies may exercise under that section.
I emphasise the point that expertise in lending money does not automatically mean that you have expertise in commercial and domestic house development. I know there are provisions in the Bill dealing with this. Some concerns could arise about building societies getting involved in these areas and the reduction of the finance available for the domestic house market. The Bill envisages controls and curtailment in this regard but I ask the Minister to further address that issue.
The Bill goes on to outline what other powers would be conferred on building societies. Section 29 contains a very curious provision. In effect the section prescribes the variety of different banking type services that building societies would be authorised to provide. Subsection (2) (n) would confer on building societies the right to give advice in the making of wills. I do not understand how it falls within their expertise to give advice to customers in the making of wills and to deal with all of the intricate legal issues which have to be dealt with in that respect. This section appears to be a direct copy of a section contained in the Building Societies Act, 1986 enacted in England. I do not know why this provision has been included. I know of no public demand for building societies to be given the right to give advice in the making of wills. In fairness to the building societies, I am not sure they would want to have the right to give advice in the making of wills.
I fail to understand what the advantage to the consumer would be in allowing building societies, who lack the necessary legal expertise, to give advice in the making of wills. On occasion this may require the giving of very comprehensive and detailed advice well outside property law on such matters as family law, company law, trusteeships and other complex areas which do not fall within the general expertise of building societies and which do not relate happily to any of the other functions that would be conferred on building societies under this Bill. The Minister made no reference to this matter  in his speech. I do not know why building societies, in addition to solicitors who have to go through a number of years of legal training, would be given the right to give advice in the making of wills. It is a very curious provision indeed.
I have no doubt that some degree of controversy will will be generated in the coming weeks in regard to the powers that would be conferred on the building societies to engage in conveyancing. We are all aware that it is a popular past time to engage in solicitor bashing.
Mr. Shatter: A politician can always be guaranteed at least two cheers from the general public when they have a go at the legal profession. Until relatively recently politicians were also guaranteed at least two cheers from the general public if they had a go at the building societies but as opposed to simply having a go at solicitors and trying to do them down in some particular way——
Mr. Shatter: The Minister in dealing with this issue was extraordinarily brief. He recited the fact that conveyancing powers would be conferred on the building societies and mentioned protections by way of regulation. We should look at what the position was until 1986 and what it might be once this Bill is enacted. Prior to 1986 one of the abuses building societies engaged in was to insist that borrowers, when purchasing a house, pay the conveyancing fees incurred by the  building society in checking title. A solicitor would act for the purchaser of a house while the building society also employed a solicitor to check the title. It was the poor purchaser the building society sought to stick with the legal fees incurred by the society.
Many lawyers and Members of this House who are not lawyers as well as people outside of this House not connected with the legal profession questioned the need for building societies to employ their own lawyers to check the titles of property, thereby duplicating the work of the solicitor acting on behalf of the purchaser. The building societies protested that they were not duplicating this work and, in their submission to the Restrictive Practices Commission, who subsequently published a report on their inquiry into the effects of competition of the restrictions on conveyancing in 1982, insisted that they be allowed to continue to employ their own lawyers. That report recommended that where a purchase was financed by a lending institution; the work of the lender's solicitor largely overlapped with that of the purchaser's solicitor but that the interests of the purchaser and lender could diverge and that the lending institutions maintained it was necessary for them to employ their own solicitors. In 1982, therefore, the building societies recognised that there was a conflict of interests between them and the borrowers and they insisted that they be allowed employ their own solicitors.
No one had ever any objection to building societies employing their own solicitors. What people objected to was that the borrower had to pay the fees of the building society's solicitors. The Act of 1986 prohibited building societies from requiring a person borrowing finance for the purchase of a domestic dwelling to pay the legal fees incurred by the building society. What did the building societies do then? Since they could no longer charge legal fees they decided to make the lender pay the administrative costs involved. Consequently we had a new situation — legal fees went out the window and administrative costs were imposed.
 The banks then came into the picture and were willing to accept certificates from solicitors acting on behalf of purchasers. The Building Societies Act, 1986 required that building societies also accept these. The need to charge administrative fees also seemed to go, even though some building societies are still charging them.
Having admitted that there was a conflict of interests and having insisted that they be allowed to employ their own lawyers the building societies are now saying, seeing as how they cannot get the purchaser to pay their legal fees, that they will take over the purchase and obtain the legal fees in that way. It is recognised in Section 31 of this Bill that a serious conflict of interests can arise between the purchaser of a house and the building society. Conflicts can arise in a variety of ways. Currently someone buying a house consults with his solicitor who may give him independent advice as to which building society or bank may provide the better deal. He may advise them to take out the traditional type of loan or some-type of endowment policy. Because of the insurance kickback building societies may get it may be of advantage to building societies in some instances to sell endowment policies but it may not always be in the interests of the purchaser to take out an endowment policy in his particular set of circumstances. Currently a purchaser will get independent advice on the options open to him from a lawyer. This independent advice would not be available if building societies were to act for borrowers in the area of conveyancing.
The banks may be as much to blame for this as the building societies, but building societies and banks in relation to the mortgage document may seek to impose obligations on borrowers that go beyond what is necessary to secure the position of the building society or bank.
Currently when a loan is obtained from a bank, they may not only have the title deeds to the property as security for the loan but may have rights to extract money in a variety of other ways in the event of  a problem arising with mortgage repayments. A solicitor acting independently for a purchaser can advise the purchaser of the extent of the obligations and guarantees he need give to the lending finance agency when he is taking up his loan. A solicitor employed by a building society will be acting for the building society. He is going to ask the purchaser to sign up on the most onerous commitments to the building society that that building society may wish to seek. It may not always be in the interests of a purchaser to agree to such commitments. No independent legal advice will be available for that in these circumstances. If legal errors are made in completing the conveyance, who is going to deal with them? Who is going to represent the position of the borrower, the purchaser? Will the building society make the legal documentation available if a legal error is discovered or will the borrower to left to bring proceedings against the building society?
How will the building societies deal with proceedings under the Family Home Protection Act, 1976 if a loan is being provided to a domestic house purchaser? If the husband is taking out the mortgage, will the wife be advised to get independent legal advice or will she be told by the building society's solicitor simply to sign her consent on he dotted line? If building societies “top up” the domestic house loan so that some additional funds are provided to a house purchaser for commercial purposes and the person whose loan is being “topped up” is the husband, will the wife be asked to give a further consent, or will the mortgage document when first signed basically leave it open to the building society to provide a “topping up” additional commercial loan for which the family home will be regarded as being held as security at the time the original domestic loan is provided? A whole series of issues can arise in respect of which there may be clear conflicts of interest.
This is an even more curious provision for another reason. If the argument is for bringing conveyancing costs down — and there is a very good argument that the  cost of purchasing a house should not be as great as it currently is — it is very difficult to see how this provision will in any way bring costs down. Building societies will have to provide a cost effective service if this provision laid down in the Bill works. They will have to keep separate accounts showing what moneys they have earned through conveyancing and that they are not using conveyancing as a loss leader. Therefore, presumably they will bring into being charges similar to existing charges.
Building societies apart from the fact that they want to find some new way to retrieve the legal costs they incur, having been prevented from doing so properly by the 1976 Act, may want to use conveyancing as a means to bring to the individual building societies the domestic house purchaser, and now they want to outflank the banks in this area. I believe the banks involving themselves in the house loan market brought a breath of fresh air and a reasonable degree of competition into an area that had been sadly lacking in competition and had been run by a cartel for many years. I have still something of an open mind on this despite all the reservations I have expressed because some of those reservations can be dealt with in detailed revisions and regulations about conflict of interest. If it is in the public interest to allow financial institutions to provide domestic house loans, to engage in conveyancing, why is it in the public interest to allow only building societies to engage in conveyancing? Why should banks and other financial institutions who provide domestic house loans not also engage in conveyancing? We have a Central Bank Bill currently before the House; that says absolutely nothing about extending the powers to engage in conveyancing to the banks. Why should it be possible for building societies only to have this new function conferred on them, be it desirable or not? Either in principle it is desirable or in principle it is not. If it is desirable I do not see where the principle is in conferring these powers on building societies but not on banks. It would seem  the conferring of these powers on building societies taken together with the conferring of the powers on building societies to act as auctioneers, is in effect designed to restore to building societies the dominance they exercised in the market prior to 1986. I do not believe that is in the interests of the consumer or that it can be dressed up as a consumer protection measure. I do not believe it can be dressed up as a measure that will in any way be in the long term interests of those who seek finance for the purchase of their domestic houses. Therefore, I want an explanation from the Minister as to the principle in extending conveyancing powers to building societies. If the principle is to bring down the cost of conveyancing I want him to spell out how it will have that effect. I want him to spell out the principle in extending these powers to building societies but not to banks. Maybe there is a simple explanation, that the Department of the Environment deal with building societies and the Department of Finance deal with banks and it never occurred to anyone to produce a coherent policy on this issue. Maybe that is the simplistic explanation, but it does not bear examination.
I do not think anyone can deny that in practical terms there is going to be a serious conflict of interest between the purchaser of a house and a building society and that conflict may arise in a variety of circumstances when building societies engage in conveyancing. The Minister in section 31 (4) provides that regulations may be made under the section. This time these regulations will be made by the Minister for Justice to deal with the issue of conflict of interest. I tell the Minister these regulations under the provisions contained in the Bill will be made by the Minister for Justice and laid before this House and, unless a motion is put before the House to nullify these regulations, they will automatically come into force with no detailed discussion of any nature of their contents.
If the intention is to extend conveyancing to building societies and if there is a recognition that there is a  serious problem in some instances of conflicts of interest, I suggest this provision in section 31 be amended, and there be a specific provision whereby this section will not come into force until, first, the regulations are published and printed. Secondly, until the regulations have been approved by this House following debate on their provisions and, thirdly, that there be enabling provision in this section whereby this House can amend such aspects of those regulations by the tabling of amendments to them at the time they are brought before this House for debate. It would seem there is a very serious public interest issue here, an issue too serious to be dealt with simply by the laying of a regulation that would come automatically into force unless it were nullified. There should be an express approval, and there is a precedent for this in a provision contained in the Criminal Justice Act, 1984 that a variety of powers in that Act did not come into force without publication by the then Minister for Justice of the rules and regulations to apply to the Garda. Such rules and regulations had to be debated in this House and formally approved by this House before certain sections in the Criminal Justice Act, 1984, came into operation. The Minister should look at that section in the 1984 Act and see how it can be used to deal with the problems.
In the context of section 31 there is a great need for other reasons, to spell out the intention of the regulations. Section 31 (4) (d) states that the regulations can specify the class or classes of persons to whom conveyancing services may be provided. I have no idea what that means. Are there classes in society to whom conveyancing services are to be provided? Will this mean that conveyancing services will only be provided to those who borrow from societies? Are the societies to generally provide conveyancing services whether a person borrows from them or not? I presume that is the intention but it is difficult to understand what the Minister intends under that subsection. Subsection (e) refers to the restriction of the power to provide the  conveyancing services to property of a prescribed description. What does that mean? Does it mean that building societies can convey bungalows but not double or multi-storey properties, that they can convey domestic dwellings only or commercial buildings only? It is not good enough that those matters should remain a mystery and are not spelled out in the context of the worries I have expressed in regard to them.
The same argument applies to building societies exercising auctioneering services. In so far as a power is conferred on them to do so by the Bill I believe that before it is exercised the detail of the regulations that may be made by the Minister for Justice and the Minister for the Environment should be spelled out. The detail of those should be approved by the House. In the context of sections 31 and 32 which deal with conveyancing and auctioneering powers, the Minister should explain the role the Central Bank are supposed to play in regard to them. At the outset I said that the Central Bank, the Minister for Finance, the Minister for Justice, and the Minister for the Environment all seem to have regulatory powers of a different nature and a different description. It seems that it would be possible on occasions for them to be separately issuing contradictory regulations. One assumes that will not happen but in the context of the failure to coordinate the extension of conveyancing services, and by depriving the banks of that facility and confining it to building societies, one wonders where the co-ordination will lie.
Will the Minister tell the House in what way the Central Bank, as suggested in section 31, can make any particular input or give any consideration under the normal functions exercised by the Central Bank, as to whether building societies should be involved in conveyancing? I do not see how that falls within the Central Bank's regulatory or supervisory functions. I can understand the Central Bank wanting to or attempting to exercise some sort of function as to the limits of capital investment building societies might put into the development of housing estates  or commercial developments but I fail to understand what supervisory function the Central Bank can exercise in determining the nature of the conveyancing services building societies are to exercise.
I have considerable reservations about that provision. In the context of conveyancing, of building societies acting as estate agents and in developing housing estates and commercial projects I repeat that the Minister is conferring powers on building societies to generally engage in economic activity of a nature which is foreign to them. They may have some acquaintance with that business; they maybe indirectly associated with it but they have had no involvement or expertise in that business at present. I should like to sound a warning about the inherent dangers in building societies involving themselves in those areas as opposed to the other general areas of banking, leaving aside the making of wills, which are properly addressed in the Bill.
I have another concern. The Bill goes further than simply putting the building societies in a position where they will be competing equally with the banks in a variety of areas, which is what the building societies have been seeking. By allowing building societies to build estates, provide loans, engage in conveyancing and act as estate agents, the Bill in a sense seeks to restore building societies to a position of dominance in the market. That may not be in the interests of the consumer. Section 35 is designed to ensure that there will be some degree of protection against building societies forcing borrowers to utilise the societies' own conveyancing services. It seeks to ensure that those who wish to obtain independent legal advice when raising a house loan — very often the purchase of a house and the raising of a loan is the major financial transaction the majority of us make during our lifetime — will not be forced by the building societies to use their own conveyancing services. I am not satisfied that, in practice, section 35 will work that way.
It appears from what the Minister has said that the provision is intended to  introduce competition in the area of conveyancing. I am concerned that in the context of house purchase it will not merely put building societies in a dominant position vis-à-vis banks but that it may put them in a dominant position vis-à-vis solicitors. In effect, it may remove competition from the market. The Bill states that building societies will not be able to require the use of their own conveyancing services but there is a very thin demarcation line between a building society urging its customers to use its conveyancing services and making it clear that if one gets a loan from them and uses an independent lawyer it will take a lot longer to process the application with the result that the applicant may end up being on bridging finance at higher interest rates a good deal longer than is necessary. The society may point out that if an applicant uses its inhouse conveyancing service through qualified lawyers or law clerks the loan will be processed that bit quicker. I am not sure that section 35 provides the necessary protection for the consumer in that area. The Minister should have another look at that section.
If the Minister is truly interested in making conveyancing a great deal less expensive, and the overwhelming majority of people will take the view that it should be possible to make conveyancing and the purchase of houses less expensive, a far more fundamental change is required. I do not believe that extending that power to building societies will have any major impact on the cost of conveyancing. It will simply give building societies an additional function and, no doubt, create difficulties for some solicitors whose practices primarily rely on conveyancing. If the Minister truly wants to reduce the cost of conveyancing he should realise that what we need is a radical reform of conveyancing laws. Our conveyancing laws have never been overhauled. In some instances we are still operating under laws from the 15th, 16th and 17th centuries. We are operating under old pre-1922 laws that were inherited from the British and many of them have long since been reformed by the British.
 Conveyancing is complex because we have antiquated laws and an antiquated legal structure for dealing with house purchase and house sales. We have a concept of “let the buyer beware”, a concept whereby instead of a purchaser being guaranteed that he is getting a proper title to a property he is acquiring from the vendor, he is put at risk and has to check out that he has the proper title. Instead of a purchaser being guaranteed by a vendor that there is a proper planning permission in existence he has to check it out. The whole area of conveyancing is made unnecessarily complex and the Land Registry is collapsing under the weight of work.
We have a 25 per cent VAT rate imposed on legal fees which presumably the building societies will have to apply in the purchase of a domestic dwelling. Young first-time buyers have to pay 25 per cent VAT on their conveyancing fees and they cannot recoup it from anyone but, a company — the Smurfits of this world — who want to purchase a major industrial complex which might cost more than £1 million, who pay VAT on conveyancing fees can recoup the VAT and set it off their accounts. If the Minister really wishes to reduce the cost of conveyancing he should have a radical modernisation of our property laws, our land laws and our conveyancing laws. We should look at the imposition of VAT in particular on first-time house buyers and we should look at the stamp duties imposed by the State. The State takes far more from the average house purchaser by way of stamp duties than the purchaser ever has to pay by way of legal fees.
What we are doing here, under the guise of making conveyancing cheaper, is extending to building societies a function without a clear vision as to why we are doing it. If we want to provide one-stop shops and if this Bill goes ahead in its present framework, we require other major reforms as well. If conveyancing is a function that building societies should exercise, and in that context the other financial institutions as well, there is a very strong argument for a total  overhaul, for example, of the solicitors Acts but, of course, that falls within the ambit of the Minister for Justice. That is the problem. There is no co-ordination, vision, or policy. There is no particular reason if it is desirable that building societies operate as one-stop shops why lawyers should not do so. Why should not legal practices be mixed practices of estate agents, accountants and lawyers who provide a mix of services? It would be equally relevant to providing a comprehensive package to the house purchaser. Of course, we deal with these things through tunnel vision in a piecemeal way and we play around with systems without actually radically overhauling them.
I am concerned that the new powers conferred on building societies will allow them to play such a dominant role that they will abuse their position. The record of building societies up to 1986 does not give one any degree of confidence that building societies will not seek to abuse their position. It is interesting that the banks have not yet responded to this issue and have not wondered why these additional powers are being given to building societies. Of course, the Bank of Ireland do not mind as they have taken over the ICS and they will operate them through the ICS. There is an artificiality, a lack of vision and an absence of any clear view about what is being done. If this Bill proceeds as drafted, the rules and regulations proposed to provide protection should come into force only if they are brought before this House and are formally approved by the House.
Another matter of concern is to ensure that adequate mortgage finance is made available. Section 38 of the Bill deals with the supply of mortgage finance and provides that the Minister for the Environment may from time to time review the adequacy of the supply of mortgage finance for the provision or improvement of housing and communicate to the Central Bank his assessment of the need. It goes on to say that the Central Bank can communicate its views to the Minister and that every building society can submit to the Minister such information and  returns that the Minister may require. There could be another difficulty here. There is a possibility, as I have already said, that this Bill is designed to give building societies such a dominant position in the market as to, in effect, foreclose on competition. Another possibility is that the power conferred on building societies to get into the commercial sector could so reduce the moneys available for the domestic house market as to force up the interest rates on domestic mortgages. Building societies may regard it as being more remunerative to involve themselves in the commercial sector and to involve themselves in the construction of properties. I am not sure that section 38 necessarily provides a protection that will guarantee, in conjunction with other sections, that adequate finance is kept available in the domestic housing market.
If mortgage rates go up they create another problem. This Government have engaged in an assault on mortgage interest allowances. In the 1987 budget they reduced the allowance to 90 per cent and in the 1989 budget they reduced it to 80 per cent. The mix of providing for tiered interest rates and the reduction in the mortgage interest allowance in the income tax legislation could sow the seeds for major difficulties on the part of house purchasers in the future. The Minister for the Environment steered clear of that issue in the context of this Bill.
Other issues that arise will be teased out on Committee Stage but in the context of section 60 of the Bill there is provision about the register to be kept by building societies. This register will record business involvements of an officer or a director of the building society as there is a requirement in relation to making a report. What is the building society supposed to do with this register? Will it be genuinely available for public consultation? Why is it only a statement that has to be made available and sent on demand to any member of the society? Why should not a member of the society be allowed to view the register? The Minister should respond to that question.
I have a number of queries in the context of later provisions of the Bill. Part  XI of the Bill deals with the possible conversion by building societies to plcs. The principle of mutuality which was at the heart of the building society movement when it was founded is currently more in name than in reality. This Bill clearly predicts that building societies or amalgamations of building societies will convert to plcs. This Bill is unclear as to who will benefit from the conversion of a building society to a plc. The Bill envisages that a presentation will be made by the management of the building society of a scheme to members of the society for its conversion into a plc by the passage of special resolution. Indeed, the Bill provides that such special resolution should by reference to the shareholding of persons or classes of persons in the society state their entitlement to shares in the proposed company and their rights, if any, to subscribe towards shares in the proposed company.
There has been a lot of criticism of building societies in the past as regards the democratic nature of the meetings they hold and of the voting pattern of members. Of course building society members can be not only people who are outside building societies but who are employees of a building society. A building society employee may, and will, often have moneys held on deposit with a building society, indeed may be encouraged by the management to hold moneys on deposit. If one holds moneys in a share account that renders an employee/depositor a voter at an annual general meeting, He or she can also be a voter at any other special meeting. There is a degree of public suspicion that managements of building societies — some of whom seem to be self-perpetuating — have guaranteed their position by ensuring, by and large, that when there is an electoral contest for the position of director of a building society the employees, who also happen to have votes, know whom to vote for and vote the right way. That is an issue of some public concern.
The provisions of the Bill are intended to provide protections for the shareholders in the context of a conversion to  a plc. It is anticipated that if a building society held a meeting at which a special resolution was passed to consider its conversion to a plc, the majority of its members — they being the shareholding depositors — would not vote for the conversion unless to use the simile of the private limited company that converts to a public company, there would be some gain to them by virtue of their shareholding in the building society. Of course when companies go to convert to plcs often they provide special benefits for their employees as well.
I want to know what protection there would be under the provisions of the Bill, for example, for the ordinary depositor/shareholder to prevent the management of a building society presenting a special resolution, the terms of which would provide that management would get 50 per cent of the shareholding in the plc following conversion which could be supported by the employees of the building society on the vote due to the fact that, as employees, they were sharing in some greater benefit than the ordinary depositor/shareholder. I want to know what protection there is against that eventuality.
The provisions of the Bill appear to carry the rational assumption that, unless it is in the interests of the general class of depositor/shareholders, there would not be a majority in favour of conversion and assumes that the shareholders will benefit in some way from the conversion other than simply having their deposits guaranteed when the building society moves from being a friendly society to being a plc. I am not sure that that is an assumption that can be drawn. I think it would be possible for a form of special resolution to be passed — following the conversion to plc — which would provide an unjustified gain to the management and directors of the building society, which would exclude the ordinary shareholder who is not an employee of a building society, from joining in any gain that would normally come the way of someone who truly is a shareholder in a private limited company.
 If the principle of mutuality still means anything it must mean that the members of the society are the people who control the society. We all know that that is somewhat illusory at present, but it is too serious, in the context of this Bill, simply to be left as unclear as I believe it to be. Section 101 (3) (f) (ii) talks about the rights, if any, to subscribe for shares in the proposed company. It would seem to me that the very essence of being a shareholder/depositor in a building society that converts to a plc would be to ensure in the presentation of a special resolution for conversion, that there would be some rights given to depositors/shareholders to obtain shares in the company on it going to the market, that there would be some deal done for their benefit as members of the company. I am not satisfied that that eventuality is adequately provided for.
Of course there is provision, in section 105 (1), for a petition to be brought to the High Court by not less than 100 members of a society to oppose the conversion plan. The court is required, under the provisions of subsection (6) of the same section, in making its decision to have regard only to the rights and interests of the members of the society, or any class of them. I suppose this is somewhat like a provision contained in the Companies Act to ensure there is not an impression of a minority in the context of a proposal coming before a private limited company. It is to be assumed that the possibility of such a petition is designed to provide protection against management excesses. It is my belief that more specific provisions could be incorporated in the Bill which would avoid the necessity of bringing such petitions to the High Court. I would ask the Minister to examine that matter further.
I would ask the Minister to look at something else: on the assumption that a building society converts to a plc there is specific provision in the Bill to prevent a larger — and to use a term of the stock market — predator company coming in, within five years, to try and take over the building society. There is a certain rationale behind that. Of course, there  could be a rationale behind a building society being taken over following it becoming a plc. It may very well be that, having converted to a plc, after a year or two, a building society could get into some difficulties. For example, it could take commercial decisions which get it somewhat out of its depth. It may look on a major bank operating here, or indeed on a foreign bank, as a sort of friendly white knight it would be pleased to be taken over by to get its house in order and preserve the position of its depositors and its functioning as a major financial institution within this State. The suggestion could arise that there should be exceptions to the five year protection rule which should be spelled out specifically in the provisions of this Bill. I would ask the Minister to have another look at that aspect also.
This is a very lengthy Bill. In my contribution I have dwelt on areas of concern. I have not referred to areas about which there are no major concerns. In general, I have already made the point that, as a matter of principle, we must have a modern legal framework and that building societies must have a degree of financial muscle. I believe they have a contribution to make within our community in other areas of finance than merely that of domestic house borrowing. I believe that an adventurous building society, properly managed from a secure base, could have a much wider role to play within the European market than they are allowed to play at present under existing legislation.
I am concerned to ensure that we preserve a true degree of competition within the market in the area of domestic house loans. I am anxious to ensure that building societies are not given a dominant position over banks, are not allowed to reassert the dominance they held previously. I am also anxious to ensure that, in the context of any new powers the building societies are given, there is a guarantee that there will be the necessary level of finance still made available within this market to enable house purchasers,  at reasonable interest rates, to have finance made available to them for the purchase of houses.
I am also anxious to ensure that, within the domestic market, a house purchaser does not find — through the use of tiered interest rates, or the reduction in the mortgage interest allowance — that, over a period of time, the interaction of the two results in far higher levels of interest being paid on domestic house loans than is desirable without even benefiting from what would have been there in the past, the full tax relief on interest payable.
This State has an interest in ensuring that its people can raise funds to house themselves within the private sector. We know we have a major financial difficulty. We talk about our budget deficits, our levels of borrowings. We know that this Minister has drastically reduced the level of finance available for the building of local authority houses. There will be fewer than 1,000 new houses built by local authorities this year in this State. If we make it even more difficult for people to borrow moneys for the purchase of their own houses while at the same time diminishing and virtually abolishing the local authority house building programmes we will end up increasing the level of homelessness. We will end up driving people out of this country into other states in the EC.
There are all sorts of policy considerations relevant here and we have to get the balance right. In the context of some of the issues I have addressed, I am not sure the balance is right and I am not sure the policy has been fully thought out. There are a great deal of other specific provisions relating to individual sections on which comment could be made but I will refrain from making those comments until we come to what I hope will be a very detailed Committee Stage.
I will conclude by saying I welcome the Minister's invitation to consider any constructive amendments that may be tabled to this Bill. I appreciate it is a lengthy Bill. I would hope that when we come to Committee Stage we will be able to take that constructive approach on  board and that the Government will look with an open mind on any amendments that may be tabled on this side of the House by my own party and other parties with a view to teasing out the statutory provisions contained in this Bill to ensure that we truly do, at the end of the day, have a measure that enables the building societies to play a far more enhanced role in the financial markets while fully and properly protecting the consumer and guaranteeing the necessary loan finance is available to the domestic house market.
Mr. Keating: On any Bill of almost 130 sections one could say a great deal and obviously that is what Deputy Shatter has done. I intend to be a great deal more succinct because I believe much of the previous contribution is more appropriate on a Committee Stage debate. While I would share some of the concerns expressed by the previous speaker I want to say that the Bill, in broad terms, is welcomed by my party and I think it is the obligation of the party spokespersons to be unequivocal about that general aspect of things, subject to certain qualifications.
Subject to approximately three reservations, we will support the Bill as facilitating a greater degree of developmental potential by building societies resulting, hopefully, in both a broader range of services to consumers and a financial benefit in terms of stabilised mortgage rates or reduced mortgage rates where that is possible arising from the increased capacity for such building societies to be able to operate in the market place, economically speaking.
The areas I would be anxious about relate to the proposal in the Bill to allow building societies to operate conveyancing in respect of clients to whom they themselves extend loans. Second, a general concern I would have would be about ensuring that there was a level playing pitch for all those involved in affording house loans and mortgage loans generally so that we do not get some of the competitors with their hands tied  behind their backs and that we do get true competition. Third, I would like to see more attention given to an insistence that improved competitiveness and improved profitability would be to the benefit of the consumer because that, ultimately, is the principal yardstick by which we would judge the success of this Bill. Those three areas are the ones I would be concerned about.
I believe this Bill will help building societies to compete more effectively, to move into Europe, into Northern Ireland, more effectively and more rapidly and will allow them to do that in anticipation of the reciprocal movement by building societies in Great Britain and elsewhere into Ireland. Hopefully the Bill in that respect is timely if not a little late in affording such access to the general market place by Irish building societies.
I am a little surprised by Fine Gael's implied criticism of the record of building societies because my belief is that building societies, by and large, have a very good record of public service and have been lauded, in some quarters at least, for taking on a social role in affording the opportunity for many thousands of people to have their own homes when nobody else was offering that facility. Certainly with respect to some aspects of the operation of some building societies there were concerns expressed and those concerns were reflected in a series of papers and documents. I do not intend to go into those in detail but, in passing, one could point to the interdepartmental committee report published in April 1986 and entitled Discussion Document on Legislative and Regulatory Arrangements in Relation to Building Societies or, indeed, to the Restrictive Practices Commission report of 1975 which dealt with the question of the tied insurance arrangements which many building societies operate or to the concerns outlined in successive reports of the Registrar of Building Societies. They were all areas of legitimate comment and ones on which action was needed. The Bill deals with some of those but not with them all. That said, there are very few institutions that are above reproach of some kind.
The Bill itself will afford that opportunity for increased competitiveness. One of my main concerns is to ensure that does not result merely in additional benefit to those involved in the company but will be allowed to percolate through to the public, to the consumer and those who have mortgages in the various societies. It is fair to say as well in that context that I would urge some of the smaller societies to look at the possibility of amalgamating; that would be in their own interests in view of the increasingly competitive environment in which they will be operating, regardless of whether they like it, over the next number of years.
I also welcome the move to facilitate building societies becoming public limited liability companies. This will simply give them the opportunity to compete, with the gloves off, in the market place. That is in tune with the philosophy of my party and that is the point I was interested in when listening to the previous spokesperson. I could not get the synchronicity, if that is the right word, because I have no problem whatever with saying that wherever possible, and subject to certain minimal restraints, it is our view that the less government the better. If one is therefore affording building societies or other financial institutions an opportunity to compete, to be effective, to be efficient, to reward their workers, to reward good management, to go far and near in search of funds or in search of economic advantage, that is a good thing because it is my belief that that will ultimately percolate through to the benefit of the economy in general and of the taxpayer and home owner specifically. From our point of view it is very much in line with the kind of thinking we have. That is not to say there should not be some safeguards and some restraints. I would personally be concerned if a significant burden of the activities and funds of building societies in future was to move away from the somewhat longer term  underpinning of home ownership as it now does in favour perhaps of shorter term returns which would be an attractive feature of certain speculative areas of investment and risk taking and which of course other financial institutional areas are involved in, presumably to the benefit of their own shareholders and members, and who can blame them for that? In general terms the building societies have had to operate in a very difficult climate and over the last number of years have seen some of their advances eroded. The Bill is designed to ensure that there is a level playing pitch for the financial institutions.
Building societies are, after all, unique in the Irish financial services environment. This uniqueness derives from the fact that they have a special legal status being mutual societies, and from the fact that they are governed by separate legislation, the 1976 Building Societies Act. So, they are at a disadvantage at present. In an environment of strong demand for mortgages and little direct competition until recently, though there are moves in that respect, the building societies were in a strong position to expand; but in the current environment, previous to this legislation, their position is somewhat less secure and restrictions imposed on their activities by the present legislation have severely hampered their competitive ability. I am in favour of competition and of allowing societies to operate to the highest possible standards of excellence and achievements and reaping the benefits both for their shareholders and their directors and hopefully for those who have mortgages with them.
A major disadvantage faced by those societies has been their inability, due to these legislative restraints, to market a full range of services to the customers. These customers now demand such services. It is simply unreal and out of tune with the mood of the times to artificially restrict societies or any other financial institution, from offering that range of services so that ultimately the consumer can have freedom of choice. That is what this boils down to, the capacity to choose  freely in the marketplace from a multifaceted range of services provided by financial institutions. If this Bill facilitates that — and I believe that is part of what it is designed to do — I welcome it.
There is a severe restraint at present on building society activity, particularly in a retail financial services market which is characterised by frequent and varied transactions. The societies are also placed at a severe disadvantage relative to their main competitors, the banks, whose broader product range gives them access to more lucrative lending opportunities, such as personal loans, as well as access to very low cost funds such as current accounts. The future competitive ability, therefore, of the societies is also hampered by legal restrictions regarding their capital base which, again, needs to be addressed if they are to be flexible and innovative in terms of organising finances.
The societies are mutual organisations and they can only add to their permanent capital base through retained earnings. Thus the pace at which the societies can expand their range of activities is governed by the profitability of existing activities. I do not believe therefore that the concerns of Deputy Shatter relating to the building societies obtaining dominance in this field is justified. The reality is that they are at present falling behind a little in this respect and the purpose of the Bill is, I trust, to bring them on line with the banks in this regard. In that context one should also say that there are certain restrictions and impositions in the banking area which need to be considered.
One point which has not been mentioned, and I want to ask specifically, what will happen if this Bill is passed through the House and if two other Bills, the Companies Bill and the Central Bank Bill, are modified in such a way that they would not be in line with the provisions in this Bill? It seems those three Bills, taken simultaneously, seem to be essential in terms of ensuring that the level playing pitch that I speak about is retained. I wonder what will happen in that  regard. I suppose the Minister has no magic answer but I assume there is a desire to ensure that the elements that are common in the three Bills are approved in law as quickly as possible.
At present the clearing banks, by comparison, can expand their permanent capital base using both retained earnings and additional equity as well as having greater opportunity for engaging in off-balance sheet financing. It seems that at present it is pretty much game, set and match to the banks if they want to play it that way. Their advertising campaigns in recent times show they are seriously beginning to take on the house finance market and I think they will be successful in that area. I wish them success because ultimately competition is probably good for the consumer provided the Government keep an eye on the general environment of consumer protection in this respect. As competition in the mortgage market has intensified, it became clear that if these societies were to be given an opportunity to maintain that competitive position, innovations, legislatively speaking, similar to what is contained in this Bill would have to be introduced.
In the area of conveyancing, there is a proposal in this Bill which I am not in favour of, and I want the Minister to consider it again. Without going into the proposal in great detail — we do not need to go into the nuts and bolts at this stage — the essence of what is proposed allows building societies to conveyance in relation to the legal work of householders to whom they are giving loans. Obviously in such circumstances the only time it is really of any significance is when there might be a conflict of interest or a conflict of any kind later downstream. I have no doubt that in these circumstances those who are doing the legal work and operating both for the building society and the mortgage purchaser are put in an impossible position. Presumably they will be employed directly by the building societies and paid directly by them, although indirectly in due course by the client, but if there is to be a decision in favour of opting for one set of interests as opposed to another, I have no doubt  but it will be the building societies' interests that will be taken care of prior to those of the consumer or prospective house owner. Therefore, I am unhappy about that proposal.
There have been a number of reports dealing with aspects of this matter and it was dealt with in the inter-departmental committee report in April 1986. It was implied that clearing the title could be addressed by a common solicitor but that other aspects of looking after the purchaser's interests should be a matter for a separate solicitor. I believe that ultimately it is a question of a caveat emptor, the buyer having to ensure that he or she is protected. It would be wrong for us to lull the would-be mortgage purchaser into a false sense of security in the belief that the interests of the building society are always synonymous with the interests of the person who is taking out the mortgage. There will be instances where that will not be the case. I am unhappy with that section of the Bill and I suggest it should be changed.
I have not had the kind of extensive discussions that the Minister's officials have had in this respect but I do not believe this measure is sought by the building societies. I could be wrong in that respect but I do not believe they would shed too many tears if it was removed. In terms of consumer protection, it is better for the buyer to have his own or her own legal advice. When we talk about the cost and scale of the transaction, we are talking about relatively small amounts of money. The saving in the short-term to any couple taking out a mortgage is ostensibly attractive, but in the long term it may be penny wise and pound foolish, and it is simply not ideal. That is a provision my party are unhappy with and one we will be seeking to amend on Committee Stage.
Our second area of reserve is to ensure that there are a common set of rules governing societies involved in providing mortgage finance. At present, for example, a levy is imposed on the banks. There is no rational criteria for the size of that levy. I have no objection to a tax relative to banking profits, but that levy  does not exist in the area of building societies. They have their own inhibitions and qualifications. One of their fears might very well be that the Central Bank, which will become the regulatory authority in relation to the activities of societies under this Bill, might be over-bureaucratic or too slow in dealing with the various aspects of the paperwork which they will have to deal with when this Bill becomes law. If the Bill is to be effective, all the players must have a level pitch on which to play. Otherwise, we will either reverse the position that exists at present or end up with a result that is not in accord with what this Bill is designed to do.
Our third area of concern is to ensure that the benefits of increased competition, increased access to funds and increased capacity to play the market, will be passed on to the consumer. This is an area in which we feel that intervention by Government is desirable and necessary. We will have a chance to consider some of those suggestions on Committee Stage. This is a very lengthy Bill with 127 sections, and I will not go into it in detail now except to say that that is ultimately a very important area from the point of view of my party. Personally I am not convinced that some kind of general reliance on goodwill in the area of building societies is going to work in this respect. Their capacity to be responsible and to contribute to the national well-being is at least as good as that of any other financial institution.
Despite what was implied by the previous spokesperson, I recall no problem ever arising from the actions, inaction or omissions of a building society since the State was founded. That cannot be said of all financial institutions as people in this House over the last number of years will recall when we had to deal with some of the problems which arose in other areas. The building societies, by and large, have a reasonable record. In general terms this Bill will afford them somewhat wider powers to become involved in the provision of financial services generally which will include banking-type services, money transmission, credit  cards, foreign exchange, insurance broking, investment services, financial advisory services and so on. I do not think they will all rush into the whole range of services immediately but it is a good thing to have these strings to their bow. I have no doubt it will mean that they can be much more efficient in the manner in which they pursue their activities. These increased powers are likely to improve the overall efficiency of the retail financial markets and should generate increased competition in all aspects of the supply of personal sector financial services and, as such, they will result in a benefit to the consumer.
For the first time building societies will be permitted to lend unsecured and that flexibility will help them, though there may very well be some adverse consequences which may result from such circumstances. That is something we will have to expect. If we are to allow people to get into the competitive market there will be occasions when the results may not be in accord with their expectations. The question of protecting the consumer and of alerting, informing and educating the consumer to understand that there is a downside to risk-taking, to getting involved in competition, is something we will have to address. In other words, the cocoon which to some extent surrounded building societies up to now and which imposed on them certain disadvantages but which also gave house owners a certain degree of protection may not be quite as intact in the future, particularly in the face of European competition, as it has been up to now.
I also think that the proposal for building societies to own property for residential development is part of the array of financially flexible innovations which will allow them to become more efficient. When you look at how things have developed in the UK you will see that has been the case there. Mention of the UK reminds me that the Minister should look at some reports which have been published in the United Kingdom in relation to conveyancing which show that there has been some eminent legal concern in  that part of the world regarding conveyancing by building societies in relation to their own clients. The report of the Lord Chancellor to the Welsh Law Society made particular reference to this matter, part of which — published in the Law Society's Gazette No. 25 Wednesday, 29 June 1986 — reads as follows:
...there is an overriding need for adequate protection of the public from conflicts of interest. He saw no difficulty in principle in building societies and other financial institutions providing conveyancing services to persons to whom they are not offering a loan. The Government had not, up until then, been satisfied that lending institutions can always be safely permitted to offer both conveyancing and a loan in the same transaction. `We have therefore been considering prohibiting institutions from providing conveyancing to those who are also borrowing from them, if that conveyancing would be provided directly or through a subsidiary company in which they hold a majority stake.'
That is a matter of concern. I have no objection whatever to building societies, banks or anybody else offering conveyancing services; in fact, I would welcome it. I would not be happy with anything that is indicative of a cartel or any form of closed shop arrangement. The principle here is that the conveyancing should not be done for people in respect of whom you have a vested interest; in other words, people to whom you have given a loan.
There is a great deal I could say about this Bill but I do not intend to spend too long more on it. Those points are the principal concerns I would have. The range of issues that need to be addressed involve consumer protection. That is clearly implicit in the report of the Restrictive Practices Commission which dealt with the issue of insurance. That is an area that while relevant to the Bill is not dealt with to any significant degree but it is one to which we could refer on Committee Stage. It seems to me that  this is a reasonable time for the building societies to redress any operational deficiencies or systems which they might have had in place which would not find public favour. One of those areas was the question of insurance, as is evident from the report of the Restrictive Practices Commission, 1985, but I will not quote from it at this point. I would ask the Minister to look at the report of the Registrar of Building Societies, 1984, page 15, where he outlines a range of matters which are relevant to the operations of building societies, some of which are not specified in this Bill.
The Bill also deals with elections to building societies. I am pleased to see that because over the past year to two there have been some unedifying instances of what looked like, from a distance, a certain degree of closed shop. I do not know whether it was but it looked that way. Anything that leads to greater democracy, more openness, more transparency of accounting procedures, more access by the public and shareholders is good for the societies. It will make them more efficient, more profitable and, therefore, will benefit the consumer.
Those reservations aside, the Bill is to be welcomed. I will dwell on those three fundamental problems in detail on Committee Stage. What everybody in this House is concerned about is ensuring that the people we represent — and they are not building societies, solicitors or banks but citizens — will have the maximum range of choice which, even in a small economy, will give them the benefit of competition. The Government should underpin and protect their interests where that is necessary at least to minimal standards. If Government can withdraw to some extent and free building societies and banks to compete, then as far as I am concerned that is good for the economy and probably good for the consumer though Government, at all times, will have to keep a watchful eye in that respect.
I look forward to a detailed, and I hope not too tedious, Committee Stage. This Bill could keep us going for six months. I look forward to informal discussions  with the Minister so that we can try to cover ground as quickly as possible on Committee Stage and sort out any problems there may be so that we may be able to put this Bill through quickly. Otherwise we will have a long and tedious discussion here and I suspect a declining public and political interest in the matter. I am pleased to see the Bill here and I look forward to discussing it in detail. I submit those few comments on it with respect to the Minister and to the House.
Mr. Quinn: I welcome the publication and the moving of this Bill on Second Stage. I do not intend to speak extensively at this point because, quite frankly, the Bill is worthy of informed comment on what will be an extensive Committee Stage because of the sheer size and the diversity of elements set out in the Bill. My comments will be of a broad nature and, I hope, concise. The essential purpose of this Bill as stated in the Minister's opening speech and as set out very clearly in the explanatory memorandum is as follows:
...to provide a framework within which building societies can compete effectively in the wider financial services marketplace and continue to be a major source of funding for housing by providing mortgage loans and by investing directly in residential development.
On Committee Stage we will discuss in great detail how these things will be done and how they will be regulated. In so far as it is appropriate to talk about building societies' philosophy and what this House would want from them, my concern as Labour Party spokesperson for the Environment is that they would not try to become banks, notwithstanding the fact that they will be liberalised so that they can effectively compete in a much more competitive marketplace but that they would remain essentially building societies, with the emphasis on building.
I detect a strong temptation in the utterances of some of the building society representatives and commentators that they want to get into the new buzz market  of financial services. I am not so sure that that market, which attracts a great deal of attention at present, is one for the long duration in a manner that some people think it is. In so far as there is an ideological choice or a philosophical orientation of a strategic kind, I would like the Minister for the Environment to ensure, in the consultations he will have with his colleagues in the Department of Finance and the Central Bank, that in the implementation of this Bill the primary historical role of the building societies would be retained and that its emphasis would remain.
We have to understand that we are witnessing the transfer of power from the Department of the Environment, albeit exercised by the Registrar of the Building Societies, to the Department of Finance. The Department of Finance are not my favourite Department, and I have some reservations about their ability to tell the building societies how to run their affairs. However, we will tease this matter out when we get to the relevant sections on Committee Stage. I worry that the sanctions that require authorisation by the Minister for Finance will produce a hoard of informed experts from the Department of Finance who know how to tell everybody else how to run their business. I would like to put on record that that expertise has always been in the Department of the Environment — that expertise was evident when the Bank of Ireland moved on the Irish Civil Service Building Society — and that expertise and that concern for the historical role of building societies should continue. The Minister might indicate in his reply to Second Stage what role he envisages for the Department of the Environment and for successive Ministers for the Environment relating to building societies. That is the first point I want to make.
Second, on the question of broadening the services, which are legally possible by virtue of this Bill whether in conveyancing, auctioneering or in other areas, I would want to be satisfied — I think this is addressed adequately in the Bill but we will have to look at it in detail — that the primary function and role of building societies, that is, the taking of deposits, paying secure interest on deposits and giving loans and mortgages, would not be put at risk by these ancillary services. Just because there is money to be made in auctioneering, conveyancing or any of the other activities, does not necessarily mean that the building societies would be best equipped to do so. I do not think they should be allowed put at risk the deposits of investors so that they can climb up a learning curve in these areas. We would want to be very careful of that. However, as I said on Committee Stage we will be able to tease out exactly the extent to which depositors are protected, but that would be a broad concern. As Deputy Keating has said earlier not every building society will become involved in these activities. What we are talking about is framework legislation that will empower and enable those societies which wish to undertake these activities to do so legally. That does not automatically imply that all building societies will get involved in these activities.
Third, against the background of the Single European Act and the completion of the internal market, the size of building societies sector in our economy is relatively small in contrast to the United Kingdom or some of the other continental equivalents of building societies or mortgage companies. I would like to see the Minister taking a very active role in attempting to encourage mergers and amalgamations. I know this is a somewhat tricky area and that there have been a few failed marriages already, or the line has been broken off may be a better way of describing it, because I do not think there is irretrievable breakdown — I suppose we can get Deputy Shatter to intervene on that basis, when he stops being so concerned about conveyancing solicitors and building societies——
Mr. Quinn: It is not sufficient to have this new legislation in place, I hope the  Minister will be able to tell us what the mood of the building societies is from an official point of view, because they were actively involved in preparing this document, and I would like to know what they see for themselves in terms of the future.
The building societies enjoy considerable privileges, status and legal entitlements from this House and from the Oireachtas. It is reasonable for us to want to know their overall strategy in the short-term and in the post-1992 environment. It is right that the State should be so concerned. It is right that the State should intervene directly and direct them if amalgamation and rationalisation are not taking place with the speed or effectiveness that is perceived by many people to be necessary. Again we can look at this area in some detail later.
I would like to see the secondary source of housing finance, the traditional role of building societies, strengthened and enlarged as a consequence of this legislation. I want to see the Department of the Environment, which has the primary role in this area, declare a set of policy objectives, in consultation with the building societies, so that we can move together and have some input about the way building societies undertake their business. It should be understood that the taxpayer is forfeiting £167 million in mortgage interest relief as a result of the various concessions. Indirectly, we have a big stake in the mortgage business by way of the tax system, and that gives us both an entitlement and an obligation to look at this.
I wish to deal with the legal probability and possibility of building societies developing into the area of direct construction, and development and redevelopment. I have long held the view that the building societies have probably far more expertise in building and the financing of building than they have in banking. However, for a number of reasons they have been reluctant to expand it. In order to maintain their share of mortgages and the housing mortgage market I would hope that they would start to stimulate some new forms of supply, both in terms of residential units  and different kind of mortgage to attract effectively into the home ownership market categories of people which are effectively excluded at present.
For instance, if you are not on a local authority housing list, of if you are single — and particularly if you are single and female — or on a modest income, it is very difficult to get yourself adequately housed in the type of accommodation that meets your requirements. Many people end up spending the middle years of their life, possibly the best years of their life, acquiring an asset at a very expensive rate and foregoing other pleasures, and the asset in turn is left to their nieces and nephews. If such a person had a choice of acquiring smaller accommodation, or sharing the mortgage 50-50 with the building society so that they would have an asset and security, they would meet their requirements in a much more effective way. They can only do that if the building societies broaden the range of facilities and housing supply in a manner which they are not doing at present.
This is a framework document, it is not for the Minister to set out here exactly how that might be done, but it is properly a matter for housing supply and for housing policy. In a different context, but within the same framework, it would be appropriate for the Minister, having regard to the substantial change in the demographic profile of the country and the implications of headship rates and household formation, to outline just how housing policy should change and what role the building societies would have in attempting to meet and match future housing demand.
This Bill will enable us on Committee Stage to discuss in some detail the kind of things building societies will be legally empowered to do post the enactment of this legislation, which they currently cannot do. In the absence of hearing from the building societies or from the Minister proposals as to what the Government would like to see happen, I suggest that these proposals be considered by the Minister and at the appropriate stage, either during the Committee Stage or  soon after, that we would get some response from the Department with responsibility for housing.
A number of things which were of considerable concern four or five years ago have disappeared and are no longer topical, but at the time they were very pressing and we could do little or nothing about them, for example, the scandal which then existed when people were forced onto bridging loans for six months at a time. This all but appeared to be an act of collusion between the building societies on the one hand and banks on the other when, in fact, building societies were not legally empowered to give unsecured loans which this Bill will enable them to do. If the horrendous problems experienced by people on bridging loans, which never seemed to end because of difficulties with regard to closing, etc., should begin to arise again they can be avoided so that the nightmare of extended bridging loans should, in theory, not raise its ugly head again. The fact that there is a surfeit of mortgage funds at present has clouded one's memory of the difficulties people had in trying to get loans and the problems they had with building societies. In so far as those problems existed in the past — and there is nothing to say that they cannot in theory arise again — I believe this Bill will considerably remove the obstacles which prevented either the Government of the day or the building societies from resolving those problems.
I want to make some comments of a general nature — we can go into these in considerable detail on Committee Stage — on the management, operation and running of building societies. Deputy Keating referred to this also. I do not want to be repetitious but the inordinate energy the boards of directors of different societies appeared to devote to ensuring that individuals would not get elected to the boards of building societies gave rise for concern among members of the public. It was not so much that they felt there was something wrong with building societies — I think the public in general are satisfied with building societies and  have much to be thankful to them for — but it seemed extraordinary that so much effort generated such a response and I believe the new method of election and transparency of voting will be welcomed.
The last point I want to make is in relation to the building societies themselves. According to information I have there were 165,000 mortgages at the end of 1987. I do not think people understand — and as a public representative I have come across this — the extraordinary compassion building societies have exercised on numerous occasions with regard to families or mortgagees who have run into trouble on economic, personal or health grounds and the extraordinary lengths the building societies have gone to in rescheduling loans and accommodating people who have got into difficulties, some of which were self-imposed. There is a lot of compassion in the building society movement and they have provided cover and shelter for many people who would not have got the same compassion from banking concerns. Many business people would love to have had their mortgages with building societies rather than with banks.
That is why I hope that the way building societies traditionally dealt with their customers, which grew out of an old co-operative movement which expressed social solidarity, will not be lost as a result of this new process. That is not to say that every building society is a saint and every building society manager is beyond reproach. That is not the case but in contrast to other financial institutions, primarily the banks, building societies have shown a degree of compassion in accommodating people in difficulties and I think every Deputy in this House could testify in part to that experience. This compassion should not be lost in the process of broadening the legal framework within which building societies can operate if they become public limited companies. We would all be the poorer if that were to happen and the Department of the Environment who are the dominant source of funding for house building should ensure, by whatever means open to them, that that tradition is retained.
Mr. Durkan: I compliment the Minister for introducing this Bill even though I do not agree with all of the preamble on page 2 of his speech about the disarray in which he found building societies when he took over as Minister. The Minister said: “However, when I came into the Department of the Environment in the spring of 1987, I found the building societies in a state of considerable uncertainty. The dismal position of the national economy had driven up the mortgage rate by three percentage points at the end of 1986”.
Mr. Durkan: I want to take issue with the Minister in that regard and to point out that the building societies must have been in considerable disarray in 1981 and 1982 because interest rates were slightly more doubtful at that time than when he came into office. I am sorry the Minister did not give some recognition to the fact that his predecessors had under very difficult circumstances, during a four year period, taken decisions which were necessary to stabilise the flow of finances towards the house building and house purchase industry. They also took decisions to supplement the building societies when interest rates were high — and I am talking about interest rates which were running towards the late teens or early twenties——
Mr. Durkan: As the Minister permitted himself a certain amount of nostalgia I thought I should take a little time off to make reference to that matter also. That four-year period was one of the most difficult in the history of the State in relation to the availability of finance for house purchase and house building and a great deal of effort and monitoring had to be done. There were a number of times during that era when the building societies were not that pleased with the attitude of the Government but Governments have to take overall responsibility and an overview, and regardless of what financial institutions have to say about issues from time to time, the Government, the Minister and this House must take responsibility and have regard to the common good as opposed to taking a sectoral viewpoint.
With regard to developments by the building societies during the past 12 months, I want to refer to the agreement between the Minister, the building societies and the banks in relation to the local authority loan system, how it operates and how the building societies and banks have to a certain extent taken over. I agree that this system has been somewhat successful but the criteria applicable in meeting housing loan needs, as defined in the Housing Act, 1966, would not be as much to the fore if one applied for a loan to a building society or a bank in preference to a local authority. I mention that simply because those of us who are members of local authorities have adequate experience and constant reminders of the way in which the system works. There is a great availability of funds at present, whether from building societies or banks, for virtually anything in comparison to what was the case some five or six years ago. This does not relate entirely to changes in administration or anything of that sort. It is related to changing circumstances brought about over a long period of time and by very great effort and sacrifice on the part of many. The Minister said that at that time the building societies were feeling the effects of the termination of the beneficial composite tax rate on investments on the  introduction of the DIRT tax. That tax still remains. It has not gone away but nobody seems to worry about it any more. The fact remains that whatever ill-effects it was having at that time, it is still having and will have in the foreseeable future.
Building societies in this country, in the range and scope of services they have to offer their clients, are very much restricted by comparison with those operating in the United Kingdom. People with experience of house purchase in the United Kingdom will readily tell you that it is far easier to go through the process of obtaining a loan in respect of either a house which they intend to purchase or one which they intend to build. The manner in which they proceed towards making savings and making their credit rating good is somewhat different. The system in relation to the type of cover they must have in terms of insurance thereafter is somewhat different. The various procedures in relation to conveyancing that have to be gone through are also somewhat different. In the end, the Irish borrower, the person who wishes to buy or build a house, has to go through a system which has in it many more obstacles than does his or her counterpart across the water. In the open economy we have at present, this is undesirable. I shall come back to that subject later.
Another development which has been taking place recently is that house property generally is firming up in terms of price. That is regarded as being a useful development. However, it is happening for a rather peculiar reason. It is simply because quite a number of the purchases are being made by people living and working outside this State. The effect of that in the long or the short term will be that if the money is coming from areas or the people are working in areas where property values have inflated sharply in the last couple of years, it is likely that that inflation will be transmitted through the financial system to this country. In London, where private house property will cost anything up to £300,000 and  £400,000, people working in that environment seeing the offer of a relatively reasonably priced house on the Irish market cannot but be impressed by its attractiveness. They will put their money into that market and buy. The effect on the downstream market in this country must be to inflate the cost of the house in question. The purchase price at that stage bears no relation whatever to the cost of the house in terms of building it and hence its value as shelter. Its price relates solely and wholly to the availability of money at the particular time.
If we are not very careful we will find ourselves going down the road of galloping inflation as in the late seventies and into the eighties. This time we will import all the inflation whereas on previous occasions we produced our own inflation. As a result, property will increase to such an extent that it will bear no relation to the value or productive capacity of that property at a later stage. It will simply be related to the availability of finances. That stage would offer a good opportunity to the Minister to consider the effects of such a development on the economy for any kind of prolonged period. He might also consider what measures he might be prepared to take to alleviate the situation. Some of my friends in the auctioneering business might not necessarily agree with all I have to say and a house vendor might not agree. However, a house purchaser might very well have good reason to recognise the dangers in that kind of development.
In the mid-to late seventies a standard family home cost somewhere in the region of £10,000 to £15,000. In the space of two to three years, we saw such a property almost doubling in value. Everybody thought that a great idea, that it was a positive development, beneficial to the community. It was not, simply because it pushed house prices that much further out of the reach of ordinary people and made it necessary for the banks, building societies and various other lending institutions to come up with more money, to lend more money into  an inflated market, in order to buy property at an inflated price. This spiral continued to such an extent that after a few years the availability of money slowed down because people were having extreme difficulty in trying to extricate themselves and meet their requirements. Then the bubble burst and the property market plummeted. This was essentially as a result of the flow of money available being controlled, causing a problem that was not of the ordinary person's making. It was caused by people sitting behind desks who were in a position to decide whether more money would be made available at a particular time. I am not criticising any one financial institution — they were all responsible and I suppose those going to lending institutions seeking financial accommodation probably were responsible also. The unfortunate borrower is the person who must accept the liability afterwards.
People will say it was a bad decision, that perhaps too much money was lent, that perhaps the interest rates were too high, that perhaps it should have been foreseen earlier that it would not be possible by any stretch of the imagination for the unfortunate borrower to meet those requirements. That was all said afterwards. There is a very thin line of distinction between bad borrowing and bad lending. The two very often are interlinked and merge with each other. We can learn the lesson and not repeat past mistakes. Those past mistakes were unregulated or uncontrolled lending by various institutions, all for the very best of reasons and all attempting to meet accommodation requirements but to such an extent that the entire property market was inflated out of all proportion. I hope we will not have a recurrence of these problems. I trust that the lesson will be well and truly learned, that we will have the courage to take the necessary action when the danger signals appear and put matters right.
I now refer to the period between 1982 and 1985 or 1986 when the availability of funds from the building societies and most other quarters was very scant and  the local authorities and the Housing Finance Agency had to fill the void by providing accommodation for a large and needy sector of the market. That accommodation had to be provided by the State and I hope we will not see a repetition in the future.
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