NEW LEGISLATION to prevent a person with no means from being sent to prison for debt is a minimalist response to a long-running scandal. The sudden flurry of activity by the Department of Justice might not have taken place if the High Court had not ruled recently that debtors should not be committed to prison in their absence and unless it could be shown they had deliberately refused to pay their creditors.
In recent years there has been an explosion in personal debt as banks, building societies, hire purchase companies and credit card organisations made it easy to borrow money. Household debt grew by €20 billion in a single year. But the boom has turned to bust. Unemployment has doubled. Institutions that were once so free with credit have changed their attitudes. An increasing number of unfortunate citizens are appearing before the courts as financial institutions seek repossession of homes and property and the repayment of loans. There is an urgent need for new procedures and structures. The Law Reform Commission is expected to address these issues in an autumn consultation paper.
Under the Constitution, a person cannot be jailed for debt. But they can be jailed for contempt of court if they fail to obey a court order. And that is what happens. Last year, nearly 300 people were sent to prison because they failed to make court-ordered payments. Most of them did not understand the legal documents served on them or the likely outcome if they failed to respond appropriately. The stress involved was enormous. And the consequences were unsatisfactory for all concerned.
Lending agencies are driven to recover their money. Even when a person is jailed for contempt of court, the debt remains and can be pursued. That is why the commission will suggest a possible rebalancing of obligations by way of a mandatory code dealing with responsible lending. It is likely to be far tougher than the consumer protection code introduced three years ago by the Financial Regulator. In addition, new procedures for arrears management, debt settlement and mediation will be suggested. Minister for Justice Dermot Ahern has indicated a willingness to consider proposals from the commission. It is not before time. But penalties are unlikely to be imposed on financial institutions for lax lending. In the past, government was slow to take action in curbing sub-prime lending. And its own policies encouraged the growth of private debt. We are now, however, in altered circumstances. And there is an urgent need to change the way debtors are treated by the judicial system.