Central Bank: solving the mortgage crisis by making it worse

Yesterday was the proposed deadline for debt mediation firms to make their submissions to the Central Bank. The guidelines had only come out about three weeks previous to this and given how much was involved they realised that they had made a deadline in trying to rush it through and gave industry an extension, we didn’t need the extension, what we need is the type of common sense which is vitally lacking in the new requirements the Central Bank are pushing through.

There are a lot of things that people don’t hear about in the compliance area that will result in future news stories, this current round of regulation is going to be in that category. The Central Bank has ensured that there will be less choice, that it will be more expensive – which locks borrowers in trouble out of the process and with a general outcome that banks will hold more sway in the future on deals that do or don’t get done than they did in the past. This is a big banking win as far as we are concerned and proves that regulatory capture is alive and well.

To be a debt mediation firm the Central Bank laid out a lot of terms and conditions, they are beyond what is expected in the UK and we can only think that perhaps they don’t realise what a debt mediator does. The initial requirement was for professional indemnity cover which would cover the entire debts of your clients, this was only not obtainable (we even rang London looking for quotes to cover up to €50m at any one time) but also implies that the debt mediators negligence could somehow be responsible for 100% of the debt and that it would result in 100% loss somewhere?

Even with a juvenile understanding of business the outcome is visible. The Central Bank do no cost benefit analysis, have no set outcome in mind, publish no research which warrants the approach they are taking and opt for a set of rules more onerous than in any other jurisdiction.

This will mean that many debt mediators simply ‘opt out’. What’s more is that the ISI have confirmed to us that if you don’t fit the PIA/DSA model that you can’t (as a PIP) effect an informal deal meaning all the new insolvency practitioners (ourselves included) can’t do this work for people in trouble.

So apart from less choice, there are also people in the market who – although not regulated by the Central Bank – can’t effect a debt deal for a distressed borrower. Add to this the additional costs (our application in lost personnel hours alone was over €2,500 in cost) that they have embedded into the market and it results in a pass through to end user.

The end user being a person who already has money problems and who we all purport (the Central Bank in particular) to want to help. Newsflash: you don’t help people by limiting choice and making them worse off.

So the new rules will mean debt mediation costs more with fewer operators, and yet there was never any evidence to state that their regulation was of particular systemic concern (Central Banks job is largely about systemic risk). The IMF told me that the mortgage arrears legacy was one of Ireland’s top concerns and now our regulator is going to ensure that people with these problems are made worse off.

This is contra-liberalisation, a mistake, and yet few will realise this until it is too late. Higher costs, less choice, and borrowers who will likely deal directly with the banks rather than hire professional representation is not a recipe for success, we just wish that this was as interesting now while there is a chance at changing it, as it is likely to get very soon after it’ too late.


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