The Law Reform Commission’s Consultation Paper on Personal Debt Management and Debt Enforcement will be launched by the Attorney General, Paul Gallagher SC, at the Commission’s offices at 6 pm this evening.
The Consultation Paper forms part of the Commission’s Third Programme of Law Reform 2008-2014. The 420 page Paper makes 122 provisional recommendations for reform of the law. As is clear from the length of this Consultation Paper, the range of issues that need to be addressed are exceptionally wide and varied. They include: preventative measures to address personal indebtedness at an early stage, interventions to resolve debt problems in an efficient way; the need to bring debt enforcement processes into line with international best standards; to question the utility of imprisonment as a means of enforcement; and to place this in the context of relevant changes to the financial services regulatory framework. The Commission recommends that a number of areas could be considered by other bodies, such as IFSRA and the Government’s Review Group on Financial Services Law, with the Commission concentrating on final recommendations (in its final Report to be published next year) for the law on personal insolvency law and court-related enforcement procedures.
Background: credit availability and personal indebtedness in Ireland
The Consultation Paper notes the dramatic growth in the availability of credit in the last 15 years. In 2008-2009, the total level of private sector credit in the economy was about €395 billion. The Consultation Paper points out the positive benefits of credit in the economy, and that the overwhelming majority of consumers are able to repay loans. But the Paper also notes the growing level of personal indebtedness in Ireland. In 1995, the ratio of household debt to disposable income stood at 48%; but in 2009 it had risen to 176%. In an international league table of personal indebtedness, Ireland’s consumers had moved from 17th in 1995 to 4th in 2008. It has become clear from recent reports (such as by MABS, the Money Advice and Budgeting Service) that over-indebtedness is now a major problem for consumers and that, in addition to reforms already put in place since last year, further major reform is required.
Six building blocks and the distinction between “can’t pay” and “won’t pay”
The Consultation Paper has used the six key “building blocks” identified by the European Commission needed to provide an effective response to consumer over-indebtedness: responsible borrowing; responsible lending; responsible arrears management; debt counselling; personal insolvency law; and comprehensive court-related enforcement procedures. The Consultation Paper also recommends that it is fundamental that the law recognises the distinction between debtors who cannot pay and those who refuse to pay (those who “can’t pay” and those who “won’t pay”).
The key recommendations in the Consultation Paper have been based on the European Commission’s six building blocks. The Paper makes suggestions for reform on the first four, indicating that bodies such as IFSRA and the Government’s Review Group on Financial Services Law could consider these.
- On responsible lending, the Commission recommends that consideration be given to whether the system of credit reporting in Ireland should be expanded or otherwise improved.
- On responsible arrears management, the Commission recommends that a system for the regulation of debt collection agencies should be considered (noting that industry representatives support this);
- On debt counselling, the Commission recognises that this is primarily a matter of social policy, but recommends that a system for regulating commercial debt advice agencies should be considered.
Personal Insolvency Law
- The Commission recommends the creation of a new system of personal insolvency law in Ireland; in particular that a statutory non-court-based debt settlement scheme should be introduced, which would supplement (though not necessarily replace completely) the court-based scheme in the Bankruptcy Act 1988.
- The key principles of the new system would be: earned debt discharge; open access for honest and long-term insolvent debtors; legally binding debt settlement; preserving a reasonable standard of living for debtors; and a discharge period of reasonable length (shorter than the 12 years in the Bankruptcy Act 1988 ).
- The Commission provisionally recommends that the Irish enforcement system needs fundamental reform, so that the existing enforcement procedures, including the Debtors (Ireland) Act 1872 and the Enforcement of Court Orders Acts 1926 to 2009 should be replaced
- The proposed new system would be based on the introduction of a central Debt Enforcement Office (which could build on the current arrangements) and the removal of much (but not all) of debt enforcement proceedings from the courts.
- The key principles which should underpin this new system are also set out, in particular: proportionate, balanced and appropriate enforcement in each individual case; improved access to information on the means of debtors; clear and simplified enforcement procedures; increased efficiency and accountability in enforcement; a holistic approach to enforcement through interaction with the proposed debt settlement system; and the encouragement of increased participation of debtors in enforcement proceedings.
- The Paper also recommends detailed reforms of individual enforcement methods, many of which use outmoded terminology and procedures.
Consultation Paper on Personal Debt Management and Personal Debt Enforcement