current issues & best practice solutions republic of ireland version
TRANSCRIPT
Current Issues & Best Practice SolutionsRepublic of Ireland version
A Perfect Storm!Economic meltdown
Rising unemploymentIncomes fallingTaxes increasingRepayment capacity
reducedMore to come
Banking system not operating
Legacy of over-indebtedness
AgendaIntroduction
Our Business Environment – what has changed?
Legislation to protect consumers / borrowersLending
IssuesSolutions
Credit ControlIssuesSolutions
Questions, Comments & Suggestions
IntroductionWhat’s different about today’s lending
market?The economic situation
Level of personal debtFocus on Responsible Lending & Borrowing
Consumer Credit & Consumer Protection The need for full information The need for objective evidence
Current Lending IssuesCredit Control issues & techniques
Responsible Lending & BorrowingPersonal Debt in Ireland
€158 for every €100 earned *In 1995 it was €50 per €100 earned
Lifestyles funded by borrowingClear evidence of irresponsible lendingBorrowers must take some of the blameBut – unequal relationship – the lender is the
dominant party!* Goodbody Stockbrokers
2008
Legislation & LendingFocus on the consumer / memberConsumer Credit Directive
Pre-contractual informationAdvertising & APRDatabase consultationCredit AgreementsRight of withdrawal – December 2011Obligation to assess creditworthiness –
December 2011
Legislation & Credit ControlCourts increasingly tend to favour the
borrowerConsumer Credit LegislationConsumer Protection CodeCode of Conduct on Mortgage ArrearsCan’t pay / won’t pay – implicationsThe McCann CaseThe Law Reform Commission Report
Law Reform CommissionKey proposals & recommendations
Non-Court system of debt settlement for insolvent individuals
Centralised Debt Enforcement Office Debt Settlement (can pay) Debt Relief (can’t pay)
Proportionate & holistic, fair to both parties Horizontal View
Abolition of imprisonment for non-payment of debt
Reform of Bankruptcy law
Ability to RepayResponsible lending – our primary role is to
assess ability to repaySecondary role – financial advice
Information is the keyObjective evidenceStrong case for credit referencing
The need for full informationWe can’t assess ability to repay without
having the full pictureBorrower’s “word” is not enough
Borrower’s generally don’t disclose all debtsCan’t ignore any source of information
Consumer Credit DirectiveCourts will require objective evidence
Objective EvidenceIndependent sources
Pay Slips and P60sBank StatementsCredit Card StatementsFinancial or Management Accounts
Don’t ignore any source of informationUse your common sense, don’t ignore your
instinctDon’t be afraid to askTake your time!
The case for Credit ReferencingThe Irish Credit Bureau
All other financial institutions are members103 credit unions are members, plus 87 in
processOnly a part of your decision, but a vital partCredit reference can be good or badAnecdotal evidence – invaluable!
Other referencing sourcesNCU DatabaseJudgment listings, Stubbs Gazette
Assessment TechniquesStress Testing – can the borrower repay if /
when interest rates rise?What if the borrower’s income falls?
Look at loan balances as well as loan repaymentsHow long is left on the loan?
The 40% Guideline – useful, but limitedHow much does the borrower need to live on?
How much is left to repay loans?Ratios
The Credit Card “Time Bomb”70% of adult members have (at least) one!Limits can be high - €20,000 not unusualBeing used to “bridge the gap”This cannot last!Loans to clear credit card debt
Compare proposed repayment to minimum balance
Pay loan out in stages“Force” member to reduce limitMember must co-operate!
Irish Independent June 2010
Credit card holders barely making dent
in €2.9bn debtSome €811m was paid off last month
but a further €800m was spent- Charlie Weston
Top-UpsFrequent top-ups can disguise delinquencyPotential for “hard core” debtMonitor the trend of the account balanceWatch the purpose of the loansEnsure repayment term and amount is
appropriateDifficult to deal with once it has become a
problem
Loan with multiple Top Ups
Loan with multiple Top Ups – effect of higher repayments
Interest RatesAverage rate in 2010 was 8.7%
Standard 9.9%Car 6.9%
AIB / BOI personal loan rate is 14% for small loansAIB / BOI car loan rate is 11.5% for small loansCredit unions need income – scope to increase
ratesIncrease term or repaymentJustification
Market RatesDividend
Rate Change ExampleLoan €7,500, monthly repayments over 5
years at 8%Initial monthly repayment is €152.05Rate change to 10% after 30 monthsNew monthly repayment is €156.19 orKeep existing repayment and make one
additional payment of €140.72 at the endMost loans are topped-up before completion
OpportunitiesOpen for businessBanks not lendingGood prospects out thereRates very competitiveFunds available
Caution – what’s the real purpose?
Tools for effective Credit ControlYour systemYour colleagues’ skills & knowledgeYour own knowledge & training
Focus of Credit ControlThe lost goldmine!Prospects & PrioritiesTake what you can get, but get something!Positive tone – engage with debtorsPreparationInformation – obtaining, confirming, storing,
usingMeasurement & Reporting
Our Service / Internal Set Up
Reporting
MemberAddressPRIVATE & CONFIDENTIAL Date: OUR REF:<Loan number>Re: & District Credit Union Ltd V YouLoan Outstanding Balance € Loan Arrears €Interest due € Shares: €Loan Number Last Payment Date Dear < Salu> We act on behalf on the instructions of their Credit Control Department. Our Client instructs us that you are presently in arrears and interest due on your Credit Union Loan Account with them in the above sums together with continuing interest. Please make payment or contact the Credit Union on with an immediate proposal for full payment of the outstanding arrears and interest. This letter may be used as evidence of having afforded you every opportunity to discharge your arrears, interest and in support of our application for costs should legal action be necessary which said costs may be deducted from your share balance. We thank you in anticipation for your payment and assistance in the matter. Yours faithfully
The phone – most effectiveCaller ID, Direct LineWhen, where, time?Notes & preparationWho to talk to?MessagesData retention, Data Protection
Web Sites Land Direct.ieAn Post.ieCheck the registerFinancial Regulator
Codes of Conduct
Land Registry Search Page
The terminology and timescales in the
different jurisdictions are as follows:-
Jurisdiction District Court Circuit Court High Court
€6,348.69 €38,092.14
Title of Proceedings Civil Summons Civil Bill Summary Summons
Debtor response Approx 30 days 14 days 14 days
time
Time taken by 30-60 days 30-60 days 7 days
Courts to issue Judgement
LEGAL FLO CHART
DISTRICT COURT SUMMARY
PROCEEDINGSSummary Judgment-Civil Summons
Stamped before service
Serve by registered post 21 days before return date (notice period)
Enter 4 days before return date.
Defended
Notice of Intention to defend
Undefended
Held to have admitted claim
Afterreturn dateFile judgment papers:
Affidavit of debtCertificate
Draft Decree
On return date apply for hearing dateHearing Decision
Lodge draft decree in District Court Area
Decree issues from the District Court Office
EXCUTION OF DECREE
Summary Judgment-Civil Summons
Stamped before service
Serve by registered post 21 days before return date (notice period)
Enter 4 days before return date.
Defended
Notice of Intention to defend
Undefended
Held to have admitted claim
Afterreturn dateFile judgment papers:
Affidavit of debtCertificate
Draft Decree
On return date apply for hearing dateHearing Decision
Lodge draft decree in District Court Area
Decree issues from the District Court Office
EXCUTION OF DECREE
TechniquesEnforcement Options
The SheriffPublish JudgementSummons for attendanceJudgement Mortgage
Credit Rating / ICB
The SheriffThe Sheriff is a Court
Officer entitled to seize goods from the debtor which may then be sold to realise funds for the discharge of the debt.
The Sheriff can also enter into an instalment arrangement with a debtor, which may be the best way of getting paid over a reasonable period of time.
Registration of Judgement
You can register the Judgement in the High Court Judgments Register from where Stubbs Gazette etc. will pick it up. This may prompt the Debtor to pay up.
Enforcement
The Debtor can be examined as to income and expenditure and ordered to pay by instalments. Failure to obey the court Order can result in committal to prison for contempt.
Judgement Mortgages
A creditor can register his judgement against a debtor’s interest in property. It remains valid for 12 years and attracts interest at 8% p.a.
Key LessonsFocus on what we can controlFull information, backed by objective evidence, is
vitalCommon sense – the key ingredient in loan
assessmentCredit card debt is the next big issueTop ups must be managedCredit control starts when the loan is issuedHave a robust credit control structure and policyTelephony is the most effective methodEffective Credit Control is a source of income
And finally ……..
Any questions?Any
comments?Any
suggestions?