Banks still holding up insolvency solutions
Published 15/04/2015 | 02:30
The good news is that there has been a marked increase in the number of consumer debt deals done under the auspices of the Insolvency Service of Ireland, meaning that people have been able to sort out their financial affairs and can set about making a fresh start.
The bad news is that there is still an enormous number of people in serious financial debt, whether it is bank borrowings or mortgage arrears, and the banks are continuing to exercise their veto to have one in every four deals rejected.
The Insolvency Service of Ireland (ISI) believes that, after a very slow start, it now has the "momentum" to begin dealing with this debt problem. But it urgently needs to deal with the power of the banks and financial institutions to veto insolvency deals.
Given the huge volume of people in mortgage arrears - which is probably the best measure of personal insolvency - a lot more needs to be done, and reducing the term of bankruptcy and mortgage-to-rent solutions seem to be the first steps.
While personal insolvency practitioners and the financial institutions have come up with solutions to €2bn worth of debt, now seems an opportune time to review the arrangements, and particularly the bank veto on insolvency deals, which is not only slowing down the process, but also acting as a disincentive for some people to enter into it in the first place.
While the banks' behaviour in rejecting one-in-four debt solutions might seem prudent on one level, the head of the Insolvency Service has told them that they must stop living in the past and recognise the reality we now live in, where certain debts simply cannot be paid back. The financial institutions should now be called before a Dáil committee to explain in detail the reasons why they are vetoing so many potential deals, so that an independent judgement can be made about their commitment to this process.
More importantly, it now seems that insolvency legislation needs to be changed to introduce a review mechanism where rejected deals could be subject to arbitration and independent scrutiny.