Wednesday, 13 October 2004
Dáil Eireann Debate
104. Mr. Cuffe asked the Minister for Finance if he will consider limiting the amounts that can be borrowed by making it impossible for lending institutions, either domestic or foreign, to sue defaulters in cases in which the amounts lent were in excess of Government recommendations; if he will consider, alternatively, imposing a penal rate of stamp duty on loans which exceed the Government recommendations. [24704/04]
Minister for Finance (Mr. Cowen): I am aware of the concerns expressed by a number of commentators on the continued increase in credit growth, particularly in the household sector, and the possible effects of increasing indebtedness upon borrowers. Credit developments are a matter for the Central Bank and Financial Services Authority of Ireland, taking into account its role as a part of the European system of central banks and its functions, as the Irish Financial Services Regulatory Authority, in the prudential supervision of financial institutions and the protection of the consumers of those firms.
The provision of consumer credit in Ireland is regulated by the Consumer Credit Act 1995, which is administered by the Irish Financial Services Regulatory Authority. This Act obliges credit providers to include specific information in all credit agreements about such matters as the total cost of credit, the amount of each repayment instalment, the number of instalments and so forth. Additionally, in the case of housing loans, the Act specifically obliges mortgage providers to inform borrowers of the effect on the amount of their repayment instalments of a 1% increase in interest rates in the first year of their mortgages. The purpose of obliging credit providers to provide this information is to ensure that consumers when making credit decisions are armed with the fullest possible information about any credit agreement they are entering into and, most importantly, the impact that servicing a loan will have on their household budget.
In addition to the aforementioned requirements of the Consumer Credit Act 1995, the Central Bank and the Irish Financial Services Regulatory Authority has sought to raise the level of awareness of both borrowers and lenders of the importance of prudent borrowing and responsible lending. The financial services regulator, through its statutory consumer mandate, has developed a number of specific initiatives to help consumers make informed choices in terms of the financial products they choose, the amount of risk they take on and the cost of financial products. These initiatives have been developed through the framework of the financial services regulator’s “It’s Your Money” campaign and have involved publishing consumer guides on credit products, fact sheets and cost surveys on personal loans, all of which are intended to assist borrowers in making the most appropriate credit decisions given their circumstances.
In addition to the responsible borrowing initiatives outlined, the financial services regulator, together with the Central Bank, undertook a recent study into mortgage lending and mortgage lending practices. Arising from the study, mortgage lenders were requested to review their practices in customer income verification and the funding of mortgage balances so as to ensure that not only were loans properly secured but also that borrowers would be able to fully repay their loans. Additionally, lenders were advised of the need to stress test every would-be borrower’s ability to meet his credit obligations, particularly mortgage credit, not just in the current economically favourable circumstances but also in more challenging times.
Responsible use of credit clearly can have advantages for borrowers in terms of their lifestyles and so forth. On the other hand, it is very important that loans fully suit borrowers’ requirements both in terms of amount borrowed and ability to repay. This is equally important for lenders as inappropriate lending or borrowing can also be damaging to the economy. I therefore fully support the Central Bank and the Irish Financial Services Regulatory Authority in their endeavours to raise the level of awareness of the risks of reckless credit growth to all economic agents, particularly consumers and lenders.
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