The Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Act 2022 was commenced (in full) on 16 May 2022, giving effect to one of the most significant expansions to financial services authorisation requirements in years. Authorisation from the Central Bank of Ireland is now required in relation to a broader scope of “credit” (no longer only “cash loans”) whether provided directly or indirectly, as well as in relation to hire-purchase and consumer-hire business.
A new cap of 23% APR has also been imposed on consumer credit agreements and consumer hire-purchase agreements.
This briefing outlines the principal aspects of the changes made by the Act and what affected businesses should consider doing now.
What has changed?
According to its introductory paragraph, the Act has the following principal objectives:
- “to provide for the extension of authorisation requirements to persons carrying on hire-purchase or consumer-hire business or providing credit indirectly and persons carrying on business relating to hire-purchase or consumer-hire agreements or the indirect provision of credit…
- to provide for a limit on the interest rate that consumers may be charged under credit agreements and hire purchase agreements; to provide for a requirement to include the annual percentage rate in a hire-purchase agreement…”.
Those objectives are achieved through a series of amendments to existing legislation, especially the Central Bank Act 1997 (“CBA 1997”) and the Consumer Credit Act 1995 (“CCA 1995”). The amendments are quite technical in nature and, arguably, the Act may have implications beyond those outlined above. The following provides a high level summary of the key aspects of the Act but potentially affected persons will need to take detailed legal advice on how commencement of the Act impacts on their business.
What are the new Authorisation Requirements?
The first important point to note is that the expanded authorisation requirements generally only apply to transactions involving natural persons (though note this is not limited to “consumers”, and the credit servicing of credit agreements with corporate SME borrowers is still in scope1). The authorisation requirements apply in relation to a “regulated business”, which includes “…the business of a retail credit firm…or the business of a credit servicing firm”.
Retail Credit Firm
The business of a retail credit firm has been expanded (beyond the provision of cash loans) to include the following “Relevant Activities”:
- directly or indirectly providing “credit”; or
- entering into consumer-hire or hire-purchase agreements with, a “relevant person” (being a natural person, subject to some limited exceptions).
While the precise meaning of “indirectly” providing credit is not set out in the Act, the press release that accompanied the original Bill clarified that “indirectly” is intended to capture circumstances where the “…lender provides credit to the borrower by paying a retailer for the purchase of a good”.
The concept of “credit” has been expanded so that instead of applying only to “cash loans” it now includes:
- a deferred payment;
- cash loans; and
- other similar financial accommodation. (The term “financial accommodation” is defined by reference to the CCA 1995 ie the term “includes credit and the letting of goods”).
The definitions of the newly in-scope consumer-hire agreements and hire-purchase agreements are similar to those used in the CCA 1995, with the important distinction that they apply to a broader range of natural persons and are not limited to “consumers”.
Importantly, existing exclusions to both the definitions of “retail credit firm” (eg a person already authorised to carry on a relevant activity; a person acquiring credit originated by another person2) and “credit” (eg credit originated and held by credit unions; certain credit provided without interest or charge) are retained with some drafting amendments. Some new exclusions to these definitions are also added: eg “credit” does not include the “bailment of goods to a hirer under an agreement of less than 3 months’ duration under which the property in the goods remains with the owner” and “retail credit firm” does not include “a person whose business consists partly of a relevant activity, but only by virtue of the person providing credit in the form of trade credit”.3
The upshot of the above is that any entity, whether currently authorised or not, which may be involved in Relevant Activities should form a view (if it has not already) as to whether it is required to apply to the Central Bank of Ireland (“CBI”) for a transitional authorisation in relation to existing and ongoing business lines. Detailed advice is likely to be required on this question: given that the Act has now been commenced, potentially affected entities should engage with this issue as early as possible.
Credit Servicing Firms
The second significant change to authorisation requirements is the expansion of the scope of the business of “credit servicing”. Broadly summarised, the business of “credit servicing” involves any of the following in relation to an in-scope agreement:
- holding the legal title to the agreement;
- managing or administering the agreement (eg collecting payments, handling complaints);
- determining the overall strategy for the management and administration of a portfolio of agreements;
- maintaining control over key decisions relating to such portfolio; or
- communicating with the customer in relation to the above (other than holding legal title).
The range of in-scope agreements has been expanded by:
- capturing a broader range of credit agreements, due to the broader definition of “credit” (discussed above); and
- the extension of credit servicing to hire-purchase agreements and consumer-hire agreements with natural persons.
In light of the above, entities which engage in “credit servicing” (whether currently on a regulated or an unregulated basis) need to undertake a detailed analysis of their business and decide whether to apply to the CBI for authorisation (or the expansion of conditions attached to an existing authorisation).
Broadly summarised, the Act contemplates a number of different ways in which an entity engaged in Relevant Activities prior to the commencement of the Act (16 May 2022) will be deemed to be authorised (or excluded from the need for further authorisation) in relation to the expanded scope of “regulated business”. These include some specific provisions, which allow an entity to apply for a transitional authorisation in relation to a Relevant Activity.
The transitional authorisation provisions require the entity to apply to the CBI no later than 3 months after the coming into operation of the Act.4 The question of whether such an application is needed or possible will depend on a number of factors, including the existing authorisations held by that entity (if any), the nature of Relevant Activities already being carried on, and those that are intended to be carried on in the future.
23% APR Limit and New Documentary Requirements for Consumers
The CCA 1995 has also been amended in relation to credit agreements and hire-purchase agreements with consumers (ie natural persons acting outside the course of their business).
The key changes are:
- Maximum APR: a new cap of 23% “APR”5 is imposed on credit agreements (other than moneylending agreements) and hire-purchase agreements with consumers. If this cap is breached, the creditor/owner is not entitled to enforce the agreement or any guarantee or security (though the court retains an equitable discretion to allow enforcement in certain circumstances).
- Hire-Purchase Information Statement: the existing prescribed information statement requirements for hire-purchase agreements have been updated to require inclusion of the applicable APR. (This requirement already existed for credit agreements).
A number of other technical changes have been made to the CCA 1995, some of which may have consequences that are not immediately apparent at first glance. For example, the definition of “credit institution” in the CCA 1995 has been amended so that it includes a “retail credit firm” within the updated meaning of the CBA 1997. This may have the effect of bringing a retail credit firm within the scope of section 149 of the CCA 1995, which requires the notification of certain charges to the CBI.
In addition to the above, some consequential amendments have been made to the Financial Services and Pensions Ombudsman Act 2017 and the Central Bank (Supervision and Enforcement) Act 2013 so that hire-purchase agreements, consumer-hire agreements and the broader range of “credit” agreements set out in the CBA 1997, are brought within the scope of this legislation, including its disputes/complaints resolution mechanisms and oversight/enforcement mechanisms.
One of the challenges raised by commencement of the Act will be dealing with the new regulatory requirements within permitted time-frames. Some new obligations, such as the obligation to state the APR in a consumer hire-purchase agreement, need to be discharged immediately (from 16 May 2022). Others, such as the obligation to obtain an authorisation as a retail credit firm or credit servicing firm, benefit from a three-month transitional window that allows the relevant (detailed) application to be made. The CBI has indicated in an earlier “Notice of Intention” that a three-month lead-in will be given in relation to compliance with the Consumer Protection Code 2012 and Minimum Competency regime. However, other regulatory compliance requirements, such as the SME Regulations, apply immediately. For a discussion of that CBI notice, see our earlier briefing here.
As should be clear from the above, the Act raises significant questions for regulated and unregulated entities alike. Most importantly, potentially affected entities should consider whether an authorisation may be required in relation to any of their business lines. If so, management should carefully consider how best to structure their affairs to ensure both the authorisation process, and the significant consequent ongoing regulatory obligations, are dealt with in as stream-lined a manner as possible.6