The Markets in Financial Instruments Act 2018 (the 2018 Act) was signed into law on 29 October 2018. In the main, it introduces criminal sanctions and penalties in respect of infringements of MIFID II. However, it also makes important amendments to certain definitions in the Credit Reporting Act 2013 (the 2013 Act) effectively introducing an obligation to report to the Central Credit Register (the Register) on the part of business engaging in financial leasing, hire purchase and PCP arrangements.
The 2013 Act provides for the establishment of the Register, which is a centralised system that collects and securely stores information about loans. The purpose of the Register is to create accurate records of credit provided to Irish borrowers and loans subject to Irish law. In order to enable the Central Bank of Ireland to maintain the Register, all lenders, bar some limited exemptions, have a reporting obligation to the Central Bank.
Since 30 June 2017, information on all consumer loans of €500 or more has to be submitted to the Register. Similarly, since 31 March 2018, information regarding business loans of €500 or more must be provided to Register. The information given to the Register is used to generate individual credit reports on borrowers. Borrowers can request a copy of their credit report to see the information lenders have submitted on their loans and lenders can use credit reports to analyse a borrower’s current lending and credit history.
Definition of credit
The definition of “credit” under the 2013 Act did not include certain finance arrangements such as hire-purchase, PCP and asset finance. The Act amends the definition of credit and widens credit reporting obligations under the 2013 Act. In short, before the 2018 Act, the definition of credit excluded credit which was use for:
“facilitating the purchase of goods or services from the person by whom the credit is provided”
This exclusion has now been removed from the definition of “credit” and replaced by an exclusion of credit:
“in the form of trade credit”
The Act goes on to explain what is meant by trade credit and provides that trade credit will only be excluded from the reporting obligations of the 2013 Act, where:
The borrower and credit provider are not consumers
The credit provider is not a regulated financial service provider
The terms of the credit provide for repayment within six months, and
The purpose of the credit is to facilitate the purchase of goods or services from the credit provider.
The effect of the widened definition of “credit” is that reporting requirements are now extended to hire purchase, PCP and other financing arrangements involving consumers and are also extended to business financing arrangements that have a duration of longer than six months.
From 30 June 2019, financiers who provide hire purchase, PCP and asset finance amounting to €500 or more, will be required to submit information to the Register unless it is a business-to-business arrangement that is shorter than 6 months. From October 2019, these financiers must request a credit report if a customer has applied for financing of €2000 or more in order to ascertain the consumer’s or business’s creditworthiness and may request a report if the amount applied for is less than €2,000. This obligation already exists for consumer and business lending.
Where credit is reportable, steps should also be taken to consider whether relevant finance documentation needs to be updated to address the requirements imposed by the 2013 Act.
For more information on how these developments may affect the extension of credit by your business, contact a member of our Financial Regulation team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.