Fair Mortgage Rates Campaign welcomes ECB opinion on Central Bank bill

[Brendan Burgess]

We have issued a statement welcoming the report


Fair Mortgage Rates Campaign welcomes ECB report on Mortgage Rate Bill

Brendan Burgess 18th November 2016

Summary of the ECB Report



The Central Bank should not be given a role to promote competition.

The Central Bank does have a role in protecting consumers.

The Central Bank should not be given the power to control mortgage rates.

Many countries in the Eurozone do control mortgage rates, it’s just that they don’t give this power to the Central Bank.

From Page 10:

“The ECB understands that the laws in a number of Member States have put in place limitations

on the maximum interest rates that can be charged by lenders for consumer loans including those relating to immovable property . The national legislation in those Member States either:

(a) sets out the methodology for determining the relevant reference index or reference interest

rate, and the maximum margin above the reference interest rate which the interest rate charged

by the lender cannot exceed

or (b) determines the maximum interest rate in the law itself or in a decree adopted thereunder”



The ECB clearly acknowledges that many governments in the Eurozone have felt it necessary to protect consumers through controlling mortgage rates.

The objective of the bill is to control mortgage rates. If the ECB and the CB don’t want the Central Bank to have this power, so be it. The Fair Mortgage Rates Campaign were always concerned that the Central Bank had a conflict of interest between protecting the profitability of the banks and protecting consumers.

The bill can now be amended to remove any references to the Central Bank. This power to control mortgage rates can now be given to some authority other than the Central Bank.



Brendan Burgess

 

[Brendan Burgess]

It's an amazing opinion. It has to be read in its entirety to understand it.

Skip down to Page 10 - of course most people will have fallen asleep by then. (NCB is National Central Bank)


The ECB understands that the laws in a number of Member States have put in place limitations on the maximum interest rates that can be charged by lenders for consumer loans including those relating to immovable property . The national legislation in those Member States either:

(a) sets out the methodology for determining the relevant reference index or reference interest
rate, and the maximum margin above the reference interest rate which the interest rate charged by the lender cannot exceed

or (b) determines the maximum interest rate in the law itself or in a decree adopted thereunder

The role of the NCB in relation to the reference rates can include:

(i) the provision of advice to the legislature or government on the setting of the rate, taking into account evolutions in the market

or (ii) the periodic calculation and publication of a reference interest rate

In many cases, the NCB must calculate the reference interest rate based on the average interest rate charged by market participants. The national authority responsible for monitoring and enforcement of compliance with such national laws varies, depending on the Member State, and may be conducted by the Ministry for Economics,

the national consumer protection authority,

national competition authority

the national competent authority for prudential supervision

the NCB

or by the courts, as a matter of civil or criminal law.


It is noted that in one Member State , a specific consumer protection power is given to the NCB, in its capacity as supervisory authority, to monitor compliance of certain institutions with rules on business-to-consumer commercial practices. Further, it may impose sanctions on financial institutions in the event of a serious infringement of the provisions of the banking laws . Some Member States also seek to control the interest rate for savings deposits including by means of tax incentives

However, the key difference between the national laws mentioned and the Irish draft law relates to the powers conferred on the CBI. None of the above examples confer broad discretionary
decision-making powers on an NCB to determine the appropriate level of interest rates which
lenders may charge, as this kind of power is exercised by the legislature or by the government.
Where NCBs play a role under such laws, this role is limited to the calculation and publication of
a reference rate, based on predefined criteria, or to the enforcement of such laws against the
relevant lenders, as an aspect of the NCB’s mandate for consumer protection.
Thus, the decision-making powers conferred on the CBI by the draft law, to issue directions to
lenders not to charge a variable interest rate which exceeds certain thresholds, may be
considered atypical of a central bank, even if they could be characterised as consumer
protection and not competition powers.

 

[Andy836]

If not the Central Bank, who exactly would set the maximum rate?

There is no way in hell a bunch of politicians should be allowed anywhere near setting mortgage rates. Think of all the votes they'd look to win with it?

 

[Sarenco]

There is no way in hell a bunch of politicians should be allowed anywhere near setting mortgage rates.

I'm sure Brendan is not proposing that any rate-fixing powers should be vested in vote chasing politicians or their appointed functionaries. That would obviously be pure madness.

It seems pretty obvious to me that FF's bill, in its current form, is a dead duck.

However, I think it is worth noting that the ECB has no principled objection to the introduction of statutory caps of the type that exist in other EU countries that are designed to address usurious lending practices.

Michael McGrath was making the argument during the week that there is nothing under our laws to prevent a vulture fund from acquiring a mortgage book and jacking up the rates to levels that are way above market. It's a fair point and I actually agree with him that borrowers that are not in a position to refinance their loans for whatever reason are deserving of a degree of statutory protection.

However, rate-fixing powers don't have to be vested in anybody to address this issue.

We could simply adopt the French model where a statutory cap prevents variable home loan rates exceeding 133% of the average rate charged on similar outstanding loans (including trackers) in the previous quarter.

I struggle to understand why anybody (other than predatory sub-prime lenders) would object to that proposal.

 

[Andy836]

I'm sure Brendan is not proposing that any rate-fixing powers should be vested in vote chasing politicians or their appointed functionaries. That would obviously be pure madness.

It seems pretty obvious to me that FF's bill, in its current form, is a dead duck.

However, I think it is worth noting that the ECB has no principled objection to the introduction of statutory caps of the type that exist in other EU countries that are designed to address usurious lending practices.

Michael McGrath was making the argument during the week that there is nothing under our laws to prevent a vulture fund from acquiring a mortgage book and jacking up the rates to levels that are way above market. It's a fair point and I actually agree with him that borrowers that are not in a position to refinance their loans for whatever reason are deserving of a degree of statutory protection.

However, rate-fixing powers don't have to be vested in anybody to address this issue.

We could simply adopt the French model where a statutory cap prevents variable home loan rates exceeding 133% of the average rate charged on similar outstanding loans (including trackers) in the previous quarter.

I struggle to understand why anybody (other than predatory sub-prime lenders) would object to that proposal.

Nothing wrong with that suggestion.

However, formulating that into legislation AND winning votes from it would not be easy.

 

[Sophrosyne]

Brendan,

Pardon my ignorance, but what exactly do you think is wrong with what the ECB said?

 

[Brendan Burgess]

Hi Sop

A lot of what the ECB said was rubbish. They made no reference to the particular Irish situation of so many people trapped in negative equity. They made no reference to Irish rates being a full 150 basis points above the Eurozone level. So as I read the report, I was taking it apart.

But then I got to page 10 - Their only objection is that the Central Bank should not be involved. And they helpfully gave a list of the way other countries protect borrowers with interest rate limits.

So, I presume that the bill will be amended to put the Central Bank out of the picture. And that is probably a good thing. They lied for years about mortgage rates. Although they have a consumer protection remit, it plays second fiddle to the protection of bank profitability.

I don't really want politicians to be given the power. But maybe the Competition and Consumer Protection Commission.

Brendan

 

[Toledo]

If they fund the C.C.P.C. properly, I think it's the only game in town for having a dynamic independent consumer protection authority, as originally legislated for.

 

[Sarenco]

A competition authority with price fixing powers - only in Iteland could anybody think that's a good idea.

 

[Brendan Burgess]

Hi Sarenco

The Central Bank is a bad idea because the ECB says so.
Politicans are a bad idea because it would become a political issue.
The Competition Authority because they shouldn't be involved in price control.

So who should have those powers?

Split out the Consumer Commission from the Competition Authority?
Set up a new mortgage pricing agency?

Brendan