Ensuring that the interests of consumers of financial services are protected is a key priority for the Government and the Central Bank. A key element of the Central Bank’s role is ensuring that the consumer protection regulatory framework is fit for purpose and ensures that consumers best interests are protected.
Within the remit of the Central Bank’s responsibilities for safeguarding stability and protecting consumers, its approach to mortgage arrears resolution is focussed on ensuring the fair treatment of borrowers. This is realised 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 there is due regard 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
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). During the legal process, borrowers have opportunities to re-engage with lenders to find a solution. In some circumstances, however, loss of ownership may be unavoidable.
In February this year, I wrote to the Governor of the Central Bank and requested that they carry out a review of the CCMA to ensure it remains as effective as possible. I have asked that the report be completed as soon as practically possible.
Finally, as the Deputy will be aware, 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 typically 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.
Over the last number of months, there has been a lot of concern regarding loan sales, specifically in relation to PTSB. Arising from this, Deputy Michael McGrath published a Bill on the regulation of loan owners. This Private Member’s Bill is complex and there are multiple issues with it which need to be resolved. However, the Government supports the intent behind the Bill and has committed to assisting the Deputy in improving the Bill to make it more effective. Officials in my Department have been discussing the Bill with Fianna Fáil and are actively preparing amendments which will make the Bill effective and rectify technical drafting issues.