Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

I move: "That the Bill be now read a Second Time."

I welcome the opportunity to address the House on this important legislation, which is a priority issue for the Government. The purpose of the legislation is to protect consumers whose loans are sold by regulated financial service providers to unregulated firms. It will address concerns surrounding the continued applicability of the Central Bank's codes and access for borrowers to the Financial Services Ombudsman after loan books are sold. The proposed legislation provides that borrowers retain protections after their loans are sold. For example, they will retain the protections provided by the Central Bank codes, such as the code of conduct on mortgage arrears, known as the CCMA.

Unregulated financial institutions are not bound by the Central Bank codes. In addition, while customers of unregulated financial institutions have access to the courts, they do not have access to the Financial Services Ombudsman. As Members will be aware, while many purchasers of loan books have already agreed to voluntarily apply the Central Bank codes when managing loan books, voluntary compliance is not enforceable. As a result, the Government committed in March 2014 to ensuring these protections would be made available for all consumers whose loans have been sold.

It is generally accepted that there is a need for financial institutions to be able to deleverage and restructure their loan books to return to their main business of supporting the economy through the provision of financial services, including credit for SMEs and consumers. We do not intend that this legislation will inhibit that process but neither do we want borrowers to lose protections because of a change in ownership.

Consumers need protection when they take out credit, during the course of holding credit and when they are repaying credit. It is not equitable for some of these protections to be avoided due to the regulatory position of the entity that owns the credit. For this reason, consumers should maintain the protections they had before their loans were sold and that is what the proposed legislation seeks to achieve.

The process of preparing the legislation has been complex. My officials have carefully considered how best to protect consumers and, as is often the case when preparing legislation, their thinking has evolved over the course of the preparatory phase. Last July and August, the Department of Finance ran a public consultation seeking views on this proposed legislation. A total of 19 submissions were received from a range of respondents, including the financial services industry, consumer groups, public representatives, individuals and other stakeholders. The submissions are available on the Department's website. Subsequently, my officials met some stakeholders to clarify submissions and the technicalities of how the credit servicing industry operates. The officials also discussed the issue with the authorities in the United Kingdom, which have faced similar policy challenges in recent times. Officials in the Department of Finance have carefully considered the submissions and have been working intensively with the Central Bank and Office of the Attorney General to progress this legislation. This legislation again underlines the value of public consultations. It means that legislation is prepared in an open and transparent manner and plays an important role in contributing to understanding of the issues and avoiding unintended consequences.

When work began on this Bill, the initial thinking was that the ownership of credit should be regulated to ensure that borrowers continue to receive the same protections as they enjoyed prior to the loan book sale.

The public consultation process highlighted an issue with this approach, as it was possible to envisage cases where owners would effectively be a passive special purpose vehicle, SPV, and where they would outsource servicing of the loans to a firm that would not be regulated. It therefore became clear from the consultation process that if we were to effectively protect consumers it was better to regulate the process of credit servicing, as that is the customer-facing activity. However, if an owner does not outsource credit servicing and instead undertakes the activity themselves, they must be regulated. In other words, some regulated entity will be responsible for all credit agreements.

The Bill is entitled the Consumer Protection (Regulation of Credit Servicing Firms) Bill 2015. The Title was agreed following consultation with theOffice of Parliamentary Counsel and reflects the approach being adopted to protect consumers.

The proposed legislation will amend the Central Bank Act 1942, Central Bank Act 1997, the Central Bank (Supervision and Enforcement) Act 2013 and the Consumer Credit Act 1995 and provide for related matters. It is proposed to amend section 28 of the Central Bank Act 1997 by inserting definitions of the terms “credit agreement”, “credit servicing”, “credit servicing firm” and “relevant borrowers”. The term “credit servicing” is tightly defined in order that a firm which communicates with relevant borrowers in regard to their credit agreement will require authorisation. As mentioned earlier, the legislation will also require owners which do not outsource credit servicing to another party to be regulated. The effect of this amendment is to regulate the activity of credit servicing, and the credit servicing firms engaged in such activity, in order that the borrowers retain the protections they had before the loan book was sold.

All consumer and SME loans which are sold will be covered by these amendments and retain the protections they currently have. These include, first, the code of conduct on mortgage arrears, CCMA, which sets out the framework that lenders must use when dealing with borrowers in mortgage arrears or pre-arrears. It requires lenders to positively engage with the objective of helping borrowers meet their obligations. Under the CCMA, borrowers must be dealt with in accordance with the mortgage arrears resolution process, MARP, which sets out the steps to be followed on communication, gathering financial information, assessing the circumstances of the borrowers and proposing a resolution. Procedures for complaints and appeals are also provided. Second, the consumer protection code provides protections such as limits on communications, personal visits and other contacts, complaint resolution processes, error handling, compliance of outsourced activity with the code and post-sale information provisions, including warnings on switching from a tracker mortgage to a variable interest rate mortgage. Third, on the code of conduct for business lending to small and medium enterprises, SME customers of regulated financial institutions have the protections provided regarding arrears handling, complaint resolution, etc.

Breaches of the Central Bank codes can lead to sanctions on the regulated entity. As credit servicing firms will become regulated financial services providers under the new legislative regime, all appropriate supervisory powers of the Central Bank will be applicable to them as regulated financial service providers, including the administrative sanctions procedures regime. Customers of regulated financial institutions also have access to the Financial Services Ombudsman, FSO, whose role is to investigate, mediate and adjudicate complaints about the conduct of regulated financial service providers. This is a very important protection for borrowers.

Finally, with regard to credit union credit, we must ensure that where credit union loan books are sold outside the credit union movement, those borrowers are afforded the same protections as other borrowers. This requires an amendment to the Consumer Credit Act 1995. Therefore, the relevant codes will apply to credit which is initially advanced by a credit union but is subsequently sold. We are not aware of circumstances where this has arisen but consider it to be prudent from a consumer protection perspective to provide for this.

Turning to the details of the Bill, section 1 amends section 28 of the Central Bank Act 1997 by inserting definitions of "credit agreement", "credit servicing", "credit servicing firm" and "relevant borrowers". The activities of credit servicing have been defined to ensure that the entity managing the relevant borrowers’ credit arrangements will be regulated. The effect of the amendments to section 28 of the Central Bank Act 1997 is to regulate the activity of "credit servicing" and the "credit servicing firms" engaged in such activity, so that the borrowers retain the protections that they had before a loan book was sold. Section 2 amends the Central Bank Act 1997 in regard to the Central Bank’s powers to grant and refuse applications for authorisation. Section 3 amends section 33A of the Central Bank Act 1997 to enable the Central Bank to impose conditions or requirements on authorised "credit servicing firms".

Section 4 amends the Central Bank Act 1997 by inserting new sections, 34E and 34F, with transitional provisions for retail credit firms and credit servicing firms, respectively. Section 5 amends Section 3 of the Central Bank (Supervision and Enforcement) Act 2013 to amend the definition of "customer". Section 6 amends the Central Bank Act 1942 to ensure that relevant borrowers whose credit agreements are being serviced by an authorised credit servicing firm are considered eligible consumers for the purposes of the Financial Services Ombudsman. Section 7 amends section 3 of the Consumer Credit Act 1995 (application) to ensure that the relevant Central Bank codes will apply to credit union credit that is sold to an unregulated entity. Section 8 contains the Short Title and collective citation. The Bill will commence on its signature by the President.

This Bill is important because it addresses the concerns of a number of consumers whose loans are sold. It will give consumers a legally enforceable right to complain to the Financial Services Ombudsman and it will ensure that consumers whose loans have been sold will have the benefits of the Central Bank codes and those dealing with those consumers will have to be authorised by the Central Bank. I look forward to a constructive debate on the Bill. I believe there is broad agreement in the House on the need to ensure that borrowers will have the same protections as they had before their loans were sold.

The Bill willprotect consumers whose loans are sold and I commend it to the House.

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