On 21 March 2016, the Minister for Finance signed the European Union (Consumer Mortgage Credit Agreements) Regulations 2016 (the “Regulations”) into Irish law. The new legislation will build on existing Irish measures in this area including the Consumer Credit Act, 1995 (as amended) as well as the Central Bank of Ireland’s Consumer Protection Code and Code of Conduct on Mortgage Arrears.
The Regulations transpose the Mortgage Credit Directive (the “Directive”). The Directive’s overall purpose is the creation of a single residential mortgage credit market in the European Union with a high level of consumer protection.
The Regulations apply to credit agreements entered into with consumers - a natural person acting outside their trade, business or profession:
- secured by a mortgage or equivalent security on residential immovable property or secured by a right related to residential immovable property; and
- where the purpose of the agreement is to acquire or retain property rights in land or in an existing or projected building.
The key provisions of the Regulations
1. Information to be provided to the consumer
The Regulations require mortgage lenders and mortgage credit intermediaries to provide standard pre-contractual information to consumers by means of the European Standardised Information Sheet (“ESIS”) before he/she is bound by any credit agreement. The Regulations also provide for a "reflection period" of 30 days to allow the consumer to decide whether or not to accept the offer.
2. Knowledge and competence requirements for staff
The Regulations include requirements in relation to the knowledge and competence of staff of creditors and credit intermediaries. The Regulations require such staff to possess an appropriate level of knowledge and competence with regard to the manufacturing, offering or granting of credit agreements.
3. Advertising and Marketing
The Regulations provide general principles for marketing and advertising communications. In particular, the Regulations provide that advertising and marketing communications concerning credit agreements must be clear, fair and not misleading. They provide that any wording that may create false expectations for a consumer regarding the availability or the cost of credit is prohibited.
4. Creditworthiness Assessment
The Regulations place an obligation on creditors to assess the proposed borrower’s ability to repay the credit, taking into account the borrower’s income, expenses, financial and economic circumstances in order to ensure that the borrower can honour his/her obligations under the credit agreement before concluding the credit agreement.
5. Conduct of Business Rules
Under the Regulations, creditors and mortgage credit intermediaries, when dealing with consumers, are required to act in an honest, fair, equitable and professional way while taking account of the rights and interests of consumers.
Lenders must now consider how the Regulations will affect their existing lending procedures and documentation.