Senator's Bill would let Central Bank cap mortgage rates

Independent Senator Feargal Quinn will introduce draft laws this week to give the Central Bank powers to cap the interest charge on variable rate mortgages.

The manoeuvre comes as Minister for Finance Michael Noonan urges lenders to pass record low European Central Bank interest rates on to some 300,000 customers who have variable rate mortgages.

Mr Noonan will raise the variable rate issue directly with the chiefs of the main banks at a series of meetings tomorrow and on Thursday.

A private member’s Bill from Mr Quinn marks an effort to pressurise both the Government and the banks to take action.

“Gentle persuasion has failed as a policy tool. It is time for us to arm the Central Bank with the powers necessary to force banks to reduce their variable interest rates on mortgages to a reasonable level,” Mr Quinn said.

Public levy

He has called on the Government to support the Bill in the Seanad. The Bill also follows Government warnings of a new public levy being imposed on banks which do not cut mortgage rates. As such it could be used by the Government as another lever to prise action from reluctant banks.

However, Government senators would have to explain why the Bill is not necessary if they move to vote against it in the upper house. The same would go in the Dáil if the Bill passes the Seanad and a TD then introduces it to the lower house.

Although tracker mortgage customers have benefited significantly from a long line of ECB interest cuts to a level close to 0 per cent, most variable rate customers have received little or no benefit.

“The interest rate set by the ECB is at an all-time low. The rate has been below 1 per cent for over three years,” Mr Quinn said.

“Irish banks are able to borrow money from the ECB at extraordinarily low levels and are then charging Irish mortgage customers exorbitant rates.

“The banks have been obstinate in the face of reasonableness. This is all the more galling for homeowners given that a number of the banks involved have been bailed out or guaranteed by taxpayers.

“This shameless profiteering by banks can no longer be tolerated.”

Although Mr Noonan has indicated he will give the Central Bank the right to set mortgage rates if it seeks such powers, outgoing Central Bank governor Patrick Honohan is opposed to it on the basis that such power would constrain competition and hamper the prospect of new lenders entering the mortgage market.

Open market

Saying he believed in the open market and competition, Mr Quinn accepted he would normally be on the other side of the argument in respect of Central Bank powers to set rates. Of claims that such powers would lead potential entrants away from the Irish market, Mr Quinn said he had excluded new participants from the scope of the Bill.

The draft law – titled the Central Bank (Emergency Powers) (Variable Interest Rates) Bill 2015 – will apply only to banks operating in the Irish market on or before January 1st this year.

“This measure is designed to ensure that this Bill is not seen as being an obstacle to new entrants,” says the explanatory memo.

The Bill is cast as a temporary measure, which would lapse after three years. Any Central Bank direction would remain in force only for one year. Mr Quinn dismissed claims the Central Bank powers to set rates are not in keeping with the Constitution.

“I have taken legal advice and they say that is,” he said.

The Seanad is not sitting this week but Mr Quinn plans to publish the Bill tomorrow with a view to an early hearing.