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Central Bank and Financial Services Authority of Ireland (Amendment) Bill 2011: Second Stage

Tuesday, 27 March 2012

Dáil Éireann Debate
Vol. 760 No. 3

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Deputy Michael McGrath: Information on Michael McGrath Zoom on Michael McGrath I move: “That the Bill be now read a Second Time.”

I wish to share time with Deputies Billy Kelleher and Timmy Dooley. I will take 20 minutes, with ten minutes each for the two Deputies.

An Leas-Cheann Comhairle: Information on Michael Kitt Zoom on Michael Kitt That is agreed.

Deputy Michael McGrath: Information on Michael McGrath Zoom on Michael McGrath The Bill I am moving is straightforward legislation concerning the operation of the Financial Services Ombudsman. It proposes to give the ombudsman’s office the power to publish the complaints record of individual financial services providers that come within his remit.

The Bill is designed to deal with an important issue of public interest, namely, the need to fully inform the people of cases where serious complaints have been made against financial service providers and the Financial Services Ombudsman has investigated and upheld those complaints and awarded compensation to the customers concerned.

The Financial Services Ombudsman’s bureau played a vital role in bolstering consumer confidence in the effectiveness of the regulatory regime for certain financial service providers. Its role is in addition to that of the Central Bank in safeguarding consumer interests. The legislation I am introducing is designed to further enhance its current role. Given the damage done to the reputation of a range of financial services providers in the past four years, the need for this measure is now all the greater.

Under current arrangements, when a financial services provider’s own internal complaints mechanism has not provided a satisfactory outcome, a customer can bring their case to the ombudsman. The ombudsman will ensure it is investigated, mediated and adjudicated upon. Where it finds against an institution, it may recommend that compensation be paid to the customer.

The ombudsman publishes a report every six months and a detailed annual report. The information covers a number of categories, specifically that complaints are divided into investment, banking and insurance. It does not cover pension related activities. As Members of the House will be aware, there is a separate ombudsman for the pensions sector.

Currently, the report is published in aggregate form such that no individual provider is identified throughout the report. While it does include case summaries, these are on an anonymous basis. In addition, details from the findings are presented such that neither the complainant nor the provider can be identified. I believe the absence of information regarding the identify of firms which have been found wanting is a clear deficiency in the current system.

An overview of the Financial Services Ombudsman’s report for 2011 shows the importance of this office. A total of €2.25 million was repaid or awarded in compensation to customers of financial institutions last year on the direction of the ombudsman. Almost 7,300 complaints were made to the ombudsman against financial services providers in 2011 relating to the three broad sectors of banking, insurance and investments. There has been a 67% increase in com[680]plaints to the ombudsman since 2007. A total of 50% of complaints related to the insurance industry, a third were about banking and less than 15% related to various investment products. Compensation regarding investment complaints far exceeded those for banking or insurance complaints. That is logical given the scale of the figures involved in respect of investment products.

This office was established in 2005. In that regard I would like to pay particular tribute to Mr. Joe Meade for his role in the job. His easy-going manner and ability to empathise with consumers did an enormous amount to de-mystify the work done by his office. In July 2009, Mr. Meade wrote to the late Brian Lenihan to request that he be given the option to name institutions that had been subject to one of his decisions where he felt this was justified in the public interest.

He acknowledged that there were some potential difficulties that needed to be considered before a definitive conclusion could be drawn. First, customers might be slower to come forward to make a complaint if they felt their name could come into the become domain. Second, he had a justifiable concern that institutions might be more likely to appeal findings to the courts if they felt they would be named in any event. A long drawn out legal process would undoubtedly prove stressful and potentially costly for customers seeking redress.

Despite these reservations, on balance, Mr. Meade said he was requesting the option to name publicly an institution that had acted wrongly under certain criteria. The purpose of this Bill is to essentially give effect to that request. Therefore, I am not putting forward this Bill in a party political manner and I acknowledge that this request from the ombudsman’s office has been on the books for some time, and was under consideration by the former Minister for Finance, the late Brian Lenihan, on leaving office.

The benefit to the public of such a move is clear. In the first instance, it would help foster a culture change within the banks. Essentially, the risk of wrongdoing being publicly aired, once identified, would lead to it being resolved more quickly and would make future such acts less likely. I record the support for this particular measure from the incumbent in the post of ombudsman, Mr. Bill Prasifka, who equally has made his views known, as has his predecessor, Mr. Joe Meade, on bringing greater transparency to the work of this office and to supporting their work by allowing them to publish the complaints record of individual institutions.

In order to respect the rights of financial services providers, the ombudsman put forward the very sensible suggestion that he be given sole discretion as to whether an institution should be named and that as a matter of good practice he would not be required to provide names in every case. This makes practical sense. In 2011, nearly 1,800 complaints were upheld and the number of cases dealt with by the ombudsman has been rising steadily as the economic crisis unfolded.

I accept that providing the name of financial services firms in each case could represent an information overload and would leave the public no wiser. However, by aggregating information across product type and identifying companies at this level, in addition to selective case summaries, the public could get a fair, clear picture of wrongdoing that has taken place, allowing them to make informed financial decisions. I concur with the recommendation that in order to re-assure the public, complainants should not be named and that statutory privilege would cover the naming of institutions.

The need for such a measure can be seen from reading the serious issues covered in the ombudsman’s reports year after year. Typical of the types of cases that come up and are reported on every year include the following: inappropriate investment advice given the customer’s risk preferences, break fees being applied incorrectly to moving from a fixed rate to a variable rate mortgage, unfair applications of restrictions relating to insurance products, [681]customers being sold payment protection insurance on loans they do not need, medical expenses not covered due to an incorrect claim that the patient had a pre-existing condition, changing terms of loans without reference to the borrower and over-charging of fees by banks.

By way of illustration I would like to highlight three cases in particular that have come before the ombudsman in recent times that I believe accurately summarise the type of cases the ombudsman’s office must deal with and adjudicate upon on a regular basis. The first case relates to a couple in their 70s who had deposited their life savings of €345,000 in a bank. In 2005, they were encouraged to put their money in a managed fund to get a better financial return, or so they were told. In 2008, they were again approached by the same bank which told them of a significant drop in the value of the fund. It was only at this point that they were fully informed about how the investment was managed, in particular that 70% of the investment was based on the performance of the stock market. To make matters worse, if they withdrew their money at that stage they would be hit with a €9,000 penalty. Thankfully, in this case the ombudsman found in their favour and they received full redress in line with the recommendation of the ombudsman.

The second case I wish to highlight relates to a customer who had a fixed rate mortgage. In early January 2009, she contacted her mortgage lender, another building society, seeking clarification as to whether a break fee would be applied to her mortgage account if she elected to change from a fixed to a variable rate of interest. She stated she was advised no break fee was applicable to her mortgage account. When she elected to proceed with the change from fixed to variable, she was advised that in fact a break fee of €20,000 was applicable.

Following a review of the evidence the ombudsman noted it was indisputable that the mortgage lender provided the complainant with incorrect information. The ombudsman also noted, with surprise, that the mortgage lender initially justified the application of the break fee on the basis that the complainant did not submit a written request to avail of the original no mortgage breakage fee. The ombudsman was cognisant of the fact that it was only upon the referral of the matter to his office that an accurate account explaining the reason, that is human error, for the incorrect breakage fee quotation was given. The ombudsman found the mortgage lender’s responses to the complainant which predated the referral of the matter to his office were inadequate and unsatisfactory.

While the ombudsman accepted in this case that the mortgage lender made a genuine mistake and/or improper misrepresentation, nevertheless the complainant acted in good faith and within the prescribed time period. Therefore he directed that her mortgage account be immediately switched from the fixed to the variable rate, backdated to January 2009, and awarded her €1,000 for the distress caused for reneging on the offer made.

This case shows the importance of the role played by the ombudsman. We all know that in recent years the banks have tried in whatever way they could to induce and encourage people to move away from tracker mortgages. This individual brought her case to the ombudsman and it was upheld. This complainant and the office of the ombudsman did a great service for all other bank customers on tracker mortgages. Having read this report banks will think twice about forcing or inducing customers to move away from tracker mortgages on the basis of a false pretence. This case as much as any other in recent times highlights the vital role the office can play in ensuring consumer rights are protected.

In the third case I wish to highlight a financial provider was ordered to buy back a bond from an elderly couple for the original investment of €300,000, plus €5,000 compensation, for what the ombudsman described as the “mis-sale” of the product. The husband and wife, aged 85 and 84, were living with their son and his wife. The money invested in December 2006 was from the proceeds of the sale of their house. The husband died within 18 months. The ombudsman found that recommending to them an investment product with a six-year term as well as [682]hefty penalties for early encashment was a dereliction in the provider’s duty of care. What the ombudsman uncovered in this case was an abuse of the basic consumer right to be sold a product appropriate to one’s circumstances. Highlighting such a case will make providers think twice about being of a mind to try to mis-sell to vulnerable elderly people products clearly inappropriate for their life stage.

A report in today’s Irish Examiner highlights another class of cases which are a cause for grave concern in regard to the banks. According to the report, thousands of customers who were erroneously sold payment protection insurance are expected to win millions of euro in compensation as a result of a Central Bank investigation which found the problem was systemic. The Central Bank investigation concentrates in the main on the mis-selling of payment protection insurance to the self-employed, those close to retirement, and those on contract, the bulk of whom were ineligible to be insured under such policies. The report suggests that millions of euro in compensation and refunded premiums will have to be paid to thousands consumers who were wrongly sold these products. This investigation is ongoing and let us see where it takes us. It again highlights that despite the work of the ombudsman going through cases and issuing comprehensive reports, year in year out, some behaviour has not changed and products are still being mis-sold. This is why we propose to name and shame people in institutions who sell such products, so they will be held to account and their records made available for consumers to assess.

While these represent quite diverse cases, the common theme running through them is that of customers having to go to considerable lengths to vindicate their rights against a powerful financial institution. While the ombudsman plays a key role in vindicating these rights the public are left in the dark as to who the offending party is.

As the Minister is aware, in 2011 the Financial Services Ombudsman initiated a consultation process on the issue of publishing the complaints record of individual financial service providers. Several submissions from financial institutions raised the issue about how information on the complaints record of financial service providers might be presented. Assurances were sought that the information would be presented in a manner that was verifiable, robust, properly contextualised and not misleading.

The Financial Services Ombudsman’s proposal is essentially that the biannual review would, for each financial service provider, include the total number of complaints, the number of complaints upheld, the number of complaints upheld in part, the number of complaints not upheld and the total amount of compensation awarded. To give an accurate picture of the complaints record of each financial service provider, information about the relative market share of the provider would also be provided. It would be important that where the ombudsman sees fit to highlight individual cases which are adjudicated upon, the offending institutions should be named in the report and the Bill provides for this.

The Minister addressed this issue in the Dáil last month when my colleague, Deputy Dara Calleary, tabled a matter for the Topical Issue debate. The Minister indicated he was considering the proposals from the ombudsman’s office in this regard and that he was considering the legal issues. One website is reporting this evening that the Minister is considering accepting the Bill. I hope this is accurate and if so, I welcome it. We should act on it quite quickly. There is no need to allow the Bill merely to pass Second Stage and then be put in cold storage. I am sure the Government can table amendments to improve the Bill. Every Member of the House has the right to make his or her views known and I fully respect this, but I see no reason this straightforward simple legislation cannot be enacted without further delay.

I will wrap up the debate tomorrow evening and make concluding points. The essential point is that this is about trying to raise standards in the financial services sector. It would also allow those providers with a good record in dealing with complaints to have their performance [683]highlighted as well as those whose performance is not so good. It would have a number of benefits, chief among them being that key information would be made available to consumers about the complaints record of each individual institution. If they are of the mind to research such records at least they will be available in the public domain. This would do a great service for consumers and would help to weed out the remaining bad practices that unquestionably exist throughout the financial services sector. Such a measure would not only enhance its transparency but also over time would greatly enhance the reputation of financial services in Ireland. We all hope and plan it will be a central contributor to our economic renewal.

I enthusiastically commend the Bill to the House. I hope the Government will accept it in the spirit in which it is offered. I look forward to a full debate on it today and tomorrow. I hope the matter can advance quickly and be put into effect.

Deputy Timmy Dooley: Information on Tim Dooley Zoom on Tim Dooley I welcome the opportunity to contribute to the Second Stage debate on this Bill. I compliment my colleague, Fianna Fáil spokesperson on finance, Deputy Michael McGrath, for his work on the Bill.

The Financial Services Ombudsman performs a worthwhile function in the overall architecture of our financial regulatory system, one which has been tested and challenged in a significant way in recent months and years. The work done by the Financial Services Ombudsman’s office since its inception has been exemplary. Deputy McGrath is correct that we are fortunate the incumbent Financial Services Ombudsman is someone of the calibre of Mr. WilliamPrasifka who has considerable experience of the public sector in Ireland and a reputation overseas. It would be remiss of me not to acknowledge the work of former Financial Services Ombudsman, Mr. Joe Meade, a county colleague, in establishing the Office of the Financial Services Ombudsman and for the calm and cool manner with which he dealt with complainants and the financial sector at a time of light touch regulation, which is now synonymous with the crisis in which we find ourselves. While this posed a particular difficulty for Mr. Meade he nonetheless went about his business in a fair and calm way. Despite the fact that at that time it was not popular to challenge the decisions of the financial services industry and that the financial services sector was viewed as a growth area in terms of job creation he never allowed himself to be bullied. Mr. Meade showed what public service is about and we owe him and the current ombudsman a considerable debt of gratitude.

As stated by Deputy McGrath, the impact of this Bill will be to further strengthen the regulatory process. If implemented, it will act as a deterrent to mis-selling, which sadly was partly how financial institutions conducted their business in the past. It is regrettable that the paper stocks of a company were more relevant than anything else to the manner in which companies’ managed their business and that the performance of front line staff in banks was rated on the amount of secondary products which they sold over the counter rather than on assessment of money lending risk or encouraging people to deposit money. We now know this type of culture developed around financial services to the domestic market. It is for this reason it is unfortunate the regulator did not have the type of capacity provided for in this Bill. As stated by Deputy McGrath the better known financial institutions spend a great deal of money enhancing and developing their brands. The last thing they would ever have wanted was to have an adverse finding against them by the ombudsman publicised. We must all take responsibility for what happened.

It is hoped that the Minister will take a non-partisan approach — as I know he does on many issues — to this Bill and will implement it as quickly as possible to give the current Financial Services Ombudsman the discretion to use the powers provided therein. I do not suggest that on all occasions the name of an institution against whom a negative find has been determined would be publicised. It would be necessary to weigh up doing so against the evidence of malpractice or mis-selling. We all have the potential to make mistakes. For this reason, it should [684]be open to the ombudsman to exercise his or her discretion in this regard. There is a need to deal now with this culture which was pervasive in the financial services sector.

Deputy McGrath has outlined the different sectors involved, including the banking, investment and insurance sectors. It is hoped that if and when this legislation is passed we will not be reviewing the same type of cases which sadly we have all heard about.

I would like to mention a couple of cases which came to my attention. The first relates to clients not being informed of how an investment works. A couple in their 70s had deposited their life savings of €345,000 in a bank and were encouraged in 2005 to put their money in a managed fund to get a better return. In 2008, they were approached by the bank again and were told that there had been a significant drop in the value of the fund. It was only at this point they were fully informed of how the investment was managed, in particular that 70% of the investment was based on the performance of the stock market. To make matters worse, they were told that if they withdrew their money at that stage they would be hit by €9,000 penalty. Thankfully, the ombudsman found in their favour.

  8 o’clock

A second case involved a woman in her 50s who held a critical illness policy with an insurance company and submitted a claim for benefit arising from her loss of sight. The company declined the claim on the basis that the complainant did not meet the criteria set out in the policy of total permanent and irreversible loss of all vision in both eyes. The complainant had suffered for many years with a rare debilitating disease categorised by the fragmentation of the elastic fibres in the skin and membranes of the eyes. The particular disease from which the complainant suffered was not covered by the policy. However, the complainant sought to qualify under the heading of “blindness”. The ombudsman noted that in considering the complainant’s claim her ophthalmic surgeon had been required to complete an assessment and had been specifically asked whether the complainant had permanently and irreversibly lost sight in both eyes and when this had occurred. The surgeon confirmed that visual acuity had dropped to the level outlined by September 2004. He also confirmed that there was no prospect of vision improvement by way of surgery. In those circumstances, the ombudsman took the view that it was inappropriate for the company to have refused the complainant’s claim on the basis that she did not meet the criteria set down in the policy. In circumstances where the policy document contained no reference to the exclusion of claims for benefit where peripheral vision was noted to exist the ombudsman took the view that the opinion of the surgeon in October 2006 that the complainant had permanently and irreversibly lost sight in both eyes was sufficiently clear in respect of the position and the company ought to have admitted the complainant’s claim at that juncture. The ombudsman upheld the complainant’s grievance and directed payment of the lump sum benefit of €25,000 pursuant to the critical illness policy.

It is right and appropriate that the financial services ombudsman could tease through in detail the background, terms and conditions of the investment and the insurance policy and to make a fair and balanced judgment on behalf of the individuals concerned. Clearly, some institutions will try to find exclusionary measures or opt-outs in the hope of their never having to meet an individual’s needs. This further illustrates the considerable work of the ombudsman.

I urge the Minister to give due consideration to the request by my colleague, Deputy Michael McGrath, myself and others to accept the Bill in a non-partisan way, thus acceding to the demands of the current ombudsman in providing him with these additional powers, to be used in a sparing way. I acknowledge that many good products are sold by financial institutions, ones which meet consumers’ needs and in respect of which there is no culture of mis-selling or a failure to tell the whole truth. Also, there are fine people working in our financial services sector. When we deal with those who mis-sell, it is right for us to recognise that some really [685]good people are suffering on a daily basis because of the actions of a few people at senior levels of their institutions. It is fitting that we should pay appropriate respect to the work that is being done by the individuals in question, many of whom feel demoralised at present.

Deputy Billy Kelleher: Information on Billy Kelleher Zoom on Billy Kelleher I welcome the opportunity to speak on this Bill. I congratulate Deputy Michael McGrath for presenting it to the House. The previous debate reminded me that public trust and confidence in many of our institutions is at an all-time low as a result of the fall-out from the Mahon and Moriarty tribunals. Similarly, people have a reduced level of trust in the financial services sector now that a diminished level of responsibility is associated with it. We have a long way to go if we are to build trust in many areas of Irish public life. Confidence in the banking and financial services sector has been affected by what has happened in recent years.

The legislation before the House proposes that we support the request of the Financial Services Ombudsman for additional powers in punishing people who are found to have breached certain ethical regulations. Although this would be a small step in the overall financial services context — I refer to the amount of money that is paid out in compensation or recompense for wrongdoing — it would be a positive one. It would be a fundamental and integral part of the process of ensuring people have confidence in our financial institutions and the services they sell to the public.

There is no doubt that the services put together by the financial services industry are very complex and are becoming more complex as time goes by. In the UK, sub-prime mortgages were bundled and rolled and sold on again. That indicates what can happen at the upper echelons of the industry in the absence of proper regulatory oversight and, more important, penalties for misdemeanours. This idea was developed to the grave point at which it undermined the credibility and fabric not just of a single institution, but also of the UK economy itself. For all the reasons I have mentioned, this Bill is a small but practical part of the process of building confidence.

I wish to approach this issue from a demographic angle. Ireland is an ageing society. The older people strategy that is to be published will be an important step in ensuring the health services are in a position to put proper facilities, supports and services in place for older people in years to come. Recent increases in life expectancy mean that our demographically ageing population will live longer and healthier lives. As the population grows older, the demand for health insurance and financial packages and products to support people in retirement will increase. People may wish to plan ahead financially by saving for nursing homes or other supports and services they may need when they are older.

I am concerned that if we do not take positive steps to ensure the Office of the Financial Services Ombudsman has this additional power and authority, it will not be able to publish material highlighting areas of concern and exposing people, institutions and products that might not be living up to the standards we expect. It is clear from some of the complaints highlighted by the two previous speakers that older people can be vulnerable when complex service plans and insurance packages are presented to them. I believe we should bring the health insurance industry under the scrutiny of the Financial Services Ombudsman. The ombudsman should be in a position to assess the products that are provided and make sure cover is not diminished by stealth or by underhand activities.

I am concerned about the downgrading of the various plans that are being sold by our health insurers. There is clear evidence that the cover now being offered in areas like ophthalmic and orthopaedic surgery is less than that offered under similar plans a couple of years ago. We owe it to the Office of the Financial Services Ombudsman to arm it with the extra support and resources it needs and to put this legislative framework in place. More important, we need to take action to build confidence and trust in the products being sold by health insurers and by the financial services sector.

[686]This issue was highlighted yesterday on the Joe Duffy programme on Radio 1. The report to which I refer was broadcast after the news, at approximately 2 p.m. It was disturbing to hear what a certain institution did to try to avoid making a payout to a woman whose husband had died a short time previously. When it eventually confessed that it had acted unacceptably, it apologised and tried to address the problem. Even in acknowledging that it was wrong, it enacted a break clause and deducted approximately €25,000 from the mortgage protection payout. After much toing and froing — the lending institution in question had to be hassled — it eventually accepted that it was wrong to enact a break clause with regard to mortgage protection.

These problems are arising on a continual basis. The sums in question are not massive by comparison with the billions of euro we discuss in the context of promissory notes, Anglo Irish Bank or the recapitalisation of the pillar banks that have been mentioned by the Minister on many occasions. However, it is critically important for the Minister to drill down through the services, products and insurance companies in this area. If products that are being sold are not up to standard or if individuals or institutions do not meet the standards we expect — they may have sold packages under false pretences, for example — the Financial Services Ombudsman should have the facility and the ability to publish material highlighting that.

I welcome the Central Bank and Financial Services Authority of Ireland (Amendment) Bill 2011 for all the reasons I have mentioned. I hope it can move on from Second Stage swiftly. I have been around this place for a long time. We often debate Bills in the House during Private Members’ time or during the Friday sittings that are available every now and again. Very little happens to them after that, however. They are parked up and the Government uses its majority to make sure they never see the light of day on Committee Stage. In this case, legislation was requested by the Financial Services Ombudsman, rather than by Deputy Michael McGrath, following broad consultation with the industry and with consumer groups. If the Financial Services Ombudsman were given additional powers, such as the ability to publish details of wrongdoing and highlight deficiencies in products, services or institutions, that would help to restore confidence. If this Private Members’ Bill is passed unopposed on Second Stage, I hope it can move to Committee Stage for a broad discussion in the not too distant future.

I concur with what has been said about the efforts of the previous Financial Services Ombudsman to define a role for the Office of the Financial Services Ombudsman and make sure customers are comfortable in making complaints. We should not be under any illusions — we know that the banks and financial institutions can use bully-boy tactics. They are bullying the Government by pretending they are actually lending. Like the Minister and everybody else in this House, I know the banks are not lending to the extent they should be. The Credit Review Office that was established some years ago has highlighted that frequently. It is not satisfied with how the banks are treating loan applications. If that is the case, it is clear that the banks are equally likely to be treating individual customers who may be vulnerable in a way that allows for potential wrongdoing. We need to ensure there is confidence at the bottom rung of banking. We need to ensure these matters are dealt with. The Central Bank is charged with dealing with wrongdoing at the upper echelons. As Deputy Mathews knows, it was not dealt with very effectively for many years. I believe we should move swiftly in this key area.

I have already spoken about demographics. As my party’s spokesman on health, an issue regarding insurance, particularly for older people, has been brought to my attention. Some insurance companies are downgrading cover plans because they are under stress and pressure, partly as a result of policies bring pursued by the Minister, Deputy Reilly. I refer, for example, to the increase in the fee charged to insurance companies for public beds for private treatments. Some people have found they are not covered for things they genuinely believed to be traditionally covered under the various plans sold by insurance companies. For all those reasons, [687]I urge the Minister to move swiftly and accept the Bill. It is not only being brought forward by Deputy Michael McGrath but has been requested by the Financial Services Ombudsman after much consultation with the industry itself. I hope we can move swiftly.

While we have the Health Insurance Authority, we need this legislation to ensure all aspects of financial services products and insurance are linked together under one office. If a person or body is selling products or dealing with customers in a manner that is not honest, forthright, fair and impartial, there will be a means of redress available to the customers, and the latter will be confident that if they make a complaint, it will be dealt with, and that if wrongdoing is demonstrated in any way, it will be addressed and compensation will be paid. The matter would be exposed publicly such that we could have confidence in the office and the institutions it overseas.

Minister for Finance (Deputy Michael Noonan): Information on Michael Noonan Zoom on Michael Noonan I wish to share my time with Deputies Corcoran Kennedy and Spring.

I thank Deputy Michael McGrath for proposing this important Bill, for his obviously thorough preparation and the presentations made by him and his colleagues tonight. Before I deal with the specifics of the Bill, I will emphasise the important role played by the Financial Services Ombudsman. The Irish Financial Services Ombudsman Bureau came into being in April 2005, and a measure of its great success has been its growing profile among consumers and industry. The role of the Financial Services Ombudsman is central in underpinning consumer confidence in the effectiveness of the consumer protection regime, complementing the role of the Central Bank in safeguarding consumer interests.

The ombudsman exercises his independent statutory function, operating in a fair, balanced and transparent fashion and is responsible for ensuring that unresolved complaints from customers of financial service providers are investigated, mediated and adjudicated upon. The importance of having an out-of-court adjudication complaints system for consumers who are not satisfied with the decisions of financial service providers cannot be overemphasised. Consider how difficult and expensive it would have been for the large number of consumers who have used the services of the Financial Services Ombudsman Bureau not to have had an effective out-of-court dispute resolution mechanism to deal with their complaints. The cost of litigation might have served to dissuade many from pursuing their grievances. The costs for smaller financial services bodies, in particular, in defending complaints through the court system would also add significantly to operational costs.

I will turn to the proposal before the House. I accept that the naming of financial service providers in certain circumstances will support the work of the Financial Services Ombudsman in effectively carrying out his functions, and for this reason the Bill is consistent with current Government policy. Much work has taken place in developing proposals for legislation on this issue. While the Government broadly supports the objectives of the Bill, it believes that further work is required on the detail of how it would apply and on its scope. I will return to this in due course.

I would like to outline some important points regarding the development of this proposal, which will better inform the House regarding the objectives of the Bill and regarding some complexities surrounding this issue. In July 2009, the then Financial Services Ombudsman wrote to the then Minister for Finance. In his letter he referred to comments made by various media personnel and other commentators about the extent to which published decisions of the Financial Services Ombudsman should name the financial services provider. He went on to request that he be given the option, if he considered it to be in the public interest, to name an institution that had been subject to one of his decisions. He outlined two reservations he had about naming institutions against which he had made findings. His first reservation was that complainants might be less inclined to bring a complaint if they felt they might be named. His [688]second reservation was that institutions might take a more defensive line and appeal findings more to the courts if they felt they were to be named anyway. However, despite these reservations, he said he was requesting the option to name publicly an institution that had acted wrongly. The reason he gave for this was that it could be a preventative measure and that the threat of being named could act to ensure that malfeasance, when discovered, would be easily rectified and be less likely to occur again.

The ombudsman also suggested three safeguards that should be included in any legislation that would give him this power. The first safeguard was that he be given sole discretion as to whether or not an institution should be named and that he would not be required to provide names in every case. The second safeguard was that complainants would not be named. The third was that he would have statutory privilege covering the naming of institutions. He also said that the criteria would have to be established to ensure that the naming was done in a fair manner.

Following receipt of the letter from the Financial Services Ombudsman, my Department sought legal advice to help inform the deliberations to formulate a clear policy position. As the House can appreciate, this is a complex issue which requires detailed examination prior to bringing forward legislation. For example, the criteria for publishing would have to be identified in the legislation. Any amendment to the current legislation would need to be validated, justified and applied in an objective and reasonable manner to all financial service providers while meeting public-good criteria.

My Department requested that the Financial Services Ombudsman consult with industry to better inform the debate. In 2011, the Financial Services Ombudsman Bureau invited submissions from all interested parties on the issue of publication of information on the complaints record of financial service providers. In inviting submissions, the Financial Services Ombudsman Bureau also set out its preliminary thoughts on the form that such a disclosure could take. The bureau received a total of nine submissions, one from an individual and eight from individual financial service providers and industry stakeholder representative groups. All submissions have been published on the bureau’s website.

On 5 January 2012, the Financial Services Ombudsman wrote to my Department. In his letter, he referred to a number of the submissions in which concern was expressed as to how information on the complaints record of financial service providers might be presented and to assurances sought by industry that the information would be presented in a manner that was verifiable, robust, properly contextualised and not misleading. Some submissions expressed reservation about identifying individual financial service providers in case summaries.

In the Financial Services Ombudsman’s biannual reviews, information on findings is given in two forms. First, information is aggregated into three general categories: investment, banking and insurance. Second, within each general category, the information is broken down by product type. All information is aggregated across all providers so that no individual provider is identified. The information provided under each category is similar. The categories include the total number of complaints, complaints upheld, complaints upheld in part, complaints not upheld and total amount of compensation awarded. The annual report provides case summaries on an anonymous basis. Details from the findings are redacted so that neither the complainant nor provider can be identified.

The Financial Services Ombudsman is now proposing that the biannual review would provide a further breakdown of the information provided, by financial service provider. Accordingly, for each financial service provider, information would be provided as to the total number of complaints, complaints upheld, complaints upheld in part, complaints not upheld and the total amount of compensation awarded. To give an accurate picture of the complaints record of each financial service provider, it is now proposed that information about the relative market share [689]of the provider would also be provided. Wherever possible, this would be done using information already in the public domain, particularly as referenced in other frequent regulatory reporting. For example, for insurance products, the relevant metric could be the number of policies in force or the number of people covered by those policies. For banking products, the relevant metric might be number of accounts or number of particular products in force.

The Financial Services Ombudsman has advised me that he would further engage with the industry to develop the most appropriate manner of presenting market share information for each relevant product. He advises that case summaries identifying the financial services provider should only be published where there was a compelling public interest to do so, such as the need to inform potential customers of risks they would not be aware of in the absence of disclosure.

While the Government fully supports the policy objective underlying this Bill, the provisions on naming, if not carefully crafted, could have negative implications for both consumers and financial services providers. For consumers, if their particulars were revealed, this could dissuade some of them from making complaints in the first place. This would run counter to the objectives of the ombudsman to support consumer protection. Financial services providers could view such provisions as disproportionate and unfair. In this regard, the legislation needs to be sufficiently robust to withstand any legal challenge.

I support the Bill’s principle and will bring legislative proposals to the Government reflecting the policy outlined in this speech. I thank Deputy Michael McGrath for raising the important issue on the need to provide the Financial Services Ombudsman with power to name financial services providers in certain circumstances. This is consistent with government policy in this area. However, as I outlined, further work is required on the precise scope and on the detail of how the Bill will apply. The Financial Services Ombudsman has advised that he proposes further consultation with industry. I have asked my officials to engage with the ombudsman in the coming weeks with a view to formulating more detailed proposals for legislation in this area. I will return to the House once this process is completed.

The Government will not oppose the Bill. When I bring forward legislative proposals I may be able to attach them to one of the Bills I am sponsoring which is already on Second Stage. Alternatively, I may use Deputy Michael McGrath’s Private Members’ Bill for suitable amendments when we proceed further. I hope to be able to do this in the near future. I thank the Deputy for a fine piece of work.

Deputy Michael McGrath: Information on Michael McGrath Zoom on Michael McGrath I thank the Minister for that.

Deputy Arthur Spring: Information on Arthur Spring Zoom on Arthur Spring I wish to acknowledge Deputy Michael McGrath’s constructive legislation and that the Minister for Finance has welcomed it and accepted it which will be to the benefit of the Financial Services Ombudsman.

This Bill will make provisions to empower the Financial Services Ombudsman to report on investigations and adjudications of regulated financial services providers arising from consumer complaints made about the conduct of regulated financial services providers. I hope the legislation will be enacted in the spirit Deputy Michael McGrath spoke of earlier. It will allow the ombudsman to publish and report on the complaints made to his office about the conduct of regulated financial services providers and the investigation and adjudication by his office of complaints made to it about the conduct of regulated financial services providers. This will now serve as a deterrent to financial services providers to act in a manner that contravenes the Bill.

The Central Bank of Ireland was restructured and renamed as the Central Bank and Financial Services Authority of Ireland on 1 May 2003. Under the Act, the supervision of all financial institutions operating in Ireland was consolidated under an autonomous body — the Irish Financial Services Regulatory Authority — which was established within the Central Bank. [690] Apart from this change, which relates to financial supervision duties, all other functions of the Central Bank remain unchanged, including monetary policy, being banker to the Government, etc. The Act brought together in a single location the supervision of the major sectors of the financial services industry including insurance, undertakings as well as the supervision of banks and the funds industry. It stressed the supervisory structure on consumer interests.

There are many perceived benefits from the 2003 Act despite all the financial turmoil in recent times. Ireland is still seen as an attractive and soundly regulated location for the financial services industry. This allows for the increasingly complex and interrelated sectors of the financial services industry to be regulated on a co-ordinated and integrated basis. It also allows for the continued close co-ordination of financial services regulation and overall monetary and financial stability policies in the public interest. It will also ensure the ongoing interchange of ideas and personnel between operational, monetary and regulatory functions within the Central Bank and Financial Services Authority of Ireland while establishing a position of registrar of credit unions within the overall structure. The registrar will act as the principal regulator of the credit union system, a role currently held by the registrar of friendly societies, subject as appropriate to guidelines from the Irish Financial Services Regulatory Authority board.

The McDowell report of 1999 stated it was felt in the late 1990s as part of the overall enhanced regulatory framework for the financial services sector, including the establishment of the Financial Regulator, that a statutory ombudsman scheme for all providers of financial services with statutory powers was necessary. This is now the position and is enshrined in section 16 and Schedules 6 and 7 of the Central Bank and Financial Services Authority of Ireland Act 2004. The Financial Services Ombudsman is a statutory officer who deals independently with complaints from consumers about their individual dealings with all financial services providers that have not been resolved by the providers. The ombudsman should be entitled to publish the findings from his investigations.

The ombudsman is often made aware of a problem when a complaint is made to his office. However, on many occasions customers go first to their bank to point out where interest rates have been applied incorrectly and so forth. Several cases have been taken against AIB, Bank of Ireland and EBS but many of these have not got into the public domain or were brought to the ombudsman’s attention. If a customer makes a complaint against a financial services provider about an internal mistake, the provider should be compelled to highlight it to the ombudsman.

It is in the interest of the consumer and the financial institutions themselves that consumer issues and the relevant findings which are investigated by the ombudsman are published and brought to public attention. The fact that details of the identity of the financial services provider that was investigated and adjudicated upon will be made public will force the financial institutions to be more meticulous in their charging policies and procedures. I welcome the proposed changes to the current legislation.

The Central Bank and the Financial Regulator have become increasingly important. When the euro was introduced, the Central Bank did not quite understand its role and may have taken its eye off the ball. The Financial Regulator certainly took his eye off the ball. Loan-to-deposits ratios, income-cost ratios, sources of capital, etc. were not regulated in a prudent manner. I believe the European Central Bank, like any good central bank, should have a far greater role. While the stability treaty will mean we need to have more control over our spending and gross domestic product ratios, it will also mean banks need to be governed responsibly and cannot bring down a country.

Banks should be reprimanded for wrongdoing through Central Bank legislation. The Financial Regulator needs to be prudent at all times while the Financial Services Ombudsman has a role to play in this also. The idea that a bank can do something wrong without that being [691]highlighted to the ombudsman is wrong. I will supply the Minister’s officials with documentation tonight so that he and they might consider legislation to ensure that, if a complaint is made to the bank, the bank or any other institution licensed by the State must tell the ombudsman that it made a mistake. By highlighting situations such as this, we can clean up the banks’ acts once and for all.

I thank Fianna Fáil for its Bill. That the non-Government parties are bringing something to the table that is to the betterment of society is welcome.

Deputy Michelle Mulherin: Information on Michelle Mulherin Zoom on Michelle Mulherin I am grateful for the opportunity to contribute on this welcome Bill. I also welcome the Minister’s approach, which is to consider the heart of what the Bill is trying to achieve, namely, greater transparency. This transparency would serve to make banks, insurance companies and so on, afraid of doing the wrong thing. From the reports of and cases dealt with by the Financial Services Ombudsman, we know that the banks’ behaviour sometimes leaves a great deal to be desired.

When we consider financial services in recent times, the banks and their reckless lending and sharp practices, including overcharging, come to mind. It is good that the consumer, who is always the weaker party when faced with the might of large institutions such as banks and insurance companies, has an avenue to seek redress without going to court and that justice is served by the ombudsman’s office.

The ombudsman addresses one sector in particular. Although we often discuss the most obvious aspect, namely, the banks and insurance companies and people’s concerns in their dealings with same, moneylenders also fall within the ombudsman’s remit. This significant problem needs to be addressed if the ombudsman is to be empowered to take appropriate action. By all accounts, including my own research, it is fair to say that the number of people resorting to moneylenders is increasing. An estimate of the past two years places that increase at nearly 30%. It is difficult, if not impossible, to keep tabs on unlicensed moneylenders, but it is estimated that approximately 200,000 people resort to moneylenders.

The ombudsman’s 2010 report contains a breakdown of the types of complaint received. There were only 15 and 13 complaints about moneylenders in 2009 and 2010, respectively, compared with thousands of complaints against banks and insurance companies. Given the number of people borrowing from moneylenders, this begs the question of whether everything is running smoothly in that sector. Judging by my experience, it is not. The first time I encountered a moneylender’s agreement was in my professional capacity as a solicitor. I ordinarily dealt with loan packs in respect of house mortgages. I was approached by a lady involved in a moneylending agreement. I nearly died of shock when I saw the APR on her loan. For example, if it had been €300 that she had borrowed, she would have repaid €400. This was an unsustainable APR.

For many, moneylenders are the last resort. People take out loans at exorbitant interest rates and repay them over short periods. They take out further loans to keep up with their repayments despite this being illegal. In many instances, the way people are dealt with by moneylenders is questionable. People are under a great deal of pressure from moneylenders, but many suffer silently. We cannot allow these types of interest rates to be charged when secured borrowings attract lower rates.

The people in question are the most vulnerable in society. We need to curb this situation. People in financial distress will look for the mercy of the State through, for example, community welfare officers and others. Moneylenders approach people’s houses ahead of special events, such as christenings, Christmas, birthdays, etc. I would prefer people to go through the formality of borrowing from credit unions. A veil of secrecy and fear surrounds a great deal of moneylending, albeit not the whole, and people are in a cycle of poverty because of it. The Minister should address this issue in whatever way he can. Those borrowing from moneylenders [692]are not the sort of people to march outside the Dáil. They are in mortgage arrears. The scale of their borrowings is significant to them, but they might only have borrowed €500, if not €300, to keep them going. These borrowings will not solve their problems, as they will still need to look to the State for assistance. Something is wrong with the way moneylenders are allowed to operate. People who are suffering and at their mercy are forgotten. Appropriate action needs to be taken.

Many people do not know how to manage money. One is not born with that knowledge. Youngsters in secondary school would benefit from classes on how to budget, borrow and balance books. The idea that people could buy now and pay later was a part of the lending craziness. Unfortunately, some people are paying in a terrible way.

I commend the Money Advice and Budgeting Service, MABS. For many people, MABS is a gift from God. When people cannot manage their finances and a great deal of pressure is placed on them by lending institutions or moneylenders, they feel powerless to face up to their situation and their problems keep mounting. MABS is a lifeline for many people and it should be as well resourced as possible. Helping these people is a difficult job. I commend everyone involved.

Deputy Pearse Doherty: Information on Pearse Doherty Zoom on Pearse Doherty Ba mhaith liom tacú leis an méid a bhí le rá ag an Teachta Mulherin ó thaobh na ndaoine seo atá ag cur airgid ar fáil agus na rátaí arda atáá bhaint amach ar dhaoine. Caithfear rud éigin a dhéanamh faoi seo.

The Bill is straightforward and I would be surprised if it did not receive the unanimous support of the House, which it deserves. As Deputy Michael McGrath and others have stated, the Bill will allow the Financial Services Ombudsman to publish findings arising from complaints made against financial service companies. In this way, the public could have full access to determinations of the ombudsman’s office on cases involving banks, insurance companies, stockbrokers, mortgage brokers, hirer purchase providers and others. This would be particularly useful in cases in which financial service providers were found to be in breach of regulations or guilty of malpractice. The benefits of the right to publish are obvious from the point of view of consumer rights.

It would also allow for greater public scrutiny of the practice of financial service companies and empower consumers in deciding between service providers. Given that the Mahon tribunal report has dominated political debate for over a week, it is clear there can never be enough transparency and accountability in public life, whether commercial or political. This Bill is a small measure, however welcome, but society needs a much greater level of ambition when it comes to accountability and transparency in commercial and political life. We have yet to have any formal naming and shaming of the organisations and individuals responsible for the financial crash of 2008 and the subsequent economic and social crisis. While the media has played an important role in exposing some of the information there is clearly a need for more. Official reports such as the Nyberg report did not go far enough in pinpointing responsibility for the economic crisis.

Identifying individual responsibility is central to real transparency and accountability. It took 15 years and €300 million to get to the bottom of planning corruption in Dublin city and county dating back more than 20 years. The issues at the heart of the Mahon tribunal, which we now know as facts, were widely known for many years but there was neither willingness nor a mechanism to hold those who took corrupt or improper payments to account.

Even today, there is still reluctance in many quarters to allow individuals, including Members of this House, to ask legitimate questions about the actions of individuals who may have been involved in commercial dealings of an inappropriate nature, including individuals who are now in the employ of the state. Only last month I was expelled from this Chamber for raising [693]legitimate questions about an individual who has been recently appointed to a senior position in one Department. I made no accusations against the individual. What I did was raise legitimate concerns regarding the individual’s potential involvement in or knowledge of certain matters prior to taking on public sector employment. Asking questions does not imply guilt. Denying Deputies the right to raise such questions creates an atmosphere where real scrutiny and transparency is not possible. Unfortunately the only forum for such scrutiny is this Chamber, where we now know that the consequences may be expulsion. Clearly the desire for transparency and accountability did not extend to those questions.

One of the reasons it took 15 years and €300 million to produce the truth on planning corruption in Dublin was that no one in this House was willing to use Dáil privilege to name and shame those involved. However, we expel Deputies from the Chamber for simply asking for questions about to the fitness of individuals to take up senior public employment. The same point could be made in regard to those individuals directly responsible for the financial crash in 2008. While we know of the high profile individuals like Seanie Fitzpatrick and David Drumm, many others also played key roles in institutions like Anglo Irish Bank. For example, one of the most senior officials in Anglo Irish Bank in the years before 2008, who was at the centre of many of the high risk decisions that led the bank and ultimately the State to insolvency, was recently employed by AIB, a nationalised bank. It is hard to believe that this individual could have passed any credible fitness and probity test, yet he remains in the employ of the State, despite having played a central role in the collapse of Anglo Irish Bank and in turn the near collapse of the State. It baffles me how an individual who was one of the top 50 managers in Anglo Irish Bank, who chaired its credit control committee and who was involved in the granting of highly improper loans to the maple ten group, Seanie Fitzpatrick and Mr. Quinn can be transferred to a senior management position in another State owned bank. To add insult to injury this was done at a time when AIB was planning to announce 2,500 redundancies of ordinary workers in the bank who played no hand, act or part in the decisions that ruined our banking system and our economy.

Clearly something is rotten in this but there is no adequate mechanism or forum for Deputies to raise legitimate questions in order to ensure transparency and accountability in public appointments of this kind. The only option is to piggy back the debate on this Bill. That hardly suggests the current Government has any meaningful commitment to transparency and accountability in public life, particularly within those aspects of public life over which it has most control, namely, the Civil Service and the nationalised banks.

The same point could be made of NAMA. Last month I published a Bill that would bring NAMA under the scope of the Freedom of Information Act. The taxpayer is shelling out €500,000 per day to run NAMA, which continues to make losses while paying developers in excess of €200,000 per annum and legal fees in the millions of euro. The agency seems to be full of potential conflicts of interest. The lid of secrecy has to be lifted from NAMA so that the public is made aware of what is going on. There is neither transparency nor accountability in any of these matters and we need to ensure that questions can be asked in order to increase transparency and accountability in all aspects of Government activity. These principles should apply not only to the financial services sector but also to the functioning of our political institutions and their involvement in commercial, semi-State and public service provision.

I welcome Deputy Michael McGrath’s Bill and hope that it is supported by all Deputies in the house. It is a small first step from a political party that has long refused to embrace the values that inform it. If the Government supports the Bill, I hope that is an indication that it intends to increase transparency and accountability not only in the private sector but to all areas of Government. Naming and shaming is a powerful tool to ensure compliance with regulations as well as normal standards of fair play and decency.

[694]Deputy Stephen S. Donnelly: Information on Stephen Donnelly Zoom on Stephen Donnelly I commend Deputy Michael McGrath for introducing this much needed Bill. It is good to see a rare episode of cross-party co-operation in the Government’s acceptance of the legislation. This Bill is about the power to name and shame, at the heart of which is transparency in how we run the country and conduct our affairs.

If there is one lesson to be learned from the events of last week it is that transparency must be at the heart of everything we do, whether in central government, local government or the various State institutions and the Civil Service. The Mahon tribunal report revealed that a lack of transparency allowed politicians to act as bagmen and to take bribes while pretending they were political donations. The conclusion I took from the report is that we must make politics, and the money in politics, transparent. Money is required for politics but there is an obligation on us, as politicians, to let the public know the source of our funding.

Earlier today the Governor of the Central Bank, Professor Honohan, discussed the issue of promissory notes with the Joint Committee on Finance, Public Expenditure and Reform. Until recently the promissory notes were shrouded in secrecy. Letters written by the President of the European Central Bank have been seen by the Governor and the Minister for Finance but the Government is refusing to share them with the joint committee or the public. Of particular interest is the correspondence that would reveal the level of pressure put on the State to pay back unguaranteed bond holders.

The promissory notes and the bank guarantee are probably the most expensive lesson in history on the need for transparency. We still do not know what happened that famous night. There was no Cabinet decision and a decision was made in the middle of the night by two — I imagine — extremely stressed and tired men.

The Bill deals with a more immediate manifestation of transparency. It gives the Financial Services Ombudsman the right to name and shame repeat abusers among the financial service industry. I am sure every Deputy in the House, and I imagine every Senator, is dealing with a growing list of credible cases from small businesspeople, home owners and people with personal debts in which there is no question that some financial institutions are acting in an utterly reprehensible manner. I do not know if it is illegal but some of the things that are going on are absolutely outrageous. We know that the current ombudsman and the previous one have repeatedly called for the ability to name and shame. It is fantastic that the Government has taken on Deputy Michael McGrath’s Bill.

The Financial Services Ombudsman has informed us several about repeat offenders. They come in, pay their fines and walk away in the knowledge that they are anonymous and protected. Naming the senior managers in these organisations matters. It matters to them on the golf course and at their dinner parties that they are named by the Financial Services Ombudsman.

Not many institutions are trusted less than politicians, but financial institutions are — sadly only by a small amount. Recent surveys indicate that the banks are the least trusted institutions by their own people of any institution on earth. The Irish people trust the Irish financial institutions less than any other people on earth trust any institution in their country. That is a staggering find. Trust in the Government is low at 35%. Only 10% believe that the Government is listening to the citizens’ needs, but only 9% of the general public trust Irish banks. The Bill can help rebuild that trust. How we carry on in coming months and I hope the changes we make will help rebuild the trust in politics. I commend the Bill.

Debate adjourned.

The Dáil adjourned at 8.55 p.m. until 10.30 a.m. on Wednesday, 28 March 2012.

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