I have been advised by the Central Bank of Ireland that when a consumer takes out a loan from a regulated lender (“the original lender”) it is subject to all the relevant Irish and EU consumer protections. Most loan agreements include a clause that allows the original lender to sell the loan on to another firm.
When a loan is sold on to another regulated entity, the relevant Irish and EU consumer protections continue to apply.
In the past, if the original lender sold a loan to another person who was not regulated by the Central Bank (“an unregulated firm”), the consumer could lose the protections they previously had under the various Central Bank Statutory Codes of Conduct. In July 2015, the Consumer Protection (Regulation of Credit Servicing) 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 the loans from the original lender is an unregulated firm, then the loans must be serviced by a ‘credit servicing firm’ which is authorised and 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 are required to obtain authorisation from the Central Bank in order to conduct ‘credit servicing’ activities as defined in the 2015 Act.
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 Consumer Protection Code 2012 and the Code of Conduct on Mortgage Arrears 2013.
For the purposes of the Act, ‘Credit servicing’ means managing or administering the credit agreement, including—
(a) notifying the relevant borrower of changes in interest rates or in payments due under the credit agreement or other matters of which the credit agreement requires the relevant borrower to be notified,
(b) taking any necessary steps for the purposes of collecting or recovering payments due under the credit agreement from the relevant borrower,
(c) managing or administering any of the following:
(i) repayments under the credit agreement;
(ii) any charges imposed on the relevant borrower under the credit agreement;
(iii) any errors made in relation to the credit agreement;
(iv) any complaints made by the relevant borrower;
(v) information or records relating to the relevant borrower in respect of the credit agreement;
(vi) the process by which a relevant borrower’s financial difficulties are addressed;
(vii) any alternative arrangements for repayment or other restructuring;
(viii) assessment of the relevant borrower’s financial circumstances and ability to repay under the credit agreement, or
(d) communicating with the relevant borrower in respect of any of the matters referred to in paragraphs (a) to (c).
‘Credit servicing’ currently does not, however, include taking such steps as may be necessary for the purposes of enforcing a credit agreement, provided that such action is not taken in a manner that if it were so taken by a regulated financial service provider it would be a prescribed contravention.
Therefore, it may be permissible in some circumstances for an unregulated loan owner to contact a borrower directly if this is necessary for the purposes of enforcing a credit agreement. However, this contact must not be made in such a manner that if it were so taken by a regulated financial service provider it would be a prescribed contravention.