Ministers must start delivering solutions to the consumer debt crisis, writes Bill Hobbs
Surely a new broom means more than fitting a different handle to an old worn out brush? One new Minister when questioned over the weekend on a long delayed, important report said it would be published shortly. The word “shortly” is civil service speak for “how long is a piece of string”. What about the word “delivery”?
Delivery means responding to people’s real needs now. And it’s high time to get real about delivering solutions to the consumer debt crisis. The crisis is like an iceberg, the closer you get to it, the bigger it gets. And with two thirds hidden beneath the surface, you can only guess at its catastrophic impact.
Officially, according to the Central Bank’s visible iceberg data, nearly 100,000 households, “real” people, are suffering “real” mortgage debt stress. On average, distressed homeowners already owe €100,000 more than they can ever hope of repaying. Boom time homebuyer’s who can afford repayments, will have to wait until 2024 before their loan equals their home value when, if lucky, their home will be worth just about what they paid for it in 2007. The Central Bank’s data is silent on the mountain of distressed personal and small business loans. Utility companies are cutting off the population of a small town every month.
As the banks are not telling it as it is, no one knows how bad the debt crisis has and will become. The Central Bank has admitted Anglo Irish Bank only came clean on its debt after it had been told to wind down. Ominously, three out of four credit unions are suffering from varying degrees of financial stress as their customers can no longer make their loan repayments.
Out of every four households, one said they had or would a problem in paying their debts in 2010. Most of the rest said they did not feel financially secure. Financial vulnerability is worsening as recent tax increases are stripping households of disposable income. With people already paying 3% more on their mortgages than their European neighbours, ECB interest rate increases, rising inflation and declining take home pay many more will join those struggling with unaffordable debt this year.
Until now the official response has been to delay the impact of consumer debt losses on the banks by making it easy for them not to have to repossess homes. But debt forbearance is like freezing rancid meat in the hope it will somehow thaw out as fresh meat. Steps taken so far to respond to the crisis have been ineffective. Critical of the last Government’s mortgage debt group report, this Government’s programme for government document says it didn’t go far enough. It’s right - the group’s recommendations were merely solvency management tools for troubled banks.
Real people, have real debts they have no hope of ever repaying. Far too many have become easy prey for unregulated, profiteering debt management companies that falsely promise they can have debs written off. Meanwhile with growing queues’ MABS is struggling to respond to the demand for its debt management services. It neither has the proper mandate or resources to provide the level of professional social protection services needed to deal with the scale of the debt crisis.
Social protection means providing a proper financial safety for people faced with personal insolvency or threatened by it. There must be laws and supporting processes through which ordinary people can earn the right to debt forgiveness. After all, it’s a basic right found everywhere else. The good news is, thanks to the Law Reform Commission, the high level design is ready to go and it can be implemented within a year.
That’s if this Government for National Recovery does what it says on the tin. Delivery will require Social Protection Minister, Joan Burton to cut a swathe through three years of abject obfuscation and procrastination. Urgent and important, there’s no reason why a national debt management service should not be in place by the end of this year.
Right now there is nothing to stop the Minister from transforming MABS into a modern fit for purpose national debt management service. Applying the principle of the polluter pays, banks and other creditors should be made fund its development and operating costs. Its services should continue to be provided free to indebted customers, who should have the legal right to its services. The enabling personal insolvency and debt settlement legislation recommended by the Law Reform Commission should be fast tracked and delivered on it in tandem with the development of MABS.
A version of this article appeared in the Irish Examiner, Business Section, Monday 14th March 2011.
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