Dáil Éireann Debate, Thursday - 30 November 2017
72. Deputy Bernard J. Durkan asked the Minister for Finance the steps likely to be taken to address the increasingly aggressive attitude of primary and secondary lenders to borrowers who have consistently met their payments to the best of their ability throughout the economic crisis and now face an increased threat of repossession, homelessness and the closing down of small business; and if he will make a statement on the matter. [51320/17]
Amharc ar fhreagraWithin the remit of the Central Bank’s 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 type of consumer and the type of loan involved will determine which of the Central Bank’s Codes or Regulations are relevant to the particular case.
The Code of Conduct on Mortgage Arrears (CCMA) forms part of the Central Bank’s Consumer Protection Framework and is relevant for homeowners. The CCMA is a key part of the Central Bank’s mortgage arrears framework. 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. It sets out the 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
Provision 22 of the CCMA requires that lenders ensure that the level of communications to a borrower is proportionate and not excessive, taking into account the circumstances of the borrower, and that communications with borrowers are not aggressive, intimidating or harassing.
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. The CCMA includes requirements that arrangements be appropriate and sustainable and based on a full assessment of the individual circumstances of the borrower.
The CCMA also requires regulated entities to have an appeals process in place to enable a borrower appeal a decision by a regulated entity, including where the borrower is not willing to enter into an alternative repayment arrangement or where the regulated entity declines to offer an alternative repayment arrangement. The appeals procedure must inform the borrower of his/her right to refer the matter to the Financial Services Ombudsman.
Provision 56 of the CCMA provides that a lender may only commence legal proceedings for repossession of a borrower’s primary residence where the lender has made every reasonable effort under the CCMA to agree an alternative repayment arrangement with the borrower or his/her nominated representative, and the specific timeframes set out in the CCMA have been adhered to or the borrower has been classified as not co-operating and notified in accordance with the CCMA.
In June 2015, the Central Bank published the outcome of a themed inspection of lenders’ compliance with the CCMA. This is available on the Central Banks website -
http://www.centralbank.ie/press-area/press-releases/Pages/CentralBanksthemedinspectionidentifies weaknessesinlenderscompliancewiththeCodeofConduct onMortgageArrears.aspx.
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. The Code requires that regulated entities have in place written procedures for the handling of arrears.
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. Specified information in relation to arrears must be made available to personal consumers, including general information to encourage the consumer to deal with arrears and stating the benefits of dealing with arrears. Where an account remains in arrears for 31 calendar days after the arrears first arose, a regulated entity must, inter alia, inform the consumer of the status of the account and the importance of the personal consumer engaging with the regulated entity in order to address the arrears. This must be updated every three months, where the arrears persist.
In respect of a mortgage, the Code provides that where a third full or partial repayment is missed and remains outstanding and alternative repayment arrangement has not been put in place, a lender must notify the personal consumer of the potential for legal proceedings and proceedings for repossession of the property, together with an estimate of the costs to the personal consumer of such proceedings. The lender must notify the personal consumer of the importance of seeking independent advice and that, irrespective of how the property is repossessed and disposed of, the personal consumer will remain liable for the outstanding debt, including accrued interest, charges, legal, selling and other related costs, if this is the case.
The Code also requires that a lender must ensure that the level of contact and communications with a personal consumer in arrears is proportionate and not excessive. Each calendar month, a lender must not initiate more than three unsolicited communications, by whatever means, to a personal consumer in respect of arrears.
In December 2015, the Central Bank published new regulations for firms lending to small and medium enterprises (SME Regulations), with which regulated lenders (other than credit unions) have been required to comply with since 1 July 2016, and in the case of credit unions, from 1 January 2017.
The SME Regulations aim to strengthen protections for SMEs when borrowing from regulated lenders while also facilitating access to credit. They also set out a framework which regulated entities must comply with when dealing with SME borrowers in arrears and financial difficulties. The SME Regulations require regulated entities to establish and maintain in writing policies and procedures for dealing with borrowers in financial difficulties. Regulated entities must make available to borrowers an information booklet, to include:
- a statement emphasising that it is in the borrower’s interest to engage with the regulated entity about arrears or financial difficulties;
- a statement that the financial difficulties may impact on the borrower’s credit rating;
- the option of an immediate review of the borrower’s credit facilities.
Within 10 working days of a borrower entering financial difficulties, a regulated entity must inform the borrower of, among other things:
- the status of the account;
- the applicability of the SME Regulations;
- the availability of the information booklet referred to above; and
- that it is in the borrower’s interest to engage with the regulated entity about arrears or financial difficulties
Where a regulated entity offers an alternative arrangement to an SME borrower, the regulated entity must provide certain information in writing to the borrower including how the alternative arrangement will be reported by the regulated entity to a relevant credit reference agency or credit register and that it may impact on the borrower’s credit rating.
When contacting borrowers that are micro and small enterprises in financial difficulties, a lender must ensure that the level of contact and communications with the borrower is proportionate and not excessive, taking into account the particular circumstances of the borrower, and that communications with the borrower are not aggressive, intimidating or harassing.
My Department will continue to keep all relevant legislation under review in order to ensure that borrowers whose loans have been sold are properly protected and do not lose any protections which they previously enjoyed. In addition, the Department of Finance expect that the Central Bank, as regulator of credit servicing firms, will be vigilant in this area and raise any specific instances where they have found consumers have not had their protections upheld or that their positions have been disadvantaged.
