Three-month pilot scheme to provide relief for debt arrears

Banks, credit unions and credit card groups have agreed to operate a pilot scheme that will provide relief to people in loan arrears with multiple lenders.

This will include extending out the term of credit, reducing interest rates and a restructuring of mortgages that could ultimately involve some debt being written off by banks.

The new framework follows weeks of intensive and difficult negotiations brokered by the Central Bank between secured and unsecured lenders.

It is designed to deal with the billions in personal debt arrears in the economy while enabling all parties to avoid the costs and uncertainty of soon-to-be-implemented bankruptcy or insolvency procedures.

The pilot will cover 750 borrowers in arrears and run for three months from June.

The framework will apply a waterfall effect to those in significant arrears ranging from, in a best-case scenario, borrowers being given six months’ grace on their loans right down to a “significant mortgage restructure”, and ultimately personal insolvency, bankruptcy or repossession of their home.

In some scenarios, repayment of the mortgage would be extended out to age 65 to facilitate full repayment of the principal amount.

This is a voluntary scheme for those who owe money to a number of lenders, be it a mortgage or personal loan, credit card debt, bank overdraft or credit union loan.

To qualify, borrowers will have to be “co-operating” with their lenders. A third-party service provider will facilitate the process for the borrower.

Those availing of the scheme will not be allowed to seek new credit for three years. They will be required to provide full disclosure of their financial affairs and to reduce their monthly “discretionary spending”.

It is understood that the curbs on personal spending will not be as onerous as those that will be applied to people who avail of insolvency procedures.

The new framework will not apply to buy-to-let properties or business-related loans.