Flac calls for new Covid-19 banking code to cover all types of household debt

File Picture: Leah Farrell/Rollingnews.ie

Households falling into debt will be “victimised”, if the banks, regulators, and Government fail to deal with the fallout of the Covid-19 economic crisis, a leading debt adviser has warned.

Paul Joyce, senior policy adviser at the Free Legal Aid Centre, or Flac, said the Central Bank will need to devise a new code of conduct to police banks’ dealings with financially stressed households as the Covid crisis unfolds.

The new code will need to take account of both mortgage debt and unsecured debt, including car loans and other personal debt, as the Covid-19 crisis deepens, Mr Joyce said.

“A lot of people that have lost their jobs for the first time, and the way they are dealt with in both mortgage and secured debt will determine how much financial stress they will suffer,” Mr Joyce said.

The remarks come as new Central Bank figures showed the enduring nature of the arrears crisis from the fallout of the economic crisis 10 years ago.

At the end of June, 11,936 accounts in arrears by between five and 10 years, and 4,701 accounts in arrears for more than 10 years.

Financial advisers have long warned about the legacy of household debt from the last financial crisis.

Since early summer, advisers have also said that the ending of the mortgage payment breaks will lead to more people falling into arrears.

In a webinar conference, the Central Bank said lessons from the financial crash will need to be learned in dealing with distressed households.

Deputy governor Ed Sibley said it was “important to apply the hard lessons of our collective experience of dealing with the debt crisis that Ireland experienced after 2008”.

Mr Sibley said everyone must work “to prevent the further build-up of this long-term distress from the current crisis” and that banks could tailor specific payment breaks under the right circumstances for borrowers.

“We are continuing to push all lenders to deliver sustainable restructuring where it is possible, and are also engaging with relevant stakeholders to explore whether there are other options or system-wide initiatives which will help,” Mr Sibley said.

“We will intensify this engagement still further to ensure that firms are engaging effectively and meaningfully and providing the appropriate support to borrowers who need it,” he said.

The chief executives of AIB, Bank of Ireland, Ulster, Permanent TSB, and Ulster Bank met with Tánaiste Leo Varadkar, Finance Minister Paschal Donohoe, and Expenditure Minister Michael McGrath.

After the meeting, the banking industry group, Banking Payments Federation Ireland said that lenders were working with borrowers who were coming to an end of their Covid payment breaks.

However, Mr Joyce at Flac said the banks, the regulator, and the Government have the choice of whether again “to victimise” households in debt.

Mortgage arrears and unsecured debt were “an enduring and persistent problem”, Mr Joyce said.