Although severe and sometimes intractable problems remain, the dust may finally be starting to settle on the personal debt crisis in Ireland. Personal insolvency legislation is in place, although clearly it contains many flaws and the unpleasant prospect of bankruptcy may be the only way out for many over-indebted people with little payment capacity.

This week’s mortgage arrears figures for family homes show another small drop in the overall number of arrears cases at the end of 2013, but the number in arrears for longer than two years has again increased to more than 33,500 accounts. It is deeply worrying that almost 1,500 new cases to repossess family homes were brought in the last three months of 2013.

Difficulties plainly remain to be resolved. However, it is also time to start thinking about how to prevent a future crisis arising. The Free Legal Advice Centre (Flac) launches a report this week that examines the legal protections provided by the State to consumers of financial services and the redress mechanisms available for consumers unhappy with how they are treated by their provider.

Consumer perspective

Titled Redressing the Imba lance , the study begins with a critical analysis from the consumer perspective of EU consumer credit directives and the domestic legislation that transposes them; we conclude

there is still no effective EU or domestic strategy in place to counter irresponsible lending, a vitally important component of debt prevention. It also examines how Ireland's consumer credit legislation is enforced and monitored by the Central Bank.

Here the conclusion is that the bank has chosen to ignore a convoluted set of rules and has instead chosen to focus largely on compliance with its own Consumer Protection Code.

It is also clear this code only partially applies to credit agreements regulated by the revised consumer credit directive of 2008. It does not apply at all to hire purchase or credit union loans.

The report suggests the latest revision of the Central Bank’s much-vaunted Code of Conduct on Mortgage Arrears was a largely pro-industry exercise and that there may be something of a democratic deficit in an unelected body drafting and amending the rules that will apply when processing arrears cases.

In Flac’s view, the revised code lays open many in arrears to potential swift repossession action in the courts without proper rights of access to the lender’s decision-making process or a proper right of appeal against unfair or unreasonable decisions.

It is worth noting the Financial Services Ombudsman (FSO), the avenue of external appeal under the code, confirmed again last week that it does not see itself as able to overturn decisions under the Mortgage Arrears Resolution Process in the code, as "all we are able to do is to check the banks engaged in the process and explained it to the mortgage holders".

Powerlessness

This comparative powerlessness echoes through F

lac’s report. When it comes to protecting consumers against the adverse consequences of the financial meltdown, the responsible regulatory bodies do not appear to have the requisite teeth.

We argue this imbalance is mirrored in complaints to the FSO for consumers unhappy about the conduct of their financial service provider under the three principal categories of banking, insurance and investment. Many providers refuse to engage in mediation; some consumers interviewed for this study lamented the lack of an oral hearing to challenge their provider's conduct towards them.

Many cited an impersonal process requiring them to respond to a welter of technical information from the provider; remarkably, there is no specific State assistance available for consumers to formulate complaints.

The FSO has never been externally evaluated and the legislation establishing it in 2004 has not been formally reviewed, although in Flac's view amendments are needed. For example, consumers (or providers) wishing to appeal against an FSO finding must do so in the High Court. Not only is this a prohibitive venue with a risk of serious legal costs, it is also clear from the court's decisions that the appeal is not a full rehearing of the complaint; this is often not understood by consumers.

From a legal perspective there is currently nothing new in place that would prevent another consumer credit boom and bust from occurring in Ireland in the future.

This report concludes the evidence across institutions shows protecting the consumer is a lower priority than facilitating the provider. This is the imbalance we believe must be redressed.

Paul Joyce is senior policy analyst with F lac and co-author of Redressing the Imbalance , which is free to download from www.flac.ie