On 29 March 2022, the Central Bank of Ireland (the “Central Bank”) published a Notice of Intention regarding upcoming changes which will take effect once the Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Bill 2021 (the “Bill”) is enacted.
The Bill, once enacted, will implement the key recommendation in the “Tutty Report” published in November 2018, to extend relevant provisions of the Central Bank’s Consumer Protection Code (the “CPC”) to providers of hire purchase and consumer hire agreements to consumers.
In order to achieve this, the Bill will require all such providers (who aren’t otherwise authorised by the Central Bank to provide credit, or as a credit institution in the EEA) to be authorised by the Central Bank as retail credit firms. This includes providers of indirect credit to consumers; for example, providers of buy-now-pay-later (“BNPL”) agreements. The Bill also extends the scope of credit servicing to hire-purchase and consumer-hire agreement, which means that persons holding title to or otherwise servicing such agreements would also require a Central Bank licence.
The Bill is currently progressing through the Houses of the Oireachtas and is expected to been signed into law in 2022.
Central Bank Proposed Changes
Anticipating enactment of the Bill and the changes it will bring, the Central Bank intends to:
- Extend the retail credit firm and credit servicing firm authorisation regimes;
- Amend the CPC; and
- Amend the Minimum Competency Code 2017 (“MCC”) and Minimum Competency Regulations 2017 (“MCR”).
Extension of the Retail Credit Firm and Credit Servicing Firm Authorisation Regimes
As noted above, on enactment, licencing requirements will be extended to certain entities providing credit (directly or indirectly) through hire-purchase agreements or consumer-hire agreements (retail credit firms) and entities that own or service these agreements (credit servicing firms), unless otherwise licenced to carry out such activity.
Authorisation Process for Retail Credit Firms and Credit Servicing Firms
A firm seeking authorisation as retail credit firm or a credit servicing firm will be required to demonstrate that it is in a position to meet each of the Authorisation Requirements and Standards for Retail Credit Firms or Authorisation Requirements and Standards for Credit Servicing Firms, as the case may be.
Summary of the Key Steps in the Application Process
- The applicant submits a completed application form (available on the Central Bank website) together with the required supporting documentation;
- The Central Bank will acknowledge receipt of an application for authorisation submitted by the applicant within 3 working days of receipt and will inform the applicant within 10 working days of receipt if any key information and documentation is missing.
- Where all key information and documentation has been provided, the Central Bank completes an assessment of the application submission and may issue detailed comments and/or seek additional information;
- If the Central Bank issues detailed comments and/or seeks additional information, the applicant is provided with the opportunity to address the comments and requests issued by the Central Bank in a revised application submission(s);
- The Central Bank will assess the subsequent application submission(s) and notify the applicant of its assessment and next steps. The applicant is provided with a further opportunity to address any concerns arising at this stage in the process (if any); and
- The Central Bank will then notify the applicant of its decision in respect of the application submission. The Central Bank can decide to grant an authorisation, an authorisation with specific conditions or a proposed refusal of authorisation. In the case of a proposed refusal, the Central Bank will notify the applicant of the grounds for the proposed refusal of the authorisation. The applicant will then have an opportunity to make submissions in response to the proposed refusal. These submissions will then be considered by the Central Bank in deciding to grant or refuse the authorisation.
Proposed amendments to the CPC
The CPC sets out a range of consumer-protection-focused requirements for certain regulated financial service providers. In order to apply the CPC to newly in-scope firms, amendments will be required by way of a proposed addendum to the CPC. In this respect, the Central Bank is proposing to amend the CPC in order to remove previous exemptions applicable to low-value credit (under €200), hire-purchase agreement and consumer-hire agreements. Further amendments will be made to clarify the scope of the European Communities (Consumer Credit Agreements) Regulations 2010 (which implements the EU-wide Consumer Credit Directive into Irish law) to BNPL agreements.
Amendments to the MCC and MCR
The MCC sets out minimum competency standards for individuals within regulated financial service providers who carry out specific tasks; typically, where those tasks involve interaction with consumers. While the MCC already applies to the provision of hire-purchase and consumer-hire agreements by credit institutions, the proposed addendum to the MCC is necessary to bring the new retail credit firm and credit servicing firm activities in scope of the MCC and to give persons providing these activities a maximum period of four years to become compliant with the MCC. It is important to note, however, that the Central Bank has advised that it expects individuals and firms to meet the necessary minimum standards at the earliest possible opportunity from the commencement date of the relevant act. The proposed amendment to the MCR seeks to impose obligations on regulated firms regarding this transitional arrangement.
Timing and Next Steps
The Bill provides for transitional periods for firms engaging in the newly in-scope activities prior to the Bill coming into force. Those firms will automatically be deemed to be authorised as retail credit or credit servicing firms from the start of the transition period until the Central Bank has granted authorisation or refused to do so, provided the firm applies to the Central Bank for authorisation within three months of the relevant section of the Bill coming into force.
Firms currently engaged in this space, including those without an Irish establishment, should now assess whether their activities fall within scope of the Bill. The Central Bank has requested that if a firm intends to apply for authorisation as either a retail credit firm or credit serving firm, it would signal its intention to seek authorisation to the Central Bank as soon as possible.
The Central Bank has advised that it intends to publish the required addendum to the CPC on (or as soon as possible after) the commencement date of the relevant act. The addendum will become effective three months from the date of its publication. It should be noted that the Central Bank has advised that it may also consider whether additional consumer protection rules are required specific to BNPL services at a later date.
This article was co-authored by partner Joe Beashel, senior associates Ian O’Mara and James O’Doherty and associates Megan Fennell and Ciarán Moloney. For further information or advice in respect of the topics covered in this insight, please get in touch with a member of the team or your usual Matheson contact. Full details of Matheson's Financial Institutions Group together with further updates, articles and briefing notes written by members of these teams, can be accessed at www.matheson.com.
This material is provided for general information purposes only and does not purport to cover every aspect of the themes and subject matter discussed, nor is it intended to provide, and does not constitute or comprise, legal or any other advice on any particular matter. For detailed and specific professional advice, please contact any member of our Financial Institutions Group.