Presentation on theme: "Current Issues & Best Practice Solutions Republic of Ireland version."— Presentation transcript:
Current Issues & Best Practice Solutions Republic of Ireland version
A Perfect Storm! Economic meltdown Rising unemployment Incomes falling Taxes increasing Repayment capacity reduced More to come Banking system not operating Legacy of over-indebtedness
Agenda Introduction Our Business Environment – what has changed? Legislation to protect consumers / borrowers Lending Issues Solutions Credit Control Issues Solutions Questions, Comments & Suggestions
Introduction Whats different about todays lending market? The economic situation Level of personal debt Focus on Responsible Lending & Borrowing Consumer Credit & Consumer Protection The need for full information The need for objective evidence Current Lending Issues Credit Control issues & techniques
Responsible Lending & Borrowing Personal Debt in Ireland 158 for every 100 earned * In 1995 it was 50 per 100 earned Lifestyles funded by borrowing Clear evidence of irresponsible lending Borrowers must take some of the blame But – unequal relationship – the lender is the dominant party! * Goodbody Stockbrokers 2008
Legislation & Lending Focus on the consumer / member Consumer Credit Directive Pre-contractual information Advertising & APR Database consultation Credit Agreements Right of withdrawal – December 2011 Obligation to assess creditworthiness – December 2011
Legislation & Credit Control Courts increasingly tend to favour the borrower Consumer Credit Legislation Consumer Protection Code Code of Conduct on Mortgage Arrears Cant pay / wont pay – implications The McCann Case The Law Reform Commission Report
Law Reform Commission Key proposals & recommendations Non-Court system of debt settlement for insolvent individuals Centralised Debt Enforcement Office Debt Settlement (can pay) Debt Relief (cant pay) Proportionate & holistic, fair to both parties Horizontal View Abolition of imprisonment for non-payment of debt Reform of Bankruptcy law
Ability to Repay Responsible lending – our primary role is to assess ability to repay Secondary role – financial advice Information is the key Objective evidence Strong case for credit referencing
The need for full information We cant assess ability to repay without having the full picture Borrowers word is not enough Borrowers generally dont disclose all debts Cant ignore any source of information Consumer Credit Directive Courts will require objective evidence
Objective Evidence Independent sources Pay Slips and P60s Bank Statements Credit Card Statements Financial or Management Accounts Dont ignore any source of information Use your common sense, dont ignore your instinct Dont be afraid to ask Take your time!
The case for Credit Referencing The Irish Credit Bureau All other financial institutions are members 103 credit unions are members, plus 87 in process Only a part of your decision, but a vital part Credit reference can be good or bad Anecdotal evidence – invaluable! Other referencing sources NCU Database Judgment listings, Stubbs Gazette
Assessment Techniques Stress Testing – can the borrower repay if / when interest rates rise? What if the borrowers income falls? Look at loan balances as well as loan repayments How long is left on the loan? The 40% Guideline – useful, but limited How 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 unusual Being 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 limit Member must co-operate!
Irish Independent June 2010 Credit card holders barely making dent in 2.9bn debt Some 811m was paid off last month but a further 800m was spent - Charlie Weston
Top-Ups Frequent top-ups can disguise delinquency Potential for hard core debt Monitor the trend of the account balance Watch the purpose of the loans Ensure repayment term and amount is appropriate Difficult to deal with once it has become a problem
Loan with multiple Top Ups
Loan with multiple Top Ups – effect of higher repayments
Interest Rates Average rate in 2010 was 8.7% Standard 9.9% Car 6.9% AIB / BOI personal loan rate is 14% for small loans AIB / BOI car loan rate is 11.5% for small loans Credit unions need income – scope to increase rates Increase term or repayment Justification Market Rates Dividend
Rate Change Example Loan 7,500, monthly repayments over 5 years at 8% Initial monthly repayment is Rate change to 10% after 30 months New monthly repayment is or Keep existing repayment and make one additional payment of at the end Most loans are topped-up before completion
Opportunities Open for business Banks not lending Good prospects out there Rates very competitive Funds available Caution – whats the real purpose?
Tools for effective Credit Control Your system Your colleagues skills & knowledge Your own knowledge & training
Focus of Credit Control The lost goldmine! Prospects & Priorities Take what you can get, but get something! Positive tone – engage with debtors Preparation Information – obtaining, confirming, storing, using Measurement & Reporting
Our Service / Internal Set Up
Member Address PRIVATE & CONFIDENTIAL Date: OUR REF: Re: & District Credit Union Ltd V You Loan Outstanding Balance Loan Arrears Interest due Shares: Loan Number Last Payment Date Dear 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 effective Caller ID, Direct Line When, where, time? Notes & preparation Who to talk to? Messages Data retention, Data Protection
Web Sites Land Direct.ie An Post.ie Check the register Financial Regulator Codes of Conduct
Land Registry Search Page
The terminology and timescales in the different jurisdictions are as follows:- JurisdictionDistrict CourtCircuit CourtHigh Court 6, , Title of Proceedings Civil Summons Civil Bill Summary Summons Debtor response Approx 30 days 14 days 14 days time Time taken by days days 7 days Courts to issue Judgement
LEGAL FLO CHART DISTRICT COURT SUMMARY PROCEEDINGS 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 After return date File judgment papers: Affidavit of debt Certificate Draft Decree On return date apply for hearing date Hearing 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 After return date File judgment papers: Affidavit of debt Certificate Draft Decree On return date apply for hearing date Hearing Decision Lodge draft decree in District Court Area Decree issues from the District Court Office EXCUTION OF DECREE
Techniques Enforcement Options The Sheriff Publish Judgement Summons for attendance Judgement Mortgage Credit Rating / ICB
The Sheriff The 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 debtors interest in property. It remains valid for 12 years and attracts interest at 8% p.a.
Key Lessons Focus on what we can control Full information, backed by objective evidence, is vital Common sense – the key ingredient in loan assessment Credit card debt is the next big issue Top ups must be managed Credit control starts when the loan is issued Have a robust credit control structure and policy Telephony is the most effective method Effective Credit Control is a source of income
And finally …….. Any questions? Any comments? Any suggestions?