Anyone interested in appreciating how the Government needs
to urgently come up with a national strategic response to the consumer debt
crisis should read an important contribution made last week in a statement on
“Personal and Mortgage Debt” published by a group of legitimate, expert
consumer representative organisations, New Beginning and leading academics.
Available on www.flac.ie, the
FLAC (Free Legal Aid Centres) website, the statement “urgently calls for a
national strategy to be put in place to resolve over-indebtedness and to foster
a responsible credit market that would prevent a similar crisis from occurring
for future generations”.
Correctly arguing for an “All Debt” approach, FLAC and
others set out nine important principles. They want to see a national Debt
Resolution Agency and nationwide network of expert consumer advocates who will work
with people to arrange debt settlement solutions for all their debts.
By
including for mortgage and other debts, they say that people should be provided
with a legally robust mechanism to establish sustainable mortgages and pay what
they can afford off other debt for a defined period of time, after which the
balance would be written off. Pragmatically,
the group recognises that for unsustainable mortgages, people may need to
become tenants rather than owners.
The statement leaves no wriggle room for moral hazard hawks - those who hold that decent,
honest people will deliberately render themselves insolvent to benefit from
debt settlement writedowns.
The group says that Government’s “muddling along in the hope
that things will get better” is no longer acceptable as the social costs are
“potentially enormous as families and communities disintegrate under the weight
of financial pressure and the uncertainty of what the future will bring”. From an economic perspective “the lack of a plan of action and a sense of
the state assuming responsibility hampers consumer spending and fresh lending”
By adopting the same minimalist “muddle through” approach as
the last administration, this Government has so far failed to appreciate and meaningfully
respond to magnitude of the consumer debt crisis.
The penny appears to have dropped somewhat once
the Keane mortgage arrears report was seen as being as ineffective as its
predecessor the Cooney report. But by inviting other
solutions, Taoiseach Enda Kenny seems not to have understood the scope and
depth of what is a long term unaffordability crisis and not just a temporary mortgage
arrears problem.
Government’s response can no longer rely on a conveniently packaged
bundle of “extend and pretend” sticky plaster solutions to be supervised by the
Central Bank.
The bank’s primary mandate to ensure banking system stability and
regulate and prudentially supervise individual banks conflicts with its mandate
to protect consumers. No matter how many consumer protection codes of conduct
it publishes and polices, it will always be captive of its primary mandate. The
bigger issue is that the bank cannot impose solutions and cannot cover non-bank
consumer debts such as rent, utility and revenues arrears.
It is clear from Oireachtas committee testimony last week
that the Cooney and Keane reports failed to accommodate the views of legitimate
consumer representatives.
Consumerists’ language and narrative is all about affording
people a fresh start earned over time through an organised just and fair debt
settlement process. They see this as providing for two alternative pathways.
The first allows for non-judicial, legally binding debt settlement agreements organised
through expert consumer advocate advisors; the second, a quick bankruptcy process
for hopelessly insolvent people and complex high value cases.
These pathways
are also recommended by the Law Reform Commission in its report on personal
debt management and enforcement.
While new insolvency laws are in the works, if Government is
serious about responding it shouldn't wait for legislation to slowly wind
through the political system. It can respond today by establishing an interim
Debt Resolution Agency. Using existing regulatory and legal frameworks and working
with all consumer protection regulators it could oversee, direct and synergise
an inter-agency focus on consumer debt resolution. It could also start building
the national network of expert advocates so urgently needed to provide people
with the professional representation they deserve.
A good starting point would be to appoint people with the credibility
and expertise to design and deliver on such a just and fair national debt
resolution strategy. People like FLAC’s Paul Joyce and Noeleen Blackwell,
experienced consumer advocates and others like them who are likewise committed
to consumer representation, simply must be involved from now on.
A version of this article appeared in the Irish Examiner, Business Section, Monday 24th October 2011
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