Current Issues & Best Practice Solutions Republic of Ireland version.

Current Issues & Best Practice SolutionsRepublic of Ireland version

A Perfect Storm!Economic meltdown

Rising unemploymentIncomes fallingTaxes increasingRepayment capacity

reducedMore to come

Banking system not operating

Legacy of over-indebtedness

AgendaIntroduction

Our Business Environment – what has changed?

Legislation to protect consumers / borrowersLending

IssuesSolutions

Credit ControlIssuesSolutions

Questions, Comments & Suggestions

IntroductionWhat’s different about today’s lending

market?The economic situation

Level of personal debtFocus on Responsible Lending & Borrowing

Consumer Credit & Consumer Protection The need for full information The need for objective evidence

Current Lending IssuesCredit Control issues & techniques

Responsible Lending & BorrowingPersonal Debt in Ireland

€158 for every €100 earned *In 1995 it was €50 per €100 earned

Lifestyles funded by borrowingClear evidence of irresponsible lendingBorrowers must take some of the blameBut – unequal relationship – the lender is the

dominant party!* Goodbody Stockbrokers

2008

Legislation & LendingFocus on the consumer / memberConsumer Credit Directive

Pre-contractual informationAdvertising & APRDatabase consultationCredit AgreementsRight of withdrawal – December 2011Obligation to assess creditworthiness –

December 2011

Legislation & Credit ControlCourts increasingly tend to favour the

borrowerConsumer Credit LegislationConsumer Protection CodeCode of Conduct on Mortgage ArrearsCan’t pay / won’t pay – implicationsThe McCann CaseThe Law Reform Commission Report

Law Reform CommissionKey proposals & recommendations

Non-Court system of debt settlement for insolvent individuals

Centralised Debt Enforcement Office Debt Settlement (can pay) Debt Relief (can’t pay)

Proportionate & holistic, fair to both parties Horizontal View

Abolition of imprisonment for non-payment of debt

Reform of Bankruptcy law

Ability to RepayResponsible lending – our primary role is to

assess ability to repaySecondary role – financial advice

Information is the keyObjective evidenceStrong case for credit referencing

The need for full informationWe can’t assess ability to repay without

having the full pictureBorrower’s “word” is not enough

Borrower’s generally don’t disclose all debtsCan’t ignore any source of information

Consumer Credit DirectiveCourts will require objective evidence

Objective EvidenceIndependent sources

Pay Slips and P60sBank StatementsCredit Card StatementsFinancial or Management Accounts

Don’t ignore any source of informationUse your common sense, don’t ignore your

instinctDon’t be afraid to askTake your time!

The case for Credit ReferencingThe Irish Credit Bureau

All other financial institutions are members103 credit unions are members, plus 87 in

processOnly a part of your decision, but a vital partCredit reference can be good or badAnecdotal evidence – invaluable!

Other referencing sourcesNCU DatabaseJudgment listings, Stubbs Gazette

Assessment TechniquesStress Testing – can the borrower repay if /

when interest rates rise?What if the borrower’s income falls?

Look at loan balances as well as loan repaymentsHow long is left on the loan?

The 40% Guideline – useful, but limitedHow much does the borrower need to live on?

How much is left to repay loans?Ratios

The Credit Card “Time Bomb”70% of adult members have (at least) one!Limits can be high - €20,000 not unusualBeing used to “bridge the gap”This cannot last!Loans to clear credit card debt

Compare proposed repayment to minimum balance

Pay loan out in stages“Force” member to reduce limitMember must co-operate!

Irish Independent June 2010

Credit card holders barely making dent

in €2.9bn debtSome €811m was paid off last month

but a further €800m was spent- Charlie Weston

Top-UpsFrequent top-ups can disguise delinquencyPotential for “hard core” debtMonitor the trend of the account balanceWatch the purpose of the loansEnsure repayment term and amount is

appropriateDifficult to deal with once it has become a

problem

Loan with multiple Top Ups

Loan with multiple Top Ups – effect of higher repayments

Interest RatesAverage rate in 2010 was 8.7%

Standard 9.9%Car 6.9%

AIB / BOI personal loan rate is 14% for small loansAIB / BOI car loan rate is 11.5% for small loansCredit unions need income – scope to increase

ratesIncrease term or repaymentJustification

Market RatesDividend

Rate Change ExampleLoan €7,500, monthly repayments over 5

years at 8%Initial monthly repayment is €152.05Rate change to 10% after 30 monthsNew monthly repayment is €156.19 orKeep existing repayment and make one

additional payment of €140.72 at the endMost loans are topped-up before completion

OpportunitiesOpen for businessBanks not lendingGood prospects out thereRates very competitiveFunds available

Caution – what’s the real purpose?

Tools for effective Credit ControlYour systemYour colleagues’ skills & knowledgeYour own knowledge & training

Focus of Credit ControlThe lost goldmine!Prospects & PrioritiesTake what you can get, but get something!Positive tone – engage with debtorsPreparationInformation – obtaining, confirming, storing,

usingMeasurement & Reporting

Our Service / Internal Set Up

Reporting

MemberAddressPRIVATE & CONFIDENTIAL Date:  OUR REF:<Loan number>Re: & District Credit Union Ltd V YouLoan Outstanding Balance € Loan Arrears €Interest due € Shares: €Loan Number Last Payment Date  Dear < Salu> We act on behalf on the instructions of their Credit Control Department. Our Client instructs us that you are presently in arrears and interest due on your Credit Union Loan Account with them in the above sums together with continuing interest. Please make payment or contact the Credit Union on with an immediate proposal for full payment of the outstanding arrears and interest. This letter may be used as evidence of having afforded you every opportunity to discharge your arrears, interest and in support of our application for costs should legal action be necessary which said costs may be deducted from your share balance. We thank you in anticipation for your payment and assistance in the matter.  Yours faithfully     

The phone – most effectiveCaller ID, Direct LineWhen, where, time?Notes & preparationWho to talk to?MessagesData retention, Data Protection

Web Sites Land Direct.ieAn Post.ieCheck the registerFinancial Regulator

Codes of Conduct

Land Registry Search Page

The terminology and timescales in the

different jurisdictions are as follows:-

Jurisdiction District Court Circuit Court High Court

€6,348.69 €38,092.14

Title of Proceedings Civil Summons Civil Bill Summary Summons

Debtor response Approx 30 days 14 days 14 days

time

Time taken by 30-60 days 30-60 days 7 days

Courts to issue Judgement

LEGAL FLO CHART

DISTRICT COURT SUMMARY

PROCEEDINGSSummary Judgment-Civil Summons

Stamped before service

Serve by registered post 21 days before return date (notice period)

Enter 4 days before return date.

Defended

Notice of Intention to defend

Undefended

Held to have admitted claim

Afterreturn dateFile judgment papers:

Affidavit of debtCertificate

Draft Decree

On return date apply for hearing dateHearing Decision

Lodge draft decree in District Court Area

Decree issues from the District Court Office

EXCUTION OF DECREE

Summary Judgment-Civil Summons

Stamped before service

Serve by registered post 21 days before return date (notice period)

Enter 4 days before return date.

Defended

Notice of Intention to defend

Undefended

Held to have admitted claim

Afterreturn dateFile judgment papers:

Affidavit of debtCertificate

Draft Decree

On return date apply for hearing dateHearing Decision

Lodge draft decree in District Court Area

Decree issues from the District Court Office

EXCUTION OF DECREE

TechniquesEnforcement Options

The SheriffPublish JudgementSummons for attendanceJudgement Mortgage

Credit Rating / ICB

The SheriffThe Sheriff is a Court

Officer entitled to seize goods from the debtor which may then be sold to realise funds for the discharge of the debt.

The Sheriff can also enter into an instalment arrangement with a debtor, which may be the best way of getting paid over a reasonable period of time.

Registration of Judgement

You can register the Judgement in the High Court Judgments Register from where Stubbs Gazette etc. will pick it up. This may prompt the Debtor to pay up.

Enforcement

The Debtor can be examined as to income and expenditure and ordered to pay by instalments. Failure to obey the court Order can result in committal to prison for contempt.

Judgement Mortgages

A creditor can register his judgement against a debtor’s interest in property. It remains valid for 12 years and attracts interest at 8% p.a.

Key LessonsFocus on what we can controlFull information, backed by objective evidence, is

vitalCommon sense – the key ingredient in loan

assessmentCredit card debt is the next big issueTop ups must be managedCredit control starts when the loan is issuedHave a robust credit control structure and policyTelephony is the most effective methodEffective Credit Control is a source of income

And finally ……..

Any questions?Any

comments?Any

suggestions?