Dáil Éireann Debate, Thursday - 5 October 2023
218. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which financial entities operating here in the housing market are obliged to charge interest rates in line with the pillar banks; and if he will make a statement on the matter. [43444/23]
View answerThe setting of retail lending rates by individual entities is a commercial matter for each individual entity and neither the Central Bank nor I have any function or role in such decision making matters by financial institutions. There are no regulatory provisions requiring non-bank financial entities, such as retail credit and credit servicing firms, operating in the housing market to charge interest rates in line with the main banks.
Generally retail banks fund their lending from deposits and wholesale funding sources. Non-banks have a greater reliance on wholesale funding than retail banks as they are not authorised to accept deposits. As such the funding of loans and the interest rates charged by non-bank entities is generally determined by wholesale markets, where interest rates have been rising in line with the increase in official interest rates.
However, it should be noted that where a lender or creditor sells the benefits of a credit agreement or mortgage to another entity, any such sale or assignment of a creditor's rights does not change the terms and conditions of the credit agreement. Any creditor which acquires such benefits and rights will do so based on the existing contractual terms and rights of the borrower.
The Consumer Protection (Regulation of Credit Servicing Firms) Act 2015 provides that the regulatory consumer protections which a borrower had prior to such a sale, such as those set out in the Central Bank Consumer Protection Code and the Code of Conduct on Mortgage Arrears, will continue to apply and will remain available to the borrower following the sale.
A number of measures are in place to support households facing rising interest rates. In particular, the Central Bank has introduced a number of increased protections for variable rate mortgage holders which can which help mortgage holders identify lower cost mortgage options. Firstly, it made changes to the Consumer Protection Code to require mortgage creditors to explain to borrowers how their non-tracker variable interest rates have been set and to clearly identify the factors which may result in changes to variable interest rates. Secondly, it also increased the level of information lenders are required to provide their customers including where there is a possibility for the borrower to move to a lower ‘loan to value’ interest rate band and signpost the borrower to the Competition and Consumer Protection Commission's mortgage switching tool.
More recently, on 31 August 2023 I met with the mortgage industry including the Banking and Payments Federation Ireland (BPFI), CEOs and senior representatives of all the main mortgage lenders and servicers. I made it clear that banks and all other mortgage entities should be fully aware of the significant challenges that some of their customers are facing and, therefore, lenders and servicers should respond by assisting their customers who are experiencing difficulty. In relation to customers’ ability to switch to another provider to avail of a more advantageous mortgage interest rate, I also highlighted that greater clarity should be provided to customers on the possibility of switching provider and this option should be fully supported by all mortgage entities, including the existing mortgage creditor. Further I supported the steps taken by the Central Bank to ensure that firms proactively deal with emerging difficulties for their customers since the increase in interest rates. The Central Bank requires firms to enhance the range of supports available to borrowers in or facing arrears and to have sufficient operational capacity to manage applications by borrowers to switch their mortgage or mortgage provider.
Arising from that meeting, on 6 September the Banking and Payments Federation of Ireland announced a number of further initiatives by the mortgage industry. This included:-
• a second phase of a ‘Dealing With Debt’ campaign to highlight new and existing supports for concerned mortgage customers;
• mortgage servicing firms and MABS to collaborate on an expansion of streamlined customer engagement framework; and
• the provision of initial eligibility criteria by the main lenders to provide clear guidelines for home mortgage customers of credit servicing firms who are seeking to switch their mortgage.
This means that, for the first time there is now an agreed industry wide set of initial eligibility criteria to facilitate people switching their mortgage from a non-bank to a bank.
