Pressing need for consumer debt tsar

The Government should appoint a Debt Tsar to build and oversee a national debt management regime capable of settling billions in un-repayable consumer debt.

Despite our Dickensian debt enforcement system being hopelessly inadequate, the official response has been to tweak the system to solve a problem it was never designed to deal with. This myopic response has seen regulatory officials trying to get lenders to use poorly designed extend and pretend mortgage solutions assembled by “expert” groups.

It’s high time to stop “tweaking”. The scale and scope of consumer indebtedness is so large nothing short of a co-ordinated national response will do.

Imagine an adult population the size of Cork City owing at least €13bn more than will ever be repaid. This money is owed to hundreds of separate creditors who are all individually pursuing repayment. As every financial fragile household has a distressed mortgage and a number of equally distressed debts, they are being peppered with collection letters and phone calls every month. Some are receiving multiple phone calls daily. Many have had their mortgages modified, mostly on interest only terms as their mortgage lenders pretend the debt is being managed. Three in 10 households risk losing their homes. If they do, they will still owe on average €90,000 each on top of thousands more in unsecured debt.

Nine out ten people do not have the skills or know-how to deal with their indebtedness. Most are still in denial as are their lenders. While some but not all banks are sticking to the Central Bank’s troubled mortgage code, court lists are groaning under the weight of theirs and others legal actions which will only ever recover cents in the euro on unsecured loans.

Imagine a national debt management agency and system that would ensure consumers and creditors reach responsible settlement agreements – while limiting tax payers’ costs. Designed for a more benign economic environment, the Law Reform Commission set out a major component part of a national blue print. Its design, which did not consider mortgage debt, would see a responsible, non-court based debt settlement system with a new bankruptcy regime for hopelessly insolvent individuals. People would reach a binding collective agreement with their many unsecured creditors to repay what they could over a period of time after which any balance outstanding would be forgiven.

But dealing with troubled mortgages separately from other debts is like trying to make an omelette without breaking the egg. The totality of household indebtedness must be considered and agreements established to manage mortgage and other debts at the same time. Any debt resolution agent should holistically establish two component plans; a mortgage resolution plan and an unsecured debt settlement plan which could include for un-repayable mortgage debt. 

The Central Bank cannot act as a debt resolution oversight agency as its mandate cannot cover the full breadth of consumer indebtedness. Consumers also have distressed utility bills, tax debt and other legally enforceable debt. In recent commentary the Central Bank acknowledged this, when in ruling out regulating for specific mortgage resolution solutions, it raised the notion of a debt settlement agency.

One proposal would see a debt settlement/management agency led by a debt tsar empowered by Government to build an integrated national debt management regime. Implementing the Law Reform Commission blue print and working closely with the Central Bank and other state agencies, it would set binding rules to drive the business processes required to resolve and settle billions in un-repayable household debt. These would include specifying the range of solutions, setting mandatory terms and conditions and ensuring absolute transparency. With a mandate broad enough to capture the totality of consumer/creditor relationships and debt solutions, it should be established on an independent footing, similar to the central bank.

A version of this article appeared in the Irish Examiner, Monday 12^th September 2011.


A stylised consumer/creditor relationship is illustrated in the diagram below:

People have debts with multiple creditors not only lenders. These creditors may pursue debts using legal debt enforcement procedures. The Central Bank through its consumer protection codes requires  the firms it regulates to comply with rules of conduct (excluding credit unions). These codes do not apply to other creditors nor cover multi-lender relationships. 


The proposed Debt Tsar and resultant debt management system is illustrated below:

Here a national debt resolution agency would oversee the totality of the consumer/creditor non-judicial debt enforcement/settlement relationships. The model includes two elements (1) a mortgage resolution process based on the waterfall concept through which people would resolve their troubled mortgage debt and (2) the LRC's non-judicial debt settlement process. The debt resolution agent would work with the Central Bank and other state agencies to strengthen consumer protection codes and establish clear rules of engagement regulating for binding multi-creditor debt settlement arrangements. This approach could include for a mandatory requirement for consumers and their creditors to engage in the process.


The waterfall concept for mortgage resolution would see a cascade of interventions driven by loan affordability which would be based on a realistic assessment of income sustainability. The diagram below illustrates one version of this: