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Ireland: Loan portfolio owner regulation

The Irish parliament is debating a bill which, if passed, would regulate the owners of Irish loan portfolios. The proposed legislation – the Consumer Protection (Regulation of Credit Servicing Firms) [Amendment] Bill 2018 (the Bill) is understood to have been triggered by reports of intended loan sales by particular retail banks in Ireland. Since 2015, non-regulated owners of loan portfolios comprising loans to consumers and small and medium-sized enterprises (SMEs) have been required to appoint a regulated credit servicer to manage the portfolio. This was to ensure that consumers and SMEs would continue to enjoy their statutory customer protection even though their creditor was unregulated. Broadly, this ensured consumers and SMEs were in the same position as if facing a regulated retail bank. However, in some political circles this regime has been perceived as providing insufficient protection to borrowers.

In brief, the Bill proposes a new licensing requirement for carrying on the business of a 'credit agreement owner'. This is defined as a person who performs any of the following functions in respect of a credit agreement or portfolio of credit agreements:

  • holds legal title;
  • determines overall strategy for its management and administration;
  • determines the interest rate payable;
  • maintains control over key decisions; or
  • takes such steps as may be necessary to enable another to service or enforce the agreement.

Other notable features in the Bill include giving the regulator – the Central Bank of Ireland (CBI) – the power to direct consumer redress where a credit owner systematically engineers customer default, or enforces on the basis of immaterial breach of contract. The Bill would also require a loan purchaser to inform borrowers of the terms on which their loan was sold. These, and other, features of the Bill if enacted may present substantial technical legal difficulties. Another challenge presented by the Bill is that it will, if enacted, present the CBI with another type of business to regulate: this may not be altogether welcome bearing in mind the CBI's workload in the run-up to Brexit.

Although the stated policy objectives behind the Bill have received a degree of political support to date, it remains to be seen whether the Bill will be passed in its existing form. It is notable that the perceived deficiencies with the prevailing regime (requiring the appointment of a credit servicer) have yet to be fully articulated in detail. In addition, the Bill does not specify precise regulatory standards to be met by regulated credit owners, nor does it provide for the 'grandfathering' of obligations for existing credit owners. To date there has been limited airtime devoted to the inhibiting effect the Bill may have on licensed banks restoring their balance sheets for capital adequacy purposes, and the consequences of this for Ireland's exchequer and continued economic recovery. However, in the meantime the European Commission (as part of its strategy for dealing with banks' non-performing loans) has proposed an authorisation regime for credit servicers, a regime which, notably, does not cover credit purchasers.

John BreslinCallaghan Kennedy

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