Since the establishment of the Single Supervisory Mechanism (SSM) in November 2014, the focus has shifted from reducing mortgage arrears levels to reducing Non-performing Loans (NPLs). This shift in focus has been accompanied by a new strict Europe-wide definition of what constitutes an NPL by the European Banking Authority (EBA), which means that certain restructures are deemed NPL even if customers are meeting the revised payment schedule.
Officials in my Department met with staff of the SSM at the highest level on two occasions since late 2016. I also met Ms Nouy, Chair of the Supervisory Board of the ECB. In the course of these discussions, my officials outlined the background and history to the restructuring effort in Ireland and made the case against continuing to classify some types of restructured loans, including certain split mortgages, as NPLs. While we have been informed that the SSM is looking into the regulatory treatment of split mortgages across a number of European member states I have no evidence at this point that this categorisation is going to change.
Dealing specifically with Deputy Broughan’s question about the inclusion of these split mortgages in bank sales, the Deputy will be aware that when PTSB first announced Project Glas - its planned sale of NPLs – back in February, the bank confirmed that loans which were restructured by way of a split mortgage were within the scope of the overall portfolio being considered for sale. However, the bank subsequently announced in May that it had withdrawn approximately €0.9bn of principal dwelling houses (PDHs) split mortgages from the sale where borrowers were meeting the terms agreed with the bank. The removal of these restructured loans from the sale was a positive outcome for the borrowers which I welcomed.
In terms of restructured loans that are performing being included in loan sales, most loan agreements include a clause that allows the original lender to sell the loan on to another firm. The Consumer Protection (Regulation of Credit Servicing Firms) Act 2015 (“the 2015 Act”) was introduced to fill the consumer protection gap where loans are sold by the original lender to an unregulated firm. Under the 2015 Act, if the firm who bought loans from the original lender is an unregulated firm, then the loans must be serviced by a ‘credit servicing firm’ which is regulated by the Central Bank. Credit Servicing Firms are firms that manage or administer credit agreements such as mortgages or other loans on behalf of unregulated entities.
Credit servicing firms must act in accordance with the requirements of Irish financial services law that applies to ‘regulated financial service providers’. This ensures that consumers, whose loans are sold to another firm, maintain the same regulatory protections that they had prior to the sale, including under the various statutory Codes of Conduct issued by the Central Bank such as the Consumer Protection Code 2012, Code of Conduct on Mortgage Arrears 2013, and the SME Regulations. Contractual terms are not changed by the sale of the loan.
Provision 3.11 of the Central Bank’s Consumer Protection Code 2012 (the Code) requires that, where a regulated lender intends to transfer all or part of its ‘regulated activities’ to another regulated entity, it must provide advance notification to both the Central Bank and affected consumers. Specifically, a lender must provide a consumer with at least 2 months’ notice before transferring all or part of its loan book covered by the Code to another person, including where the transferee is an unregulated entity. Where the transferee is an unregulated entity, the Code requires that the regulated lender also notify the consumer of the name of the regulated entity that will be ‘servicing’ the loan for the unregulated entity. In the event that there is a change in the credit servicing firm, the existing credit servicing firm must also notify the Central Bank and the consumer in advance, in accordance with the timelines set out under Provision 3.11 of the Code. Furthermore, I understand that the Central Bank expects all affected consumers to be informed of the term of their loan agreement which allows the loan to be sold and the identity and address of the new owner.
The Deputy will be aware that a Private Member’s Bill now titled the Consumer Protection (Regulation of Credit Servicing Firms) Bill 2018 was considered by Select committee on 12 July. My officials worked with Deputy McGrath and other stakeholders to develop the Bill as initiated. This Bill will require that loan owners are regulated by the Central Bank. I expect that Report Stage will be taken after the summer recess.
I have also asked the Central Bank to carry out a review of the Code of Conduct on Mortgage Arrears (CCMA) to ensure it remains effective and for the review to be completed as soon as possible.
Ensuring that the interests of consumers of financial services are protected is a key priority for the Government and the Central Bank.
