The Consumer Protection (Regulation of Credit Servicing Firms) Act 2015 (the ‘Act’) introduces a new regulatory regime for companies providing loan services as of 8 July 2015. The Act is designed to protect borrowers upon the sale of a consumer loan portfolio to unregulated entities, restoring a number of rights which had previously been lost. Along with reinstating consumer rights and protections, the Act creates a new type of regulated entity called a ‘credit servicing firm’.
The implications of the enactment of the Act are twofold; unregulated purchasers of loan portfolios will need to take the necessary steps to avoid inadvertently triggering a license requirement requiring them to obtain authorisation from the Central Bank of Ireland (the Central Bank); when appointing a credit servicing firm unregulated owners must put in place a robust SLA with the firm and ensure they have an effective compliance function is in place.
The Act is designed to ensure continued protection for relevant borrowers upon the sale of consumer loan portfolios to unregulated entities. The Act restores the following:
- protection borrowers possessed under the following code of conducts; Code of Conduct for Mortgage Arrears (CCMA), the Consumer Protection Code (CPC) and the Code of Conduct for Business Lending to Small and Medium Enterprises (SME);
- access to the Financial Ombudsman; and
- the right to sue by way of private action for damages for breach of financial services legislation.
The Act also creates a new type of regulated entity, ‘credit servicing firm’, which will be subject to supervision and enforcement by the Central Bank.
Loans to relevant borrowers which fall within the scope of the CCMA, CPC or SME are captured by the Act: this includes property and non-property related loans.
What is a credit service firm?
Credit servicing firms are typically companies who manage the day-to-day loan portfolio activities on behalf of unregulated owners. Activities include notifying borrower of changes in terms and conditions or collecting/recovering payments due. Similarly it includes companies/persons who hold legal title to credit granted under a credit agreement and carry out credit servicing activities.
Becoming a credit service firm
All existing unregulated persons or companies providing credit servicing have interim authorisation to act as a credit servicing firm until the Central Bank either grants or refuses authorisation. This interim authorisation is conditional on the firm submitting their application to act as a credit servicing firm to the Central Bank by the 8 October 2015.
Existing regulated financial services providers in Ireland are taken to be authorised to carry on the business of a credit servicing firm due to their current authorisation status with the Central Bank.
How does the Act affect credit servicing firms?
From the 8 July 2015 all dealings with borrowers must be in accordance with the relevant code of conduct.
Credit servicing firms who have not previously worked within a regulated environment will need to give consideration to the development of a robust three line defence including the compliance architecture culture necessary to manage this new risk. In addition the firm will need to consider how to re-engineer internal operations, set up a new regulatory compliance department and training staff in line with the fitness and probity regime.
How Grant Thornton can help
Grant Thornton can provide a suite of services to credit servicing firms including:
- assisting in the authorisation process;
- initial set up of in-house regulatory compliance function;
- regulatory compliance reviews for CCMA, CPC and SME;
- anti-money laundering and counter-terrorist financing reviews;
- regulatory compliance reviews;
- operational effectiveness reviews; and
- loan classification reviews.