Credit Servicing Firms
Regulatory Regime for Credit Servicing Firms
Part V of the Central Bank Act 1997 (“the Act”) was amended by the Consumer Protection (Regulation of Credit Servicing) Act 2015 (“the 2015 Act”) to provide for a regulatory regime in respect of Credit Servicing Firms, bringing such firms within the Central Bank’s regulatory remit.
Credit Servicing Firms are typically firms that manage or administer credit agreements such as mortgages or other loans on behalf of unregulated entities. Please see the definitions of a ‘Credit Servicing Firm’ and ‘credit servicing’ as set out in the 2015 Act and included below for further detail in this regard.
This legislative amendment ensures that relevant borrowers whose loans are sold to unregulated third parties maintain the regulatory protections they had prior to the sale including the protections provided by the Central Bank’s statutory Codes of Conduct.Under the 2015 Act a person who meets the definition of a Credit Servicing Firm is required to obtain authorisation from the Central Bank in order to provide these services. As a result, all firms who intend to operate in this area should ascertain if they fall within the scope of the definition of a Credit Servicing Firm and require authorisation by the Central Bank. Firms are advised to seek legal advice if in any doubt regarding whether their activities fall within the scope of the legislation. If, having received and considered such advice, firms have any doubt about their status; they are advised to submit an application for authorisation.A Stakeholder Questions and Answers document in relation to the regime that applies to Credit Servicing Firms is available at the following link.
Authorisation Requirements and Standards for Credit Servicing Firms
The Central Bank published Authorisation Requirements and Standards for Credit Servicing Firms on 10 December 2015 following the conduct of a public consultation exercise. The relevant press release issued by the Central Bank is available on the Central Bank’s website at the following link. The relevant consultation paper together with responses received and the feedback statement issued by the Central Bank are also available on the Central Bank’s website at the following link.
All firms seeking authorisation as a Credit Servicing Firm will be required to demonstrate to the Central Bank that they are in a position to meet each of the Authorisation Requirements and Standards.
Details in relation to the authorisation process can be found here.
Addenda to the Statutory Codes of Conduct
Under the 2015 Act, a Credit Servicing Firm must act in accordance with the requirements of financial services legislation including the Central Bank’s Statutory Codes of Conduct (‘the Codes’). However, Credit Servicing Firms were not referred to in the Central Bank’s codes in their own right. The Central Bank has therefore updated each of the Codes in order to ensure that Credit Servicing Firms are subject to these Codes directly in their own right. This has been done for the sake of certainty and transparency, in order to make it explicit that the activity of credit servicing is a ‘regulated activity’ within the meaning of the Codes and firms carrying out that activity are ‘regulated entities’ in their own right with respect to that activity.
The following Codes have been updated in this regard by means of an Addendum to each of the Codes. These can be found at the following link:
(i) Addendum to Consumer Protection Code 2012;
(ii) Addendum to Code of Conduct on Mortgage Arrears 2013;
(iii) The Minimum Competency Code 2011 Addendum for Credit Servicing, can be found here.
The Code of Conduct for Business Lending to Small and Medium Sized Enterprises was replaced by the Central Bank (Supervision and Enforcement) Act 2013 (Section 48) (Lending to Small and Medium Sized Enterprises) Regulations 2015 and the Central Bank (Supervision and Enforcement) Act 2013 (Section 48) (Lending to Small and Medium Sized Enterprises) (Amendment) Regulations 2016. These can be found here.
Existing Credit Servicing Firms
The Act provides for transitional arrangements for existing Credit Servicing Firms who were conducting credit servicing prior to the enactment of the2015 Act. Section 34F of the Act provides that a person carrying on the business of a Credit Servicing Firm immediately before the commencement of the 2015 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 8 October 2015 in order to continue to provide such services.
A list of firms that have notified the Central Bank that they wish to avail of the transitional provisions under Section 34F of the Act is available at the following link.
The transitional arrangements provided for in Section 34F of the Act do not apply to persons who have not carried on the business of a Credit Servicing Firm immediately before the commencement of the 2015 Act. Such persons who intend to provide such services are required to complete and submit an application for authorisation to the Central Bank and will not be able to provide such services until the Central Bank has granted or refused authorisation to the person.
It is an offence for such persons to commence the provision of credit servicing until authorisation as a Credit Servicing Firm has been obtained.
Key Definitions under the Act
The 2015 Act defines a ‘Credit Servicing Firm’ as meaning:
(a) a person (other than the National Asset Management Agency or a NAMA group entity (within the meaning of the National Asset Management Agency Act 2009)) who—
i. undertakes credit servicing other than on behalf of a regulated financial service provider authorised, by the Bank or an authority that performs functions in an EEA country that are comparable to the functions performed by the Bank, to provide credit in the State, or
ii. holds the legal title to credit granted under a credit agreement in respect of which credit servicing is not being undertaken by a person authorised to carry on the business of a Credit Servicing Firm, and
(b) a regulated financial service provider taken to be authorised to carry on the business of a Credit Servicing Firm by virtue of subsection (3).
The Act defines ‘Credit Servicing’ as meaning:
‘credit servicing’, in relation to a credit agreement, means managing or administering the credit agreement, including—
a) notifying the relevant borrower of changes in interest rates or in payments due under the credit agreement or other matters of which the credit agreement requires the relevant borrower to be notified,
b) taking any necessary steps for the purposes of collecting or recovering payments due under the credit agreement from the relevant borrower,
c) managing or administering any of the following:
i. repayments under the credit agreement;
ii. any charges imposed on the relevant borrower under the credit agreement;
iii. any errors made in relation to the credit agreement;
iv. any complaints made by the relevant borrower;
v. information or records relating to the relevant borrower in respect of the credit agreement;
vi. the process by which a relevant borrower’s financial difficulties are addressed; and
vii. any alternative arrangements for repayment or other restructuring.