Plenty of changes are afoot for the Irish consumer credit markets, following the enactment of the Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Act 2022 (the “Act”). The Act extends the Central Bank of Ireland’s (CBI’s) consumer protection framework to a broader range of firms and consumer credit activities, with the aim of ensuring that Irish consumers receive the same protections required of other financial service providers.
The Act came into force on 16 May 2022 and those entities caught by the new legislation should by now have begun preliminary analysis of the impact of those changes to their business models. For authorised entities, this includes an assessment on their regulatory risk profile.
Overview
Under the old regime, the requirement to be authorised as a Retail Credit Firm only applied to firms other than credit institutions (such as banks) that provided cash loans to individuals.
The Act expands the scope of consumer credit activities which now require regulation. Under the new legislation, providers of the following types of products and services require authorisation by the Central Bank of Ireland:
a. Hire purchase products (including Personal Contract Plans (“PCPs”)) or consumer-hire products to ‘relevant persons’;
b. Buy-now-pay-later products; and
c. Those servicing those products directly or indirectly.
Such providers, will require authorisation as either a ‘Retail Credit Firm’ or a ‘Credit Servicing Firm’. The new rules will impact both existing authorised firms that carry on the above-mentioned activities, and those providers not previously subject to regulation. As such, the impact of this legislation is far reaching.
The Act expands the scope of customers to whom the products and services provided would apply, so that it is not just consumers. In this case, “relevant persons” are all types of natural persons, including for example, sole traders and partnerships.
Additional key changes brought about by the Act
APR Cap: A new cap of 23% Annual Percentage Rate (“APR”) has been introduced to limit the interest rate that consumers may be charged under credit agreements and hire purchase agreements. Agreements exceeding 23% will not be enforceable unless specific requirements are met in court. This restriction only applies to credit agreements or hire-purchase agreements entered into after the commencement of the Act.
APR disclosure for hire-purchase agreements: The Act requires the APR to be specified in hire purchase agreements (this requirement currently exists in respect of credit agreements).
Narrowing of exemption under CCA: The Act narrows the interest-free credit exemption under the Consumer Credit Act 1995 (the “CCA”). The new Act replaces the existing exemption in Section 3(2) of the CCA with a new narrower exemption.
The impact of the narrower exemption means that, to remain out of scope of regulation, interest-free credit must now be offered on an unsolicited basis. This is of particular importance to buy-now-pay-later providers who may have previously relied on the previous CCA exemption.
Buy-now-pay-later: The Act requires regulation of direct and indirect forms of credit. As such, providers of buy-now-pay-later products which allow a relevant person to pay in instalments now require authorisation from the Central Bank.
Transition Period
The Act requires relevant entities to apply for authorisation as either a ‘Retail Credit or Credit Servicing Firm no later than three months following the enactment of the Act, however, transitional arrangements do exist.
Those seeking to utilise transitional arrangements must complete a declaration form, in addition to completing and providing all information required for authorisation and submit both to the Central Bank no later than 16 August 2022.
Next steps for firms caught by the new legislation
Impact analysis: This means understanding which parts of your business and services may be affected, what you will need to do to become authorised, and whether you need to bring in extra resources – or even restructure your operations.
Review existing agreements: Whether authorised or not, it is important that you review and update existing consumer contracts to ensure that they reflect the new requirements.
Apply for authorisation: Unless already authorised as retail credit firms or credit institutions, entities which fall within scope will require authorisation. Firms that will require authorisation should signal their intention to apply “as soon as possible” by emailing rcf@centralbank.ie.
Ensure updated internal policies, procedures, systems and controls: Existing regulated firms should ensure that internal policies and procedures, systems and controls (such as in relation to compliance monitoring and risk management) are updated and enhanced to capture any changes to which they are subject as a result of the Act.
Expect more regulatory intervention
Earlier this year, we released a report on the Regulatory Outlook for Ireland in 2022. The overriding theme was that firms should expect more regulatory intervention this year and beyond. The CBI’s Notice for Intention is the latest evidence of that, and it will certainly not be the last. The regulator’s scrutiny of the relatively new practice of BNPL suggests that other emerging areas like cryptocurrency can also expect more attention.
The damaging economic effects of the Covid-19 pandemic increased the regulatory focus on protecting consumers. Financial services firms of all stripes should expect more guidance on this area in the coming years. This trend will only accelerate with the cost-of-living crisis and rising inflation putting further pressure on consumers. Regulators want to ensure companies offering credit to consumers are meeting the necessary standards to protect them, and companies need to respond to this risk as soon as possible.
How fscom can help
Our experts can help you to work out how to become compliant in a way that is proportionate for your business.
Our consumer credit service offering includes:
1. Impact analysis: We can support you with the provision of an impact analysis that covers the end-to-end internal organisational structure of the business. Our work includes review and analysis of governance and oversight arrangement, risk managements and core business functions.
2. Authorisations: We can support you through the authorisation process by helping you to understand the Central Bank’s approach to supervision, your regulated activities and regulatory risk profile, as well as your reporting obligations.
3. Workshops and Training: Under the new regime, the Central Bank expects firms and their staff to meet the necessary minimum competency standards, required of staff with a particular emphasis on staff dealing with consumers in relation to retail financial products. We can support with the provision of training and workshops covering the following areas: Consumer disclosures, Fair treatment of customers, Treating vulnerable consumers fairly, Financial promotions and complaints handling.
Get in touch today to find out how we can be of service to your business.
