THE IRISH Bank Federation – the body that lobbies government on behalf of the banks – made nine representations to the Department of Finance ahead of the publication of proposed legislation changing the personal insolvency regime.
Records released under the Freedom of Information Act show that the federation held two meetings and made seven submissions to the department between August 2011 and January 2012.
The department declined to release the records, saying that material contained “sensitive information” and was subject to “deliberative process” as the draft proposals were still being examined.
A schedule of records relating to representations made reveals the contacts with the department.
Minister for Finance Michael Noonan and Minister for Justice Alan Shatter published the proposed personal insolvency changes in January.
They included proposals for out-of-court settlements where borrowers could have mortgage debt written off with the agreement of the lenders.
The banking federation had called for secured mortgage debt not to be included in out-of-court debt settlements before the publication of the draft proposals.
The federation has since then warned that any costs associated with possible debt forgiveness emerging from the new legislation would ultimately end up being passed back to the taxpayer.
Ulster Bank sent a letter to the department on November 7th, 2011, about the proposed changes, the department’s schedule shows.
The bank had no comment as consultations were still ongoing.
Further representations have been made by Ulster Bank since the publication of the proposals.
It is understood that the bank has privately claimed that the public debate around debt forgiveness since last year has contributed to strategic defaults and an increase in mortgage arrears.
Ulster Bank has also warned that the proposals could constrain access to, and increase the cost of, finance to Irish banks due to a devaluation of secured debt in the eyes of investors buying the debt in securitisation transactions.
The bank is understood to have argued that the inclusion of up to €3 million in debt in out-of-court settlements under the personal insolvency changes is too high.
Ulster Bank’s position is that any debt included in such settlements should be limited to loans connected to a borrower’s home.
The Government’s proposals include the potential write-off of mortgage debt linked to buy-to-let properties in the settlements.
Representations were also made by the financial company Genworth which met department officials on November 21st 2011.
A spokesman for Genworth told The Irish Times last month that the Government’s proposals could have adverse implications for taxpayers, consumers and inward investment as there was no precedent for the inclusion of secured debt in personal insolvency arrangements internationally.
The inclusion of mortgage debt could encourage or incentivise default, the spokesman said.
Department records also show that the Vincentian Partnership for Social Justice met department officials in December to discuss minimum income standards.
Submissions on the proposals were invited up to the start of this month before the publication of proposed legislation next month.
The timing of the publication of the legislation was deferred until the end of April under the most recent timetable of targets set out under the memorandum of understanding with the European Commission, the European Central Bank and the International Monetary Fund.
In addition to reducing the bankruptcy term from 12 to three years, the proposals allow three types of out-of-court settlement – for those with unsecured debts of less than €20,000 and more than €20,000, and those with secured and unsecured debts of up to €3 million.
