Seán Fleming (Laois-Offaly, Fianna Fail) | Oireachtas source

I am pleased to introduce the Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Bill to Seanad Éireann. It is generally accepted that there is a need to improve the regulatory framework governing the provision of certain new types of finance to consumers. The Bill seeks to do that. Its primary objective is to provide that any firm which offers credit, hire purchase, personal contract plans, PCPs, or consumer-hire agreements to consumers and other relevant persons will, unless already subject to the Central Bank authorisation, be required to be authorised as a retail credit firm by the Central Bank of Ireland. This will then allow the Central Bank to apply the consumer protection code to all firms which provide those forms of financial accommodation to consumers.

PCPs have been growing in popularity of the past number of years as a variation on the more traditional type of hire purchase type of finance, which is mainly used for the purchase of motor vehicles. Although the buy now, pay later, BNPL, type of credit has to a certain extent been a feature of the Irish consumer credit market, it has more recently come to the fore as a form of short-term finance used for the purchase of consumer goods. In light of the growing popularity of PCPs as a form of finance for the purchase of cars, the Minister for Finance commissioned Mr. Mike Tutty, who is a former second secretary general in the Department of Finance, to carry out a review of the current PCP market and regulatory structure. In his report, which was published in November 2018, Mr. Tutty stated that he did not find any evidence of consumer detriment arising from PCPs. Nevertheless, he also noted that there are certain risks associated with the use of such types of finance. His report sets out a number of recommendations to improve the oversight of the PCP market. The Minister for Finance has accepted all the recommendations, and with one exception, they are being implemented within the existing legislative and regulatory framework.The sole exception, however, is arguably the report's most important consumer recommendation, which was that personal contract plan and hire purchase contracts entered into by consumers should be covered by the Central Bank's consumer protection code. The code places important consumer protection obligations on entities that are regulated by the Central Bank. For example, it requires regulated firms to act honestly, fairly and professionally in the best interests of their customers and also to act with due skill, care and diligence.

Chapter 5 of the code places requirements on regulated entities in relation to knowing the consumer and suitability. This requires regulated entities, in advance of advancing credit, to assess both the affordability and suitability of a credit product for a customer. These are important requirements and are designed to prevent consumers from becoming over-indebted, or otherwise taking out an unsuitable financial arrangements.

However, neither hire purchase nor PCP agreements are currently covered by the code, as the Central Bank currently does not have the necessary legal basis to apply it to all the providers of such agreements to consumers. The Bill, therefore, proposes that all the providers of credit, including the indirect providers of credit, such as buy-now-pay-later credit, hire purchase, including PCPs, and consumer hire agreements to consumers and relevant persons will be required to be authorised by the Central Bank of Ireland as a retail credit firm. This will then give the Central Bank the power to apply the consumer protection code to all these firms.

In addition to enabling the Central Bank to apply its consumer protection code to such firms, the proposed new authorisation requirement will also allow the Central Bank to act as a gatekeeper to the market for the provision of all types of credit to consumers and so should better assist the bank in preventing problem firms from entering the market in the first instance, as opposed to having to address consumer protection or other regulatory problems which may occur down the road.

The Bill will also provide for the regulation of entities that service or own these agreements. This is to ensure that the provisions that already apply to the sale of cash loan type credit agreements will also apply in respect of any sales of other credit or hire purchase or consumer hire agreements.

The Bill also makes some consequential and related amendments to the Consumer Credit Act 1995. These include extending an existing cost of credit cap of up to 23% annual percentage rate, APR, on credit provided to consumers by certain firms to apply to all entities, which come within the scope of that Act, providing credit or hire purchase, other than money lending agreements which have their own regulatory framework, to consumers.

The Bill now contains 19 sections and I will run through them briefly.

Section 1 defines the Consumer Credit Act 1995 and the Central Bank Act 1997 as the "Act of 1995" and the "Act of 1997", respectively. These are the two main Acts which will be amended by this Bill.

Section 2 amends section 28 of the Central Bank Act 1997 by inserting additional definitions and amending definitions. These include expanding the range of arrangements that fall within the regulated business of retail credit firms and credit servicing firms. As a result, other forms of credit, including buy now, pay later and the indirect provision of credit, hire purchase, including PCPs, and consumer hire agreements will be added to the existing authorisation requirement in respect of the provision of credit in the form of a cash loan.

Section 3 makes a technical amendment to the Central Bank Act 1997 to confirm that any entity that is covered by any of these new subsections is not prohibited from carrying out any such regulated business.

Section 4 amends the Central Bank Act 1997, which provides limited discretion to the Central Bank of Ireland to exempt certain entities or classes of entities from the requirement to become authorised as a retail credit firm regarding the provision of credit in the form of cash loans, to take account of other changes being made in this Bill and extend it to cover the additional types of financial arrangements that will come within the regulated business of the retail credit firm.

Section 5 inserts a new section into the Central Bank Act 1997 to provide for the transitional arrangements for firms which will for the first time come within the scope of Central Bank of Ireland authorisation as a retail credit firm. This section, which mirrors similar provisions in the past, provides that, subject to applying to the Central Bank of Ireland for authorisation within a period of three months from the commencement of the relevant provisions, they will be deemed to be transitionally authorised by the Central Bank of Ireland and that authorisation will continue until the Central Bank of Ireland has granted or refused authorisation.

Section 6 amends the Central Bank Act 1997 by taking account of changes in the definition of "credit servicing firm" as set out in section 2 of the Bill.

Section 7 inserts a new section into the Central Bank Act 1997 and it mirrors the provision in the new section 34EA regarding transitional arrangements for firms which will for the first time come within the scope of Central Bank of Ireland authorisation as a credit servicing firm. As with section 5 in respect of the retail credit firms, subject to applying to the Central Bank of Ireland for authorisation within a period of three months from the commencement of the relevant provisions, existing credit servicing firms will be deemed to be authorised by the Central Bank and that authorisation will continue until the Central Bank of Ireland has granted or refused authorisation.

Section 8 amends the Central Bank Act 1997 to take account of the wider range of financial agreements, including hire purchase and consumer hire agreements, which will now fall within the scope of credit servicing firms.

Section 9 inserts a new section into the Central Bank Act 1997 to provide that the Minister for Finance may request the Central Bank, using the powers it already has under the Central Bank Acts, to collect and publish information on credit, hire purchase, including PCP, and consumer hire agreements. This will facilitate the publication of statistics and data on the level of financial accommodation provided by the regulated businesses.

Section 10 amends the Consumer Credit Act 1995 by inserting additional definitions and substituted definitions. Currently, it provides that the Central Bank may prescribe individual firms to be a "credit institution" for the purpose of the Act. The amendment will provide that the authorisation category of "retail credit firms" will replace this provision, as such an individual listing will become redundant in light of the new authorisation requirements provided for in section 2 of this Bill. A limited technical change is also being made to the definition of "APR" in the 1995 Act, as well as a cross-reference to the Central Bank Act 1997.

Section 11 amends section 3 of the existing legislation to make clear that interest and the cost free credit that is advertised falls within scope of that Act and that the provider of such type of credit falls within the regulatory remit of the Central Bank.

Section 12 amends the existing legislation to make clear that the APR provisions shall apply to credit and hire purchase, including PCP, agreements and the Central Bank may, by regulations, amend the method of calculating the APR.

Section 13 makes the contravention of the 1995 Act constitute an offence, which is not the case at the moment.

Sections 14 to 17, inclusive, are specific items regarding amendments of the Consumer Credit Act, the Social Welfare Consolidation Act and the Central Bank (Supervision and Enforcement) Act 2013.

Section 18 amends the Financial Services and Pensions Ombudsman Act 2017.

Section 19 sets out the Short Title and provides for the commencement provisions that the Act may come into operation by order or orders of the Minister for Finance.

I want to thank the Senators for their consideration of this Bill.