In relation to the first part of the Deputy's question, that whether, on the transfer of a mortgage, payments by direct debit to a new loan owner (payee) requires a written mandate from the borrower (payer) authorising the direct debits from its bank (payer’s bank), I am advised by the Central Bank of Ireland that Payment Service Providers (PSPs) are required to comply with the European Union (Payment Services) Regulations 2018 (PSR).
Chapter 2 of Part 4 of the PSR sets out the rights and obligations in relation to the provision and use of payment services, including with regard to the consent and withdrawal of consent to execute payment transactions.
Regulation 88(1) PSR states that:
“a payment transaction is authorised by a payer only where the payer has given consent to execute the payment transaction.”
Regulation 88(7) PSR states:
"the procedure for giving consent shall be agreed between the payer and the payment service provider concerned.”
With regard to direct debit payments, the procedure for giving consent is by way of a mandate under the SEPA Regulation.* Pursuant to the SEPA Regulation, a ‘mandate’ constitutes the expression of consent and authorisation given by the payer to the payee and (directly or indirectly via the payee) to the payer’s PSP to allow the payee to initiate a collection for debiting the payer’s specified payment account and to allow the payer’s PSP to comply with such instructions
Article 5 of the SEPA Regulation sets out the requirements for direct debit transactions. It requires that the payee’s PSP must ensure that:
“the payer gives consent both to the payee and to the payer’s PSP (directly or indirectly via the payee), the mandates together with later modifications or cancellation, are stored by the payee or by a third party on behalf of the payee and the payee is informed of this obligation by the PSP…”
Therefore, if a new loan owner or credit servicing firm (as payee) intends to commence collecting direct debit payments directly from a borrower’s payment account, it will need a SEPA Direct Debit Mandate authorising it to send instructions to the borrower’s bank (PSP) to collect direct debit payments from the borrower’s bank.
If there is no change in the payee for the purposes of the Direct Debit Mandate (e.g. if the original lender or existing credit servicing firm continues to collect the direct debit payments when a loan is transferred), a new SEPA Direct Debit Mandate would not be required.
Whether banks are correct to release payment from the account of a borrower without such permission is irrelevant as a PSP cannot release direct debit payments from a payer’s payment account without a signed Direct Debit Mandate in favour of the relevant payee (whether that is the original lender, a new loan owner or a credit servicing firm).
*Regulation (EU) No 260/2012 of the European Parliament and of the Council of 14 March 2012 establishing technical and business requirements for credit transfers and direct debits in euro and amending Regulation (EC) No 924/2009