Pearse Doherty (Donegal, Sinn Fein)
Link to this: Individually | In context | Oireachtas source

104. To ask the Minister for Finance the provisions in place to prevent reckless lending within the economy and the penalties in place for lenders proved to have lent recklessly; and if he will make a statement on the matter. [17414/16]

Michael Noonan (Limerick City, Fine Gael)
Link to this: Individually | In context | Oireachtas source

There are now a number of measures in place to protect consumer borrowers. Key among these is the Consumer Protection Code 2012 ('the Code'). The Code, which is a statutory code issued inter alia under Section 117 of the Central Bank Act 1989, sets out many important protections for borrowers in relation to the sale of products (including mortgages), by imposing 'Knowing the Consumer and Suitability' requirements on lenders. Chapter 5 of the Code contains provisions in terms of how Irish lenders must assess the affordability of credit for an individual borrower, including that the personal and financial circumstances of any consumer applying for credit must be thoroughly assessed to ensure that they are only offered a product that is suitable to their personal circumstances and which they will be able to maintain over the life-time of the product.

In particular, Provision 5.1 of the Code requires that lenders must gather and record certain information on the consumer, including:

"a) Needs and objectives including, where relevant:

i) the length of time for which the consumer wishes to hold a product,

ii) need for access to funds (including emergency funds),

iii) need for accumulation of funds.

b) Personal circumstances including, where relevant:

i) age,

ii) health,

iii) knowledge and experience of financial products,

iv) dependents,

v) employment status,

vi) known future changes to his/her circumstances.

c) Financial situation including, where relevant:

i) income,

ii) savings,

iii) financial products and other assets,

iv) debts and financial commitments.

d) where relevant, attitude to risk, in particular, the importance of capital security to the consumer.

The regulated entity is only required to seek the information set out at a) to d) above where it is relevant to the assessment of suitability to be carried out under this Chapter."

Furthermore, Provision 5.9 specifically requires lenders to carry out an assessment of affordability and consider:

"a) the information gathered under parts b) and c) of Provision 5.1; and

b) in the case of all mortgage products provided to personal consumers, the results of a test on the personal consumer's ability to repay the instalments, over the duration of the agreement, on the basis of a 2% interest rate increase, at a minimum, above the interest rate offered to the personal consumer. This test does not apply to mortgages where the interest rate is fixed for a period of five years or more."

It should be noted that where regulated entities are providing credit under credit agreements which fall within the scope of the European Communities (Consumer Credit Agreements Regulations 2010 (S.I. No. 281 of 2010) the Provisions of Chapter 5 of the Code do not apply. However, these Regulations (which transpose the EU Consumer Credit Directive) separately place an obligation on a creditor to assess the creditworthiness of a consumer borrower before entering into a credit agreement with a consumer borrower (Regulation 11). In addition, the more recent European Union (Consumer Mortgage Credit Agreements) Regulations 2016 (which transpose the EU Mortgage Credit Directive) also places an obligation on creditors - in relation to residential mortgage and other relevant credit agreements - to assess the creditworthiness of a consumer borrower and furthermore places an onus on a lender to provide credit only where the result of the creditworthiness assessment indicates that the consumer's obligations are likely to be met in the manner required under that agreement (Regulation 19). Both Regulations provide that a creditor who contravenes these provisions commits an offence and the Central Bank's Administrative Sanctions powers are also available to enforce these provisions.

More generally, the Central Bank conducts themed inspections to monitor compliance with all of its codes of conduct (including the Consumer Protection Code) and breaches of regulatory requirements are dealt with using appropriate supervisory powers, including Administrative Sanctions powers, where appropriate. Furthermore, Central Bank supervision of credit institutions includes an assessment of lending practices and the management of credit risk in the credit institutions' risk appetite and governance frameworks.