Given the explosion in consumer credit, a more humane system of dealing with chronic over-indebtedness is urgently needed, writes Paul Joyce.
Central Bank figures quoted recently in The Irish Times once again show substantial increases in the amount of outstanding consumer indebtedness on residential mortgages and other forms of personal credit issued by credit institutions.
In truth, it is only in the past few years that this monitoring has become commonplace. However, if we go back to the end of 1995 and compare the figures then with those of June 2003, we find that there has been an increase of approximately 310 per cent in the amount owed on residential mortgages and 270 per cent in the amount owed on other personal credit. By any standards, these are worrying figures.
Consumer credit is now endemic and the culture of possession for deferred payment has firmly taken root. Houses, second houses, cars, holidays, electrical goods, home improvements and a wide array of goods and services are but a signature or a piece of plastic away.
With low interest rates over the past number of years, credit institutions are in the vanguard of this trend, firing out credit to maximise their return. Government has remained largely silent. After all, credit fuels the economy, creates jobs and improves the quality of life of the average citizen, if you can gain access to it.
The statistics reveal only one corner of the picture. Behind the figures are the myriad stories of people who have over-extended themselves or whose ability to service their widespread indebtedness has been compromised by one of the so-called triggers of debt - illness, separation, unemployment or addiction - and who are facing on a daily basis the rigours of debt collection or legal proceedings, threatened or actual.
The Money Advice and Budgeting Service (MABS), which assists people who have financial difficulties to regain control of their finances through negotiation with creditors, is estimated to have had 12,000 new clients in 2003 and its total client base is currently estimated at 25,000.
In May 2003, the Free Legal Advice Centres (FLAC) published its report, An End Based on Means, an analysis of how uncontested consumer debt cases are treated in the Irish legal system. The report is highly critical of the outdated nature of the current procedures that can still ultimately lead to imprisonment.
The basic legislation relating to the enforcement of court judgments in Ireland dates back to before the first World War, with only minor amendments having been made since. The bankruptcy legislation, despite its notional date of 1988, is clearly informed by a conservative, punishment-orientated ethos and is wholly inappropriate to consumer debt.
The overwhelming conclusion of FLAC's report is that a fundamental review is urgently required and we set out an agenda for such a review by examining practice in other jurisdictions.
A system based on an assessment of current ability to pay at the earliest possible stage and which takes all debt into account is advocated. In cases of chronic over-indebtedness, debt settlement legislation, whereby debts are repaid to the best of the debtor's ability over a finite period with the prospect of write-offs at the end of this period, should be introduced. Such schemes are the norm throughout Europe. (Danish High Court judge Mr Lars Lindencrone Petersen will outline the principles of the Scandinavian models at FLAC's conference on consumer debt in Dublin today).
The consumer has had a significant role in the recent economic success of this State and is entitled to a legal system that deals with the casualty of credit in a humane fashion. Now, more than ever, our political system has to recognise this fact.
Paul Joyce is a researcher with the Free Legal Advice Centres. FLAC's conference, Consumer Debt - the Case for Law Reform, takes place today in the Croke Park Conference Centre.