Oct 1st, 2009

Banks mis-selling loan packages to hard pressed farmers say ICMSA

A new code of conduct for banks comes in to full operation today with regard to lending to farmers and other small and medium scale enterprises but Jackie Cahill, President of ICMSA, has strongly criticised the banks and the Financial Regulator for downplaying this code and the protection it provides to such borrowers. As and from today, the banks are legally obliged, under the Central Bank Act, to provide information to business borrowers on the banks' procedures for credit applications, security requirements, arrangements for withdrawal and refusal of credit while the code also stipulates that borrowers must be given reasonable time and scope to resolve their arrears problems.

'Overall, all the banks must provide information, under nine separate headings, in a clear and comprehensible way. It is self-evident that the banks have failed in this regard and, if anything, seem intent on going the other way in further obscuring their dealings with borrowers. There is no
clear communication on what is being charged and why', said the ICMSA President.

As an example, Mr Cahill highlighted a recent and what he described as highly unacceptable procedure whereby farmers who had loans secured under low interest rates and sought additional borrowing due to the income crisis in farming have been provided with restructured borrowing with higher rates of interest being applied to the whole sum, thus losing the more favourable rates charged on the initial amount. Mr. Cahill, who today had a meeting with senior officials of the office of the Financial Regulator, formally complained that this activity by the banks is a blatant example of mis-selling of financial products and is clearly outlawed by existing procedures even before consideration is given to the new code of conduct.

Mr. Cahill advised individual farmers to be on their guard regarding this matter and to reject this type of restructuring. If a farmer has been forced in to such restructuring he is entitled to seek the unravelling of this deal.

While the code itself has a lot of merit, the ICMSA President said that the procedures were flawed in that there is no actual mechanism where individual farmers can seek redress readily should their banks refuse to rectify a problem or act in a fair way with them. He also pointed out that the Financial Ombudsman, operating under different legislation, does not deal with small business borrowers and is concerned exclusively with consumer borrowing. This gap in protection for SME borrowers must be rectified by legislation stated Mr. Cahill and he confirmed that ICMSA has already had discussions with the Government and the political parties on this matter.

'Despite all the turmoil and comment they have caused, the banks are still not operating in a fair manner and are in default of the new code of conduct. The Government, for their part, must bring forward legislation to give full and proper implementing powers to the Financial Regulator to ensure access to credit at a reasonable cost. The days of voluntary codes of practice in the banking system must be finished forever', concluded Mr Cahill.

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