Certain variable rate mortgage holders will benefit from increased protection from 1 February 2017, once new requirements introduced by the Central Bank of Ireland ("Central Bank") start to apply. These new requirements are set out in a recently published addendum to the Consumer Protection Code 2012 (the "Addendum"). The Addendum also amends the Consumer Protection Code 2012 ("CPC") to take into account the new European Union (Consumer Mortgage Credit Agreements) Regulations 2016, and the Central Bank (Supervision and Enforcement) Act 2013 (Section 48) (Lending to Small and Medium-Sized Enterprises) Regulations 2015 ("SME Regulations").
Variable Rate Mortgages
Part 1 of the Addendum amends chapters 4 and 6 of the CPC, which deal with the provision of information and post-sale information requirements, respectively. The amendments are aimed at variable rate mortgages, excluding mortgages which are based on a tracker rate (a "Relevant Variable Mortgage Rate"), that are made available to a natural person acting outside his or her business, trade or profession (a "Personal Consumer"). Their overall purpose is to increase transparency and facilitate consumer choice. This part of the Addendum is effective from 1 February 2017.
Provision of Information (Chapter 4)
Each regulated entity must produce a summary statement of its policy for setting its Relevant Variable Mortgage Rates that it makes available to a Personal Consumer. The summary statement is called a Variable Rate Policy Statement.
The form and content of the Variable Rate Policy Statement is set out in a new Appendix F to the CPC. It must:
- clearly identify the factors which may result in changes to the variable interest rate;
- clearly outline the criteria and procedures applicable to the setting of the variable interest rate; and
- clearly outline where the regulated entity applies a different approach to setting the variable interest rate for different cohorts of borrowers and the reasons for the different approach.
A regulated entity must provide a copy of the Variable Rate Policy Statement when offering a Relevant Variable Mortgage Rate to a Personal Consumer. It must also publish the Variable Rate Policy Statement on its website. A regulated entity must give a Personal Consumer whose mortgage is covered by a Variable Rate Policy Statement, written notice of any changes to it and an updated version of the statement.
The Variable Rate Policy Statement must be drafted in a clear, consumer friendly manner and in plain English. The regulated entity must conduct consumer testing on the content, to ensure that it is clearly and easily understood, before providing the Variable Rate Policy Statement to Personal Consumers or publishing it on the regulated entity's website.
Post-sale Information Requirements (Chapter 6)
Under the Addendum, in the case of a Relevant Variable Mortgage Rate where the consumer is a Personal Consumer, a regulated entity must include the following additional information in the annual statement of account and when notifying changes in the interest rate:
- a summary of other mortgage products provided by the regulated entity that could provide savings for the Personal Consumer at that point in time;
- details of how/where the Personal Consumer can obtain further information on these mortgage products;
- a statement that the Personal Consumer should keep his/her mortgage arrangements under review as there may be options that could provide savings for the Personal Consumer; and
- a link to the relevant section of the Competition and Consumer Protection Commission's website relating to switching lenders or changing mortgage type.
In the case of the annual statement of account, the regulated entity must also remind the Personal Consumer that its Variable Rate Policy Statement is available on its website. When notifying a personal consumer of a change in the interest rate, the regulated entity must include the reason, by reference to the Variable Rate Policy Statement.
Consumer Mortgage Credit Agreements
The Regulations transposing the Mortgage Credit Directive 2014/17 into Irish law ("MCD Regulations") have applied since 21 March 2016. The Addendum amends the CPC to take into consideration requirements imposed under the MCD Regulations on consumer mortgage credit agreements. Specifically, it disapplies certain provisions of the CPC to such agreements. The affected provisions are set out in the chapters dealing with; General Requirements (Chapter 3), Provision of Information (Chapter 4), Knowing the Customer and Suitability (Chapter 5) and Definitions (Chapter 12). For further information on the MCD Regulations, see our related briefing here.
The SME Regulations entered into force, for the most part, on 1 July 2016. The Addendum disapplies certain CPC provisions relating to errors and complaints resolution (Chapter 10) to the extent that these overlap with the requirements set out in the SME Regulations. For further information on the SME Regulations, see our related briefing here.
What do you need to do next?
If you are a regulated entity that has a variable mortgage interest rate for Personal Consumers, which is not a tracker interest rate, you must:
- produce a Variable Rate Policy Statement in the form set out in Appendix F of the CPC by 1 February 2017;
- ensure the Variable Rate Policy Statement is written clearly and in plain English and conduct consumer testing to ensure that its content is clearly and easily understood;
- post the Variable Rate Policy Statement on your website and provide a copy of it when offering a variable mortgage interest rate to a Personal Consumer;
- update the Variable Rate Policy Statement in line with any changes in your policy for setting a variable mortgage interest rate;
- notify each Personal Consumer in writing of any changes to the Variable Rate Policy Statement which relate to his/her variable mortgage interest rate and provide him or her with a copy of the updated Variable Rate Policy Statement; and
- ensure that you include the additional post-sale information when providing a Personal Consumer with an annual account statement or notification of interest rate change.