The Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Bill 2021 (the Bill) will affect credit servicing firms, hire-purchase and consumer-hire businesses and other indirect credit providers. Firms that are currently unregulated will become subject to Central Bank of Ireland (Central Bank) authorisation requirements and additional regulatory requirements. The Bill is currently at the second stage of the legislative process. In this article, we assess the key provisions of the Bill and what it will mean for affected businesses when it is enacted.
Businesses involved in the provision or servicing of credit will need to assess the application of the act. Firms involved in providing credit will need to assess if the expanded definition of "retail credit firm" applies to them. Credit servicing firms and other businesses providing servicing to retail credit firms will have to review their compliance with the terms of the legislation. Lenders who provide credit to such businesses, and to purchasers and transferees of credit portfolios must also be aware of the need to diligence the provision of finance to newly regulated businesses.
The Bill proposes amendments to the definition of credit to include deferred payments and other similar financial accommodation which would have the effect of capturing products which, until now, have fallen outside of the regulated sector. For example, businesses that offer certain buy now pay later offerings, depending on the terms of such agreements, and firms offering personal contract plans (PCPs) will be required to be authorised and regulated by the Central Bank.
Amendments are also proposed to the definition of credit servicing which will affect businesses that manage or administer hire-purchase or consumer-hire agreements.
The Bill provides for transitional arrangements for those retail credit firms and credit servicing firms which will come within the scope of Central Bank authorisation requirement for the first time. Such firms should apply to the Central Bank for authorisation within a period of three months from the commencement of the relevant provisions, and once they do so such firms will be deemed to be authorised pending a confirmation or refusal by the Central Bank.
In addition to requiring authorisation, affected businesses will have to provide information to the Central Bank when requested to do so. The Central Bank may collect and publish information on credit, hire-purchase (including PCP) and consumer-hire agreements if requested to do so by the Minister for Finance. This is intended to facilitate the publication of statistical data on the level of financial accommodation provided by regulated firms.
Annual percentage rates (APR) of interest on credit agreements and hire-purchase agreements, but not moneylending agreements, are capped at 23 per cent. Any credit agreement with a higher APR, and any guarantee or security given in respect of such an agreement, will not be enforceable unless a court is satisfied that the omission was not deliberate and has not prejudiced the consumer.
This provision will not apply to existing credit agreements or hire-purchase agreements.
It will be an offence for a corporate entity or a person acting on behalf of a corporate entity to breach the maximum APR requirement, with penalties of a fine of up to €100,000 and 5 years imprisonment or both.
Details on the applicable APR will have to be included in the written and signed agreement for hire-purchase arrangements and any related contracts of guarantee or security. The Central Bank may make regulations to amend the method of calculating the APR in relation to credit or hire purchase agreements.
As a consequence of the amendments proposed in the Bill, the remit of the Financial Services and Pensions Ombudsman (FSPO) will be expanded to cover certain entities for the first time, such as those providing indirect credit. For entities whose customers already have recourse to the FSPO for complaints relating to the Consumer Credit Act, under hire-purchase agreements for example, the FSPO will have jurisdiction over a much broader range of customer complaints in relation to the conduct of the firm in the provision of financial services generally. In addition, the FSPO can receive complaints from consumers who are party to hire-purchase (including PCP) or consumer-hire agreements, where a credit servicing firm undertakes activities in respect of that agreement.
Amendments to the Central Bank (Supervision and Enforcement) Act 2013 contained in the Bill mean that hirers in a hire-purchase, PCP or customer-hire agreement can be awarded redress at the direction of the Central Bank. This will apply where there is widespread or regulated default that affects customers negatively.
The Bill has been published on the Houses of the Oireachtas website and is being consulted on with the European Central Bank. The Bill is currently at the second stage of the legislative process and is intended to be progressed later this year. Businesses who provide credit arrangements to customers will be conscious to assess whether their activity falls within the scope of the Bill and if so, how they can begin to prepare for authorisation.