Pilot Scheme Announced For Consumer Multi-Debt Restructuring

The Central Bank of Ireland has announced its intention to operate a pilot scheme for the restructuring of secured and unsecured distressed consumer debt across multiple lenders.

The aim of the pilot framework is to achieve sustainable and fair outcomes without the need for the borrower to enter the full insolvency process. It is focused on enhancing cooperation between lenders of secured and unsecured debt in order to resolve distressed debt at an early stage.

The framework will be implemented on a pilot basis by participating lenders to a representative sample of borrowers who are experiencing significant financial difficulty repaying the mortgage on the family home and who have other unsecured debt. The pilot scheme will run for three months and will conclude with a thorough review of all results to evaluate the effectiveness of the framework in dealing with such cases and to determine next steps.

The framework is designed to produce fair, reasonable and consistent outcomes for dealing with secured and unsecured debt from multiple lenders. It establishes a series of principles to be applied in debt restructuring solutions for borrowers. In particular it outlines a ‘Resolution Waterfall’ which sets out a series of debt affordability scenarios. Treatments will be applied to the borrower’s debts in order to establish the most appropriate, affordable modification that sets the borrower on a sustainable footing for the remaining period of the loans.

Director of Credit Institutions and Insurance Supervision, Fiona Muldoon, said: "The decision to enter into this pilot is a constructive step by the lenders involved to help their own customers. The aim of the scheme is to test the viability of the proposed negotiated approach and to determine its effectiveness in achieving workable sustainable outcomes for borrowers and lenders. Participation in the pilot scheme is open to secured and unsecured lenders. We actively encourage the involvement of all lenders to ensure maximum effectiveness of this learning and information gathering pilot stage. I expect that the lenders participating in the pilot scheme will include all the main retail banks and many credit unions as well as other unsecured lenders. The Central Bank of Ireland will be closely engaged throughout the process and will oversee the pilot."

(CD)