The Consumer Protection (Regulation of Credit Servicing Firms) Act 2015 (the “Act”) was signed into law on the 8 July 2015.
The primary purpose of the Act is to provide for the protection of borrowers whose loans are sold by a regulated entity to an unregulated entity by ensuring that all regulatory protections, such as the Central Bank of Ireland (the “Central Bank”) Codes e.g. the Code of Conduct on Mortgage Arrears and the Consumer Protection Code, continue to be available to such borrowers.
New Regulated Entity
The Act creates a new category of regulated entity called a “credit servicing firm”. The definition of a credit servicing firm in the Act is widely defined and includes firms managing or administering credit agreements with relevant borrowers, consumers or SMEs, on behalf of an unregulated purchaser or owner of a credit agreement.
The creation of this new entity will mean that if an entity, which is not currently regulated, either services loans it has acquired or appoints a third party loan servicer to service the loans, either the owner of the loan book or the servicer will require to be authorised as a credit servicing firm.
Change to Retail Credit Regime
The Act will also have implications for the retail credit regime. Before the Act came into force a regulated financial service provider (“RFSP”) was excluded from the definition of a retail credit firm under the Central Bank Act, 1997. However, the Act limits the scope of the exemption so that it will now only apply to RFSPs who are authorised to provide credit in Ireland.
Therefore, under the changes brought about by the Act, a RFSP that is not currently authorised to provide credit in Ireland will have to become authorised as a retail credit firm in order to lend to a natural person.
The Act provides for transitional arrangements for existing retail credit firms and credit servicing firms. Such firms will be deemed to be authorised to carry on its business until the Central Bank grants or refuses authorisation provided that such firms have applied for authorisation before the 8 October 2015.
The Act will have significant implications for credit servicing firms and those partaking in credit servicing activities. All unregulated entities currently managing or administering credit agreements will need to consider how the Act is likely to impact on them.
The Central Bank published a consultation paper entitled ‘Consultation on the Authorisation Requirements and Standards for Credit Servicing Firms and Consequential Amendments to Statutory Codes’ seeking views on the authorisation requirements and standards for credit servicing firms. The consultation process will close on 30 September 2015.
In the meantime, the Central Bank has published an interim application form for the purposes of obtaining authorisation as a credit servicing firm, together with guidance on how to complete this application form.