knowledge | 31 October 2019 |
Providers of Hire-Purchase, PCP and Similar Types of Consumer Credit to be Regulated by CBI
Firms which offer hire-purchase agreements, personal contract plans (“PCPs”) or other similar types of credit to consumers will be required to be authorised by the Central Bank of Ireland (“CBI”) as “retail credit firms”, following an announcement that the Government has given approval for legislation to be drafted.
What Prompted the Decision to Regulate?
A report on the PCP market (the “Report”), commissioned by the Minister for Finance (the “Minister”) and published in November 2018 provided an analysis of the adequacy of consumer protection in relation to PCPs. The Report recommended that various measures be put in place to improve consumer protection relating to PCPs and hire-purchase agreements (see our briefing here). The Competition and Consumer Protection Commission (“CCPC”) had previously expressed concerns regarding the complexity of PCPs as a consumer product and consumers’ understanding of how PCP financing arrangements work.
Extension of the Consumer Protection Code
Amongst other measures, the Report recommended that relevant sections of the CBI’s Consumer Protection Code 2012 (“CPC”) be applied to PCP providers and hire-purchase providers. The primary motivation for extending the CPC in this way was to apply its consumer-protective suitability and affordability assessment processes (as set out in Chapter 5, Knowing the Consumer and Suitability).
As this recommendation could not be implemented within the existing legislative framework, given that many PCP and hire-purchase providers are not regulated by the CBI, new legislation is required. According to the press release accompanying the Minister’s statement, the General Scheme of the proposed legislation will place firms offering PCPs, hire-purchase and other similar credit agreements under the CBI’s supervision by expanding the concept of a regulated “retail credit firm”.
While the intention to extend the CPC’s protections to consumers of hire-purchase, PCP and similar credit agreements was well flagged by the Report, the suggestion that this be done by extending the meaning of “retail credit firm” is interesting. Retail credit firms (which include mortgage lenders) are among the more extensively regulated credit-providers in the Irish market. While hire-purchase and similar types of credit have long been subject to the requirements of the Consumer Credit Act 1995, the providers of such credit to consumers have not themselves needed to be regulated. If the retail credit firm authorisation is extended in the manner suggested, this will be quite a significant change for unregulated firms and their businesses.
Credit products and related customer-facing processes would need to be updated to comply with all new regulatory obligations (such as the suitability and affordability assessments required by the CPC). Unregulated credit-providers would also need to invest significant time and resources into applying for authorisation as a “retail credit firm” and meeting the CBI’s ongoing requirements (which is likely to require a review and update of staffing and organisational structures amongst other matters). Credit-providers that envisage the possibility of selling a portfolio of in-scope credit agreements would also need to consider the credit servicing regime, which would require any portfolio purchaser to be authorised (or deemed to be authorised) as a “credit servicing firm” so as to ensure consumer-protective regulations apply for the life-time of the credit agreements.
If the authorisation and regulatory overheads are considered too onerous, unregulated providers may also wish to consider whether they could put in place a “white label” arrangement with an existing regulated provider, such as a bank. McCann FitzGerald will keep the legislation and likely new requirements under review as they evolve.
This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.