IT was supposed to be the panacea that would help eradicate the personal debt crisis and provide an opportunity for people to re-build their financial lives.
The Insolvency Service of Ireland (ISI) is not that long in existence and its first-quarter statistics show that it won't live up to the billing. It is important to say that it isn't the fault of the service, but moreover the inherent weaknesses in the legislative framework through which it operates.
Here are some simple facts.
Last year, the ISI did four Personal Insolvency Arrangements (PIAs), which are aimed at providing a solution for people with secured debts of up to €3m. Three of those were on |buy-to-lets and the average write-off |of debt in the arrangement was just |19 per cent.
Other forms of debt deal are enjoying a bigger take-up. But it is still quite small. Debt Settlement Arrangements (DSA) provide for an agreed settlement of unsecured debt with no limits. Debt Relief Notices (DRN) allow for write-offs of certain debt up to €20,000.
Unsecured debt is nasty when you can't pay it back. The long-term consequences of simply not paying it when you can't afford it are damage to your credit rating and a possible judgement against you. Unpleasant but not the end of the world.
The real debt crisis here is in mortgages. Get that one wrong and you could lose your home. Although the ISI is reporting increased activity levels in 2014 and personal bankruptcies so far this year are much higher than 2013, it is proving to be most attractive for small, unsecured borrowers.
The agency was hamstrung from the start when it came to mortgage debt. Banks ultimately have a veto and borrowers who have loans with just one bank are finding the bank doesn't want to do a PIA because it feels it can engage directly with the customer.
Throw into the mix the collapse in talks to develop a protocol for agreeing settlements with those struggling to pay credit union and bank loans, and it appears that real progress is only being made by banks dealing with customers themselves.
Some are offering sizeable debt write-offs. Every second week we read about a big chunk of debt written off (usually by AIB) in some negotiated settlement. But you have to wonder how typical they are of what most people are experiencing. There is no evidence that banks are applying a consistent approach to one another when it comes to reaching deals.
Non-guaranteed banks are each doing their own thing. Former Irish Nationwide Building Society customers are having their loans sold as we speak. Bank of Ireland is adopting its own approach, as is AIB. Some of the banks are not offering debt write-offs at all.
Ulster Bank recently said it had agreed solutions with customers where 6,756 involved reduced payments, 3,807 involved capitalisation, 2,346 were interest-only and 2,156 were term extensions.
None of them involves the certainty and pragmatism of a debt write-off. Each is helpful in its own way, but are they genuinely long-term or permanent solutions?
Banks are still holding all of the big cards when it comes to secured debt. Why shouldn't they, you might argue. Customers knew what they were getting into, borrowed too heavily and can't deal with the consequences.
Undoubtedly, while some people completely lost the plot by wanting to be mini-Donald Trumps, hundreds of thousands of people just wanted to get on the property ladder to own a home.
They may have signed the documentation, but they were let down by the political, regulatory, banking and economic fraternity during the boom years. Now it is about ability to pay. Many hard-pressed young families I know are struggling and making huge sacrifices in order to keep up all of their repayments.
Yet, tens of thousands of people have just stopped paying anything at all and refuse to engage with the bank. These include buy-to-let investors as well as owner-occupiers. Where is the rent going?
Ulster Bank may not be writing off debt, but it has taken legal action against 4,170 mortgage arrears customers who have refused to engage with it. AIB is in a similar position. Some of those people may be in deep financial trouble and are simply terrified. But others are surely playing a different game.
The best way to adjudicate on all of this might have been to introduce a legislative framework for the ISI that would have taken some of the power away from the banks on mortgage or secured debt.
This would have involved |re-writing binding contracts. Plus the Government was worried that banks owned by the State could lose too much money in those circumstances and they would be more difficult to sell.
Hopefully the ISI will continue to see that increase in numbers of people reaching good solutions on unsecured debt. But it is just not going to happen in a major way with mortgage debt.
Banks should have been pushed harder to adopt a more consistent approach with mortgage debt.
Re-visiting the legislation around personal insolvency might be helpful — but I fear that, as mortgage loan books are selling like hot cakes to international investors, it may be too late.