When providing credit to individuals in Ireland, previously a licence as a retail credit firm was only required where the relevant credit was given by way of a cash loan. The need to be authorised as a retail credit firm only applied to entities other than credit institutions that provided cash loans to individuals.
This recently changed with the enactment of the Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Act 2022. The 2022 Act expands the “relevant activities” requiring an entity to hold a licence as a retail credit firm, to include:
- Directly or indirectly providing “credit” to, or
- Entering into a consumer-hire or hire-purchase agreement with,
- A “relevant person”.
Importantly, the amendments set out in the 2022 Act apply to “relevant persons” and not just consumers. This means that, with limited exceptions, the requirements introduced in the 2022 Act apply to all types of natural persons. These include, for example, sole traders, and not only those natural persons who are consumers, i.e., persons acting outside their business, trade or profession.
The 2022 Act also extends the definition of “credit” under the Central Bank Act, 1997 (as amended) (CBA 1997) to include deferred payments and other similar financial accommodation, in addition to cash loans.
PCP, hire-purchase and consumer-hire agreements
Providers of personal contract plans (PCP), hire-purchase and consumer-hire arrangements will now require an authorisation from the Central Bank of Ireland (the “Central Bank”) to continue to offer these products to individuals in Ireland, unless they are otherwise authorised as retail credit firms or credit institutions. In addition, persons who provide credit “indirectly” to individuals will also need an authorisation. This new requirement will capture those who give credit to a borrower by paying a retailer directly for the purchase of goods.
The 2022 Act also extends the definition of credit servicing in the CBA 1997. This means that the services that comprise credit servicing will now also be broader and have been extended to cover credit servicing activities relating to PCP, hire-purchase and consumer-hire agreements.
23% limit on APR
The 2022 Act also stipulates 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 2022 Act 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 2022 Act 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 obligation to state the APR in hire-purchase agreements is effective immediately from 16 May 2022.
The 2022 Act provides for transitional authorisation provisions, and these require entities to apply to the Central Bank for authorisation as either a Retail Credit Firm or Credit Servicing Firm no later than three months following the enactment of the legislation.
Relevant firms are advised to take careful note of what the 2022 Act covers, and we recommend that both regulated and unregulated entities carefully consider the implications of this legislation. Entities who may be affected should consider their obligations under the 2022 Act and whether they may now need to seek an authorisation before the end of the tight transitional period.
The Central Bank updated the existing Retail Credit Firm and Credit Servicing Firm authorisation process in May 2022 to take account of the requirements of the 2022 Act. Entities seeking to avail of the transitional arrangements should be aware that in order to do so they must complete a declaration form, in addition to completing and providing all information required in the relevant application form for authorisation and submit both to the Central Bank no later than 16 August 2022.
Should you require guidance on any aspect of the 2022 Act and its likely impact on your organisation’s operation, 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.