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

The previous Government advanced the Consumer Protection (Regulation of Credit Servicing Firms) Act 2015 to ensure that purchasers of relevant loan books must either be regulated by the Central Bank or loans purchased by non-regulated entities must be serviced by a credit servicing firm who is regulated by the Central Bank and therefore subject to the Central Bank's code of conduct.

The Act was introduced to fill the consumer protection gap where loans were sold by the original regulated lender to an unregulated firm. It introduced a regulatory regime for a new type of entity called a credit servicing firm.  Credit servicing firms are now subject to the provisions of Irish financial services law that apply to regulated financial service providers. This ensures that relevant borrowers, whose loans are sold to third parties, maintain the same regulatory protections they had prior to the sale, including under the various statutory codes such as the consumer protection code, the code of conduct on mortgage arrears, the code of conduct for business lending to small and medium enterprises and the minimum competency code, issued by the Central Bank of Ireland.

It should be highlighted that the transfer of a loan from one entity to another does not change the terms of the contract or the borrower's rights and obligations under the original contract.  Also, following a review in 2015, the Central Bank code of conduct for business lending to small and medium enterprises has been strengthened in certain areas resulting in the Central Bank (Supervision and Enforcement) Act 2013 (Section 48) (Lending to Small and Medium-Sized Enterprises) Regulations 2015 which come into operation on 1 July 2016.

It should also be noted that the Deputy's proposal that commercial loans could only be sold to regulated entities with a banking licence would likely reduce the attraction of competition into the SME credit market by deterring the entry of non-bank financing sources to credit markets at a time when there is agreement across the EU on the need for greater non-bank financing.

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