I welcome the Minister of State, Deputy Fleming to the Chamber. I ask the Minister of State to now open the debate. He has ten minutes.
Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Bill 2021: Second Stage
I am pleased to introduce the Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Bill to Seanad Éireann. It is generally accepted that there is a need to improve the regulatory framework governing the provision of certain new types of finance to consumers. The Bill seeks to do that. Its primary objective is to provide that any firm which offers credit, hire purchase, personal contract plans, PCPs, or consumer-hire agreements to consumers and other relevant persons will, unless already subject to the Central Bank authorisation, be required to be authorised as a retail credit firm by the Central Bank of Ireland. This will then allow the Central Bank to apply the consumer protection code to all firms which provide those forms of financial accommodation to consumers.
PCPs have been growing in popularity of the past number of years as a variation on the more traditional type of hire purchase type of finance, which is mainly used for the purchase of motor vehicles. Although the buy now, pay later, BNPL, type of credit has to a certain extent been a feature of the Irish consumer credit market, it has more recently come to the fore as a form of short-term finance used for the purchase of consumer goods. In light of the growing popularity of PCPs as a form of finance for the purchase of cars, the Minister for Finance commissioned Mr. Mike Tutty, who is a former second secretary general in the Department of Finance, to carry out a review of the current PCP market and regulatory structure. In his report, which was published in November 2018, Mr. Tutty stated that he did not find any evidence of consumer detriment arising from PCPs. Nevertheless, he also noted that there are certain risks associated with the use of such types of finance. His report sets out a number of recommendations to improve the oversight of the PCP market. The Minister for Finance has accepted all the recommendations, and with one exception, they are being implemented within the existing legislative and regulatory framework.
The sole exception, however, is arguably the report's most important consumer recommendation, which was that personal contract plan and hire purchase contracts entered into by consumers should be covered by the Central Bank's consumer protection code. The code places important consumer protection obligations on entities that are regulated by the Central Bank. For example, it requires regulated firms to act honestly, fairly and professionally in the best interests of their customers and also to act with due skill, care and diligence.
Chapter 5 of the code places requirements on regulated entities in relation to knowing the consumer and suitability. This requires regulated entities, in advance of advancing credit, to assess both the affordability and suitability of a credit product for a customer. These are important requirements and are designed to prevent consumers from becoming over-indebted, or otherwise taking out an unsuitable financial arrangements.
However, neither hire purchase nor PCP agreements are currently covered by the code, as the Central Bank currently does not have the necessary legal basis to apply it to all the providers of such agreements to consumers. The Bill, therefore, proposes that all the providers of credit, including the indirect providers of credit, such as buy-now-pay-later credit, hire purchase, including PCPs, and consumer hire agreements to consumers and relevant persons will be required to be authorised by the Central Bank of Ireland as a retail credit firm. This will then give the Central Bank the power to apply the consumer protection code to all these firms.
In addition to enabling the Central Bank to apply its consumer protection code to such firms, the proposed new authorisation requirement will also allow the Central Bank to act as a gatekeeper to the market for the provision of all types of credit to consumers and so should better assist the bank in preventing problem firms from entering the market in the first instance, as opposed to having to address consumer protection or other regulatory problems which may occur down the road.
The Bill will also provide for the regulation of entities that service or own these agreements. This is to ensure that the provisions that already apply to the sale of cash loan type credit agreements will also apply in respect of any sales of other credit or hire purchase or consumer hire agreements.
The Bill also makes some consequential and related amendments to the Consumer Credit Act 1995. These include extending an existing cost of credit cap of up to 23% annual percentage rate, APR, on credit provided to consumers by certain firms to apply to all entities, which come within the scope of that Act, providing credit or hire purchase, other than money lending agreements which have their own regulatory framework, to consumers.
The Bill now contains 19 sections and I will run through them briefly.
Section 1 defines the Consumer Credit Act 1995 and the Central Bank Act 1997 as the "Act of 1995" and the "Act of 1997", respectively. These are the two main Acts which will be amended by this Bill.
Section 2 amends section 28 of the Central Bank Act 1997 by inserting additional definitions and amending definitions. These include expanding the range of arrangements that fall within the regulated business of retail credit firms and credit servicing firms. As a result, other forms of credit, including buy now, pay later and the indirect provision of credit, hire purchase, including PCPs, and consumer hire agreements will be added to the existing authorisation requirement in respect of the provision of credit in the form of a cash loan.
Section 3 makes a technical amendment to the Central Bank Act 1997 to confirm that any entity that is covered by any of these new subsections is not prohibited from carrying out any such regulated business.
Section 4 amends the Central Bank Act 1997, which provides limited discretion to the Central Bank of Ireland to exempt certain entities or classes of entities from the requirement to become authorised as a retail credit firm regarding the provision of credit in the form of cash loans, to take account of other changes being made in this Bill and extend it to cover the additional types of financial arrangements that will come within the regulated business of the retail credit firm.
Section 5 inserts a new section into the Central Bank Act 1997 to provide for the transitional arrangements for firms which will for the first time come within the scope of Central Bank of Ireland authorisation as a retail credit firm. This section, which mirrors similar provisions in the past, provides that, subject to applying to the Central Bank of Ireland for authorisation within a period of three months from the commencement of the relevant provisions, they will be deemed to be transitionally authorised by the Central Bank of Ireland and that authorisation will continue until the Central Bank of Ireland has granted or refused authorisation.
Section 6 amends the Central Bank Act 1997 by taking account of changes in the definition of "credit servicing firm" as set out in section 2 of the Bill.
Section 7 inserts a new section into the Central Bank Act 1997 and it mirrors the provision in the new section 34EA regarding transitional arrangements for firms which will for the first time come within the scope of Central Bank of Ireland authorisation as a credit servicing firm. As with section 5 in respect of the retail credit firms, subject to applying to the Central Bank of Ireland for authorisation within a period of three months from the commencement of the relevant provisions, existing credit servicing firms will be deemed to be authorised by the Central Bank and that authorisation will continue until the Central Bank of Ireland has granted or refused authorisation.
Section 8 amends the Central Bank Act 1997 to take account of the wider range of financial agreements, including hire purchase and consumer hire agreements, which will now fall within the scope of credit servicing firms.
Section 9 inserts a new section into the Central Bank Act 1997 to provide that the Minister for Finance may request the Central Bank, using the powers it already has under the Central Bank Acts, to collect and publish information on credit, hire purchase, including PCP, and consumer hire agreements. This will facilitate the publication of statistics and data on the level of financial accommodation provided by the regulated businesses.
Section 10 amends the Consumer Credit Act 1995 by inserting additional definitions and substituted definitions. Currently, it provides that the Central Bank may prescribe individual firms to be a "credit institution" for the purpose of the Act. The amendment will provide that the authorisation category of "retail credit firms" will replace this provision, as such an individual listing will become redundant in light of the new authorisation requirements provided for in section 2 of this Bill. A limited technical change is also being made to the definition of "APR" in the 1995 Act, as well as a cross-reference to the Central Bank Act 1997.
Section 11 amends section 3 of the existing legislation to make clear that interest and the cost free credit that is advertised falls within scope of that Act and that the provider of such type of credit falls within the regulatory remit of the Central Bank.
Section 12 amends the existing legislation to make clear that the APR provisions shall apply to credit and hire purchase, including PCP, agreements and the Central Bank may, by regulations, amend the method of calculating the APR.
Section 13 makes the contravention of the 1995 Act constitute an offence, which is not the case at the moment.
Sections 14 to 17, inclusive, are specific items regarding amendments of the Consumer Credit Act, the Social Welfare Consolidation Act and the Central Bank (Supervision and Enforcement) Act 2013.
Section 18 amends the Financial Services and Pensions Ombudsman Act 2017.
Section 19 sets out the Short Title and provides for the commencement provisions that the Act may come into operation by order or orders of the Minister for Finance.
I want to thank the Senators for their consideration of this Bill.
I welcome the Minister of State back to the House for another important piece of legislation. Just to put on record, Fianna Fáil will be supporting this Bill. Its primary purpose is to provide that any person or firm carrying on the business of providing credit, hire purchase or consumer hire agreements to consumers or other relevant persons will fall within the authorisation and regulatory remit of the Central Bank of Ireland. This will give the Central Bank the necessary legislative basis to apply its consumer protection code and any other relevant code to such firms.
The Bill facilitates the implementation of the key recommendations of the Tutty report on the operation of the PCP market, which stated that the Central Bank should apply relevant provisions of its consumer protection code, particularly the obligations of the financial service providers under the code, to assess the financial capacity of the consumer and the suitability of the product for the consumer prior to entering into a credit arrangement, to all providers of higher purchase or PCP arrangements and to consumers. All providers of PCP and similar agreements to consumers will now have to be authorised by the Central Bank, which will be able to apply its consumer protection code and other protection powers to such firms.
This will improve the level of protection available to the consumer in such agreements. As part of the review of the regulation of the personal contract plans commissioned in 2018, Mr. Michael Tutty considered the contents and recommendations of the earlier Competition and Consumer Protection Commission study on personal contract plans, the Irish market and separate Central Bank studies, and an overview of the Irish PCP market. Following his consideration of the market and other considerations, the Tutty report recommended that further consumer protection for PCP arrangements be introduced. In particular, it recommended that the Central Bank consumer protection code, which requires a lender to assess the suitability of a product for a consumer and the ability of the borrower to repay the debt over the duration of the credit period, should be extended to hire purchase and PCP arrangements. The implementation of this recommendation for all providers of hire purchase and PCP agreements requires the legislation that is being debated today.
This is most welcome. We have seen the huge impact that the PCP market is having in Ireland. This is welcome legislation that gives additional protection to the consumer.
I thank the Minister of State for coming to the House to discuss this important Bill. I realise its significance in protecting the consumer. Like Senator Casey, Fine Gael will support this Bill. The primary purpose of the Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Bill 2021 is to provide that any firm that offers credit under buy now, pay later arrangements, hire purchase contract plans or consumer hire agreements, and other relevant persons, will, unless already subject to Central Bank of Ireland regulation, require to be authorised as a retail credit firm by the Central Bank. This is important. I pay tribute to Mr. Michael Tutty and all the work that he put into it. He brought forward his recommendations. The legislation is about protecting the consumer and bringing the providers of indirect credit within the authorisation and regulatory remit of the Central Bank. It is so-called because the lender indirectly provides credit to the borrower by paying a retailer on behalf of a consumer for the purchase of a good or service, often as part of a buy now, pay later offer.
The Bill brings credit, hire purchase and consumer hire agreements within the authorisation and regulatory remit of the Central Bank, which has a key role to play. It does this by extending the existing authorisation scope of credit servicing firms to include those additional types of financial agreements. It widens the current definition of credit. We are all used to hearing about people looking for credit. The definition will include retail credit and credit servicing firms, which applies to credit in the form of cash loans only. It will include credit in the form of a deferred payment, cash loan or other similar financial accommodations. It extends an existing cost of credit gap of up to 23% APR on credit provided to consumers by certain firms to all entities which provide credit or hire purchase agreements, other than moneylending agreements or credit unions, both of which have their own regulatory requirements.
The Bill provides for measures mainly by amending the Central Bank Act 1997. It currently provides for the authorisation of, inter alia, retail credit and credit servicing firms, but changes will also be made to certain other relevant legislation, including the Consumer Credit Act. Overall, this is beneficial for the consumer. It means there is regulation and accountability, which is most welcome. I thank the Minister of State and look forward to working with him.
Gabhaim buíochas leis an Aire Stáit as teacht isteach. Tá obair an-tábhachtach á déanamh ar an dlí seo, mar sin gabhaim buíochas leis. This is an important Bill. I thank the Minister of State for all his work on this. All too often, consumers fall prey to great offers of hire purchase agreements. As someone with a degree in mathematics and physics, I find some of the calculations in hire purchase agreements really complicated. It ends up being much more money than it looks like when agreements state 4% or 6%, since there is compound interest, cumulative interest and interest rates on interest. It is insane.
I welcome this Bill from the Government. It relates to the regulation of buy now, pay later plans, personal contract plans, and related financial products, such as hire purchase agreements. With the cost of living rising, we will probably see much more of this happening and people moving towards that model of purchasing, which is why this Bill is important. It would bring providers of these financial products into the regulatory remit of the Central Bank. It will require these providers to include the annual percentage rate in hire purchase agreements. We all know how we can fall prey to advertising. It is really important. A great advertisement used to have someone saying he did not know what a tracker mortgage is. It is also the case with hire purchase agreements. I do not know what APR really means.
It is great that this Bill was amended on Committee Stage. I welcome the legislation. It is a significant step to bring these lenders into the remit of the Central Bank, which will provide greater protection for people who use these services. These providers are not currently required to conduct background checks or suitability assessments on customers. It becomes difficult. I know people who have been caught out by this. They wanted to get an expensive present for their child for Christmas, because everybody else was getting it. They gave into that and took on a loan that they could not fulfil. It is unfair that lenders have been getting away with this. This Bill will help the most marginalised in some ways, which is why the Bill is important.
One striking issue was that the collection of data was not regulated. People who had bought something on impulse and were unable to pay it back were pursued by unlicensed debt collectors. We have all heard horrendous stories about those situations. As I understand it, previously, companies could outsource their debt collection to private debt collectors. They were not subject to regulation if the original company was not subject to regulation. It shows how badly needed this legislation was.
There has been a significant increase in recent years in the number of PCP arrangements, particularly for buying cars. We need to be careful about consumer protection. Does this Bill mean that debt collection by lenders providing hire purchase agreements, PCPs and buy now, pay later arrangements will now be regulated and brought under the remit of the Central Bank? They are debt collectors working for the companies that are offering the loan. Will the Minister of State clarify this issue for people who fail to meet repayments?
In the world we live in, we have become interdependent. The EU has failed to be able to tell Putin it will not buy his oil or gas because we are so dependent on it, even though I know the Irish are coming out stronger than other EU states. We need to look at our buying power, what we are buying, where it is from, if it is ethically made and where it is sourced. We have a climate emergency and significant issues with fast fashion. Sometimes these low interest loans can tempt people to buy things that they really do not need, or perhaps they get it from Amazon or somewhere. If we are buying, let us try to buy ethically, from Irish companies. People can buy hoovers from their local electronics shop in the heart of their local town as opposed to online or by driving to some warehouse belonging to a millionaire who has 50 shops. We need to look at our power as consumers. If we borrow money, let us try to support small, local, indigenous businesses that have ethics and morals relating to their staff and where they source their goods.
The Minister of State is very welcome. It has been four years since the Tutty report came out. We finally have legislation which will hopefully reach its final Stages soon. It is welcome that this legislation deals with the concerns expressed in that report, but I am critical about the time taken to get to this point. This Bill implements the key recommendation of the Government-commissioned Tutty report that was published in 2018. Many people will be surprised to learn that providers of credit are not yet regulated by the Central Bank. This Bill will require providers of hire purchase and PCP credit lines to become regulated entities.
That will give the Central Bank the power to apply the consumer protection code to such firms, particularly the part that requires firms to assess the suitability of the product for the consumer and the ability of the borrower to repay the debt over the duration of the credit agreement.
In the past number of years there has been an explosion in the PCP market. The number of PCPs for car finance alone between December 2014 and February 2020 increased by 528%, while the total outstanding credit in the PCP market stood at €1.7 billion by 2020, which represents a 573% increase since December 2014. This sharp rise in the PCP market and PCP credit has raised justified concerns regarding financial stability and consumer protection. PCPs have become a prevalent feature in the Irish motor finance market. A PCP is a type of hire purchase financial arrangement in which the customer is not the owner of the car until the final payment has been made. PCPs are characterised by a final balloon payment at the end of the contract which is often much larger than the previous repayments. Unlike other arrangements, the borrower can choose to either return the car to the seller, make a final payment to assume ownership, or enter into a new PCP which is the norm. It has been noted that this balloon payment can prove to be very expensive. As a consequence, as outlined by Mr. Michael Tutty in 2018, in practice the tendency with a PCP is that it is rolled over into a new contract at or before the end of the monthly payments.
As the Competition and Consumer Protection Commission, CCPC, noted in its 2018 report on PCPs in the Irish market, "the low monthly repayments, while making new cars appear affordable, may in some cases cause consumers to enter contracts which may become unaffordable when the final payment is taken into account." In the view of the commission, there is potential for detriment in the absence of mandated affordability or suitability checks, particularly given the complexity of PCP products. The difficulty with PCPs is that they can seem affordable to many people due to what look like affordable repayments at the beginning but the balloon payment at the end can cause terrible difficulties. I am sure many people in this House have been contacted by people looking for help with legacy debt, worried that they are being ripped off because they have been lured in by six-month interest-free credit deals only to find themselves locked into a four-year high-interest arrangement because companies have made it as difficult as possible to repay the balloon payment at the end of the arrangement. This has to stop.
The Bill will require providers of indirect credit to become entities regulated by the Central Bank. Indirect credit is so-called because the lender provides credit to the borrower by paying a retailer for the purchase of a good. This would significantly improve the level of protection available to the consumers of such agreements. My colleague Deputy Doherty has done a lot of work on this with the Minister of State on Committee Stage in the Dáil and Sinn Féin will continue to support the Bill, which is long overdue.
On the Bill itself, section 9 inserts a new section into the Central Bank Act allowing the Minister to request that the Central Bank collect and publish information on credit, hire purchase and consumer hire agreements. This follows a recommendation of the Tutty report. However, it is not guaranteed that this data will be collected and published regularly as subsection 36EA(5) of section 9 provides that they may be requested on a "once-off basis". I ask that consideration be given to making the collection of this data a regular occurrence, once every six months. I also note that section 9 does not specify the particulars to be collected and published in that data. These particulars are left to the discretion of the Minister in the request that he or she makes under section 9. As part of pre-legislative scrutiny of the heads of the Bill in 2019, a number of stakeholders recommended that a span of items be included in the data collected and published. For example, the Free Legal Advice Centres, FLAC, recommended that details of deposits required for entering these agreements and the range of penalties and interest that customers may be charged in the event of default be included. The Money Advice and Budgeting Service, MABS, suggested that the data also include the number and value of such loans in arrears, pointing out that the data frequently published by the Central Bank on mortgage arrears are of great use to the agency as it supports borrowers in the services it provides. This legislation does not include such particulars and I ask the Minister to clarify what he intends to request of the Central Bank under section 9.
Finally, section 13 requires that the APR under hire purchase and consumer credit agreements cannot exceed 23%, with the notable exception of moneylenders. I urge the Minister to deal with that issue. My colleague Deputy Doherty has drafted a Bill in this regard. The Government permits moneylenders to charge an APR of 187%, or 288% when collection charges are included, and I urge it to work with Sinn Féin to finally address that issue.
I thank the Minister of State for coming to the Chamber today for this debate. The Labour Party very much welcomes the Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Bill. I wish to begin by paying tribute to the work of Mr. Michael Tutty, the former official in the Department of Finance who put together the aforementioned report. The report was published in 2018 and while we have had two years of a pandemic, this legislation is long overdue.
I am conscious that we are debating this Bill on a day when a new bank has been launched in Ireland, with Revolut announcing that it is officially establishing a presence in the Irish market. Over the last five years in particular, the multiplicity of financial products and actors in this country has grown enormously. Never has it been more important for us to ensure that credit products, and PCPs in particular, are regulated. PCPs have become an enormous feature of the car finance market in Ireland. I understand that they now account for around one quarter, or 40% of the value, of the car finance market. Senator Gavan and others have spoken about the increase in the number of PCPs from 10,000 in 2014 to 62,000 in February 2020, while the volume of credit involved has grown from €174 million in 2014 to €1.7 billion in 2020. The scale of PCPs out there is significant. One of the things that has frightened me in recent years is that PCPs are seen as a way to get a new car every few years but there is a very significant issue around people really understanding what they are signing up to. A particular bugbear of mine is the issue of financial literacy. Sometimes policies that may seem like the best thing since the sliced pan are, when one looks at the fine print, very different and PCPs are a classic example in that regard. The CCPC has described PCPs as being among the least flexible forms of finance. Others have spoken today about the difficulties faced by those with PCPs when they need to sell a car. Of course, we are all only too aware of the difficult financial circumstances that many households now find themselves in. Many households faced difficulties during the pandemic because family members lost their jobs and some still do not have jobs and they are now facing very significant increases in the cost of living. In that context, regulation of PCPs is absolutely vital.
Reference has been made to the balloon payment at the end of PCPs and many people are not aware of the extent of the final payment in order to take a car into full ownership. We have been made aware of situations where PCP contracts contained a provision for a certain level of mileage every year and if that is exceeded, there is a very real difficulty at the end of the contract in terms of handing over. The fine detail of PCPs has proved enormously challenging to many householders.
It is great that we have this Bill before us. It is very positive that APR has been capped at 23%, even though that is still extraordinarily high. A Sinn Féin Bill is going through the Dáil at the moment which aims to limit the APR charged on all forms of finance.
My last point relates to data collection. Time and again I have said that unless we understand a problem we cannot fix it. I am quite conscious that even the data we are relaying today are only a partial reflection of what we understand about the PCP market. In the context of section 9 of the Bill, there is a real issue with regard to the frequency of data collection and precisely what data will be collected. There is an onus on the Department and the Minister to provide more detail within the legislation. We need to hardwire into the Bill what precisely is going to be collated in the future.
This is to ensure we have a good grasp of this and any other financial products so we can react accordingly, as regulators and legislators, if that need is required.
I thank the various Senators who have contributed to this constructive debate and for their general overall support of the Bill. It is generally accepted there is a need to improve the regulatory framework governing the provision of PCP and BNPL types of finance to consumers. The provisions in this Bill are designed to ensure the Central Bank of Ireland consumer protection code and any other relevant Central Bank code or regulation can be applied to all the entities that provide credit, hire purchase and PCP agreements to customers, in addition to entities that service those agreements.
There were a number of interesting and useful contributions to the debate and, where necessary, the Department of Finance will give consideration to them in the future consideration of the Bill by this House. I look forward to that engagement. I thank all the Senators who have spoken, all of whom have supported the Bill. It is important to summarise what we are talking about. Many people know about personal contract plans, which are very important, especially in the car market, and would have been surprised these matters were not regulated up to now. The Tutty report, which some Senators referred to, was published in 2018. While it took some time to implement it, it is good it is happening now. It would have been lovely if it had happened earlier. It did not, but it is happening now. It has gone through the Dáil and I hope this House will also conclude this Bill very soon for further consideration on the next Stage.
The other important issue concerns the buy-now-pay-later people. If somebody buys a suite of furniture or a bed for €1,000 or €2,000, the payments can sometimes be spread over a period. Sometimes a third can be paid now, a third a month later and a third the month after that. Up to now, none of those loans have been captured by this legislation. Customers are not taking a loan from the shop in those instances. People say they have not signed an agreement, but these loans involve finance companies providing funding to shops to provide customers with finance to pay for goods on a staged basis and this is worked into the original purchase price. It is very important to capture what we call indirect credit, where a customer does not sign an agreement but is indirectly caught by an agreement because he or she purchased the goods. That is why it is important this Bill comes to the House now.
Another important point was made regarding moneylender legislation. In this legislation, we are dealing with firms that provide credit. The issue of moneylenders is dealt with in separate legislation that is currently working its way through the Oireachtas. We discussed moneylending legislation quite recently in the Dáil, which is different from this Bill. The important thing is that everybody wants to see the exorbitant rates charged by some of these moneylenders outlawed once and for all. This will be seminal legislation. It is different legislation. It was rightly pointed out that some of those companies are now charging up to 288% APR, which includes collection costs incurred by calling to houses to collect money. Collection costs will not be allowed to be a separate charge in future. The proposal in the moneylending Bill is that the 288% maximum charge will be reduced by 240% to 48%. It is still a high rate but this will be a dramatic, overwhelming and seismic change compared with where it was.
I thank all the Members. As I said, I look forward to returning to the House for consideration of this legislation as soon as the Members find time for it. I look forward to this Bill being passed in due course.
When is it proposed to take Committee Stage?
Is that agreed? Agreed.
When is it proposed to sit again?
At 2.30 p.m. on Tuesday, 29 March 2022.