Central Bank snubs MABS as it looks at UK debt charity
THE Central Bank is considering bringing in a British debt charity to hammer out debt deals for people with borrowings that they cannot handle, it has emerged.
The move is part of a pilot plan to get banks, credit unions and credit card issuers to agree to ease the repayments for those with multiple debts.
Around 750 people are to be part of the trial, which was announced by the Central Bank's Fiona Muldoon after she failed to get lenders to agree on a common approach to restructuring debts for those in trouble.
The priority would be the repayment of the mortgage over other debts. Eight different approaches, from adjusting interest rates to restructuring mortgage repayments, will apply depending how over-indebted the householder is.
Now it has emerged that the Central Bank is considering by-passing the state-funded Money Advice and Budgeting Service (MABS) in favour of getting organisations from outside the State to negotiate with lenders on behalf of consumers.
It is understood one of the organisations being considered is Britain's StepChange debt charity. Previously known as Consumer Credit Counselling Service, this body says it has 20 years' experience helping people become debt free.
However, who would pay the likes of StepChange to act as a go-between in debt negotiations has yet to be worked out.
David Hall of the Irish Mortgage Holders Association said it was a bad move to bring in an outside agency when MABS works every day with those in mortgage distress.
He said StepChange in Britain tends to only deal with unsecured lenders, like credit unions, and does not have experience in dealing with mortgage lenders on behalf of consumers.
Yesterday the Central Bank insisted that credit unions would not be forced to write down their loans issued to people who get a deal under the scheme.
But credit union sources pointed to the document issued by the Central Bank on the pilot project.
Where significant mortgage debt is being restructured the mortgage lender will get to decide if the unsecured lender, like a credit union, will get payments over a two-year period.
Personal insolvency expert Paul Carroll of Neo Financial pointed out that just one of the eight scenarios outlined by the Central Bank involve debt write-offs for struggling homeowners.
"The new plan does not envisage any significant write-offs of loans and any small write-offs of debt will only apply to unsecured debt," Mr Carroll, an accountant, said.
And Goodbody Stockbrokers banking analyst Eamonn Hughes said the new plan may help the banks "gain an advantage" over other lenders which would help their capital positions.
Credit unions fear they will be the big losers under the new plan.