Banks accused of trying to hijack new insolvency rules
Published 01/02/2013 | 05:00
BANKS have been accused of trying to hijack new personal insolvency rules that will give heavily indebted consumers court-approved debt write-offs.
The charge came after the Irish Banking Federation announced a new protocol that could see people get some credit card and car loan debt written off if they commit to paying as much as they can of their mortgage repayments.
Banks said the move was a lifeline for homeowners drowning in debt.
One bank said it was prepared to write off up to 80pc of what is known as unsecured debt that it advanced. Unsecured debts typically include bills run up on catalogues, credit union loans, utility bills, store card debt and hire-purchase agreements.
The new deal will see the bank that has the customer's mortgage contacting all other lenders that are owed loans and trying to get these unsecured debts reduced for the homeowner.
Money that is left is then funnelled into meeting monthly mortgage repayments.
Mortgage repayments could be lowered for up to five years as part of the debt deal workout.
But legal rights group FLAC (Free Legal Advice Centres) claimed the new deal has been rushed out by banks in a bid to circumvent the new personal insolvency process.
FLAC's Paul Joyce said that the personal insolvency process would be a better bet for those with unsustainable debts than the new Irish Banking Federation (IBF) protocol, which he said was unregulated and a one-sided process.
But Felix O'Regan, of the IBF, denied that the new protocol was a cynical attempt by mortgage lenders to bypass the new court-backed personal insolvency process.
"This protocol is another attempt by banks to do everything we can to deal with the challenges consumers are facing today," he said.