The Central Bank of Ireland have advised me that within the remit of their responsibilities for safeguarding stability and protecting consumers, its approach to mortgage arrears resolution is focused on ensuring the fair treatment of borrowers through a strong consumer protection framework and ensuring that lenders have appropriate arrears resolution strategies and operations in place.
The Code of Conduct on Mortgage Arrears (CCMA) forms part of the Central Bank’s Consumer Protection Framework. It is a statutory Code first introduced by the Central Bank in February 2009, with the current CCMA becoming effective from 1 July 2013. The CCMA provides a strong consumer protection framework, aimed specifically at the process to be followed by relevant firms, to ensure borrowers in arrears or pre-arrears in respect of a mortgage loan secured on a primary residence are treated in a timely, transparent and fair manner.
Banks, retail credit firms and credit servicing firms servicing loans on behalf of unregulated loan owners are all required to comply with the CCMA. The overriding objective of the CCMA is to ensure the fair and transparent treatment of consumers in mortgage arrears or pre-arrears, and that due regard is had to the fact that each case of mortgage arrears is unique and needs to be considered on its own merits. The CCMA recognises that it is in the interests of borrowers and regulated firms to address financial difficulties as speedily, effectively and sympathetically as circumstances allow.
Each regulated entity must consider the borrower’s situation in the context of the solutions they provide, which may differ from firm to firm. The CCMA does not prescribe the solution which must be offered.
Under the CCMA, a regulated entity may only commence legal proceedings for repossession where it has made every reasonable effort to agree an alternative repayment arrangement (ARA) with the borrowers and other clear requirements are met or the borrower has been classified as not co-operating. This framework requires lenders to exhaust the options available from the suite of ARAs offered before taking action which may result in the borrower losing his/her home (whether by voluntary sale or repossession).
In relation to a lender’s communications with a borrower in or facing mortgage arrears Provision 22 of the CCMA states that a lender must ensure that:
a. the level of communications from the lender, or any third party acting on its behalf, is proportionate and not excessive, taking into account the circumstances of the borrowers, including that unnecessarily frequent communications are not made;
b. communications with borrowers are not aggressive, intimidating or harassing;
c. borrowers are given sufficient time to complete an action they have committed to before follow up communication is attempted. In deciding what constitutes sufficient time, consideration must be given to the action that a borrower has committed to carry out, including whether he/she may require assistance from a third party in carrying out the action; and
d. steps are taken to agree future communication with borrowers.
Turning to the issue regarding the subject of loans which are sold to unregulated third parties, in July 2015, the Consumer Protection (Regulation of Credit Servicing) Act 2015 (“the 2015 Act”) was introduced to fill a consumer protection gap where loans are sold by an original lender to an unregulated firm.
Under the 2015 Act if the firm who bought the loans from the original lender is an unregulated firm, then the loans must be serviced by a ‘credit servicing firm’. Credit Servicing Firms are typically firms that manage or administer credit agreements such as mortgages or other loans on behalf of unregulated entities. Credit Servicing Firms are required to obtain authorisation from the Central Bank in order to conduct credit servicing activities as defined in the 2015 Act. As a result, all firms who either currently operate in this area or intend to operate in this area (and meet the definition of a Credit Servicing Firm) require authorisation by the Central Bank.
Credit servicing firms must act in accordance with 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 the CCMA. As the Deputy will be aware, the Government is supporting Deputy Michael McGrath’s Private Members Bill requiring the regulation of loan owners. My Department have worked closely with Deputy McGrath to make the Bill more effective. The Consumer Protection (Regulation of Credit Servicing Firms) Bill 2018 was considered by the Select Committee on 12 July and it is expected that Report Stage will take place today. Finally, it is important to note that the review published last week of the Central Bank's Report on the Effectiveness of the Code of Conduct on Mortgage Arrears in the context of the Sale of Loans by Regulated Lenders states that for borrowers who engage with the process, the CCMA is working effectively and as intended.