Finance, Public Expenditure and Reform and Taoiseach
Oireachtas Committee meeting on the
Central Bank (Variable Rate Mortgages) Bill 2016
20 October 2016
Minister for Finance Michael Noonan T.D. - Opening Statement
Good morning Chairman,
Good morning colleagues.
Thank you for inviting me to the Committee’s “Pre-Legislative Scrutiny” on this Bill which has been proposed by Deputy McGrath. I look forward to working with the Committee and contributing to its important work.
There is a responsibility on all of us to critically – but also fairly - evaluate all proposed legislation coming before the Oireachtas irrespective of whatever side of the House it emerges.
The Committee will be aware that there was a constructive second stage debate on this Bill last May – to which many members from all side of the House contributed – and the Dáil then decided that the Bill should move to committee stage for further and more detailed deliberation. I can assure committee members that the Government will constructively engage with the issues raised by this Bill as it is further considered by this Committee and the Oireachtas.
However, I think it is also important to acknowledge and recognise that this is not a Government Bill. Therefore, it will not be the responsibility of Government to progress the Bill through the parliamentary process, or to answer questions on the overall objective or detailed provisions of the Bill. That responsibility rests with the Bill’s proposer. While the Government will actively contribute to the work of this Committee, it cannot assume a responsibility for the progression of Private Member’s Bills once they have passed second stage.
As I indicated at second stage, I fully understand that the intention behind this Bill is to help people with their mortgage repayments. As the economy improves and as the banks stabilise and come back into profitability, borrowers will rightly feel that their mortgage and other loan rates should come down. Depositors and other stakeholders in the banks will also wish to see improvements in their positions. These are the natural tensions which play out in a competitive banking market.
However, in the second stage debate, the Government outlined a number of significant concerns it had with the Bill as proposed. These concerns remain and it is considered that it would be of benefit to the legislative process if the Committee would consider these – and also concerns that were raised by others in the House and outside – in the “pre-legislative scrutiny” which is now commencing.
One of the points I raised was the requirement, under the EU framework, to consult the European Central Bank on the content of the Bill. Dáil Standing Orders have since been amended to provide that in the case of a relevant Private Member’s Bill - such as this Bill - the relevant Oireachtas Committee will conduct this important consultation function. I welcome the fact that this consultation process has now been initiated. However, it is unfortunate that neither this Committee nor the House has yet had the benefit of that ECB opinion before it further considers this Bill. Such an opinion, when it is to hand, will obviously be a very important contribution to the “pre-legislative scrutiny” work that members of this Committee are now undertaking. Also, depending on the content of the ECB opinion, the Bill’s proposer may wish to consider if amendments are required to the Bill as it currently stands.
The Bill will need to be carefully considered to ensure it complies with all the requirements of EU law. Section 5, for example, in permitting the Central Bank to impose a cap on the standard variable mortgage rate which applies to one lender but not to the market generally could potentially be considered to enable competitive distortions in the market or to enable the prevention of the free movement of services or State Aids.
Also, significant constitutional issues are raised by this Bill. I sought to flag these concerns in the second stage debate – not to seek to make a political point, or to avoid a fair consideration of the merits of the Bill, or more importantly to somehow prevent an improvement in the position of variable rate mortgage holders – but to raise a genuine concern. Real constitutional issues will need to be considered as this Bill is further progressed by the Oireachtas. As it is drafted, the Bill will clearly impact on the existing property rights of some creditors. Likewise, there are concerns about the process and decision making procedures set out in the Bill and whether they provide for “fair procedures” and a “fair appeals” process to any affected parties. Overall, it will be important to ensure that any proposed legislation which interferes with private property rights would be a proportionate measure in the interests of the common good. I am not saying that the Bill as drafted is unconstitutional; rather the issue is that it is not possible to come to a considered view on the matter at this point. When the Government initiates a Bill, the constitutional and legal aspects of the Bill will be considered by the Attorney General as legal advisor to the Government. Where a concern about the constitutionality of a Bill arises, the Attorney’s Office may seek a very detailed analysis – in terms of the rationale for the policy measure and its possible impacts - from the initiator of the proposal in order to assist it in forming an assessment on whether the proposed restriction on property rights or some other rights are proportionate to the social good which the proposed Bill seeks to achieve. Such a detailed assessment is also likely to contain an assessment on whether an alternative measure or measures could be deployed to achieve the same or similar desired objective but without impacting on existing property or other rights. This obviously will be an important issue for the Committee to consider further in its “pre legislative” deliberations.
Likewise, it will be important to consider the detailed drafting of Private Member’s Bills, and I note that the report of the Dáil reform committee called for a greater role for the Office of the Parliamentary Legal Advisor in the drafting of Bills. I do not know what involvement that Office had in the drafting of this Bill. Nevertheless, while this is not the time for a detailed line by line consideration of the Bill, there are some detailed drafting, technical and other issues including:
the precise “interest rate” which will be assessed in the determination or otherwise of “market failure”,
the feasibility of restricting the regulatory measure to mortgages for the “primary purpose of purchasing a principal dwelling home” as opposed to a loan provided for another consumer purpose but which is nevertheless also secured on the primary home,
what precisely is meant by a “fixed” and “not fixed” interest rate,
how will the Bill link in with existing national and European provisions governing housing loans such as the Consumer Credit Act, the mortgage credit directive, and also the Central Bank Consumer Codes,
whether the Bill will apply to local authority mortgages,
is the requirement to conduct an assessment of the mortgage market each quarter unduly proscriptive and excessive.
These and other issues will need to be considered in some depth by this Committee in due course. Also, consideration needs to be given to whether there are unintended consequences to this Bill such as acting as a deterrent to new entrants to the Irish market and thus ensuring that there is less choice available to consumers.
Another area of concern related to the respective responsibilities of the Central Bank and the Competition and Consumer Protection Commission. The Bill requires the Central Bank to assess whether “market failure” exists in the Principal Dwelling House mortgage market. Firstly, this is not a power sought by the Central Bank and it does not have a competition mandate. That mandate rests with the Competition Commission. The Competition and Consumer Protection Commission is the independent authority charged with tackling anti-competitive business practices and with the assessment of business competition issues. Nevertheless, the Central Bank will have an important interest and role in the operation of the residential mortgage market. Committee members will, therefore, be aware that the Programme for a Partnership Government indicates that the Central Bank and the Competition Commission, having due regard to their respective remits, will work together to set out options in terms of market structure, legislation and regulation to lower the cost of secured mortgage lending and to improve the level of competition and consumer protection.
The Government remains of the view that competition represents the most favourable method of driving down interest rates in a sustainable way without giving rise to possible unintended consequences. The latest monthly data from the Central Bank indicates that the interest rate on new mortgage agreements continues to decline. Also banks are expanding the range of mortgage products for customers, including a wide range of fixed interest rate products. The Government is of the view that there is further scope to generate more competition and switching behaviour in the mortgage market and which has the potential to deliver more savings to customers. Therefore, in addition to the work requested from the Competition Commission and the Central Bank as I have just referred to, the Programme for Government also wishes to promote a greater level of switching in the market for existing mortgages. A Central Bank Economic Letter published last year suggested that a significant number of existing variable rate mortgage customers could achieve financial savings by switching their mortgage provider.
In conclusion, I believe that competition is a better solution to this issue because it benefits all banking customers and will help to avoid potentially unintended consequences that could arise from the imposition of administrative controls on some mortgages rates. We would also continue to have concerns about the constitutional implications of the Bill as currently set out. Consequently, I welcome the “pre-legislative scrutiny” this Committee will now conduct on this Bill. I also welcome the fact that Committee will obtain the views of the ECB and other interested parties on this Bill before it proceeds to further consideration in the Oireachtas.
Thank you Chairman.