Multi-debt plan scrapped as credit unions fear huge losses
A CENTRAL Bank initiative to get banks and other lenders to deal with all the debts of a household – and not just mortgage borrowings – has collapsed.
It comes as the state body set up to oversee formal insolvency deals admitted just four mortgage debt agreements have been done since the service was launched a year ago.
The Insolvency Service of Ireland's (ISI) boss, Lorcan O'Connor, conceded that the new operation had got off to a slow start, but promised a better flow of deals in the coming months.
His comments came as it emerged yesterday that a plan by Central Bank regulators to put in place an informal scheme that could have seen heavily indebted households getting write-downs of some of their debts has been scrapped.
The so-called multi-debt restructuring scheme was abandoned when two more credit union bodies pulled out.
The Central Bank has been trying to get agreement on the new scheme since it completed a pilot project last May involving 750 overstretched borrowers with multiple debts. British debt charity StepChange was brought in to co-ordinate the debt restructuring deals as part of the pilot plan, and had been signed up to operate a full, nationwide scheme.
The Irish League of Credit Unions, the largest credit union representative body, pulled out of the pilot plan. Now it has emerged that rival body the Credit Union Development Association walked away also. And the Credit Union Managers' Association has also pulled out.
Credit unions fear they will be the big losers when debt is written down, as priority is to be given to cover mortgage repayments.
A spokeswoman for the Central Bank would only say: "We will be reporting the results of the pilot project shortly."
But the Irish Independent confirmed from a number of sources that the scheme was scrapped after consultations between the Central Bank and the Department of Finance.
Meanwhile, the ISI defended its slow start, insisting there are a number of new cases in the pipeline.
Debtor support groups insisted banks were vetoing deals as they preferred to do informal deals, where they retained control of the outcome.
With the ISI, the terms are set out in legislation.
Of the four mortgage debt deals, known as personal insolvency arrangements (PIAs), most are understood to involve buy-to-lets and not family homes.
Mr O'Connor admitted the average write-off of mortgage debt in the four PIAs was just 19pc. With the other deals administered by the ISI the write-offs have been significant, at an average of 77pc of the borrowings.