When
19 June 2020
11:00 AM
Where
Virtually, via Webex
Summary of Meeting
The Central Bank held a roundtable with representatives from a range of civil society organisations on Friday 19 June 2020. In light of the continuing government restrictions surrounding Covid-19, the event was held virtually via a Webex teleconference.
The meeting was chaired by Governor Gabriel Makhlouf and attended by members of the Central Bank’s senior management. The civil society organisations in attendance work across a range of areas, including social justice, housing and homelessness, human and legal rights, rural issues, workers’ rights, and the rights of older people.
The Governor introduced the meeting with some opening remarks. A presentation on the Irish economy and the work that the Central Bank has undertaken in response to the COVID-19 crisis was delivered, before an open discussion took place. The discussion was held under Chatham House rules.
Governor Makhlouf’s opening remarks
Presentation delivered by Director of Consumer Protection Gráinne McEvoy
Discussion between Central Bank and participants
The discussion touched on a broad range of issues, which can be broadly summarised as follows.
Borrowers
The impact of the Covid-19 pandemic on borrowers was discussed at length. In particular, emphasis was placed on payment breaks and the need for clarity around prospective forbearance arrangements for borrowers who may not be able to return to full repayment after the period of the payment break ends.
The issue of prospective borrowers having loan offers withdrawn where their income has changed as a result of Covid-19 was highlighted. The impact of the payment break on borrowers’ credit rating was also raised.
In responding, the Central Bank emphasised the need for considerable support for affected borrowers as payment breaks come to an end. It highlighted that all affected borrowers must be aware of their options, whether they return to full repayments or require further forbearance. Work is being undertaken to ensure lenders are fully prepared for this scenario. It was noted that lenders are obliged to submit accurate, complete, and up-to-date information to the Central Credit Register (CCR). When a lender agrees a payment break with a borrower, the lender should not report this to the CCR as payments being “missed” or “past due” or the loan as being “restructured” during the period of the payment break. Attention was drawn to the Code of Conduct for Mortgage Arrears (CCMA) and the statutory framework to protect and support borrowers who find themselves in arrears. The issue of prospective borrowers having loan offers withdrawn was acknowledged. The Central Bank noted that it may not be in the best interests of borrowers to draw down loans that they may not be able to service, and lenders have an obligation to engage in responsible lending and to conduct thorough lending assessments.
The discussion emphasised that the financial resilience of banks is stronger than it was at the onset of the previous financial crisis.
Participants also discussed the comparatively high level of Irish mortgage interest rates and, in the case of one lender, the need for the lender to proactively engage with customers who were recently identified as impacted by the tracker mortgage examination. The Central Bank acknowledged that there is a need for communication with customers, but that it is also important that affected customers are correctly identified and communicated with appropriately.
Lessons from the previous financial crisis
Potential learnings from the previous financial crisis were highlighted. Participants highlighted that there is a view that austerity, which was applied following the last crisis, was not the best approach. The impact on the community, voluntary, and social inclusion sectors in particular was identified. These sectors had not yet recovered to their pre-2008 funding levels even before the pandemic began. It was suggested that the Government carefully consider the approach to the Budget in coming years, and that long-term low-interest loans and adjustment of fiscal rules be considered as methods of financing COVID-19 supports. Participants highlighted the need to maximise quality jobs and ensure that people do not get left behind.
In response, the Central Bank noted that the Budget is, ultimately, a political decision. The supports put in place by Government at the onset of the COVID-19 pandemic were a necessary response. However, high levels of public spending on COVID-19 supports, not just in Ireland but throughout the EU, cannot continue indefinitely. It was noted that there is no strong case to take the same approach as was taken during the last crisis. Attention was drawn to the improved position of the financial system now.
Wider economic issues
Participants raised wider economic issues. It was noted that, as more sectors reopen in the coming weeks and months, many previously viable businesses may find themselves unable to reopen as expected, with potential for widespread job losses. Participants asked for clarity on the role of the Central Bank in advising Government in relation to supports for firms and workers. Participants also asked for the view of the Central Bank on the extent to which Government can continue borrowing to stimulate recovery.
Attention was drawn to the analyses frequently carried out by the Central Bank in order to gauge and better understand how situations such as the current one affect households and firms. In the Financial Stability Review, published earlier in the week, the need for viable firms to be supported through lending is clearly identified. It was noted that the Central Bank has been very clear that the fiscal response taken by Government has been critical, and there is a need to ensure that these supports remain targeted and effective in the future. While the government is currently able to borrow at low interest rates, it may not remain that way. The need to balance market considerations – that is, to ensure Ireland is able to borrow on international financial markets – with EU fiscal rules and the needs of the community as a whole was identified. The steps taken by the Central Bank and ECB to support the resilience of the financial system and the economy were outlined. These include the releasing, by the Central Bank, of the Counter Cyclical Capital Buffer, which supports the financial system to continue to provide credit to households and SMEs and to absorb losses. In turn, this helps to prevent potential liquidity issues in SMEs from becoming solvency issues. The importance of ensuring low interest rates across the Eurozone was noted.
It was noted that more detailed analysis on economic issues will be contained in the forthcoming Quarterly Bulletin, which is due for publication in early July.
Insurance
A participant highlighted the implications for insurance sector solvency should there be wide-scale pay-outs on business interruption insurance.
Attention was drawn to the fact that there is an ongoing court case in relation to this matter. It was noted that there is a global debate about terms and conditions and the extent to which COVID-19-related risks were foreseen in policies. It was emphasised that the Central Bank is strongly of the view that valid claims should be paid. Solvency is not a consideration in terms of assessing the validity of claims. The Central Bank has been clear in its instructions that where there is ambiguity in policy wording, the benefit should be given to the customer. An ongoing piece of supervisory work is taking place in relation to this issue. There is a strong focus on providing clarity as quickly as possible and ensuring that customers receive the fairest outcome. It was noted that there are wider issues with the sector and that the Central Bank is continuing to engage on these issues.
Financial Exclusion
Participants raised the issue of financial exclusion and literacy. Clarity was sought on whether banks, and other sectors such as the credit union sector, are being asked to look at lending options for lower-income households. The discussion also referenced reported increases in licensed and unlicensed moneylending. Recent changes to moneylending regulations by the Central Bank were acknowledged. Participants highlighted that households may turn to moneylenders for many different reasons, and raised the possibility of households relying on this form of finance to service everyday needs such as household bills and rent arrears as the COVID-19 crisis continues. The impact of the move to cashless transactions on people in poverty was also noted.
The Central Bank noted that new protections for consumers of the moneylending sector have been put in place by recent changes to moneylending regulations. These changes warn consumers of the high-cost nature of these loans and require moneylenders to signal to State support agencies such as MABS in cases where the loan is being used for basic needs such as rent, utilities, health costs, etc. Moneylending firms have six months to implement these changes, with the exception of the high-cost warning, which will come into effect in September 2020. Compliance with these and other rules will be undertaken through reporting obligations, thematic inspections, and on-site reviews, among others.
The availability of ‘It Makes Sense’ micro-loans under the Personal Micro Credit (PMC) scheme from credit unions was identified as a significant support for eligible borrowers. While c. 110 credit unions currently participate in the scheme, inclusive of credit union branch offices, there are around 250 locations nationwide where this product is offered to credit union members. However, it was acknowledged that a large body of credit unions do not offer the scheme, as they do not consider it to be commercially appealing from their perspective. It was further noted that the Central Bank, which has been a member of the PMC Implementation Group since its formation in 2015, supports the participation of credit unions in the scheme and that there is no regulatory impediment to credit union participation.
There was a recognition that some consumers do not have bank accounts and use cash, and while retailers have been following the advice of the HSE, it was emphasised that retailers need to be specific about the forms of payment they will accept.
The session closed with the Central Bank thanking attendees for their contributions and looking forward to ongoing engagement.