The Irish parliament is debating a bill which, if
passed, would regulate the owners of Irish loan portfolios. The
proposed legislation – the Consumer Protection
(Regulation of Credit Servicing Firms) [Amendment] Bill 2018
(the Bill) is understood to have been triggered by reports of
intended loan sales by particular retail banks in Ireland.
Since 2015, non-regulated owners of loan portfolios comprising
loans to consumers and small and medium-sized enterprises
(SMEs) have been required to appoint a regulated credit
servicer to manage the portfolio. This was to ensure that
consumers and SMEs would continue to enjoy their statutory
customer protection even though their creditor was unregulated.
Broadly, this ensured consumers and SMEs were in the same
position as if facing a regulated retail bank. However, in some
political circles this regime has been perceived as providing
insufficient protection to borrowers.
In brief, the Bill proposes a new licensing requirement for
carrying on the business of a 'credit agreement owner'. This is
defined as a person who performs any of the following functions
in respect of a credit agreement or portfolio of credit
- holds legal title;
- determines overall strategy for its
management and administration;
- determines the interest rate payable;
- maintains control over key decisions;
- takes such steps as may be necessary to
enable another to service or enforce the agreement.
Other notable features in the Bill include giving the
regulator – the Central Bank of Ireland (CBI)
– the power to direct consumer redress where a credit
owner systematically engineers customer default, or enforces on
the basis of immaterial breach of contract. The Bill would also
require a loan purchaser to inform borrowers of the terms on
which their loan was sold. These, and other, features of the
Bill if enacted may present substantial technical legal
difficulties. Another challenge presented by the Bill is that
it will, if enacted, present the CBI with another type of
business to regulate: this may not be altogether welcome
bearing in mind the CBI's workload in the run-up to Brexit.
Although the stated policy objectives behind the Bill have
received a degree of political support to date, it remains to
be seen whether the Bill will be passed in its existing form.
It is notable that the perceived deficiencies with the
prevailing regime (requiring the appointment of a credit
servicer) have yet to be fully articulated in detail. In
addition, the Bill does not specify precise regulatory
standards to be met by regulated credit owners, nor does it
provide for the 'grandfathering' of obligations for existing
credit owners. To date there has been limited airtime devoted
to the inhibiting effect the Bill may have on licensed banks
restoring their balance sheets for capital adequacy purposes,
and the consequences of this for Ireland's exchequer and
continued economic recovery. However, in the meantime the
European Commission (as part of its strategy for dealing with
banks' non-performing loans) has proposed an authorisation
regime for credit servicers, a regime which, notably, does not
cover credit purchasers.