IRELAND and ECRC: A major report from ECRC partner FLAC says consumers need proper legal protections as a Report on Consumers of financial services shows they are being badly let down by the system.
ECRC partner from Ireland, Free Legal Advice Centres (FLAC) has produced a comprehensive report outlining how consumers are entitled to a high level of legal protection as a result of their role in generating economic activity and growth. Are consumers actually receiving the requisite legal protection, particularly consumers of credit whom we believe to be especially vulnerable, as the personal debt crisis has demonstrated? Paul Joyce, senior FLAC adviser explains the short comings of the CCD in FLAC's latest report, 'Redressing the Imbalance', which examines the evidence from the consumer's perspective. It concludes that from EU consumer credit directives to the domestic system of complaint available to consumers unhappy with the conduct of their financial service provider and at many points in between, standards of protection leave a lot to be desired.
Why did we tolerate the structural flaws from complete absence of control over the rates of interest charged by prime or sub-prime credit institutions or any obligation to assess a borrower's capacity to pay? Why was any coherent attempt to curb irresponsible lending practices missing from this directive?
Whereas a number of responsible lending initiatives and policy level statements and regulation have taken the agenda on since the crisis (see Consumers International paper “Responsible lending: An International Landscape” (Nov 2013) http://www.consumersinternational.org/media/1412472/ciresponsiblelending_finalreport_06-11-13.pdf)) the FLAC report still mentions the complexity and inadequacy with the transposition of the revised directive into domestic law in Ireland (non user-friendly manner, the code’s only partial application). As a quote from the article by Paul in the Irish Independent “it is also FLAC's view that the admissibility of these codes in law is doubtful. They are drafted, revised and amended uniquely by the Central Bank without any apparent parliamentary oversight and form part of neither primary nor secondary legislation. This is also the case for the Code of Conduct on Mortgage Arrears (CCMA) and the latest revision of that code is analysed in some detail in the report. Ultimately, we conclude that this revision leaves many struggling borrowers open to repossession without the necessary 'fair procedure' rights of full information and a proper avenue of appeal.”
ECRC is mentioned on page 13 of the report and Appendix 1 page 189 contains a copy of its Principles for Responsible Credit. The report says the revised Consumer Credit Directive came too late; it was and continues to be far too weak. The report also says that the role of the EU, in terms of how it may have abetted the reckless lending fiasco in Ireland and elsewhere, must also be subjected to some scrutiny.
“Is there not something fundamentally wrong about an institutional labyrinth that takes eight years to get a Directive from the starting post to the finishing line, particularly in the midst of a credit market that is rapidly evolving and where some Member States had clearly been targeted by global financial conglomerates? Is there not a touch of the Titanic – too cumbersome to change direction – about maintaining the maximum harmonisation approach? Has the emphasis on putting in place the cross-border market for financial services actually blinded the EU institutions to the protection that consumers throughout the EU, other (more ethical) creditors and ultimately Member State economies really require? For example, what is the point in ensuring through a maximum harmonisation Directive that consumers receive in advance and at the point of drawing down funds comprehensive information relating to a loan – the ‘bells and whistles’ of terms and conditions – if there is no corresponding obligation to properly assess the borrower’s capacity to service the agreement and the consequences for the creditor when it fails to do so? And with all this emphasis, the cross border provision of financial services has not actually materialised to the extent envisaged. What FLAC is arguing for is a responsible credit market, not a market without credit. Given the heavy price that so many people in Ireland (and across the EU) have paid for reckless lending, we do not believe that this is an unreasonable request. In this regard, the principles enunciated by the European Coalition for Responsible Credit (ECRC) have already been referred to in previous FLAC publications (See for example Joyce (2009), To No One’s Credit, Dublin: FLAC – ‘A note on Irresponsible lending’, pages 39 – 42) and those principles in our view still form the basis for a fair and responsible approach to lending.(see ECRC principles on our website).”
FLAC press release:
Major report says consumers need proper legal protections
FLAC today launches a major report on how consumers are not adequately protected when it comes to obtaining credit and other financial services.
Redressing the Imbalance critically examines the legal protections available to consumers of credit and other financial services in Ireland. It identifies a number of deficiencies and gaps in how such protections are provided. It also suggests that a systemic approach has evolved which has consistently served to prioritise the interests of financial service institutions over those of consumers. The report provides a detailed account of how European-level developments, piecemeal domestic legislation and selective financial regulation have combined to leave many consumers of financial service in Ireland – in particular consumers of credit and distressed mortgage borrowers – particularly exposed. Drawing on the experiences of consumers and their advocates, the study further highlights how such exposure can be compounded by difficulties accessing and using mechanisms ostensibly designed to facilitate the resolution of complaints against providers. The report concludes with a series of recommendations as to how these flaws in the legal infrastructure might be redressed from a financial service user perspective.
You can read our press release and download the full report or the Executive Summary in PDF format.
Comprehensive reform of protections for consumers of credit and other financial services urgently needed
7 Mar 2014
The state is failing to properly protect people who avail of credit and other financial services; that is the key finding from a new report by legal rights group FLAC (Free Legal Advice Centres).
The in-depth study critically analyses the legal protections offered by the State to those availing of credit from banks, hire-purchase companies, credit unions and other finance suppliers. The analysis contained in the report asserts that there are wide ranging flaws and gaps in the consumer credit infrastructure. According to the report, these arise from a confusing regulatory landscape and an approach which prioritises the convenience of financial providers over the needs and rights of consumers.
According to the principal author of the report, FLAC’s Senior Policy Analyst Paul Joyce: “It is important that we recognise that by availing of financial services, consumers take economic risks and contribute to the economic life of society. Therefore our systems should equally safeguard the rights of consumers whilst facilitating the provision of financial services. The balance is currently tilted in favour of the provider, giving rise to the need to redress the imbalance, which is both the theme and the title of our report”
“To our knowledge, this is the first time that anyone has looked at the entire system surrounding the provision of credit from the perspective of the consumer” said FLAC Director General Noeline Blackwell. “The report shows an urgent need to recognise that people have rights in the context of buying credit or other financial products. This means ensuring that they have adequate protection at the point of purchase and when problems arise, they should have realistic and workable redress mechanisms together with appropriate and timely advice and information.”
The report includes interviews conducted by independent social researcher Dr. Stuart Stamp into how consumers found the experience of using the redress systems available. In particular, the report details instances of consumers who were angry and dissatisfied at the conclusion of their complaints to the Financial Services Ombudsman and the report recommends that the office be independently evaluated and its systems made more transparent.
Mr. Joyce concluded: “FLAC has been working to improve systems for those who are seriously over indebted in recent years. Now it is essential that we act to reduce consumer indebtedness in the future by prevention rather than the much more difficult cure. This must involve a responsible well regulated consumer credit market. We must provide consumers of financial services with a more accessible complaints mechanism and assistance to properly formulate their complaints.”
- FLAC (Free Legal Advice Centres) is a human rights organisation which exists to promote equal access to justice for all. As an NGO, FLAC relies on a combination of statutory funding, contributions from the legal professions and donations from individuals and grant-making foundations to support its work.
- We offer free, confidential basic legal information on our lo-call telephone line at 1890 350 250, and free legal advice through a nationwide network of volunteer evening advice centres (see http://www.flac.ie/gethelp for a full listing). FLAC also campaigns for legal reforms on a range of issues including personal debt, fairness in social welfare law, public interest law and civil legal aid.
- ‘Redressing the Imbalance’ is available to download as a PDF. The Executive Summary is also available to download.
- Report authors, Paul Joyce, FLAC's Senior Policy Analyst and Dr Stuart Stamp, Independent Social Researcher and Research Associate, Dept. Applied Social Studies, NUI Maynooth, will present the report findings and recommendations around consumer-proofing our legislative framework at the launch of the report in Buswells Hotel at 11am. FLAC Director General Noeline Blackwell will chair proceedings.
- Photos by Derek Speirs will be available for free repro on Friday afternoon.
- In October FLAC published a guide for people in mortgage arrears to take them through the mechanisms available up to insolvency. The guide is free to download from the FLAC website as a PDF: http://www.flac.ie/publications/moving-out-of-mortgage-arrears-and-personal-debt-part-one-a-guide-to-the-ccma-2013/
Other FLAC work
New bankruptcy regime now operational
On 3 December 2013, the Minister for Justice and Equality is expected to sign a regulation that will start a new regime for bankruptcy in Ireland.
The main changes are:
- Discharge period will be down from 12 (or even 20) years to 3 years.
- A person must be insolvent with debts exceeding assets of €20,000 or more.
- A person will be able to apply for their own bankruptcy but only if they have first considered a personal insolvency arrangement or debt settlement arrangement
- Creditors will still be able to apply to bankrupt a person if the debt owed is over €20,000.
- A feature of the new rules will allow for an order to be made where a bankrupt person will have to pay income to creditors for 5 years. If this order is made at the end of the bankruptcy, the bankrupt may be paying creditors for up to 8 years.
- Bankruptcy will still be a painful, messy affair with costs to meet.
- A comprehensive information guide is available on the official website of the Insolvency Service of Ireland as well as some bankruptcy case studies.
Anyone requiring basic legal information can contact our lo-call telephone information line or drop into a FLAC centre for more detailed help.
For those in mortgage arrears, FLAC has prepared a new guide which will take people through the mechanisms available up to insolvency. The guide, which is free to download from the FLAC website as a PDF, suggests how borrowers might use the Code of Conduct on Mortgage Arrears and other options open to them. Alongside this guide, you can also view materials from our info session in May on 'Moving out of personal debt' which covered insolvency and bankruptcy as well.