Fianna Fáil Finance Spokesperson Michael McGrath TD has today published the Central Bank (Code of Conduct Bill) 2015 to assist borrowers facing repossession proceedings after a major loophole was exposed by a Supreme Court decision.
The issue came to light in May of this year when the Supreme Court held that, although banks are legally obliged to abide by the Code of Conduct on Mortgage Arrears, the only basis on which the courts could reject an application for repossession was where the bank had failed to comply the length of time it must wait before initiating legal action. Currently this is set at 3 months after a “warning letter” is issued or 8 months after the arrears arose, whichever date is later. Crucially, failure to comply with other provisions of the Code cannot be cited by a borrower as grounds for the courts to turn down a repossession order as a result of the loophole in relevant legislation.
The urgency of the situation was highlighted in June when the Central Bank found that seven lenders had violated the Code of Conduct on Mortgage Arrears including undue delays in progressing cases, failures to provide relevant information to the borrower and making demands for ad hoc payments when a revised repayment schedule had already been agreed.
Deputy McGrath stated, “It is absurd that a lender is obliged as a matter of law to comply with the Code, but is still entitled to a repossession order where they have flouted the provisions of the Code. The Code of Conduct on Mortgage Arrears was designed to provide essential protections to homeowners struggling to stay in their family home. It is now essentially redundant as a barrier to home repossessions. For example, the Code requires a lender to make ‘every reasonable effort’ to agree an alternative arrangement with a borrower before initiating repossession proceedings, but a Court can no longer use this as a reason for refusing a repossession order.
“In addition the CCMA also requires that unsolicited communications with the borrower must be “proportionate” but even where it is demonstrated in court that a bank has engaged in aggressive tactics the borrower can still face an order being granted for repossession. The fact that a lender would have to answer to the Central Bank for any significant breach of the Code is of no comfort whatsoever to a family that has lost their home as a result of a lender failing to comply with the Code.
“In my view it is unacceptable that the Government has failed to introduce the necessary legislation to deal with this issue. In his ruling in May, Judge Clarke commented that the courts do not have a role in determining the reasonableness of a lender’s mortgage arrears policies and the application of those policies to an individual case. Cleary legislation would be needed for this. He effectively put it up to the Oireachtas to resolve the issue.
“The government, however, has not included the necessary emergency legislation in its legislative program. It is clear that the government intends to do nothing to close this massive loophole. Once again, this government is siding with banks over families facing repossession.
“Fianna Fáil is now taking the initiative to bring forward a bill to bring clarity to the situation and protect homeowners from banks who flout the law.
“Our legislation would require a lender to show that they had materially complied with the Code of Conduct on Mortgage Arrears and the relevant Mortgage Arrears Resolution Process (MARP) before it became entitled to seek a court order for the repossession of someone’s home.
“The Bill envisages that the courts would dismiss a repossession application where it concludes that a lender has not complied with the relevant Code or MARP. This legislation would also apply to so-called “vulture funds” who buy mortgage books from lenders; they would be required to comply with the Code and MARP requirements, even if they did not apply to vulture funds otherwise for technical reasons.
“It is my firm belief that this issue must be addressed as a matter of priority. I raised this issue in August when the government failed to act immediately to close this loophole. I am shocked that the government has shown no sign of being willing to require banks to comply with what is supposed to be a mandatory Code of Conduct before they seek to repossess someone’s family home,” concluded Deputy McGrath.