Michael McGrath (Cork South Central, Fianna Fail)
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33. To ask the Minister for Finance his plans to introduce further protections for mortgage holders and SMEs whose loans have been sold to unregulated loan owners, including so-called vulture funds; his further plans to bring these funds fully within the ambit of financial regulation; and if he will make a statement on the matter. [1894/17]

Michael McGrath (Cork South Central, Fianna Fail)
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I am sure the Minister saw the RTE documentary, "The Great Irish Sell Off", which dealt with the sale of mortgage loans and SME loans to so-called vulture funds and the growing concerns among those in the farming community who are trying to negotiate some way forward with some of the vulture funds who own their loans. The Minister and I disagree on whether there is a need to strengthen protections for mortgage holders and business owners whose loans are owned by such funds. I believe there is a need to strengthen these protections, which the Government signed up to doing in its programme for Government. What are the Minister's intentions in this regard?

Michael Noonan (Limerick City, Fine Gael)
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As the Deputy will be aware, the Consumer Protection (Regulation of Credit Servicing Firms) Act 2015 was enacted in July 2015. It was introduced to fill the consumer protection gap where loans were sold by the original lender to an unregulated firm. The Act introduced a regulatory regime for a new type of entity, known as 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.

Under the Act, purchasers of loan books must either be regulated by the Central Bank or the loans must be serviced by a credit servicing firm regulated by the Central Bank. The significant point is that we regulate at the point of contact with the customer. Therefore, 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 and the code of conduct on mortgage arrears issued by the Central Bank of Ireland and the Central Bank (Supervision and Enforcement) Act 2013 (Section 48) (Lending to Small and Medium-Sized Enterprises) Regulations 2015, which came into operation in July 2016. It is important to highlight 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.

The Central Bank is now the competent authority for the authorisation and supervision of credit-servicing firms. Credit-servicing firms must comply with all relevant requirements of financial services legislation, including the various codes and regulations mentioned already and fitness and probity standards, including minimum competency requirements.

In addition to compliance with Central Bank codes of conduct, credit-servicing firms will have to demonstrate to the Central Bank that they have robust governance and adequate resources to ensure compliance; agreements with loan owners that enable the credit-servicing firm to fully comply with its obligations under Irish financial services legislation; and adequate and effective control of loan servicing in the State to enable Central Bank oversight.

Additional information not given on the floor of the House

In addition, the Consumer Protection (Regulation of Credit Servicing Firms) Act, 2015 ensures that a regulated credit servicing firm cannot do something, or fail to do something, which would be a prescribed contravention if performed, or not performed, by a retail credit firm. The legislation also prevents the owner of credit from instructing a regulated credit servicing firm to perform such an action. Therefore the borrower is protected because the owner cannot give an instruction that would breach the rules but also the instruction cannot be implemented by the regulated credit servicer, over whom the Central Bank has oversight as a regulated entity.

Nonetheless, my Department will continue to keep all relevant legislation under review in order to ensure that borrowers whose loans have been sold are properly protected and do not lose any protections which they previously enjoyed. In addition, the Department of Finance expect that the Central Bank, as regulator of credit servicing firms, will be vigilant in this area and raise any specific instances where they have found consumers have not had their protections upheld or that their positions have been disadvantaged.

Michael McGrath (Cork South Central, Fianna Fail)
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I thank the Minister. There is one example that really sums up what is wrong in all this. I have a letter here from Maris Capital to a mortgage holder stating two firms have been appointed as the credit-service firms. The contact details are given as a PO box number in Dublin 2. There is no address given for the credit-servicing firms and no telephone number to contact. If one is in difficulty with one's mortgage, one wants to deal with the people who can make a final decision on the restructuring of one's loan, be one a mortgage holder, farmer, SME or otherwise. Under the existing legislation, however, there is a gap. One cannot have any direct contact with the loan owner, or the person making the final decision on whether to move in on the borrower, enforce the security, restructure the loan or raise the interest rate. Restructuring is simply not happening when it comes to funds because they have no interest in the longer term. There are here to get their hands on the underlying asset ultimately or to sell on the loans. That is the prospect that is now working itself out in the marketplace. This is just a simple example of what is wrong with the current system of regulation. It is not acceptable that funds, which call all the shots in regard to loans, remain beyond the ambit of regulation. The Minister needs to deal with that or this House will move to do so - this year, in my view.

Michael Noonan (Limerick City, Fine Gael)
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I am not sure whether the letter the Deputy alluded to complies with the legal position. In the first instance, I invite him to contact the Governor of the Central Bank to ascertain whether it does comply with the legislation. Second, if the Deputy lists for me the difficulties with the current legislation, I will engage with him and put civil servants at his disposal to draft amending legislation. My problem is that the legislation introduced last year deals with the intermediary who contacts the borrower on behalf of the loan owner. That seemed to cover it. To make doubly sure, if the owner directs the intermediary in any way on how to proceed, the owner is subject to the legislation because his status transfers from hands-off owner to someone who is carrying out the work of the intermediary. Thus, he is caught under the legislation also.

The Deputy has raised this on a number of occasions. I invite him to write or talk to me about his precise concerns. I am amenable to introducing amending legislation to the Act introduced last year. If it needs to be extended to owners, it will be. I am at a loss and my advice is not in accord with what the Deputy is recommending. Despite that, I have sympathy with his point of view. If we could proceed on that basis, I will do so.

Michael McGrath (Cork South Central, Fianna Fail)
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I sent this letter to the Central Bank, to the Director of Consumer Protection. It is all in order under the credit-servicing legislation of 2015. A loan owner can appoint as many credit-servicing firms as it wants to deal with a particular loan. That is the reality at present. The Minister has obliged the intermediary, which is typically a call centre, to be a regulated entity. I have dealt with them myself and I got the borrowers to sign letters of authorisation. The intermediary will tell me it is making a proposal to the loan owner, to the fund, for restructuring or otherwise. It is as obvious as night follows day that the decision is being made by the loan owner, the fund. Those concerned sit around a board room and decided on a whole list of cases at any given meeting. That is the practice.

One is exposing borrowers to a scenario in which their loan can be sold to anyone. All anyone has to do to comply with the law is to appoint an intermediary. I will continue to press the issue. I will engage with the Minister and his officials. I appreciate his offer. This issue is only beginning to play itself out. There are real anomalies and there is a gap in the legislation that exposes borrowers. The fundamental truth is the funds do not have an interest in longer-term restructuring of loan agreements because they are not in it for the long haul. Until we all accept and understand that, we are not going anywhere.

Michael Noonan (Limerick City, Fine Gael)
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I will work with the Deputy and put the officials in question at his disposal. If anybody else who is particularly interested in this issue wants to engage, I will engage with him or her also.