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 askaboutmoney.com 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.

At Debts Door

The Minister for Social and Family Affairs answered a number of questions in the Dail on Tuesday in relation to number of people seeking assistance from the Money Advice and Budgeting Service (MABS). Its shows that the number of new clients going to MABS in the 11 months to the end of November has from 12,400 for the whole of last year to 15,600 up to the end of November. These figures show a 25% increase and that doesn't include the Decemeber figures. On top of that the numbers calling the advice line which was established in October 2007 is almost 11,500. MABS is an excellent service and I would encourage people who are under financial pressure to seek their assistance. I have heard stories that there are waiting times at some offices, not sure if this is true. If it is then the Government need to provide more resources to the MABS service, because the reality with increased demand, the pressure will grow on the hard working MABS staff who can only see so many people in a day.

Likewise we hear of the pressures on organisations such as St Vincent De Paul where demand for assistance and financial help have grown massively too. And in recent days the Irish Times have been running stories about areas (such as my own next of the woods in South Meath) where the recession is biting. I am old enough to remember the late 1970's and early 1980's when money was scarce and inflation from memory was in the 15-20% bracket. My father died suddenly in 1978 when I was 7 and since he was a farmer our whole livlihood was wiped away. There were no EU farm subsidies back then, you lived from what you produced from the farm. Apart from the emotional loss for my mother and my 3 siblings and I, financially times were very tough too. The memory of those difficult times have stayed with me and that is why I really believe the Government needs to do more to assist people whose are facing tough times. If we give people a hand up now they will be able to rebuild their lives and start contributing again when they are back on their feet.

In their pre-budget report the UK the Government have reduced VAT from 17.5% to 15%, have announced a package of measures to assist those in financial difficulty with mortgage debt such as a £200m mortgage rescue scheme, 3 month stay on repossession and increased resources for money and debt advice. Here apart from a slew of direct and indirect taxation the only positive step has been to increase mortgage interest relief marginally for first time buyers.

We have had the bail out for the banks, its time for the Government to come up with a strategy to support ordinary consumers who have lost their jobs, livlihood and income because of the recession along the lines of what the UK Government have done.

A French Lesson for Irish Consumers?

I really wish I had paid more attention during french classes at school. I was over in Paris for two days this week attending a seminar and meeting with some old friends and like every time I am there my lack of french comes home to roost. OK I can order a beer or find out where the toilets are, but once it gets more complicated than that, like having to ask directions I have to revert to English.

Could we as consumers learn in the debris of the financial crisis here at home from the French as well. Yes some of their banks have come a cropper on the international markets, but primarily for investing in toxic assets from the US and of course there have been now three cases of rogue traders doing serious damage to the balance sheet. The most famous of course has been Jérôme Kerviel who it is alleged cost the Société Générale bank over €4bn. On Friday when I was there another scandal broke concerning Caisse d'Epargne when four traders cost the company €600m, which given the numbers being thrown around in recent weeks sounds like small change. I had never heard of the bank before, but happened to pass what looked like one of their older branches when I was walking home from dinner on Friday night and took a photo.

The French mortgage market from what I understand is radically different from ours and that in the UK and as a result French consumers are insulated from the worst excesses of the current turmoil, where individuals and families are under terrible financial pressure with rising debts and home repossession. Most home loans are given out on long term fixed interest rates, they don't have the plethora of variable and tracker mortgages that were so popular here. And by long term I don't mean 3-5 years, I mean 20-25 years. That means that French mortgages holders know how much the mortgage will cost them many years in advance. Unlike their Irish counterparts they do not hang on the words of Jean-Claude Trichet as to whether interest rates will go up or down.

When you think about for a while, it is a bit crazy to tie the cost of our debt on our most valuable physical asset, i.e. our home to the vagaries of the financial markets and the deliberations of the European Central Bank. A 1% rise in interest rates has the potential to cause real misery for many homeowners. I suppose its all very well in good times, but the weaknesses in the system are plain to see in the current climate. That's not to say that the French system is perfect, it is much more difficult to get a home loan there, so many people here would not have been able to buy a home if they lived in France.

And of course then there is the cost, would it cost more if people could only purchase a long term fixed rate mortgage compared to the option of a short term variable mortgage? Obviously each case is different, but while in the short term the French mortgage might cost more, in the long term it would appear to cost less and of course give much more security and peace of mind. That brings me to an interesting conclusion in a report on the UK Mortgage market (Miles report) that examined the issue of fixed long term mortgages. It found that consumers really only focused on the immediate short term cost of the mortgage. Can I make the repayments in the initial months? In the UK they rarely looked at the overall cost or the cost if interest rates were to rise when taking out a mortgage, in most cases it is the same here and I can understand why. People assumed that mortgage rates would remain stable and the prices would keep going up. The lenders are supposed to highlight potential pitfalls to borrowers, but I imagine in recent years when money was being thrown at people and most people thought the party would go on forever, this was largely overlooked. However necessity is the mother of invention and therefore it might be an opportune time for Government to examine the pros and cons of encouraging the take-up of long term fixed mortgages here.

PS: The Bank Guarantee Scheme was published on Wednesday, I was on The Breakfast Show on Newstalk on Thursday highlighting how this was a great deal for the banks, but a bad deal for taxpayers and consumers. Clause 44 says "A covered institution shall not pass on the costs of the guarantee to its customers in an unwarranted manner". This is vague, meaningless and unenforceable. Minister Lenihan says that the costs won't be passed on, but once the dust settles in a few months, I wouldn't be so sure.