Consumer Protection on the Sale of Loan Books – On Regulation Watch
01 August 2014
On 21st July 2014 the Department of Finance opened a five (5) week public consultation process to consider the issue and options available to the Irish Government in context of regulating purchasers of mortgage loans (www.finance.gov.ie/news-centre). Whilst NAMA is the largest loan/debt vendor in Ireland, a number of credit institutions are engaged in the process of loan or asset portfolio disposals of challenged and non-performing loans and it is expected that a number of such portfolios will come to the market before the end of 2014.
Under the current financial services regulatory regime, when a loan book is sold by a regulated financial institution to an unregulated entity, the unregulated purchaser is not bound by the Central Bank Codes and consumer protective processes. These include;
• Code of Conduct of Mortgage Arrears;
• Consumer Protection Code;
• Code of Conduct for business lending to Small and Medium Sized Enterprises; and
• Financial Services Ombudsman.
The view of the Government is that lack of regulation of the loan acquiring entities has consequences for borrowers who by virtue of the identity of the loan acquirer may not be entitled to the same level of protections previously available with regulated lenders.
As outlined in the Consultation document, it is proposed to amend the definition of “Retail Credit Firm” plus introduce additional and further amendments to the Central Bank Act 1997 to bring loan purchasers into the regulatory net and regime for the purpose of ensuring that protections afforded to borrowers are available on a statutory basis and not a voluntary one as is the case currently.
The potential range of issues for mortgage loan purchasers and asset purchasers, who are not currently regulated include;
- cost of regulation and annual compliance for such entities both at an institutional level and for their personnel;
- transitional regime and time periods to apply when new legislation is introduced;
- necessity to have operation in the State with required personnel and support functions/services; and
- impact on powers and functions applicable to such entities including loan origination
We will be monitoring the outcome of the Consultation process and the anticipated legislative amendments and extension of financial services regulation to loan sale acquirers going forward. The Consultation Process is open until 22 August 2014.
The content of this article is provided for information purposes only and does not constitute legal or other advice. Mason Hayes & Curran (www.mhc.ie) is a leading business law firm with offices in Dublin, London and New York.