Several recent cases have confirmed that lending institutions can succeed against defaulting borrowers even where those institutions have breached the Central Bank’s Code of Conduct on Mortgage Arrears (CCMA) or the Consumer Protection Code (CPC). Other regulated financial services providers should also take note of these cases.

The Supreme Court has ruled that the CCMA affords a defence to borrowers in possession proceedings only in circumstances when the lender has failed to abide by the moratorium period (i.e. the specified waiting period in the CCMA before repossession proceedings can be commenced by a lender). The Supreme Court reasoned that this aspect of the CCMA is the very act the CCMA is designed to prevent. The Court could not aid a lender who it knew was acting unlawfully by breaching the moratorium period. However, the Court held that no other possible breaches of the CCMA would afford a borrower a defence to possession proceedings.

A number of other recent cases have held that breaches of the CCMA and CPC cannot provide a defence to summary judgment proceedings.

Different considerations would apply if a lending agreement stipulated that one or other of the Codes was incorporated as a term of the contract, or if the breach of a Code had directly led to loss or damage for a customer.

After a period of unwelcome uncertainty, it now seems that the question of the legal effect of Central Bank Codes as between borrowers and lenders has been determined in favour of the lender. This position is unlikely to change in the absence of legislative intervention.

However, lenders should bear in mind that the Financial Services Ombudsman has a wide remit to investigate and penalise the conduct of regulated financial institutions. 

Similarly, it is worth remembering that breaches of the CCMA and CPC could still result in an enforcement action by the Central Bank under its Administrative Sanctions Procedure. Following a recent themed inspection by the Central Bank, which found some specific practices among seven lenders contrary to the letter of the CCMA, the Central Bank noted that it was considering the use of its enforcement powers.