Central Bank to push ahead with debt write-off plan
THE Central Bank is to go ahead with a controversial pilot plan that could see some householders having debts written off.
The move is despite strong opposition from the Irish League of Credit Unions, which fears the community lenders will be the big losers in the new scheme.
It said the scheme will not help troubled borrowers.
Despite the league coming out against the plan, enough credit unions have now signed up to allow a pilot scheme involving 750 distressed borrowers to go ahead.
The league represents most of the State's 398 credit unions, but it claims banks will not write off any debts for over-burdened borrowers. Instead, credit unions and credit card providers will be expected to forgive debts, the league claims.
Under the scheme, all those who loaned money to a homeowner would come together and try to work out a payment plan based on how much the homeowner can repay.
The scheme will only apply to those who cannot meet their debt repayments.
Different solutions will be offered, depending on the state of the borrower's finances.
A homeowner could be offered a split mortgage, which parks a portion of their debts. Agreed amounts would be paid to the creditors for two years.
If the customer is still in difficulty after two years, their unsecured debts – such as credit card or credit union loans – would be wiped out.
Those with no hope of meeting their repayments are likely to end up in the new personal insolvency arrangements.
People with temporary income problems will be offered lower interest rates and payment holidays.
Registrar for the credit unions and Central Bank official Sharon Donnery said that large numbers could end up getting a payment deal.
This could be done more easily if the lenders all came together to put a solution in place, rather than each lender pursuing the householder separately.
But the league effectively walked out on talks, as it fears its €5bn in loans are at risk. This is because credit unions have no security over their loans, unlike a mortgage where the property is the security.
The board unanimously decided not to participate in the pilot scheme, which is due to begin within weeks.
Ms Donnery told a conference on Tuesday: "We are pleased with the response to our call for participation in the pilot and we have a good mix of community and industrial, large and smaller, rural and urban credit unions on which to test cases.
"All the main banks and one of the State's largest credit card providers have also signed up to participate."