The Department of Finance has proposed draft legislation dealing with various issues relating to the sale of loan books by financial institutions to unregulated third parties. The aim of the proposed legislation is to ensure that any borrowers whose loans are sold by a regulated entity to an unregulated entity maintain the same level of protection as they had prior to the sale, in particular, under the various Central Bank codes of conduct.
Protections currently afforded to consumers include:
- Code of Conduct on Mortgage Arrears
- Consumer Protection Code
- Code of Conduct for business lending
- Access to the Financial Services Ombudsman
Although some of the purchasers of loan books are voluntarily abiding by the various codes, there is no obligation on these unregulated entities to adhere to them and accordingly the proposed legislation seeks to close this gap.
What is proposed?
The draft legislation will make the ownership of Irish retail credit loans a newly regulated activity. The definition of “retail credit firm” will be extended to include unregulated entities which purchase loan books, excluding certain special purpose vehicles which do not take an active part in the management of books in which they hold a beneficial ownership. The definition of “retail credit firm” will also be amended to include owning credit as well as providing credit. Once the legislation is enacted (expected in early 2015), unregulated entities which purchase loan books will need to seek authorisation from the Central Bank. It should also be noted that, although the legislation is not stated to be retrospective, it will apply to all owners of Irish retail credit loans, thus capturing entities which have already purchased loan portfolios.
The Department accepted submissions on the draft legislation by interested parties up to 22 August 2014 and it will be interesting to see any revisions to the draft legislation once these submissions have been considered. While on the one hand, the proposed legislation will increase costs for owners of loans in terms of adherence with the provisions of the various codes, on the other hand, it will be most welcomed by borrowers whose loans were sold by their financial institution to an unregulated entity.