Consumer Protection (Regulation of Credit Servicing Firms) Bill 2015

The much anticipated draft legislation to govern regulatory protection following recent loan portfolio sales was published on 14 January 2015. The bill, Consumer Protection (Regulation of Credit Servicing Firms) Bill 2015 (“Bill”), looks to tackle certain concerns around the loss of regulatory protections for borrowers on the sale of loans to unregulated entities.  In so doing it amends the Central Bank Acts 1942 to 2014.

Consumers and SMEs borrowing from regulated entities enjoy a number of regulatory protections including protections under the Central Bank’s Code of Conduct on Mortgage Arrears, the Consumer Protection Code and the Code of Conduct for Business Lending to Small and Medium Enterprises (“Codes”). Furthermore, eligible customers of a regulated entity have the right to complain to the Financial Services Ombudsman (“FSO”) about that entity’s conduct.

The concern of legislators leading to the publication of the Bill is that some or all of these protections may be lost if the underlying loan book and security is sold by the regulated entity to an unregulated entity. While an unregulated purchaser of loans and security can voluntarily apply the Codes when managing loan books (and certain entities have so volunteered), this is not mandatory. In addition, customers of unregulated entities do not have access to the FSO.

The Bill seeks to ensure that borrowers retain all their regulatory protections under the relevant codes when a loan is sold by a regulated entity to an unregulated one. As its title suggests, the Bill seeks to achieve this through regulating “credit servicing firms”. The definition of credit servicing firms in the Bill is widely defined and includes firms managing or administering credit agreements with consumers or SMEs on behalf of the unregulated purchaser on a serviced basis.   The Bill also provides for the sale of loans by credit unions to be covered.

The Bill also regulates the activity of “credit servicing” so that an entity that does not outsource the service will itself have to be regulated to conduct that service, and allows borrowers whose credit agreements are being serviced the right of access to the FSO.

The Bill provides for transitional provisions which essentially confer a three month grace period in which credit servicing firms can apply for an authorisation from the Central Bank. It has yet to be clarified how existing actions against a consumer at the commencement of the Bill will be treated.

The Bill is expected to progress through the Houses of the Oireachtas in the first half of 2015, and as it is still in draft form, it could be amended significantly along the way. However if and when it is enacted, it will have significant implications for credit servicing firms and those partaking in credit servicing activities.

If enacted, all currently unregulated entities managing or administering credit agreements will need to consider how the Bill is likely to impact on them. This will include purchasers of loan books who may have chosen not to outsource credit servicing and asset management functions.  

To view the full Bill click here.

For further information please contact Paul McGennis  or Robert Desmond.