Bernard Durkan (Kildare North, Fine Gael)
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75. To ask the Minister for Finance the degree to which he continues to monitor the activities of investment or vulture funds here with a view to ensuring fair and equitable treatment of consumers; and if he will make a statement on the matter. [16448/20]

Paschal Donohoe (Dublin Central, Fine Gael)
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The Central Bank is the competent authority in Ireland for the authorisation and supervision of credit servicing firms under Part V of the Central Bank Act 1997 (the Act).

Part V of the Act was amended by the Consumer Protection (Regulation of Credit Servicing Firms) Act 2015, introducing a regulatory regime for credit servicing firms and bringing such firms within the Central Bank’s regulatory remit. Part V was further amended by the Consumer Protection (Regulation of Credit Servicing Firms) Act 2018 to expand the activity of credit servicing, as defined in the Act, to include holding the legal title to credit granted under a credit agreement and associated ownership activities.

Section 34FA(1) of the Act provides that a person carrying on the business of a credit servicing firm (insofar as that business relates to the newly regulated activities now falling within the scope of the Act) immediately before the commencement of the 2018 Act is taken to be authorised to carry on the business of a credit servicing firm until the Central Bank has granted or refused authorisation to the person, provided that the person applies to the Central Bank under section 30 of the Act for authorisation, in a form specified by the Central Bank, no later than 3 months after that commencement. Persons seeking to avail of these transitional arrangements were therefore required to have completed and submitted an application for authorisation to the Central Bank by 21 April 2019 in order to continue to engage in such activities. 37 firms were granted transitional authorisation status, having applied for authorisation by 21 April 2019 and demonstrated that they met the relevant requirements to avail of the transitional arrangements. Since that date, some firms ceased carrying out regulated activities and withdrew their application for authorisation.

I have been advised by the Central Bank that it has a robust authorisation process in place in which applicants will be required to demonstrate that they meet the Authorisation Requirements and Standards for credit servicing firms. Firms must be able to demonstrate to the Central Bank that they are capable of being supervised, that adequate and effective control of credit servicing takes place in the State and that they are in a position to conduct their affairs in a manner that ensures the best interests of consumers are protected. Factors to be considered in this regard include where the ‘mind and management’ of the firm is located, where key decisions are made and where key functions are undertaken. Persons in senior positions in these firms will also be required to demonstrate that they comply with the Fitness and Probity Standards, the core function of which is to ensure that they are competent and capable, honest, ethical and of integrity and also financially sound. Once the assessment phase of the authorisation process is completed, an applicant will either be granted or refused authorisation and the public register of credit servicing firms will be updated to reflect those firms who have been granted an authorisation.

While under consideration for authorisation, transitional credit servicing firms are subject to the full suite of consumer protection legislation, including the Consumer Protection Code and the Code of Conduct on Mortgage Arrears (CCMA). They are also required to keep the existing associated authorised credit servicing firm in place until their application for authorisation is approved or refused.

In terms of supervision, the Central Bank’s strategy for supervising the credit servicing sector under the existing regulatory framework has a number of elements, including:

1. Detailed data gathering and analysis, including mortgage arrears and repossession data, such as the pattern of arrears in the Irish mortgage market by entity type; mortgage arrears profile; restructuring activity in the Irish market; data on alternative repayment arrangements and complaints etc. Additionally, obtaining direct evidence from consumers to provide first-hand information about their experiences in dealing with the sectors;

2. Intensified risk and evidenced-based supervision, which includes both on-site and offsite inspections, as appropriate. This includes continuous assertive supervision of credit servicing firms’ compliance with the CCMA, to ensure that a fair and transparent process is in place for all borrowers, including those whose loans have been sold; and

3. Use of their full suite of supervisory powers as appropriate.

Currently the Central Bank is focused on ensuring the interests of borrowers affected by the COVID-19 pandemic are appropriately protected. Where a borrower is unable to repay their loan due to short-term financial difficulties caused by COVID-19, they have worked with regulated entities, including credit servicing firms, to make payment breaks available. In this regard, they have recently written to regulated entities, including credit servicing firms, setting out their expectations on how COVID-19 payment breaks should operate. A copy of which can be found here.

Finally, the Central Bank advises me that its approach to the supervision of the credit-servicing sector is underpinned by an expectation of high standards and a professional and consumer-focused approach to compliance.

Examples of some of the supervisory work the Central Bank has carried out in this regard includes:

1. In October 2018, in recognition of the fact that Irish banks, in common with their European counterparts, were increasingly opting for loan disposals (sales or securitisations) as a means of dealing with Non-Performing Loans (NPLs), the Central Bank published a Section 6A Report on the Effectiveness of the Code of Conduct on Mortgage Arrears in the context of the Sale of Loans by Regulated Lenders. Based on a point in time analysis and informed by various strands of work including inspections, data collection, and stakeholder engagement, the report found that for borrowers who engage with the process, the CCMA was working effectively and as intended in the context of the sale of loans by regulated lenders;

2. In August 2019, in the context of recent activity in the Irish residential mortgage market and evidence of some specific instances that could give rise to potential customer detriment, the Central Bank wrote to banks, retail credit and credit servicing firms to:

1. Set out their expectations of these regulated entities in relation to Mortgage Loan Transactions ; and

2. Seek assurances from the boards of these regulated entities (that are party to Mortgage Loan Transactions) that they have taken the necessary steps to ensure that the policies, procedures, systems and controls of the firm are sufficiently robust to ensure that consumer interests are protected; and

a. In October 2019, following an investigation by the Central Bank into the practice of charging costs associated with the legal process, including third party costs (the costs) to borrowers in mortgage arrears and charging of interest on the costs, the Central Bank wrote to banks, retail credit and credit servicing firms to:

b. Set out their expectations of these regulated entities in relation to charging costs and interest on the costs; and

c. Seek assurances from the boards of these regulated entities that where it was identified that any systems, policies, procedures and practices were not in line with the expectations outlined in the letter, appropriate action would be undertaken as a matter of priority.