Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

I move amendment No. 1:

In page 4, between lines 3 and 4, to insert the following:

“Amendment of section 28 of Central Bank Act 1997

2. Section 28 of the Central Bank Act 1997 is amended—(a) in subsection (1)—

(i) by substituting the following definition for the definition of “credit servicing”:

“ ‘credit servicing’, in relation to a credit agreement, means, subject to subsection (2)—

(a) holding the legal title to credit granted under the credit agreement,

(b) managing or administering the credit agreement, including—

(i) notifying the relevant borrower of changes in interest rates or in payments due under the credit agreement or other matters of which the credit agreement requires the relevant borrower to be notified,

(ii) taking any necessary steps for the purposes of collecting or recovering payments due under the credit agreement from the relevant borrower,

(iii) managing or administering any of the following:

(I) repayments under the credit agreement;

(II) any charges imposed on the relevant borrower under the credit agreement;

(III) any errors made in relation to the credit agreement;

(IV) any complaints made by the relevant borrower;

(V) information or records relating to the relevant borrower in respect of the credit agreement;

(VI) the process by which a relevant borrower’s financial difficulties are addressed;

(VII) any alternative arrangements for repayment or other restructuring;

(VIII) assessment of the relevant borrower’s financial circumstances and ability to repay under the credit Aagreement;

(IX) determining the overall strategy for the management and administration of a portfolio of credit agreements;

(X) maintaining control over key decisions relating to such portfolio,

or

(c) communicating with the relevant borrower in respect of any of the matters referred to in paragraph (b);”,

(ii) by substituting the following definition for the definition of “credit servicing firm”:

“ ‘credit servicing firm’ means, subject to subsection (2A)—

(a) a person (other than the National Asset Management Agency or a NAMA group entity (within the meaning of the National Asset Management Agency Act 2009)) who undertakes credit servicing other than on behalf of an owner of credit,

(b) a regulated financial service provider taken to be authorised to carry on the business of a credit servicing firm by virtue of subsection (3), or

(c) a credit servicing firm taken to be authorised to carry on the business of a credit servicing firm by virtue of subsection (4);”,

and

(iii) by inserting the following definitions:

“ ‘owner of credit’ means—

(a) a person who is authorised, or, by virtue of subsection (4), taken to be authorised, to carry on the business of a credit servicing firm, or

(b) a regulated financial services provider authorised, by the Bank or an authority that performs functions in an EEA country that are comparable to the functions performed by the Bank, to provide credit in the State;

‘retain on an ongoing basis a material net economic interest of not less than 5 per cent’ shall be construed in accordance with Article 6 of Regulation (EU) 2017/2402 of the European Parliament and of the Council of 12 December 2017¹;

‘securitisation special purpose entity’ means a corporation, trust or other entity (other than an originator or sponsor)—

(a) established for the purpose of carrying out one or more securitisations,

(b) the activities of which are limited to those appropriate to accomplishing that objective, and

(c) the structure of which is intended to isolate the obligations of the securitisation special purpose entity from those of the originator;

‘securitisation’, ‘originator’, and ‘sponsor’ have the meanings given to them respectively by Article 2 of Regulation (EU) 2017/2402 of the European Parliament and of the Council of 12 December 2017;”,

(b) by substituting the following subsection for subsection (2):

“(2) For the purposes of this Part, a person who holds the legal title to credit granted under a credit agreement (in this subsection referred to as ‘the holder’) is taken to be credit servicing even if any action referred to in paragraph (b) or (c), as the case may be, of the definition of ‘credit servicing’ in subsection (1) is being undertaken by a person, acting on behalf of the holder, authorised to carry on the business of a credit servicing firm.”,

(c) by inserting the following subsection after subsection (2):

“(2A) For the purposes of this Part, ‘credit servicing firm’, in relation to credit granted by, or the holding of legal title to credit by, the owner of credit, does not include a securitisation special purpose entity to which any part of the interest of the owner of credit in the credit concerned is directly or indirectly assigned or otherwise disposed of, as part of a securitisation, where—

(a) the securitisation special purpose entity was established by or on behalf of the owner of credit as part of the securitisation arranged by or on behalf of that owner of credit,

(b) the owner of credit retains the legal title to the credit so assigned or otherwise disposed of, and

(c) the owner of credit is required to retain on an ongoing basis a material net economic interest of not less than 5 per cent in the credit so assigned or otherwise disposed of;”,

and

(d) by inserting the following subsection after subsection (3):

“(4) For the purposes of this Part, a person (other than a regulated financial service provider taken to be authorised to carry on the business of a credit servicing firm by virtue of subsection (3)) authorised to carry on the business of a credit servicing firm before the coming into operation of the Consumer Protection (Regulation of Credit Servicing Firms) Act 2018 is taken to be authorised to carry on the business of a credit servicing firm after such coming into operation.”.”.

Amendments Nos. 1 and 2 are grouped for discussion. I have spoken on section 1. The amendments are aimed at the definitions which will be inserted in section 28 of the Central Bank Act 1997. This section is in the Part of the 1997 Act which deals with the regulated businesses. The amendments will expand the definition of "credit servicing" and "credit servicing firm" and also allow passive securitisation vehicles to continue to operate without regulation. These vehicles are completely passive and do not interact with consumers and, therefore, do not give rise to any consumer protection concerns. Their role in providing funding to the financial sector which can be used to provide credit to the real economy is widely recognised and it was never my intention that these vehicles would be regulated.

Credit servicing has been broken into three components. The first, holding legal title to credit granted under the credit agreement, is the key element of the Bill.

The second component is the managing or administering of a number of different elements of the credit agreement. This includes all elements which were previously in the definition of credit servicing and also includes "determining the overall strategy for the strategy and administration of a portfolio of credit agreements" and "maintaining control over key decisions related to the portfolio". These are the key elements and these are changes to the definition of the credit servicing firm. It is essentially what pulls in the loan owner who is making those decisions. The third component is communicating with the borrower on these elements.

This will capture those activities whose exclusion from the definition of credit servicing meant that owners of credit agreements were not required to be authorised including the now specifically holding of legal title to credit making key decisions and determining strategy means that anyone doing these activities will need authorisation and will, therefore, be regulated by the Central Bank.

I refer to the amended definition of a credit servicing firm. This means that anyone who undertakes credit servicing other than on behalf of a regulated owner and includes people who were taken to be authorised under transitional arrangements.

If a person is undertaking credit servicing on behalf of an owner of credit, the credit servicer does not have to be regulated because the owner of the credit is the regulated entity. This part of the definition is similar to the definition in the 2015 Act. The amendment will also insert a number of technical definitions to do with ownership and with securitisation.

There is a new subsection (2). This makes it clear that even if there is an owner, that is the holder of legal title, and has credit servicing undertaken by a regulated credit servicing firm, the owner still has to be regulated. New subsection (2A) specifically excludes securitisation entities from the need to be authorised. It draws from the definitions used in the most recent securities regulation, Regulation (EU) 2017/2402 of the European Parliament and of the Council of 12 December 2017.

There are a number of technical definitions inserted in the Bill on foot of this exclusion, "owner of credit", "retain on an ongoing basis", "securitisations special purpose entity" and also others which are given the same meaning as in the regulation.

It was always the intention that securitisation vehicles which were not actively involved in dealing with consumers would not require regulation by the Central Bank. We sought to provide for that in the original Bill. An amendment has now been brought forward, with the assistance of the Department of Finance. This technical amendment excludes securitisation from the definition of credit servicing.

New subsection (4) makes it clear that a person who is currently authorised to carry on the business of a credit servicing firm is taken to be authorised under the 2018 legislation without having to seek further authorisation. It is difficult to see why we would need to have additional authorisation requirements for existing firms which are already authorised and regulated.

If additional requirements are needed, it should be noted that section 33A of the Central Bank Act 1997 provides that the bank, in dealing with a regulated business, may among other things:

( a) make the firm’s authorisation subject to such conditions or requirements, or both, as it considers appropriate, relating to— (i) the proper and orderly regulation and supervision of retail credit firms or authorised home reversion firms, and

(ii) the protection of their customers or potential customers;

Acceptance of this amendment will involve the deletion of section 2 currently in the Bill.