knowledge 23 November 2018 |

Regulation of Loan Ownership: Bill Progresses

Existing Credit Servicing Regime

Ireland’s existing credit servicing regime was introduced in 2015 to ensure that regulatory protections afforded to natural persons and SME borrowers travelled with the debt if it was sold by the original regulated lender. Where the purchaser of the debt is an unregulated entity, it is required to appoint an authorised credit servicing firm for all credit servicing activities. These activities include the administration of the loan and all communications with the borrower.  

Expanded Credit Servicing and Loan Owners

The Bill expands the definition of credit servicing to include the following in relation to an in-scope credit agreement:

• holding the legal title to credit granted under the credit agreement;
• the determination of the overall strategy for the management and administration of a portfolio of credit agreements; and
• the maintenance of control over key decisions relating to such portfolio.

As is clear from the above, the aim of the amendment is to regulate the person who either holds title to a loan or has material rights to decide how a portfolio of loans is dealt with. There is no exemption for pre-existing transactions. Helpfully, the Bill seeks to exempt traditional securitisation arrangements and some of the latest amendments were for the purpose of aligning the wording of the exemption more closely with the EU’s Securitisation Regulation.

Timing and Transitional Period

The Dáil debate (on 22 November 2018) indicates that the legislature is aiming to pass the Bill before Christmas. The Minister for Finance also confirmed that it is his “…intention that the Bill will be commenced as soon as possible after its enactment…”.  

A person who carries on the new credit servicing activities mentioned above, immediately before the amendment to the existing law, will be deemed to be authorised as a credit servicing firm, provided that:

• the person applies for authorisation within three months of commencement of the amendment; and
• an authorised credit servicing firm continues to undertake all existing credit servicing activities.

Europe’s Approach

It is clear from the Dáil debates that the Bill has significant political backing from both the government and non-government parties. The Minister of Finance also stated that the Central Bank of Ireland (which had previously expressed reservations about the Bill) “…has made it clear that it is satisfied with the approach taken to regulating owners as credit servicing firms.  It has clearly stated that there is no material difference in the standard of regulation between retail credit firms and credit servicing firms.”.  

While political and regulatory support for the Bill now seems to be in place on the domestic front, the debates did not touch at all on how the Bill will integrate with initiatives at an EU level to create an EU-wide credit servicing framework aimed at facilitating the transfer of non-performing loans. Equally, the concerns raised by the European Central Bank in an opinion on an earlier draft of the Bill were not discussed in the debates. For further detail on these points, see our earlier briefing (here).

Comment

Clearly, the precise terms and impact of the Bill will be of interest to all credit purchasers. While this category most obviously includes purchasers in loan sales, the Bill may also have (possibly unintended) implications for syndicated lending where the borrower is an SME. The absence of an exemption for pre-existing transactions may mean that certain existing loan portfolio ownership and financing structures will need to be re-visited. For advice on regulatory or transactional considerations arising from the Bill, please feel free to contact us.