The Consumer Protection (Regulation of Credit Servicing Firms) Act 2018 (the Act) came into effect on 21 January 2019. The Act is the ultimate result of what had started life as the “McGrath Bill” and aims to impose a regulatory framework on private equity firms and other entities that acquire loan books.
New licencing requirements
The Act requires purchasers of the legal title to relevant loans to become regulated by expanding the existing definition of credit servicing to include:
holding the legal title to credit granted under the credit agreement;
determining the overall strategy for the management and administration of a portfolio of credit agreements; and
maintenance of control over key decisions relating to such portfolio.
Where an entity is deemed to be “credit servicing” as a result of the expanded definition of credit servicing, that entity will be “taken to be authorised” until the Central Bank has granted or
refused authorisation, provided that the firm in question:
applies to the CBI for authorisation within three months of the commencement of the Act (i.e. three months from 21 January 2019); and
currently has a regulated credit servicing firm appointed to service its loan book(s).
Any firm that is authorised in an EEA member state to provide credit in Ireland under EEA “passporting” rules, whether before or after 21 January 2019, will also be taken to be authorised as a credit servicing firm under the Act.
For the purposes of the Act, relevant loans include loans to natural persons in Ireland and loans to a micro, small or medium-sized enterprises that were initially provided by regulated financial service providers. This ensures that consumers and SMEs, whose loans are sold to an unregulated firm, maintain the same regulatory protections they had prior to the sale under the various statutory Codes of Conduct issued by the Central Bank.
If an unregulated firm is servicing the portfolio of loans on behalf of a regulated entity then they do not need to be separately authorised by the Central Bank as a credit servicing firm as this arrangement is covered under existing rules covering outsourcing that apply to all regulated financial services firms. However, where an unregulated entity has acquired or intends on acquiring any relevant loans, they must now consider the regulatory implications of this and will likely require to be authorised as a credit servicing firm.
The CBI has updated the following documents to reflect the enactment of the Act:
Central Bank Guidance Note on Completing an Application for Authorisation as a Credit Servicing Firm
Central Bank Authorisation Requirements and Standards for Credit Servicing Firms
The Act has significant impact on the operations of investors in Irish banking assets and the manner in which they structure acquisitions of loan portfolios. Parties who have invested in Irish bank assets, or intend to in the future, should examine the financing and ownership structures of both historic and future loan sale transactions to ensure compliance with the new rules. For more information on the potential impact of this legislation.
The content of this article is provided for information purposes only and does not constitute legal or other advice.