Driven to despair?

In spite of what the celebrated song would have us believe, suicide is not painless. On the contrary it is the product of indescribable pain – and generates pain that lives on well after the event itself. That is why any invocation of causes of suicide must be made with exceptional discretion and sensitivity. Too many have been touched by its desperate hand and the charge of responsibility in provoking suicide is grave.

It is, therefore, a fair presumption that when he directly attributes suicide to the aggressive debt collection practices of banks, a man of the learning and experience of Edmund Honohan, Master of the High Court, does not do so lightly and without full cognisance of the import of his comments.

It is also fair to say that, like his brother Patrick, Governor of the Central Bank, Edmund Honohan has no track record in attention-seeking stunts. It seems that his motives for bringing this charge are pure.

But is the charge fair?

Not so, according to the Irish Banking Federation chief executive, Pat Farrell, who accused Mr Honohan of inflammatory language. According to Mr Farrell, Mr Honohan had made the assertion two years ago that the country was facing an “avalanche” of repossessions which had not in fact materialised.

This is true. In the words of Pat Farrell: “That event has not happened and the reason it has not happened is because my members, the mainstream banks, have engaged in extraordinary measures and forbearance across mortgage debt and personal debt to ensure that every effort is made to enable people manage their debts.”

What is also true, as Mr Honohan pointed out, is that the “avalanche” has not happened because since his earlier comments (and perhaps as a direct result of his earlier comments) various actions and codes of conduct have been implemented around the area. That is not an unreasonable claim. Doubtless he will hope for similar results from his latest intervention.

But in fact, a great deal of what Edmund Honohan is looking for is already in the statute books or on the way.

The most traumatic prospect for any debtor is the prospect of losing the family home. In that area, the Code of Conduct on Mortgage Arrears has been around since February 2009. This gives the home owner a range of rights with the force of law and lenders “must be able to demonstrate that they are in compliance with the Code.”

The Code provides that lender can only make a formal demand for repayment after the third repayment has been missed and must wait at least six months from the time arrears first arise before applying to the courts to start legal proceedings on repossession of a borrower’s primary residence.

Lenders may distinguish between borrowers who are genuinely unable to pay – because of changed circumstances – and those who could pay some/all of the arrears but will not. “All genuine cases must be handled sympathetically and positively by the lender, with the objective at all times of assisting the borrower to meet his/her obligations.”

Where the borrower is genuine and suffering from a change in circumstances the Code proposes a range of alternative repayment options including payment deferral, term extension, payment holiday and capitalising of arrears.

On repossession, the Code is clear: “The lender must not seek repossession of the property until every reasonable effort has been made to agree an alternative repayment schedule with the borrower or his/her nominated representative.”

Any reasonable person reading the Code could only conclude that it makes every effort to accommodate those households who have even a scintilla of means and a minimum of determination to meet their obligations.

Of course, primary home mortgage debt is just one element in the overall debt universe and for many unfulfilled personal and corporate borrowing can sometimes be equally terrifying.

Right now the Financial Regulator is considering the submissions by various interested parties on his revised Consumer Protection Code published in October 2010. This details similar provisions to the Code on Mortgage Arrears that by any standards is indulgent of debtors who are cooperating reasonably and honestly with the lender.

Under the revised Code a lender must give three months notice in writing where it intends to offset any credit balances in other accounts held by the borrower against any arrears outstanding. That is quite a lot of notice for the borrower to make alternative arrangements for their credit balances.

The lender must inform the debtor when it intends to appoint a third party, other than its legal advisers, to engage in relation to arrears and must explain the role of the third party.

The level of contact and communications from the lender or any third party acting on its behalf, with a consumer in arrears must be “proportionate and not excessive” and there may be no more than three unsolicited communications, by whatever means, in respect of an arrears situation.

It is not known whether Edmund Honohan is happy with the provisions of the revised Code of Conduct but he has made it know that those in personal distress “can’t wait” the 18 months or so that he believes will be needed to bring the proposed revisions to the Code into law.

Mr Honohan is looking for something now. His central demand is that banks should immediately “translate” debt that had already been written off into debt forgiveness. Mr Honohan’s argument is that it makes no sense for banks to be pursuing debtors “to the bitter end” for debts that had already been written off in the bank’s books.

But that argument is off the point. Banks make provisions for bad debts with all kinds assumptions and degrees of conservatism. This has in the past been wildly irresponsible and optimistic; in the aftermath of the stress tests, however, it could well be that provisions will be overly cautious.

The point is that debt write-off is a book entry. Just because a debt has been written off technically does not mean that there should be no motivation to collect – it is up to the creditor to decide whether the effort is worthwhile. And, for the general public now doubling as bank shareholders, the fact is that any uncollected write-off of bank debt is ultimately borne by the taxpayer.

This is a view shared by government. In the words of Minister for Enterprise Richard Bruton: “You can’t be writing off one person’s debt and expecting another person to pay.”

Mr Honohan’s concerns are shared by the public and genuine, distressed debtors being harassed unduly by their creditors will always find a sympathetic media. But the media should not be their only recourse. What is required is that the revised Code be implemented without delay: in the meantime, those institutions tempted to adopt a heavy hand will be forced to think twice thanks to Mr Honohan’s intervention. In that respect at least he has done us all a service.