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IRELAND - Submission to government from ECRC partner FLAC on subprime lending



Free Legal Advice Centres welcomes the decision of the Government and the Department of Finance to introduce legislation to extend the scope of financial regulation and the consumer protection code to entities that are currently unregulated such as sub-prime lenders and other non-deposit taking providers of financial services.

This legislation is particularly necessary as many vulnerable consumers have been adversely affected by the activities of such lenders during the period in which they operated without regulation, in relation to both assessments of suitability and the terms and conditions upon which loan products were offered to customers.

This submission from FLAC (Free Legal Advice Centres) focuses on how the proposed legislation will affect borrowers. It raises questions about how the proposed regulation will protect consumers. FLAC is an independent human rights organisation which is dedicated to the realisation of equal access to justice for all. As part of its work, FLAC focuses on particular areas of law and law reform which have a very high impact on those who are marginalised and especially vulnerable. Amongst these categories are many borrowers from sub-prime lenders and other non-deposit taking lenders who are the subject of the proposed legislation.

This submission first notes the dearth of regulation in this area until now. It goes on to seek more detailed information on the form of regulation than is available in the consultation paper. FLAC recognises that the mechanics of the form of regulation are important but is concerned that certain underlying substantial issues remain unclear including matters which are of primary interest to borrowers such as the setting of interest rates, and the imposition of charges. FLAC is strongly recommending that all institutions affected by this legislation, existing and new entrants, be obliged to produce up to date details to comply with the new legislation. The danger of duplication is far less than the potential danger from lack of clarity in the system such as now exists. FLAC then points to dangers for consumers arising from gaps in the existing legislation and urges their rectification now. Above all, FLAC trusts that this legislation will be used in order to strengthen the protection and supervision available to consumers. A summary of FLAC’s conclusions appears at the end of the paper.

Some conclusions:

Summary of conclusions and recommendations.
1. FLAC believes that the necessity to comply with EU legal instruments should only be one part of the regulation of financial services in Ireland. Where a member state is not precluded from further regulation in its own right, it should be pro-active in ensuring that consumers receive the necessary protection.

2. With so called ‘risk based lending’ becoming an increasing feature of the consumer credit market in Ireland, it is imperative that a process be put in place whereby an independent regulator assesses proposed interest rates that are above standard market rates. At present moneylenders are the only credit providers who have to apply for a licence and state on that application what they propose to charge customers. When non deposit takers become regulated, a rigorous assessment process of proposed rates of interest must also apply to them. Authorisations must be refused where rates are considered unjustified and such lenders must be required to carry out a thorough risk assessment before offering a rate and be in a position to justify that offer. A consumer should have a right of complaint to the Ombudsman for Financial Services where s/he feels a rate is unjustified.

3. FLAC is concerned to note the proposal on page 6 of the Consultation that existing prescribed credit institutions under the CCA should not be required to resubmit their charges under S.149 and S.149 (A) for approval as a result of becoming regulated businesses. We do not believe that this would be duplication. On the contrary, we believe that a transparent consumer as well as commercial focused review of all the charges of non-deposit taking entities is urgently required.

4. We believe that the regulation of non-deposit taking entities should consider the imposition of a strict ‘ability to repay’ standard upon sub-prime lenders at the point the loan is made, with a requirement to verify information of means supplied by the potential borrower. We are also of the view that the practice of such lenders in bringing repossession proceedings in the High Court where the rateable valuation of a property is under £200 should be investigated by the Regulator.

5. The foregoing recommendations in relation to the regulation of non-deposit takers should equally apply to any new entrants into the market.

6. The provision which permits a credit institution to charge rates which money lenders could only charge after being licensed should be amended. These kinds of rates of interest are very hard to justify even based on risk and in our view there is a strong case for reducing the 23% limit. At the very least, any credit institution proposing to charge what are moneylending rates (charged over a longer period of time) should have to apply to do so and provide a commercial justification for these charges.

7. The exclusion of credit institutions from S.47 of the CCA may have been grounded on a belief that competition would look after the interests of the consumer. However, this is not guaranteed in all cases and with the growth of the sub prime market, there is a case for not only screening rates as part of a regulatory process but also allowing a court to review rates and excessive charges.

For further information in relation to this submission, please contact Paul Joyce at (01) 8745690,

ID: 42883
Author(s): SCR
Publication date: 20/12/07

Created: 20/05/09. Last changed: 20/05/09.
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