Monday 19 March 2018

'Vindictive' banks use legal loopholes to halt debt deals

(Stock photo)
(Stock photo)
Charlie Weston

Charlie Weston

Banks are using the courts to frustrate attempts by homeowners to get official debt deals.

This is seen as the main reason for a sharp fall in the number of official personal insolvency settlements being approved.

The banks have been accused of a "culture of contempt" for their customers because they are using legal loopholes to block debt settlement deals.

The latest figures show the number of personal insolvency arrangements (PIAs) fell by 33pc in the July-to-September period this year, when compared with the same period in 2016.

Read More: Blow to AIB as it now faces tracker sanctions

Just 132 personal insolvency arrangements, which tend to involve mortgage debt, were agreed in the third quarter of this year.

Some 433 cases are being challenged in the courts by the main lenders and vulture funds that have bought up debts.

Banks and other lenders are reluctant to agree PIAs because they mostly involve them writing off mortgage debt, despite accusations that banks over-lent during the boom. Courts have to approve the deals, but banks are using a new courts review process to force a court hearing of debt deals instead of agreeing with insolvency practitioners to allow the settlements.

The section of the legislation being used by banks to delay doing deals was designed to remove the so-called bank veto.

This means they have turned Section 115a of the Personal Insolvency Act on its head, as this was introduced to allow courts to push through a debt deal lenders were resisting.

They are managing to frustrate the insolvency process by taking review cases to court before an arrangement can be put in place.

Head of the Insolvency Service Lorcan O'Connor told an Oireachtas committee last month: "These review cases have proven to be long and drawn out."

Fewer than 2,000 personal insolvency arrangements have been approved since the personal insolvency system got up and running in 2013.

David Hall, of the Irish Mortgage Holders Organisation, accused banks of contempt for consumers, and for the Oireachtas. He said the legal provisions being used by the banks were designed by TDs to remove their veto on debt deals.

"This challenging of insolvency deals in the courts reflects the vindictive nature of banks. They have always treated consumers with contempt, now they are treating the Oireachtas with contempt," he said.

Irish Independent

Business Newsletter

Read the leading stories from the world of Business.

Also in Business