Banks offer fresh hope for struggling borrowers

Irish banks are to write off unsecured debt of struggling borrowers under a new protocol unveiled by the Irish Banking Federation (IBF).

The IBF has drawn up an alternative arrangement to the Government’s personal insolvency regime that will see borrowers see their unsecured debt, such as credit card debt, overdrafts and personal loans, written off if a customer continues to make agreed repayments for periods of up to five years.

Director of Public Affairs at Irish Banking Federation, Felix O’Regan said: “This measure is designed to maximise the number of sustainable mortgages and keep as many people as possible in their homes.”

In order to qualify for the new protocol customers would have to agree to prioritise their mortgage debts over all other debts and allow all the banks that they have lending with to talk to each other and come up with an arrangement agreeable to all creditors.

If a customer qualifies they could see either their mortgage payments reduced for five years while they repay unsecured debts, or their unsecured repayments reduced while they repay the full value of their mortgage for five years.

After the five years, if a borrower has met all the terms and conditions of their agreement with all of their lenders, they could see all the unsecured debts written off.

Mr O’Regan said that the new protocol was an example of the sector being proactive and coming up with solutions for struggling borrowers.

“We are constantly being told that the personal insolvency legislation is coming, that bankruptcy is coming. Can you go and get it now? No, but people can avail of this in the coming days and weeks,” he said. “This is for people who want to engage with the banks to maintain the roof above their head.”

The new protocol won’t replace bankruptcy Mr O’Regan said, as that option will still be open to people and if someone has unsustainable debts the new protocol won’t help them, he said.

“No bank is going to want to deal with somebody who has unsustainable debts,” he said.

The banks are hoping that the weight of writing off unsecured debts will be spread across the whole sector, Mr O’Regan said that there may be an element of quid pro quo in how the scheme will operate, with banks agreeing to write off unsecured lending of a borrower who holds a mortgage with another bank if the second bank writes off one of their mortgage borrowers unsecured loans.