On 12 January 2015, the Government published the Consumer Protection (Regulation of Credit Servicing Firms) Bill 2015. The purpose of the Bill is the protection of consumers on the sale of loan portfolios to unregulated entities. However, the Bill has much wider reaching consequences and also extends its scope to Small and Medium Enterprises and introduces a new type of regulated entity known as a “Credit Servicing Firm”.
As the Bill stands, if an entity either services loans acquired by it or, appoints a loan servicer on its behalf to service the loans, either the owner of the loan book or the servicer will require to be authorised as a Credit Servicing Firm.
The Scope of the Bill
The definition of Credit Servicing is very broad under the Consumer Protection (Regulation of Credit Servicing Firms) Bill 2015 (the “Bill”) and the Bill specifies a list of activities that are considered Credit Servicing. These include, for example, managing or administering repayments under a Credit Agreement.
Whether or not the Bill will require a firm to be authorised by the Central Bank depends on the types of Credit Agreements that a firm services. In particular, the loans in question must involve “Relevant Borrowers”.
A “Relevant Borrower” in summary is, a natural person within Ireland or, small or medium sized enterprise (“SMEs”) being enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding EUR 50 million, and/or an annual balance sheet total not exceeding EUR 43 million.
If any loans being serviced include individuals or SMEs, then consideration should be given as to whether a licence as a Credit Servicing Firm is required.
The Bill lists certain activities that are excluded from the definition of Credit Servicing and this would seem to be in an effort to exclude from its scope Special Purpose Vehicles that are not servicing the loans themselves and who have appointed Credit Servicing Firms. The excluded activities include:
- determination of the overall strategy for the management and administration of a portfolio of credit agreements;
- the maintenance of control over key decisions relating to such portfolio; or
- taking such steps as may be necessary for the purposes of enabling the undertaking of credit servicing by another person/firm or enforcing a credit agreement.
The Bill provides for transitional provisions for existing firms carrying on the business of a Credit Servicing Firm. An unregulated purchaser of loans or servicer will be deemed to be authorised at the date on which the new regime comes into effect but will have to apply to the Central Bank for authorisation within three months of that date. The Bill provides that during the transitional period, the Central Bank may impose regulatory and supervisory conditions on such firms and may direct such firms not to carry out the business of a Credit Servicing Firm for a specified period not exceeding three months.
If the Bill is enacted, firms that carry out Credit Servicing as discussed above will be required to apply for authorisation from the Central Bank.
The Bill is, however, still in draft form and may be amended before it comes into force. A number of issues have arisen regarding the application of the Bill to SMEs and to address these issues it is hoped that the Department of Finance makes further amendments to the Bill before it is enacted.
The Bill is a substantial regulatory development and the Minister for Finance has said that it is expected to pass through the Houses of the Oireachtas in the early part of 2015.