The Irish legislature is considering draft legislation
which would regulate purchasers of non-performing loans (NPLs).
The draft legislation is at an advanced stage in the
parliamentary process. While credit servicers are regulated in
Ireland, credit owners (in the main, entities that have
purchased loans and loan portfolios from banks looking to
reduce their exposure to NPLs) are not. However, the regulation
of owners of credit would be a substantial extension of the
regime. Furthermore, it would run contrary to EU policy in this
area which proposes to regulate credit servicers (as is the
existing position in Ireland) but deliberately stops short of
regulating loan owners because such an extension is neither
necessary nor desirable.
In the context of the continuing debate about whether credit
owners should be regulated, a recent report issued by the
Central Bank of Ireland (CBI) makes for interesting reading.
The CBI has found that entities such as investment funds which
have purchased loan portfolios from Irish banks do not pursue
aggressive enforcement policies. Rather, the CBI reports that
investment funds are more likely than banks to adopt a flexible
approach when engaging with a non-performing borrower. The CBI
report therefore runs counter to a number of misconceptions
about the culture of entities which purchase NPLs. Where the
loans are to consumers or small or medium-sized enterprises,
borrowers continue to enjoy regulatory protection because
enforcement is handled by a credit servicer regulated by the
CBI. The CBI report indicates that this system works
Notwithstanding the political momentum in favour of passing
the draft legislation, and the CBI's willingness to work with
an extended regime, this nonetheless represents an important
change to the existing regulatory structure and runs directly
counter to EU policy in this area.