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A core responsibility of the Central Bank of Ireland (“CBI”) is Consumer Protection. The introduction of the Consumer Protection Act highlights the Central Bank’s continued focus on consumer protection, with the specific purpose of closing the consumer protection gap in respect of consumer-hire agreements, hire-purchase agreements, including personal contracts plans (PCPs), and other forms of indirect credit such as Buy Now, Pay Later.
- The CBI now authorises providers and servicers of hire purchase products including personal contract plans (PCP), and consumer hire.
- Firms must register with the Central Bank as a Retail Credit Firm (RCF) or as a Credit Servicing Firm (CSF)
- The deadline for the transitionary period has now passed, as of August 16th, 2022.
- The CBI has introduced a limit of 23% as the maximum interest rate that a firm can charge customers for credit agreements.
- Firms must notify the Central Bank if they intend to implement new fees or increase rates.
Retail Credit Firms
The Act included the expansion of retail credit firms ‘relevant activities’ to include
- directly or indirectly providing credit to, or
- entering into a consumer-hire agreement or hire-purchase agreement with, a relevant person;
In addition, the definition of the term ‘credit’ has been expanded upon the original meaning of a cash loan to include the following
- a deferred payment,
- a cash loan
- other similar financial accommodation
A ‘Consumer-Hire Agreement’ has been introduced to mean ‘’an agreement of more than three months duration for the bailment of goods to a hirer under which the property in the goods remains with the owner”
Any persons now operating inside the expanded definition of a “retail credit firm” are obliged to engage with the Central Bank for permission and to abide by the Consumer Protection Code, and other applicable regulations.
Credit Servicing Firms
The second considerable alteration to the Act is the extension of the term ‘credit servicing’ The ‘credit servicing’ regime has been updated to require entities engaging in credit servicing in relation to a hire purchase agreement or a consumer-hire agreement to be authorised by the CBI. In addition, a newly expanded definition of “credit” means that credit servicing in relation to a broader range of “credit agreements” will now require authorisation.
Not exhaustively listed, the term “credit servicing” includes:
- Holding the legal title to the rights of the creditor under the agreement;
- Managing or administering the agreement notifying the borrower of interest payments;
- Collecting or recovering payments;
- Handling any errors in relation to the agreement;
- Assessment of the borrower’s financial circumstances; and
- Ability to repay under the agreement).
23% Annual Percentage Limit
The CBI now have the ability to modify the approach of calculating Annual Percentage Rate (APR) for credit or hire purchase agreements. The 2022 act included the introduction of a 23% limit pertaining to credit agreements and hire-purchase agreements. This APR limit came into effect on 16 May 2022.
Why Grant Thornton
Grant Thornton’s Financial Services Risk, Consulting and Advisory teams are comprised of dedicated experts who are experienced in supporting credit firms with a variety of regulatory challenges. We understand the advanced aspects of the expanded regulation have recently departed ex Central Bank of Ireland regulators as part of our team and can assist firms in the interpretation of regulatory requirements, guidance and feedback.
In particular, our industry-leading Prudential Risk, compliance experts and consulting team understand that regulation continues to drive the strategic agenda for credit firms. They specialise in assisting clients across the financial services sector in navigating through the maze of regulation and support clients to identify regulatory obligations and work towards full compliance balanced with your business needs.