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The Financial Services Sector and the end of the initial Payment Break Arrangements in Ireland

AUTHOR(S): Turlough Galvin
PRACTICE AREA GROUP: Finance and Capital Markets
DATE: 02.10.2020

In statements published on 18 March 2020 and 19 March 2020, the Banking & Payments Federation Ireland (“BPFI”) announced that certain retail banks, non-bank lenders and credit servicing firms would introduce specific measures to help businesses and personal customers whose circumstances had been impacted by the COVID-19 pandemic. These measures included the implementation of payment breaks of up to three months for business and personal customers affected by the Covid-19 pandemic and the deferral of court proceedings for three months. We wrote about these payment breaks previously.

The Central Bank of Ireland (“CBI”) are reported as having confirmed recently that, at the peak, there were 152,000 loans to Irish borrowers under a payment break, that the number of payment breaks at the end of September 2020 has reduced by approximately 25% from the peak and that eight out of ten borrowers who received a payment break were repaying their loans normally before the pandemic. Apparently, 20% of all loans to small and medium sized businesses remained in payment break arrangements at the start of September 2020 with a higher level in certain more affected sectors like accommodation and hospitality where the proportion was 46%.

The initial three month period for such COVID-19 payment breaks and deferrals was extended by a further period of up to three months.  The CBI released a statement on 19 March 2020 confirming that it expected all regulated firms, including banks, retail credit firms and credit servicing firms to take a consumer-focused approach and to act in their customers’ best interests. In respect of reporting credit information to the Central Credit Register established by the CBI, borrowers that had been granted a COVID-19 payment break had not been categorised nor reported as being in arrears (or further in arrears). The application deadline for customers to apply for a COVID-19 payment break ended on 30 September 2020.

Where a borrower was granted a COVID-19 payment beak, the borrower could often elect to either repay all amounts due under the financing arrangement within the original term of their financing arrangement or extend the term of their financing arrangement by the length of their COVID-19 payment break. Interest usually continued to accrue in accordance with the terms of the relevant financing arrangements.

There was some concern voiced that the ending of the payment breaks on 30 September 2020 could result in a cliff-edge for borrowers and result in unintended consequences. Some calls were made prior to 30 September 2020 for the payment breaks to be extended. However, following a meeting between the Irish Tánaiste Leo Varadkar, the Minister for Finance, the Minister for Public Expenditure and the chief executives of Ireland's retail banks on 28 September 2020, Mr Varadkar stated that there is no cliff-edge on September 30 2020 - that is merely the last day on which borrowers could apply for a Covid-19-related payment break.

This follows confirmation by the European Banking Authority that it will phase out its Guidelines on legislative and non-legislative payment moratoria in accordance with its end of September 2020 deadline. The regulatory treatment set out in the European Banking Authority Guidelines will continue to apply to all payment breaks granted under eligible payment moratoria prior to 30 September 2020. Banks can continue supporting their customers with extended payment moratoria also after 30 September 2020, such loans should be classified on a case-by-case basis according to the usual prudential framework.

Similarly, the BPFI CEO Mr. Brian Hayes said that a wide range of solutions were being made available for customers coming off the existing payment break scheme and that following an assessment of each customer’s situation, a solution that reflected their individual circumstances would be put in place.

Mr Hayes also noted that “The previous industry-wide Covid-19 payment breaks were not reported on the Central Credit Register as ‘missed or past-due’. Individual solutions that now involve a further payment break or any alternative repayment arrangements are legally required to be recorded on the Central Credit Register. However, a customer’s good credit record can be restored over time should they be in a position to return to full repayments.”

For further information, please contact Turlough Galvin, Patrick Molloy, Donal O’Donovan, David O’Mahony, Michael Hastings, Alma Campion, Liam Flynn, Joe Beashel, Rory McPhillips, Stuart Kennedy, Yvonne McWeeney, Christian Donagh, Alan Keating, Richard Kelly or your usual Matheson contact.

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