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FINSAc and non-performing loans

Dear Editor,

The issue of the disclosure of information on non-performing loans acquired by FINSAc is one which has attracted considerable public debate. We have consistently maintained that we cannot release this information, based on legal considerations. In an effort to inform and perhaps place the issue in the proper perspective, I will indicate in detail the legal considerations which have led us to our position.

The background is as follows:

  • FINSAc has acquired a number of non-performing loans from financial institutions in the last two years, as part of its financial assistance to these institutions.

  • As part of its attempts to rehabilitate these loans and convert them into performing loans, FINSAC's Non-Performing Loan Unit has been given the responsibility of attempting to restructure loans acquired from these institutions, in accordance with a standard non-performing loan policy manual which was developed internally and which has been approved by FINSAC's Board of Directors.

  • In cases where restructuring is not a viable option the Non-Performing Loan Unit will attempt to maximise value through collection efforts.

  • Occasionally, as part of the restructuring or collection process, some of the debt is written off by FINSAC, or the applicable interest rate is lowered, in an effort to ensure that the debtors are able to pay.

Most of the commentators have correctly taken the view that as it is public money which originally purchased the loans from the financial institutions, any restructuring takes place at public cost. This, it is argued, justifies the disclosure of information pertaining to the restructuring of loans, especially where the beneficiaries of the loans are "politically connected" people, without the need for FINSAC to seek the consent of the debtors.

Some members of the public have simply argued for the disclosure of the identity of the people indebted to FINSAC, on the basis that the non-payment of these loans is part of the cause of the financial sector collapse and these debtors must be held publicly accountable.

The position which FINSAC has taken is very straightforward. We have maintained that the law pertaining to banker-customer confidentiality prevents us from disclosing the information to the public. I note that some commentators have recently said in the media that FINSAC is not a bank and cannot therefore claim to be subject to the provisions of the law on this area. They are wrong. While it is true that the Banking Act does not govern FINSAC's operations, since FINSAC is not licensed under the Banking Act, the common law on this area is relevant to the discussion.

Perhaps the most important principle which can be gleaned from the decisions on this area is that a person who obtains information from a bank pertaining to a customer's loan with that bank is subject to a restriction against revealing this information without the consent of the customer or in accordance with other legal provisions governing disclosure.

For example, an accounting firm hired by the shareholders of a bank to investigate bad loans made by the bank was prevented from disclosing this information to the central bank, as the court took the view that the firm was subject to a duty of banking confidentiality owed by the bank to its customers. (See Price Waterhouse v BCCI Holdings (Luxembourg) SA [1992] BCLC 583). The reasoning behind this decision is simply that someone who obtains information from a financial institution must be subject to the same restrictions as the institution that supplied the information.

Having obtained the loan information from the various banks from which we bought the non-performing loans, we are similarly bound, under this principle, to keep the information private.

At this point, I should advise the public that in 1998 FINSAC took the precaution of obtaining an order from the court which permitted it to receive the loan information from the various banks, in order to protect the banks from any challenge by their customers to the release of the loan information to FINSAC. That is the basis on which FINSAC has this information, and the order was made in light of FINSAC's special role in stepping into the shoes of the financial institutions from which it acquired the loans. In those circumstances, FINSAC cannot act outside the order of the court by releasing that information to the public without the consent of the debtors.

The arguments above are applicable irrespective of the identity of the debtor, as none of the decided cases have sought to establish a difference between private or public citizens. There is therefore no basis in law for public figures to be denied their right to confidentiality in their private affairs, except where this is expressly legislated for.

I have not so far raised considerations of public policy, as I do not wish to focus on policy considerations in this letter. Those considerations cannot however be ignored, as even if there were no legal constraints binding FINSAC, the issue of disclosure raises fundamental questions of public policy. I would say in this regard that the recent decisions in the Jamaican and overseas courts suggest that the public policy considerations which influenced the development of the common law on banker/customer confidentiality over the years have not changed.

I trust that by this letter, FINSAC's position has been adequately explained.

Patrick Hylton

Managing Director

FINSAC Limited

Kingston 5

 July 14, 1999

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