Deputy, in advance of my reply, I am assuming that your use of the words “investment funds” is a reference to those firms in the non-bank sector i.e. retail credit and credit servicing firms.
It is within the remit of the Central Bank of Ireland’s (the Central Bank) responsibilities to safeguard stability and protect consumers, and its approach to mortgage arrears resolution is focused on ensuring the fair treatment of borrowers through a strong consumer protection framework and ensuring that regulated entities have appropriate arrears resolution strategies and operations in place.
The Code of Conduct on Mortgage Arrears (CCMA) is a statutory code that must be complied with by relevant regulated entities as a matter of law. 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 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 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
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. Amongst other protections, the Code requires that 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.
Most loan agreements include a clause that allows the original lender to sell the loan on to another firm. When a loan is sold, the relevant Irish and EU consumer protections continue to apply. Under the Consumer Protection (Regulation of Credit Servicing Firms) Act 2018, which came into effect on 21 January 2019, if a loan is transferred, the holder of the legal title to the credit must now be authorised by the Central Bank as a credit servicing firm. Such 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 Code and the CCMA.
The Central Bank carries out its supervision of regulated entities, including banks, retail credit and credit servicing firms in a number of ways, which includes both desk based and on-site reviews of various activities. In early 2018, I requested the Central Bank to review the CCMA to ensure it remains as effective as possible in the context of the sale of loans by regulated lenders. In November 2018, the Central Bank published a report on this matter.
The review concluded that the CCMA is effective and working as intended in the context of the sale of loans, for borrowers who engage with the process. There was no evidence that retail credit and credit servicing firms do not engage with borrowers in arrears. When a loan is sold by a bank, any existing Alternative Repayment Arrangements (ARAs) in place with a borrower under the CCMA continue to be honoured until the agreed term of the ARA ends. There was no evidence that borrowers, whose circumstances have not changed, were being moved off existing ARAs by retail credit and credit servicing firms during the term of the ARA. There was no material difference in the level of repossessions by retail credit and credit servicing firms compared to banks.
As a follow-up action to the Report on the CCMA, the Central Bank wrote to banks, retail credit and credit servicing firms in August 2019 to set out its expectations of all firms in respect of loan sales. These expectations include that:
- Sufficient due diligence and information sharing takes place at the outset to ensure that complete customer files transfer as part of a loan sale.
- Where a cooperating borrower is complying with the terms of an ARA and their loan is sold, the new regulated entity cannot unilaterally change the ARA.
- The new regulated entity should continue to honour an ARA until review, expiry or by agreement, as appropriate. This includes honouring timelines and terms and conditions for reviews of the ARA.
- Where the borrower’s circumstances have changed, any change to the ARA must be appropriate, sustainable and proportionate to that borrower’s circumstances.