Within the remit of the Central Bank of Ireland’s (the Central Bank) 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 regulated entities have appropriate arrears resolution strategies and operations in place.
The Code of Conduct on Mortgage Arrears (CCMA) is a statutory code that must be complied with by relevant regulated entities as a matter of law. 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 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. It sets out the Mortgage Arrears Resolution Process (MARP), a four-step process that regulated entities must follow:
Step 1: Communicate with borrower;
Step 2: Gather financial information;
Step 3: Assess the borrower’s circumstances; and
Step 4: Propose a resolution
The arrears handling provisions in Chapter 8 of the Consumer Protection Code (the Code) apply when the loan is not a mortgage loan to which the CCMA applies (i.e. where the property is not the borrower's primary residence). Amongst other protections, the Code requires that where an account is in arrears, a regulated entity must seek to agree an approach that will assist the personal consumer in resolving the arrears.
Most loan agreements include a clause that allows the original lender to sell the loan on to another firm. When a loan is sold, the relevant Irish and EU consumer protections continue to apply. Under the Consumer Protection (Regulation of Credit Servicing Firms) Act 2018, which came into effect on 21 January 2019, if a loan is transferred, the holder of the legal title to the credit must now be authorised by the Central Bank as a credit servicing firm. Such 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 under the various statutory Codes of Conduct issued by the Central Bank, such as the Code and the CCMA.
The Central Bank carries out its supervision of regulated entities, including banks, retail credit and credit servicing firms in a number of ways, which includes both desk based and on-site reviews of various activities. In March 2018, I asked the Central Bank to review the CCMA to ensure it remains as effective as possible in the context of the sale of loans by regulated lenders. In November 2018, the Central Bank published a report on this matter.
Based on that point in time exercise, the Central Bank’s review concluded that the CCMA is effective and working as intended in the context of the sale of loans, for borrowers who engage with the process. There was no evidence that credit servicing firms do not engage with borrowers in arrears. When a loan is sold by a bank, any existing Alternative Repayment Arrangements (ARAs) in place with a borrower under the CCMA continue to be honoured until the agreed term of the ARA ends. There was no evidence that borrowers, whose circumstances have not changed, were being moved off existing ARAs by credit servicing firms during the term of the ARA. There was no material difference in the level of repossessions by the previously unregulated loan owners compared to banks.
As a follow-up action to the Report on the CCMA, the Central Bank wrote to banks, retail credit firms and credit servicing firms in August 2019 to set out its expectations of all firms in respect of loan sales and they specifically refer to the situation where a cooperating borrower is complying with the terms of an ARA and their loan is sold, that the new regulated entity cannot unilaterally change the ARA.
Institutions were required to respond to the Central Bank by 18 October 2019 confirming that the board of the firm had considered the contents of the letter and provided the assurances sought.
As a result of the above information, I do not believe that it is necessary at this point in time to ask the Central Bank to conduct an assessment of existing sustainable restructuring solutions across all lenders and non-bank entities operating here.