Debt Bill will fail over bank veto, says US expert

THE GOVERNMENT’S plans to tackle the State’s huge personal debt crisis will fail unless it rows back on proposals to give financial institutions a veto on insolvency arrangements, a leading US insolvency expert has warned.

At a personal debt conference organised by the Free Legal Aid Centre (Flac) in Dublin yesterday, Prof Jason Kilborn of the John Marshall Law School in Chicago said the proposed legislation, due to be published in days, was deeply flawed.

It contained “a series of half measures” which would see it founder because banks were being handed too much power and not being incentivised to deal meaningfully with debt-ridden consumers, he said.

The Personal Insolvency Bill proposes the establishment of a new service to help people manage debt. It also cuts the bankruptcy period from 12 to three years and allows for three voluntary debt-settlement systems to operate outside of formal court insolvency. Under the plans, as outlined, major creditors would be able to veto all proposals without any appeals or review process for debtors.

“You cannot leave public policy in the hands of banks and the Government needs to step in and impose solutions,” Prof Kilborn said. The arrangements as proposed were “the status quo masquerading as a solution”. When a creditor has “an absolute veto review with no review for reasonableness or good faith” problems would never be resolved.

A senior policy researcher with Flac, Paul Joyce, agreed and said if there was a “widespread creditor veto, then the Bill will fail and the Government will have to go back to the IMF and report failure”.

He pointed out that at recent Oireachtas hearings into the legislation, the only group that did not believe the veto was too strict was the Irish Banking Federation.

Prof Kilborn cited the French model, which has alternatives to the negotiation process that are “very unpleasant for creditors”. Since 2010 some 25 per cent of French debtors who have entered its insolvency system have been granted immediate discharge of their debts by the courts.

Opening the conference Minister for Social Protection Joan Burton said debt and unemployment were the biggest crises confronting Irish consumers. She stressed that the Government was doing all it could to resolve both.

She warned that banks were making unreasonable demands on people, demanding certain levels of payment that may not be sustainable. She suggested that her department and the Money Advice and Budgeting Service were best placed to establish what level of income people engaging with any process would require.