Thursday, 15 July 2021
Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Bill 2021: Second Stage (Resumed)
I thank the Minister of State, Deputy Fleming, for bringing the Bill forward and for listening to the observations of colleagues. My thanks to the Acting Chairman as well.
This is a great opportunity for me to speak about the Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Bill 2021. As my colleague, Deputy Murnane O'Connor, stated, the Bill is long overdue. Certain changes in the regulations were required. The Bill is timely and necessary.
The primary purpose of this legislation is to protect the consumer by ensuring that any person or firm carrying on a business of providing credit, hire purchase, personal contract plan, PCP, or consumer hire agreements to consumers or other relevant persons will fall within the regulatory remit of the Central Bank of Ireland. It will give the Central Bank the necessary legislative powers to apply its consumer protection code, or any other relevant code, to such firms.
The Bill facilitates the implementation of a key recommendation of the Tutty report, about which I will speak in a moment, on the operation of the personal contract plan, PCP, market. The report recommended that the Central Bank apply relevant provisions of the consumer protection code to all providers of hire purchase and PCP agreements where such financial products are being sold to consumers. It referred in particular to the code’s obligations on financial service providers to assess, prior to entering into a credit agreement, the financial capacity of the consumer and the suitability of the product for the consumer. As all providers of PCP and other similar agreements to consumers will now have to be authorised by the Central Bank, the bank will then be able to apply its consumer protection code and other consumer protection powers to such firms. This will improve the level of protection available to the consumers of such agreements.
As has been widely reported, PCPs have become increasingly popular in recent years and now account for about 40% of car-related bank debt, having increased from about 15% in the middle of the last decade. PCPs generally offer lower monthly repayments to the buyer. They are particularly popular with car dealers as they increase the potential for repeat business. However, they are complex financial products involving a degree of risk. It is important people entering into such contracts are aware of what they may entail and the risks involved, particularly the significant balloon payments that can come as a nasty surprise at the end of some financing arrangements. The Competition and Consumer Protection Commission carried out a study of the PCP market in 2018 and determined that the complexity of the product, combined with the potential for softening car prices on the second-hand market, risked causing "significant consumer detriment", a point that was emphasised by Frank Conway of the Irish Financial Review and Moneywhizz. While there has been a significant hardening in used car prices post-Brexit and during the Covid pandemic, this is still a medium to long-term concern.
As I referred to earlier, a review of these financial products was carried out by Michael Tutty in 2018. The review stated that further consumer protections were necessary, hence this Bill. This legislation will ensure that all providers of hire purchase and PCP agreements will come under the regulation of the Central Bank.