Jim Stafford
Registered User
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Unfortunately, the reach of the Leprechaun’s spell goes beyond the production of misleading Central Statistics Office figures and it appears to extend into other areas of Government.
Leprechauns, who are well known for their sense of mischief, appear to have muddled the Government’s approach to advising the thousands of debtors who are in financial distress. Obviously, it is a perfect area for Leprechauns to meddle in, as they can never go bankrupt themselves given their crocks of gold!
Whilst the Government has produced the most effective legislation in Europe for assisting home owners to retain their family homes with negative equity under the regime regulated by the Insolvency Service of Ireland (“ISI”), the Government has confused debtors by authorising two different sets of “professional advisors”, with different “product offerings”.
Debtors may approach either a Personal Insolvency Practitioner (“PIP”), regulated by the ISI or a Debt Management Firm, regulated by the Central Bank of Ireland. Obviously, any debtor seeing that a Debt Management Firm is regulated by the Central Bank would take great comfort from such regulation, and would be entitled to assume that they are obtaining the best possible advice. However, very few Debt Management firms are able to carry out a Personal Insolvency Arrangement (“PIA”) or a Debt Settlement Arrangement (“DSA”) as they do not employ any PIPs. I am aware of several Debt Management Firms that do have PIPs but who have totally avoided doing PIAs/DSAs due to their cost and complexity. Accordingly, there must be a concern that such firms will attempt to do an informal arrangement, whilst a PIA or DSA might be better.
So is the solution for the debtor to see a PIP? This is where it gets even more confusing. Whilst all PIPs are authorised to do PIAs and DSAs, not all PIPs are authorised to do informal schemes, as they have not been authorised by the Central Bank or any other regulatory body. If a debtor goes to see a PIP who is not authorised to negotiate an informal scheme, then he will be steered down the PIA/DSA route, which could be more expensive and stressful for the debtor, and indeed may not work at all.
So, which firms are best placed to advise debtors on the full range of options? Obviously, it is those firms whose advisors are both authorised to do informal schemes and are registered PIPs. However, there is no central register of such firms. The ISI do not identify on their website which PIPs are authorised to formulate informal schemes, and the Central Bank do not identify on their web site which Debt Management firms have Personal Insolvency Practitioners.
Whilst the ISI actively promote PIAs and DSAs, there is a significant role for informal schemes. One of the key reasons why banks are more receptive to informal schemes is that in many cases there is now a realistic possibility of a “no veto” PIA being implemented, and the banks are keen to avoid expensive and cumbersome PIAs/DSAs.
The obvious solution is that there should only be one regulator of professional advisors providing services to distressed debtors, and that regulator should be the ISI. Having just one regulator would avoid the necessity of some PIPs having to apply to the Central Bank for authorisation. Debt Management Firms do have a very useful role to play in advising the thousands of distressed borrowers.
The ISI has recently announced a new scheme which will allow debtors to obtain advice from a PIP free of charge. Unfortunately, for the PIPs to sign up to the scheme they have to undertake to comply with the scheme’s rules, which effectively oblige the PIP to take the debtor down a PIA/DSA route as opposed to an informal route. Our firm has decided that we are unable to participate in that scheme, as our participation would have compromised our ability to provide independent and objective advice to a debtor. When debtors initially approach us for advice, we quickly determine if we will act as a PIP or as a professional advisor with a view to agreeing an informal scheme.. The reality is that we have been able to negotiate many informal deals at less cost and stress to the debtor than a PIA/DSA. Unfortunately, the terms and conditions that ISI has laid down for the new scheme effectively force PIPs to take debtors down a PIA/DSA route, even though an informal arrangement might be less costly and less stressful to the debtor. Being forced to take debtors down a PIA/DSA route may simply not be the best option for a debtor.
Both the ISI and the Money Advice Budgeting Service promote the portal site www.keepingyourhome.ie. The portal site will now only mention those PIPs who have signed up to the new ISI “free advice” scheme, and will not list those PIPs who have not signed up. Those debtors who use that portal site will not realise that by using those particular PIPs listed, that there is a real danger that they will not be advised about possible informal options, which can be less stressful and costly.
Our own website used to refer clients to www.keepingyourhome.ie as a source of useful information but we have now deleted that link as we do not believe the guidance it provides is the "best" guidance. The site should recommend distressed debtors to see PIPs who can provide advice on PIAs/DSAs and informal schemes, and not funnel them towards PIPs that can only provide PIAs/DSAs.
Not only has the Government confused debtors by creating two different sets of “professional advisors”, with different “product offerings”, it has also reduced the effectiveness of the PIAs by effectively excluding debtors with more than €3m of “secured” debt. There are many debtors up and down the country who have been unable to do a PIA because their secured debts exceed €3m. Many of these debtors have had to go bankrupt as a result in order to get on with their lives.
In conclusion, it is time for the Government to lift the Leprechaun’s spell, and appoint a single Regulator, the ISI, to regulate all debt advisors. In this way the Government can take a co-ordinated approach to ensuring that distressed debtors receive the best possible advice. It is also time for the Government to lift the €3m cap on PIAs.
Given that no legislation can be amended until the Autumn, the ISI should update its website to clearly show which PIPs provide a "PIP only" service, and those PIPs who can provide a PIP service and advice on informal schemes.
The ISI should also start publishing statistics on the number of successful "informal" schemes that PIPs implement.
Jim Stafford
A shorter version of the above article was originally published in the Sunday Business Post on 31st July 2016.
Leprechauns, who are well known for their sense of mischief, appear to have muddled the Government’s approach to advising the thousands of debtors who are in financial distress. Obviously, it is a perfect area for Leprechauns to meddle in, as they can never go bankrupt themselves given their crocks of gold!
Whilst the Government has produced the most effective legislation in Europe for assisting home owners to retain their family homes with negative equity under the regime regulated by the Insolvency Service of Ireland (“ISI”), the Government has confused debtors by authorising two different sets of “professional advisors”, with different “product offerings”.
Debtors may approach either a Personal Insolvency Practitioner (“PIP”), regulated by the ISI or a Debt Management Firm, regulated by the Central Bank of Ireland. Obviously, any debtor seeing that a Debt Management Firm is regulated by the Central Bank would take great comfort from such regulation, and would be entitled to assume that they are obtaining the best possible advice. However, very few Debt Management firms are able to carry out a Personal Insolvency Arrangement (“PIA”) or a Debt Settlement Arrangement (“DSA”) as they do not employ any PIPs. I am aware of several Debt Management Firms that do have PIPs but who have totally avoided doing PIAs/DSAs due to their cost and complexity. Accordingly, there must be a concern that such firms will attempt to do an informal arrangement, whilst a PIA or DSA might be better.
So is the solution for the debtor to see a PIP? This is where it gets even more confusing. Whilst all PIPs are authorised to do PIAs and DSAs, not all PIPs are authorised to do informal schemes, as they have not been authorised by the Central Bank or any other regulatory body. If a debtor goes to see a PIP who is not authorised to negotiate an informal scheme, then he will be steered down the PIA/DSA route, which could be more expensive and stressful for the debtor, and indeed may not work at all.
So, which firms are best placed to advise debtors on the full range of options? Obviously, it is those firms whose advisors are both authorised to do informal schemes and are registered PIPs. However, there is no central register of such firms. The ISI do not identify on their website which PIPs are authorised to formulate informal schemes, and the Central Bank do not identify on their web site which Debt Management firms have Personal Insolvency Practitioners.
Whilst the ISI actively promote PIAs and DSAs, there is a significant role for informal schemes. One of the key reasons why banks are more receptive to informal schemes is that in many cases there is now a realistic possibility of a “no veto” PIA being implemented, and the banks are keen to avoid expensive and cumbersome PIAs/DSAs.
The obvious solution is that there should only be one regulator of professional advisors providing services to distressed debtors, and that regulator should be the ISI. Having just one regulator would avoid the necessity of some PIPs having to apply to the Central Bank for authorisation. Debt Management Firms do have a very useful role to play in advising the thousands of distressed borrowers.
The ISI has recently announced a new scheme which will allow debtors to obtain advice from a PIP free of charge. Unfortunately, for the PIPs to sign up to the scheme they have to undertake to comply with the scheme’s rules, which effectively oblige the PIP to take the debtor down a PIA/DSA route as opposed to an informal route. Our firm has decided that we are unable to participate in that scheme, as our participation would have compromised our ability to provide independent and objective advice to a debtor. When debtors initially approach us for advice, we quickly determine if we will act as a PIP or as a professional advisor with a view to agreeing an informal scheme.. The reality is that we have been able to negotiate many informal deals at less cost and stress to the debtor than a PIA/DSA. Unfortunately, the terms and conditions that ISI has laid down for the new scheme effectively force PIPs to take debtors down a PIA/DSA route, even though an informal arrangement might be less costly and less stressful to the debtor. Being forced to take debtors down a PIA/DSA route may simply not be the best option for a debtor.
Both the ISI and the Money Advice Budgeting Service promote the portal site www.keepingyourhome.ie. The portal site will now only mention those PIPs who have signed up to the new ISI “free advice” scheme, and will not list those PIPs who have not signed up. Those debtors who use that portal site will not realise that by using those particular PIPs listed, that there is a real danger that they will not be advised about possible informal options, which can be less stressful and costly.
Our own website used to refer clients to www.keepingyourhome.ie as a source of useful information but we have now deleted that link as we do not believe the guidance it provides is the "best" guidance. The site should recommend distressed debtors to see PIPs who can provide advice on PIAs/DSAs and informal schemes, and not funnel them towards PIPs that can only provide PIAs/DSAs.
Not only has the Government confused debtors by creating two different sets of “professional advisors”, with different “product offerings”, it has also reduced the effectiveness of the PIAs by effectively excluding debtors with more than €3m of “secured” debt. There are many debtors up and down the country who have been unable to do a PIA because their secured debts exceed €3m. Many of these debtors have had to go bankrupt as a result in order to get on with their lives.
In conclusion, it is time for the Government to lift the Leprechaun’s spell, and appoint a single Regulator, the ISI, to regulate all debt advisors. In this way the Government can take a co-ordinated approach to ensuring that distressed debtors receive the best possible advice. It is also time for the Government to lift the €3m cap on PIAs.
Given that no legislation can be amended until the Autumn, the ISI should update its website to clearly show which PIPs provide a "PIP only" service, and those PIPs who can provide a PIP service and advice on informal schemes.
The ISI should also start publishing statistics on the number of successful "informal" schemes that PIPs implement.
Jim Stafford
A shorter version of the above article was originally published in the Sunday Business Post on 31st July 2016.
