The regulatory regime under which credit servicing firms are operating is coming under closer focus as the owners of loan books take further steps to realise the balance of the underlying secured assets.
Since the introduction of the Consumer Protection (Regulation of Credit Servicing Firms) Act 2015 the Central Bank has taken further steps to clarify and confirm the applicability of the various regulatory codes and standards that credit servicing firms are expected to meet. This has principally been achieved by publication of the Authorisation Requirements and Standards for Credit Servicing Firms published on 10 December 2015 and the subsequent amendment by way of addenda to the statutory codes themselves.
As the Ultimate Beneficial Owners ("UBO”s) work through the various loan books, and encounter borrowers of varying creditworthiness, credit servicers may encounter situations where a decision needs to be made which involves the balancing of the financial interests and motivations of the UBOs with the obligations of the credit servicers as regulated entities. This is particularly brought into focus in the case of borrowers where the Consumer Protection Code 2012 (“CPC 2012”) applies. The general principles set out in CPC 2012 are broadly drafted and require regulated entities to act honestly, fairly and professionally in the best interests of the consumer and the integrity of the market; to act with due skill, care and diligence in the best interest of the consumer; and not to exert undue pressure or undue influence on a consumer.
Each borrower case is unique and in assessing and navigating the best outcome for the UBO and the borrower the credit servicer may be required to balance the sometimes competing interests of the parties. In circumstances where there is a conflict in these interests, a disclosure of this conflict must be made to a consumer under CPC 2012. There is also an obligation to ensure that the conflict must not result in damage to the interests of the consumer.
The credit servicing entity must, in each instance, be careful that it is not taking decisions that could be interpreted as strategic investment decisions and that it is at all times implementing the strategy as directed by the UBO. Such decisions must at all times be made in compliance with its regulatory and statutory obligations as a regulated entity. Ultimately the obligation rests with the regulated entity to demonstrate compliance with the codes and adherence to the codes is a matter for credit servicing firms to ensure in the case of each borrower.