Saturday, February 27, 2010

Till debt do us part

When I first left school and got a job in the early 1990s, it was still hard to get credit. I remember going to my local bank and credit union to get a modest loan to buy a car and had no joy. Looking back it was a good lesson, because it meant I had to save and wait and didn't get buried in debt.

Then in the space of ten years, everything changed, our society was flooded with credit. It wasn't a case of will I get the loan, the banks wanted to know if I was sure that was enough. I was involved in a campaign in 2007 with NYCI around the issue of credit card debt among young people, "Can You Credit It" Our campaign was a response to the mad situation where young people in college with limited incomes were being bombarded with letters and flyers encouraging them to take on €1,000s in debt. I remember Eddie Hobbs at the time describing credit cards as the gateway drug to a life of debt. It was only one aspect of the credit bubble in Ireland, but no-one in authority seem to care.

About ten days ago the Oireachtas Committee on Social and Family Affairs published a very good report on debt in Ireland, entitled "High levels of Indebtedness in Irish Society" No great surprise that it details the scale of the problem, with debt to disposable income rising from 60% in 1997 to 175% in 2007. Apart from mortgage debt, thousands are saddled with debts on personal loans, credit cards, utility bills etc. While many people overspend and over borrowed during the boom, they have learned their lesson and will over time repay and reduce their debt. However there are a minority whose life will be scarred by debt and arrears.

I have a mortgage and a credit card, but thankfully can make my repayments on time. I would hate to be in arrears and be fearing the call at the door or on the phone. I think that fear and hatred of debt comes from family history. In 1922 my grandfather, also a James Doorley, acted as a guarantor for a relative on a loan. The relative couldn't repay the loan and the bank in question put a charge on the deeds of my grandfathers land until all the money was repaid. The 1920s were not a time of great prosperity, and of course many still refer to the hungry 30s, indeed it was the time of De Valera's economic war with the UK. The deeds of our farm show that it was 1958 before my family was able to finally discharge the debt, when penalties, arrears etc were factored in. My grandfather went from being a fairly prosperous farmer to one who paid most of his profits (if there was any) in later life to pay off a debt.

Excellent series on the crisis by the BBC.

While much has changed in our country, the way and means by which we deal with debt hasn't. It's mad that people still go to jail for debts when killers are walking free. We all know that there are people who can afford to pay and won't, but the vast majority of people in debt can't pay. Through no fault of their own, people lose their jobs, have marital difficulties, suffer from ill-health and find the bills and debt mounting up. The moratorium on mortgage arrears of 12 months is welcome, but does nothing for people who have large personals loans, credit card bill, utility bills etc. Some financial institutions are responsible and do all they can to assist people, others just add to their borrowers woes with threatening letters, hefty legal bills and outrageous arrears fees and penalties. While I accept the borrowers must take responsibility for their actions and decisions, the lenders who threw money at people now deep in debt cannot get off scot free either. Yes we need responsible borrowing, but we also need responsible lending.

We definitely need major reform in this area. The Law Reform Commission produced an excellent report back in September, however I feared that it would be ignored like many of many of their reports. However someone was listening and it was good to see the commitments in the revised Programme for Government on debt and debt enforcement. Then just this week the Government announced the appointment of an expert group to bring forward measures on a rolling basis over the next couple of months. There are some really good people on this, who I worked with in the past and have a strong track record. Paul Joyce and FLAC have been tireless campaigners on debt reform for many years, indeed sometimes they must have felt voices in the wilderness. I worked with Brendan Burgess of on the financial regulator consumer panel when he was chair, he is also an excellent choice, because he has been working and advocating on behalf of consumers in the financial area for many years. It's important to have the financial industry on board and although we are often on the opposite side of the argument, Pat Farrell is a pragmatist and in fairness supports reform in this area too. Good also that Matthew Elderfield the new Head of Financial Supervision at the Central Bank is on board, who really appears to have hit the ground running.

So hopefully we will see speedy and sensible solutions to our current debt problems. We can't wipe out debt, but we can make the system work so as to assist people deal with their debt in a more humane, speedier and satisfactory manner for all concerned.

1 comment:

Charlie Mackay said...

A quick question: what measures did the Consumer Panel recommend to the Financial Regulator during the few years prior to the collapse of the property market in order to avoid it overheating and leading to the situation we have today where we now need to deal with mortgage debt?