See some recent consumer related news from Ireland including the financial supervisor’s new Consumer Protection strategy based on the 5 “C”s framework: CONSUMER alongside CONFIDENCE, COMPLIANCE, CHALLENGE and CULTURE.

Personal Insolvency Act 2012

See the following link: http://www.oireachtas.ie/documents/bills28/acts/2012/a4412.pdf

Civil Law

The Personal Insolvency Act 2012 provides for the reform of personal insolvency law and introduces the following new non-judicial debt resolution processes, subject to relevant conditions in each case:

·    a Debt Relief Notice to allow for the write-off of qualifying unsecured debt up to €20,000 subject to a three-year supervision period;

·    a Debt Settlement Arrangement for the agreed settlement of unsecured debt;

·    a Personal Insolvency Arrangement for the agreed settlement of secured debt up to €3 million and unsecured debt.

The Act also continues the reform of the Bankruptcy Act 1988, begun in the Civil Law (Miscellaneous Provisions) Act 2011. This will include the introduction of automatic discharge from bankruptcy, subject to certain conditions, after 3 years in place of the current 12 years.

The Act provides for the establishment of an Insolvency Service to operate the new insolvency arrangements.

The Act provides for the Regulation of Personal Insolvency Practitioners.

It also also provides for the appointment of new specialist judges of the Circuit Court to deal with applications under the new debt resolution processes.

The legislation was signed by the President on 26 December 2012.

Part 6 of the Act was commenced on 18 January 2013. The provisions of Part 1 (other than section 6), Part 2 (other than section 13), sections 25 and 47, sections 126 to 141, Part 5 and Schedules 2 and 3 of the Personal Insolvency Act 2012 came into operation on 1 March 2013.

IMPORTANT: Please note that some provisions of the Act have yet to be commenced. Further information regarding their commencement will be announced in due course.

The Act is available on the legislation pages of the Oireachtas website - www.oireachtas.ie

The following is a guide to the main provisions of the Act - Explanatory Memorandum to Personal Insolvency Act 2012

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New Mortgage Arrears Targets and Consultation on Review of the CCMA Published

Date:13 March 2013
http://www.centralbank.ie/press-area/press-releases/Pages/CentralBankOutlinesAdditionalMeasuresonMortgageArrears.aspx

Central Bank Outlines Additional Measures on Mortgage Arrears

The Central Bank has announced new measures to address mortgage arrears, including the publication of performance targets for the main mortgage banks and proposed changes to the Code of Conduct on Mortgage Arrears.

The new approach is aimed at ensuring banks offer and conclude sustainable solutions for their customers in arrears by setting specific performance targets and proposing revisions to provisioning standards. The Central Bank is also proposing to update the CCMA so that it continues to provide protection to customers who cooperate with their bank while facilitating and promoting the resolution of arrears cases.

Deputy Governor of the Central Bank, Matthew Elderfield, said: “The resolution of mortgage arrears is a key priority for the Central Bank and is important for the restoration of the banking system and economic and financial stability, as well as the fair treatment of borrowers.  We are therefore setting performance targets for the banks to end the impasse on arrears and to ensure that sustainable solutions are put in place for borrowers.  These targets will be backed by rigorous new provisioning standards and the possible imposition of higher capital requirements.  Now is the time to see real delivery from the banks’ on this critical issue.”

The Bank has set out specific performance targets for banks to ensure borrowers in arrears will be put on more sustainable solutions, suitable and tailored to their individual situation. Banks will be required to meet specific targets for proposing and concluding sustainable solutions for borrowers in arrears over 90 days. The targets will include:

• Quarterly targets will be set in relation to the number of sustainable solutions proposed to customers.  These will become progressively more demanding over time.  The first targets will apply for the quarter ending 30 June 2013, and will be enhanced in subsequent quarters, with 2014 targets to be set in due course;
• Progressively more demanding quarterly targets will be set for the conclusion of sustainable solutions. These will be set in due course and will apply for the quarter ending 31 December 2013 onwards; and
• In addition specific and more detailed targets will be set for individual banks, based on their capacity, systems, and processes, principally focusing on the handling of early arrears.

The framework applies to ACC, AIB, Bank of Ireland, KBC Bank, permanent tsb and Ulster Bank in relation to both principal dwelling homes (PDH) and buy to let (BTL) mortgages. The Central Bank will audit each bank’s performance against the targets periodically, with regular reporting requirements established.

The Central Bank is also setting out its plans to require more prudent provisioning for mortgage loans in arrears greater than 90 days which have not been subject to a sustainable solution.

A consultation paper on the review of the CCMA has also been published detailing proposed changes to strengthen the Code’s protections for borrowers, while ensuring it allows for effective and timely resolution of individual arrears situations. Issues being considered for review include:

• New safeguards to ensure borrowers are given sufficient warning before being classified as ‘non cooperating’;
• Changes to the contact levels permitted, while ensuring consumers are not subject to harassment;
• Transparency on resolution options so borrowers have a full understanding before making a decision; and
• Consideration on whether there is merit in allowing a lender to move a borrower in arrears off a tracker rate where the lender has offered an alternative arrangement which is more advantageous in the long term.

A copy of the full consultation document is available here and submissions can be made until 10 April 2013.
A copy of the Mortgage Arrears Resolution Targets document is available here

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Date:06 March 2013

Central Bank publishes results of inspection of licensed moneylenders

The Central Bank of Ireland today published the results of a themed inspection of licensed moneylenders.

The Central Bank of Ireland (“the Central Bank”) today published the results of a themed inspection of licensed moneylenders, which focused on whether consumers were being charged in accordance with moneylenders’ authorised Annual Percentage Rates (APR) and costs of credit as set out in the moneylenders’ licence. This is a key focus for the Central Bank, given that moneylenders’ loans can be significantly more expensive than other forms of credit.

Inspections were conducted in 9 of the 43 licensed moneylenders currently operating in Ireland.  The aim of the inspection was to make sure moneylenders are meeting specific requirements of the Consumer Protection Code for Licensed Moneylenders (“Moneylenders’ Code”) and the Consumer Credit Act, 1995 (“the Act”). 

Director of Consumer Protection, Bernard Sheridan said:

‘We continue to focus on the area of costs and charges in this sector due to the high cost nature of these loans.  While the majority of firms inspected were broadly compliant we discovered some serious issues in a small number of firms which we are pursuing individually with the firms. 

‘We also found cases where some consumers were provided with new loans before existing loans were repaid in full which is not necessarily in the consumers' best interests.  Using short-term, high cost loans for longer-term needs should be avoided and I would encourage consumers in such a situation to contact MABS for help and advice.’

The results of the inspection have been summarised below:

• Overall, the inspections revealed that the vast majority of firms were in compliance with the provisions. This means that consumers were not charged over and above what they had agreed to pay and what the moneylender was allowed to charge.
• In all cases the firms had indicated the high-cost nature of loans on loan documentation issued to consumers, as required under the Moneylenders’ Code.
• Some non-legislative and administrative errors were identified that are being followed up with firms on an individual basis. Examples include summing errors on the repayment schedules. The Central Bank will ensure that these firms put controls in place so that all consumer repayments are accounted for correctly and that refunds are given to consumers where necessary.
• A number of firms did not have both their licence and licence appendix on display at their business premises, as required under the Act. Firms have been reminded that they must display their licence and licence appendix.
• The Central Bank is currently considering possible enforcement actions in respect of a small number of firms based on concerns it has with the level of compliance with the relevant legislation arising out of these inspections. The firms concerned are being dealt with individually.

In addition to the above, a number of other issues outside of the scope of the themed inspection were identified on review of consumer files. These issues will be raised with the firms on a case by case basis and relate to both the Act and specific requirements of the European Communities (Consumer Credit Agreements) Regulation 2010 (“the Regulations”).  The Central Bank has issued a letter to all licensed moneylenders to reiterate the importance of adhering to their consumer protection obligations, in particular the following requirements:  

• When advancing any new loan, moneylenders must give the full amount of a loan to a consumer, especially where a consumer has an existing loan.
• Consumers are entitled to a reduction in the total cost of credit, if they repay a loan early.  In all instances where a loan is repaid early, the consumer must receive a rebate of the interest and costs of the remaining duration of the agreement.
• The Central Bank also expressed concern on how firms are assessing the creditworthiness of consumers. While acknowledging that the home collection industry is predominately focused on engagement with consumers, the Central Bank expects that firms formally assess the creditworthiness of consumers on each new loan issued and to require documented evidence to verify information being provided by consumers.

NOTES TO EDITORS:

Information on the inspection

• The nine firms inspected account for 21% of the all licensed moneylenders as at 31 January 2013.
• The nine firms were inspected throughout the months of October and November 2012 and 354 files were reviewed as part of the investigation.
• The inspection of nine selected moneylenders, focused in particular on whether consumers were being charged in accordance with moneylenders’ authorised APRs (Annual Percentage Rates) and costs of credit as set out in the moneylender’s licence. This was a key focus for the Central Bank, given that moneylenders’ loans can be more expensive than other forms of credit. These inspections were carried out in order to determine compliance with certain provisions of the Consumer Protection Code for Licensed Moneylenders (“the ML Code”) and the Consumer Credit Act, 1995 (as amended) (“the Act”). Firms’ compliance with some aspects of the European Communities (Consumer Credit Agreements) Regulations 2010 (“the Regulations”) was also considered throughout the inspections.
• A letter was issued to all licenced moneylenders following the themed inspection. This is available here.

Information on related legislation

Section 99 of the Act – Loan or other credit to be advanced in full

Section 99 of the Act requires that a loan is advanced in full and should not be reduced by repayment of a previous credit.

“Section 99: Where credit is made available to a borrower by means of a moneylending agreement that credit shall not be reduced by the moneylender or a person acting on his behalf by any amount in respect of:

(a) repayment of the credit or any charges related thereto, or

(b) repayment of a previous credit or any charge related thereto,

and no payment in respect of the credit shall be required of the borrower by the moneylender or a person acting on his behalf before the due date of the first repayment instalment.”

Regulation 11 of the Regulations – Obligation to assess creditworthiness of consumers

“Before concluding a credit agreement with a consumer, a creditor shall assess the consumer’s creditworthiness on the basis of sufficient information, where appropriate obtained from the consumer and, where necessary, on the basis of a consultation of the relevant database.”

Regulation 19 of the Regulations – Early Repayment

“A consumer may at any time discharge fully or partially his or her obligations under a credit agreement. In such cases, he or she is entitled to a reduction in the total cost of the credit to the extent of the interest and the costs for the remaining duration of the agreement.”

Consumer Information On alternative sources of credit

National Consumer Agency website

Debt-related

Money Advice and Budgeting Services www.mabs.ie

Register of Moneylenders

To check if a moneylender is licenced, consumers can refer to the Register of Moneylenders on the Central Bank website. A new search facility has also been developed enabling consumers to search for a loan on the basis of APR, cost of credit and term of loan. All loans currently available from licensed moneylenders are listed, so consumers can compare the different types of moneylending loans on offer. The Central Bank hopes the recent enhancements will increase transparency of the cost of moneylending loans and encourages consumers and consumer representative bodies to go to our website to check if a moneylender is licensed and to compare loans.

The searchable Register is available here.

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Date:28 February 2013

Central Bank publishes Report on Retail Intermediary Sector in Ireland

The report highlights key issues and risks for the sector and consumers, and outlines the Central Bank’s regulatory approach to reducing risk and ensuring consumers are protected.

The Central Bank of Ireland today published a report on the Retail Intermediary sector in Ireland. The report highlights key issues and risks for the sector and consumers, and outlines the Central Bank’s regulatory approach to reducing risk and ensuring consumers are protected.

The Retail Intermediary sector in Ireland plays an important role in ensuring that consumers can access financial products that meet their needs, and the information they need to make well informed decisions. The reports shows that although many individual firms are small in size and provide a variety of financial services, cumulatively the sector is significant, with firms reporting over 5 million policies/financial products held by their clients.

Director of Consumer Protection, Bernard Sheridan, said, “The Central Bank has a strong consumer protection framework in place to ensure the customers of retail intermediaries are protected. Although individually many of these firms are small and are categorised as low impact under the Central Bank’s risk assessment framework, we have a clear strategy in place to regulate these firms. This involves regular thematic inspections of the sector whereby we assess compliance with consumer and prudential requirements and provide guidance to promote compliance, backed up by our enforcement capabilities.

“Based on information provided by retail intermediaries to the Central Bank, there appears to be some financial strain in the sector, with 17 per cent of firms reporting losses. I would urge firms to ensure that while working to return to profitability, no actions are taken which could lead to additional risks for consumers. In particular where firms grow due to acquisition they must ensure that they adapt their systems and controls to reflect the demands of a larger business and ensure compliance with consumer protection regulations.”

Key findings:

• The Central Bank is responsible for supervising 3,238 Retail Intermediaries, which vary in size and activity.
• Retail Intermediaries employ over 30,000 employees, with firms reporting over 5 million policies/financial products held by their clients. 
• Gross income/turnover (from regulated and unregulated activities) ranges from less than €10,000 to more than €1 million, with more than half of the firms reporting income levels below €60,000.
• Income from regulated activities ranges from €0 to over €7.5 million, with over 4 per cent earning in excess of €1 million.
• 17 per cent of firms have reported a loss in the previous financial year, with over 3 per cent reporting a loss in excess of €100,000.

The Central Bank has also published tips for consumers when engaging with Retail Intermediaries (including investment, insurance and mortgage intermediaries):

• An insurance intermediary must transfer a rebate in full to the consumer.  The firm must get the written permission of the consumer in advance of any fee being deducted from an insurance rebate.  Where the consumer has agreed to the deduction of any charges, these must be clearly outlined in the document notifying the consumer of the rebate.
• Consumers should ask the intermediary if the activities and services they wish to engage the firm in are regulated by the Central Bank, as some intermediary firms engage in other business activities that do not require our authorisation and are therefore not regulated by the Central Bank. Consumers are reminded that fewer protections exist for business activities that do not require authorisation.
• Consumers are encouraged to check the Central Bank’s public registers to see if a firm is regulated.
• Where an intermediary charges a fee and also receives commission in respect of a product or service provided to a consumer, the intermediary must explain to the consumer whether or not the commission will be offset against the fee, in part or in full.  Consumers should request a Statement of Charges from the intermediary.
• Consumers must be told if the intermediary is tied to a single Insurance Company for a particular product or service and this fact must be disclosed in all communications with the consumer.
• All sales staff must meet specified minimum competency standards and we would encourage consumers to ask them about their qualifications. Consumers can request a copy of the qualifications and Certificate of Competency from the intermediary.

Notes to editors

Central Bank’s Supervisory Approach

• In 2011, the Central Bank introduced a formal risk assessment framework, known as the Probability Risk and Impact System (PRISM).  This system is designed to facilitate a more structured and systematic approach to assessing all regulated firms, based on the impact they have on the economy - or on consumers if things go wrong - and the probability that problems will arise. 
• Retail Intermediaries are ranked as low impact firms.  They are not authorised to hold client money and individually their failure would not cause economic or systemic problems, nor would they require taxpayer support.
• The Central Bank has a “lifecycle” approach within the Consumer Protection Directorate, which means that authorisation, prudential supervision, conduct-of-business supervision, revocations and general policy matters are all dealt with under one roof.
• In line with the Central Bank’s Strategic Plan for 2013 - 2015, a key focus will be on improved operational efficiency and cost effectiveness, involving a range of measures including process automation.
• The Central Bank provides compliance assistance to Retail Intermediaries through a series of regional road shows and the publication of regular compliance newsletters.
• Supervisory teams focus on thematic work, carefully targeting higher risk areas, and taking credible action when regulatory breaches are identified. 
• The Central Bank continuously monitors the sector through desk-based analysis of financial returns, thematic reviews, reactive supervision and spot-check inspections.
• Our overall objective is to strengthen the gatekeeper and supervisory frameworks for this sector, with the ultimate goals of improving regulatory compliance and protecting consumers.

Research highlights positive experience of borrowers engaged in MARP
Research highlights positive experience of borrowers engaged in the mortgage arrears resolution process

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Date:12 February 2013

Central Bank Publishes Programme of Themed Reviews and Inspections for 2013
The Central Bank of Ireland has published its planned series of themed reviews and inspections for 2013.

Central Bank Publishes Programme of Themed Reviews for 2013
12 February 2013

The Central Bank of Ireland today published its planned series of themed reviews and inspections for 2013.

The main themes include examinations of the following areas:

• Code of Conduct on Mortgage Arrears – Review of various elements of the mortgage arrears process to inform our upcoming review of the CCMA.   This is in line with the Central Bank’s strategic focus on this area.
• Sales incentives in the banking, insurance, investment and stockbroking sectors – Assessment of how firms have structured staff remuneration and sales incentives to ensure they meet the Consumer Protection Code and other relevant regulatory requirements.
• Provision of information to consumers by investment and stockbroking firms - Review to determine if information is provided to consumers in an accurate and clear manner on investment products, fees and charges, and other issues.
• Property insurance claims handling – Examination of how insurance companies handle the settling and processing of property claims to ensure compliance with the Consumer Protection Code. 
• Retail intermediaries compliance (insurance, investment and mortgage intermediaries

                - Review of retail intermediaries’ compliance with financial position requirements. 

                - Review of insurance intermediaries’ compliance with professional indemnity insurance requirements.

                - Review of the sale of pension policies by intermediaries.

• Moneylenders – Review of moneylending firms with a focus on the maximum APR and maximum cost of credit that such firms are permitted to charge.
• Outsourcing – Assessment of MiFID firms and fund custodians’ compliance with requirements on outsourcing.
• Post-authorisation application of business plans to delegating UCITS and non-UCITS managers – Assessing firms business models for compliance with the requirements set out in the UCITS and non-UCITS notices.
• Client assets - Review of MiFID firms to assess compliance with client asset requirements.
• Review of governance on pricing procedures – Review of arrangements on the pricing of certain hard-to-value assets within fund and investment manager client portfolios.
• Data integrity of regulatory returns – Examination of data contained in regulatory returns submitted by funds and MiFID firms.
• Anti-Money Laundering, Countering the Financing of Terrorism and Financial Sanctions – Programme of desktop inspections in 2013 and firms will be expected to co-operate in the provision of requested information to fulfil this activity. As in prior years a number of on-site inspections will also be conducted.

Themed reviews and inspections are an important part of the Central Bank’s supervisory framework allowing for review, assessment and mitigation of risks which have emerged in various industry sectors and across individual firms. The publication of planned themed inspections enables the relevant sectors to prepare and raise standards across the firms in each sector. 

Themed reviews and inspections:

• allow the Central Bank to monitor compliance with the relevant rules and requirements;
• may form the basis for the Central Bank taking regulatory or enforcement action where breaches are identified;
• help to raise industry standards by identifying and highlighting both good and poor practices;
• ensure transparency to a risk as well as the Central Bank’s expectations of how it should be dealt with, and
• help to build awareness of and confidence in our regulatory role through publication of the main findings and related actions.

In addition to the planned series of inspections, the Central Bank will also continue to conduct additional reactive inspections on key issues and themes as they arise throughout the year.

Notes for editors

The main themes for 2013 include:

Code of Conduct on Mortgage Arrears (CCMA)

During 2012, the Central Bank conducted a review of the CCMA in respect of the appeals provisions of the Mortgage Arrears Resolution Process (MARP) in some of the smaller lenders in the market. In 2013 as part of our ongoing prioritisation of this issue, we will carry out a themed inspection on various elements of the mortgage arrears process, among a number of lenders.   The results of this inspection will be used to inform our review of the CCMA.

Sales incentives in the banking, insurance and investment & stockbroking sectors  

It is intended to examine the manner in which firms structure the remuneration and sales incentives paid to their employees.   Firms are obliged to always act in the best interests of consumers.  Remuneration and sales incentives schemes must not impair a firms ability to comply with that obligation under MiFID Regulations and/or the Consumer Protection Code.

Provision of information to consumers 

It is intended to examine the compliance by investment and stockbroking firms with the provisions of the MiFID (Markets in Financial Instruments Directive) Regulations and/or the Consumer Protection Code as applicable in relation to the provision of information to consumers. The theme will seek to ensure that consumers are provided, on an ongoing basis, with accurate and clear information on investment services and products, fees and charges.

Property insurance claims handling

This themed inspection will involve reviewing property claims handling for compliance with the Consumer Protection Code.  The settling and processing of claims is an important consumer facing function of an insurance company. This review will include looking at issues such as the information being provided to consumers in the course of the claim and the timelines surrounding the settlement of property claims.

Retail intermediaries/brokers – Review of insurance intermediary firms in relation to their compliance with financial position requirements, professional indemnity insurance and sale of pension policies

The Central Bank will conduct a series of themed reviews of the retail intermediary sector throughout 2013 to monitor compliance with Prudential and Conduct of Business Rules. 

• We will continue to target firms for inspections, which are non-compliant in terms of submitting annual returns and/or payment of levies and/or based on complaints levels or other regulatory concerns.
• We will also assess compliance with key prudential requirements such as Professional Indemnity Insurance and financial position requirements.
• We also plan to review the sale of pension products for compliance with specific requirements of the Consumer Protection Code.

The findings from these themed reviews will feed into, and inform, our on-going supervision of retail intermediaries.

Themed inspection of moneylenders APRs and costs of credit (2012/2013)

Moneylending firms are restricted to a maximum APR and a maximum permitted cost of credit per term of loan, as set out in their licences. This theme is nearing completion and was selected to ensure that consumers are being charged in accordance with moneylenders authorised APRs and costs of credit.

Outsourcing – MiFID firms and fund custodians

The purpose of this review will be to assess MiFID firms and fund custodians’ compliance with the applicable requirements relating to the outsourcing of activities. We will assess whether best practice industry principles are being implemented by these firms.  

Post-authorisation application of business plans to delegating UCITS and non-UCITS managers

Firms business models will be assessed for compliance with the requirements set out in the UCITS and Non-UCITS Notices.  We will also assess whether firms are following best industry practices.

Client assets – investment firms and stock brokers

The safe-guarding of client assets remains a high priority for the Central Bank. Firms will be examined to assess their compliance with the client asset requirements. 

Review of Governance surrounding pricing procedures – investment funds and MiFID firms

The purpose of this review is to examine the governance arrangements around the pricing of certain ‘hard to value assets’ within fund and MiFID firm client portfolios.  We will look to ensure that all regulatory requirements and industry best practice principles are being implemented.

Data integrity of regulatory returns – investment firms, stock brokers and investment funds

This review will assess data contained in regulatory returns submitted by firms, particularly in the context of the low impact firms PRISM engagement model.  We will assess the accuracy and consistency of the data supplied, particularly in critical areas such as financial positions and client assets.

Anti-Money Laundering, Countering the Financing of Terrorism and Financial Sanctions

The Central Bank will conduct a programme of desktop inspections in 2013 and firms will be expected to co-operate in the provision of requested information to fulfil this activity. This review will focus on the risk mitigation framework that firms have put in place to manage their AML and related risks. As in prior years a number of on-site inspections will also be conducted. The Central Bank will communicate any resulting themes to the affected parties and/or sectors.  The Central Bank performs its role in a manner that gives due regard to Ireland’s membership of the Financial Actions Task Force and its Mutual Evaluation Review process and it expects that compliance with the CJA 2010 should be viewed by firms in that wider context.

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GETTING IT RIGHT FOR CONSUMERS

10 May 2012: Address by Bernard Sheridan, Director of Consumer Protection, at the Irish Banking Federation seminar on strengthening customer relationships
http://www.centralbank.ie/press-area/speeches/Pages/BernardSheridanIBFSeminar.aspx 

“Our new Consumer Protection strategy is based on what we now refer to as the 5 “C”s framework – the CONSUMER is at the centre of our thinking alongside CONFIDENCE, COMPLIANCE, CHALLENGE and CULTURE. These 5 “C”s emerged throughout our discussions – both internally in the Central Bank and externally – and they have presented us with a robust and defined agenda over the next few years. But they also presented us with significant challenges – we have had to think hard about what we need to do as the Central Bank to deliver effectively and meaningfully on the 5 “C”s as they are all interconnected.”

• Speech: Getting it right for consumers (Central Bank, 2013)
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