BANKS COULD face penalties for lending irresponsibly under new proposals currently being considered by the Law Reform Commission (LRC).
A mandatory code for financial institutions on responsible lending, as well as new procedures for arrears management, debt settlement and mediation will all form part of a forthcoming consultation paper from the LRC, according to chief executive Patricia Rickard-Clarke.
Speaking at the launch of a new report by Flac (Free Legal Advice Centres) on the treatment of debtors by the justice system, Ms Rickard-Clarke said the commission was looking at a holistic and non-judicial approach to debt enforcement in which court proceedings were a measure of last resort.
The main issue was to distinguish between debtors who can’t pay and those who won’t pay, she said. Current laws on debt were highly expensive for the State to enforce. In some countries, banks have to pay money to fund education in personal finance in cases where credit agreements are breached, she pointed out. The LRC’s paper is due to be published in September and a conference to discuss its proposals takes place in November.
Launching the report, Flac director Noeline Blackwell said the present system of debt involvement gave rise to a “devastating and largely pointless human cost” for those subjected to legal proceedings. Last year, 276 people were imprisoned for non-payment of debt.
Flac said the courts should not make decisions on a person’s ability to pay unless he/she was in court. It also said debt proceedings need not be heard in open court, court documents should be made clearer and the State should examine alternative ways of enforcing debt that do not involve the threat of prison, such as mediation or deduction from earnings.
According to the report, the majority of debtors do not understand the implications of the legal documents served on them and most do not turn up in court.
Paul Joyce, policy researcher with Flac, said “won’t pays” were a small minority of debtors. It was crazy that orders could be made against people for debt issues when they weren’t in court and the court didn’t have information about their financial circumstances.
He said people were reluctant to talk about debt issues because they still carried a stigma.
Following a recent court case, new legislation has been drafted to put an end to the imprisonment of debtors in their absence.
Flac has suggested a series of amendments to the Bill, including a proposal to give imprisoned debtors remission on their sentences in the same manner as other prisoners.
The Irish Bankers’ Federation said it supported Flac in calling for an overhaul of debt laws to include a workable alternative to prison.
CASE STUDIES
Bank pursued singer Mary Coughlan over €20,000
Blues singer Mary Coughlan was seven months pregnant in 1996 when her debt problems reached their most frightening point.
"Gardaí arrived at the door and said they had orders to bring me to Mountjoy.
"This was 10 years after the bank had taken my house, my car, my dignity and everything else," she said, speaking at the launch yesterday of the Flac report.
Ms Coughlan had bought a house in Howth a decade earlier, on the back of her early success as a singer.
However, she got into financial difficulties after a few years and the bank foreclosed on her loans.
"So I went from this five-bed mansion on 2.5 acres out on the Baily in Howth, with a lovely car outside, to being absolutely penniless."
The house was sold but the bank pursued the singer for years after over the remaining £20,000 debt.
"It was absolutely relentless," she recalls, "the bank pursued me endlessly for money I just didn't have". After every gig - sometimes, literally at the venue - she would pay some more money to her creditors.
At times, she says, her solicitor and ex-husband wrote cheques to keep the threat of jail at bay.
Coughlan's heavy drinking didn't help but when she came out of treatment in 1996 and news broke of her new record deal with a label owned by Richard Branson, the bank stepped up the pressure.
It obtained a committal order, the last step before incarceration, and jail was averted only when Branson himself stumped up her recording money in advance to pay the debt.
She now lives in rented accommodation and, although she is back on the road performing, earning an income and is debt-free, has been refused three times by different banks for a mortgage.
"It's no one's fault that these things happen. I was an alcoholic and I paid my dues, but when I got the money I paid people back. There must be a better way to deal with debt than prison."
Paul Cullen
Arrest warrant issued over non-repayment
An arrest warrant had been issued against Michael (not his real name) for non-repayment of a loan by the time he sought help from Mabs (Money Advice and Budgeting Service) in December 2006.
A court judgment, made in his absence as he had not attended any hearings, ordered him to pay €100 a month. At that time, his income was a carer's allowance of €180 per week as he was looking after his mother who was elderly and unwell.
"I was just numb, shocked. I was never in prison in my life. I had no previous at all. I was thinking if I go to prison how do I handle this? Who's going to look after my mother?" he said.
Michael admits he was simply too "terrified" to turn up to court hearings.
"I just had this picture in my head that if I did go in and appear in court I was going to be found guilty, handcuffed, taken away and sent to prison for six months," he said.
"I wasn't trying to avoid the issue or the responsibility. It was just fear." Michael said he thought a direct debit facility from his bank account had been covering the repayments to the organisation which had provided the loan.
However, when Mabs reviewed his bank statements there was not always enough money in his account to cover the repayments.
He faced outstanding debt and legal costs of €3,640.71.
Mabs contacted the organisation which had provided the loan and suggested he pay back €10 a week. This offer was refused. The Legal Aid Board got involved and was going to appeal Michael's case when the organisation accepted the repayment offer in March 2007.
"If I had a bit of extra it'd be €20. I do miss it, the way things are now with the economy, but it's better than facing prison." Praising the work of staff at Mabs and the Legal Aid Board who helped him, Michael said he had now paid back a total of €1,160 and had never missed a repayment.
Mary Minihan
