Michael McGrath (Cork South Central, Fianna Fail)
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91. To ask the Minister for Finance his views on requiring banks to provide more information as to why lending applications are declined; and if he will make a statement on the matter. [9834/15]

Michael Noonan (Limerick City, Fine Gael)
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As the Deputy is aware, I have no direct function in the relationship between banks and their customers or in the day-to-day commercial and operational decisions of the banks. These decisions are taken by the board and management of the institutions.

In relation to the requirement for lenders to provide more information as to why lending applications are declined, I am informed by the Central Bank that there are a number of measures in place in this regard:

Consumer Credit Act 1995

Section 142 of the Consumer Credit Act 1995 provides, subject to specified exceptions, as follows:

Where a creditor or an owner refuses to enter into an agreement with a consumer, he shall disclose to the consumer the name and address of any person from whom he sought information concerning the financial standing of the consumer who gave information which influenced the refusal, within 14 days after receiving a request in writing to that effect from the consumer.

European Communities (Consumer Credit Agreements) Regulations 2010

Part 3 of the European Communities (Consumer Credit Agreements) Regulations 2010, which apply to the provision of credit for amounts between €200 and €75,000 (excluding mortgages) sets out the following requirement:-

12.(1) Subject to paragraph (2), if a consumer's credit application is rejected on the basis of the consultation of a database, the creditor concerned shall inform the consumer immediately and without charge of the result of the consultation and of the particulars of the database consulted.

(2) The information need not be provided if the provision of it is prohibited by another law or is contrary to objectives of public policy or public security.

(3) This Regulation is without prejudice to the application of the Data Protection Acts 1988 and 2003.

(4) A creditor or credit intermediary that contravenes a provision of this Regulation commits an offence.

Consumer Protection Code 2012 (the CPC 2012)

Provision 4.24 of the CPC 2012 requires that where a formal application for credit is turned down by a regulated entity, the regulated entity must clearly outline to the personal consumer the reasons why the credit was not approved. The regulated entity must also offer to provide the reasons on paper or another durable medium to the personal consumer and do so, if requested. This provision of the CPC 2012 does not apply to the provision of credit under credit agreements which fall within the scope of European Communities (Consumer Credit Agreements) Regulations 2010.

Code of Conduct for Business Lending to Small and Medium Enterprises 2012 (the SME Code)

Provision 12 of the SME Code requires that '[w]here an application for credit is declined, the regulated entity must explain clearly to the borrower the reason(s) why the credit facility was declined'.

The Central Bank issued a public consultation on 11 January 2015 on the Review of the Code of Conduct for Business Lending to Small and Medium Enterprises which included a set of proposed regulations:

As part of the review, the Central Bank is proposing to strengthen the protections available to SMEs in a number of areas, including:

- requiring lenders to provide information on the application process and associated timelines;

- introducing requirements to assess affordability;

- requiring lenders to provide reasons in writing for declining credit that are specific to the application (or part thereof) that was declined;

- expanding the appeals provisions to include decisions on declining or withdrawing credit and decisions regarding terms and conditions; and

- requiring lenders to provide information to the customer about:

- Government supports available from or through the lender,

- the lender's appeals process and the role of the Credit Review Office (where relevant), and

- the complaints process including, where relevant, to the Financial Services Ombudsman (FSO).

Regulation 13(1) of the proposed Regulations to replace the existing SME Code would expand the existing requirement as regards declined applications for credit by SMEs:

1. If a lender is refusing a credit application, the lender shall provide the borrower with at least the following information:

(a) an explanation of the reason(s) why the application for credit was refused.  The explanation provided shall:

1. be clear and comprehensible,

2. identify the application (or part thereof) that was refused, and

3. be specific to the borrower's application (or part thereof),

(b) information on the lender's internal appeals procedure established pursuant to Regulation 21 and information  on how to appeal a decision by the lender to refuse an application for credit,

(c) where the lender's decisions are subject to review by the Credit Review Office, information about the role of the Credit Review Office and the contact details for the Credit Review Office,

(d) information about any other supports available from or through the lender, which may include relevant Government support schemes, and

(e) information about the borrower's right to make a complaint under the lender's complaints procedure established pursuant to Regulation 22.

The proposed regulations would require that the explanation given to borrowers would be clear and comprehensible and be specifically related to a borrower's application.  Further, as part of the refusal notification, a lender would be required under the proposed regulations to provide information to borrowers on the lender's internal appeals procedure, the Credit Review Office (where applicable), other support available from or through the lender and the borrowers right to make a complaint under the regulations.  These requirements are not currently in place under the existing SME Code.

In addition, provision 24 of the proposed Regulations requires that 'the lender shall provide any information or explanation required to be made to a borrower or a person providing security pursuant to these Regulations in a durable medium'.

The consultation period will end on 13 April 2015 at which point the responses received will be considered and revisions made to the proposed Regulations, as appropriate.