Stephen Donnelly: Dial M for mortgage: customers left hanging on the line
The banks have been running rings around the authorities but when will they face sanctions?
IF your bank phoned you up to four times a day, would you feel harassed? Imagine, as your mortgage arrears mounted, that you had maintained contact with your bank, as you're meant to do, but they kept calling. Monday to Friday, from early morning to late evening, and then again on Saturday mornings. If you are a customer of Permanent TSB, this may sound familiar.
Last Monday, a constituent came to my office in Wicklow. Let's call her Joan. As we talked, the scale of the challenge she faced became apparent: her mortgage, her arrears, and how her bank, Permanent TSB, was treating her.
It looked like the bank was phoning her several times a day using an auto-dial machine. After many of these calls, a further three calls would occur in quick succession from a private number.
The first time she answered, in November, she got an automatic message asking her to hold for a member of the collections team. Frightened, she hung up. Back then, the calls were coming in at about three per week.
How banks engage with borrowers in arrears is governed by the Central Bank's Code of Conduct on Mortgage Arrears (CCMA). This stipulates that a lender can make three unsolicited contacts with a borrower in arrears no more than three times a month. The original version of the CCMA stipulated that phone calls, whether answered or not, constituted contact. But not any more. On December 21, the Central Bank issued a notice which stated that a voicemail constituted contact. So the banks could call as often as they liked, so long as they didn't leave a voicemail.
According to Joan, the number of calls from the 021 number increased shortly after the Christmas, to several calls a day, followed by the calls from the private number. Last Tuesday, the 021 number called her at 12.04, 12.13, 12.32 and 15.30.
In reply to my request to the PTSB to desist from calling her, PTSB chief executive Jeremy Masding wrote to me on Friday last, confirming that "44 attempts to contact her in total were made" and "the most attempts on any day was four". He added that "unsuccessful contacts are not considered as 'contacts' under the Code of Conduct." Well, not anymore. It would appear that as the mortgage crisis worsens, the Central Bank has reduced the protections afforded to those in mortgage arrears, and Permanent TSB is, while sticking to the letter of the law, making use of this.
The Central Bank does go on to state that "Lenders are reminded that attempts at contact must not be excessive or disproportionate" and that "Each lender must satisfy itself that the strategy it adopts is proportionate and not excessive, depending on the risk category of the borrower." So the Central Bank is relying on the banks to behave themselves, to not be 'excessive or disproportionate'. You couldn't make it up.
Joan's story isn't just indicative of the difficulties faced by many in post-boom Ireland. It goes to the heart of how at least some banks behave, who controls them, and who's going to pay for their actions.
How Joan and her husband ended up in this situation is the story of the bubble for many in the negative equity generation.
Having bought a house during the boom, he lost his job in 2008. The mortgage went into arrears, and then she lost her job in 2009. They applied for the Mortgage Interest Supplement, but were refused on the grounds that they paid too much for their house (back then, who didn't?), that they didn't have children, and that they were already in arrears (so when you really need the help, it's no longer available).
The appeal took two years, and was granted by the HSE in 2011, with about €9k going to PTSB.
In 2009, PTSB agreed a three-month payment moratorium and were generally supportive of this couple, who had acted in good faith, were victims of the unemployment crisis and were living week to week. And, in fairness to PTSB, they were generally supportive of the couple through 2010 and most of 2011 too.
In 2011, Joan and her husband went on the back-to-work scheme, set up businesses, and are right now working day and night trying to make them successful.
However, with no money other than the basic social welfare payment, they were relying on St Vincent de Paul to meet basic bills. By the end of 2011, Joan says that the tone from PTSB had started to turn.
Early last year, they entered the Mortgage Arrears Resolution Process, MARP. The local PTSB branch was very supportive, having seen that there was simply no money available to make even a nominal payment on the ever-increasing mortgage.
Last September, PTSB wanted to meet, but financial circumstances hadn't changed. Joan wrote to PTSB and contacted the Money Advice and Budgeting Service, MABS. They also asked the bank to hold off.
In November, the first autodial call came in from the collections department of PTSB. They came at about three per week. Joan wrote to the bank, gave a financial update, and asked for time. She got no reply.
Shortly after Christmas the calls started coming at up to four a day, followed by the calls from a private number.
She wrote to the bank again and said that she'd meet them in January. The calls continued.
She arranged a meeting with the local PTSB for last Friday. The calls continued.
Permanent TSB is allowed do this because the Central Bank relaxed its Code of Conduct. Political scientists refer to this sort of thing as 'regulatory capture'. Regulators and the people they're meant to be watching get to know each other. They begin to trust each other. The need for nasty laws becomes less obvious. Surely we can rely on the good judgement of the banks. And sure, doesn't government regulation just get in the way of the financial sector trying to make an honest profit.
The State has got to start putting the interests of citizens first. Here are three things the Central Bank can do right now to this end:
One: Reverse the changes to the Code of Conduct so that banks cannot phone borrowers in arrears as often as they deem appropriate, so long as they don't leave a voicemail.
Two: Use the sanctions available to it. One such sanction is a direction disqualifying a person from being concerned in the management of a regulated financial service provider. So if it finds a person responsible for violating the Code of Conduct, it can bar them from working in any bank in Ireland.
The concept of personal accountability – something foreign to most parts of Ireland's elite – would be an antidote to many forms of collective stupidity in Ireland's establishment.
Three: Ensure the Personal Insolvency Bill, PIB, is applied quickly and effectively. For Joan and her husband. Here's how it would work:
They have a mortgage of, let's say, €350k, but a house worth €150k. Under the new legislation a personal insolvency practitioner would suggest one of two solutions. The couple would be asked to service whatever portion of the €350k they could. If this was, say, €200k, then in three years the other €150k would be surrendered by PTSB. If it was determined that the couple could not service even the €150k value of the house, the bank could sell the house, and surrender any legal hold on the remaining €200k.
Both of these solutions allow the couple to get on with growing their business, employing people and contributing to Ireland's economic recovery. And if the business succeeded, then for six years the bank could recover a part of the couple's new income.
Several banks have indicated that they do not intend engaging in debt surrender. But it must happen if hundreds of thousands of people are to be freed of unsustainable debt and contribute to Ireland's economic recovery.
The Central Bank can play a key role in this, if it so chooses. The banks have been running rings around the Government for years now. People like Joan and her husband are the casualties.
The Government and the Central Bank have the tools available to change this. The next few months will tell us whether or not they intend to use them.
Stephen Donnelly is an Independent TD serving Wicklow and East Carlow.