When it comes to providing credit to individuals in Ireland, a licence as a retail credit firm is currently only required where the relevant credit is given by way of a cash loan. In summary, the need to be authorised as a retail credit firm applies to entities other than credit institutions that provide cash-loans to individuals.
The Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Bill, 2021 (the Bill) expands the activities requiring licencing as a retail credit firm. The activities, also known as “Relevant Activities”, require an entity to hold a licence as a retail credit firm to include the following:
Directly or indirectly providing credit to; or
Entering into a consumer-hire or hire purchase agreement with,
A relevant person.
The Bill also extends the definition of “credit” under the Central Bank Act, 1997 (as amended) (the CBA 1997) to include deferred payments and other similar financial accommodation, in addition to cash loans.
PCP, Hire-Purchase and Consumer-Hire Agreements
The amendments proposed in the Bill mean that providers of Personal Contract Plans (PCP), Hire Purchase and Consumer-Hire plans will require an authorisation from the Central Bank of Ireland to continue to offer these products to individuals in Ireland. This is unless they are otherwise authorised as credit institutions. In addition, persons who provide credit “indirectly” to individuals will also need an authorisation. This new requirement is intended to capture those who give credit to a borrower by paying a retailer directly for the purchase of goods. The Bill also proposes transitional authorisation provisions. These require an entity to apply to the Central Bank of Ireland for authorisation no later than 3 months following the enactment of the Bill. The Central Bank of Ireland has not yet published the details of the proposed authorisation process for Hire-Purchase and Consumer-Hire providers. However, the existing Retail Credit Firm authorisation process will likely be updated to incorporate these services.
Importantly, the amendments proposed in the Bill apply to “relevant persons” and not just consumers. This means that, with limited exceptions, the requirements introduced in the Bill apply to all types of natural persons. This includes, for example, sole-traders, and not only those natural persons who are consumers, i.e. persons acting outside their business, trade or profession.
The Bill also extends the definition of credit in the CBA 1997. This means that the services that comprise credit-servicing will now also be broader based on this expanded definition. The activities comprising “credit servicing” under the CBA 1997 will be extended to cover credit servicing activities relating to Hire-Purchase and Consumer-Hire agreements.
23% Limit on APR
The Bill also amends the Consumer Credit Act, 1995 (as amended), and proposes a maximum rate of APR that can be applied to credit agreements, other than money lending agreements, and to hire purchase agreements with consumers.
Significantly, the Bill states that if this cap is breached by a creditor, the creditor will not be entitled to enforce the credit agreement. Any guarantee or security given in relation to the credit will also not be enforceable. The Bill provides that the court can dispense with this prohibition on enforcement where it is just and equitable to do so.
Importantly, this cap on APR applies to all credit providers including credit institutions.
The above is just a summary of the key items that the Bill covers, and we recommend that both regulated and unregulated entities carefully consider the implications of the Bill. While the Bill is currently at the second stage of the legislative process, there have been indications that it could become law before the end of the year.
If you would like further information on any aspect of the Bill, please contact Rowena Fitzgerald.