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 adequately.
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.
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