Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Act 2022

Introduction

The provision of credit to consumers and businesses has its origins as far back as 3500 BC. In more recent times, where credit is available in many different forms the need for strict regulation of the industry has been recognised by the European Union and its member states.

Ireland has implemented a number of Consumer Protection Directives to meet the need for regulation in this area, the most recent example coming in the form of the Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Act 2022.

The 2022 Act has amended the Consumer Credit Act 1995 and the Central Bank Act 1997 so as to provide credit users with further protections and to expand the Central Bank of Ireland’s regulatory powers over certain types of credit.

Scope of the Central Bank

The 2022 Act aims to broaden the Central Bank’s regulatory scope beyond “cash loans” and into many other realms of the credit industry.

The most significant change made by the 2022 Act is the expansion of the Central Bank of Ireland’s regulatory powers. Prior to the amendment, credit providers were required to have Central Bank authorisation in order to provide “cash loans”. The 2022 Act has redefined terms such as “credit” and “credit services” to cover a broader range of credit types to include:

• hire purchase and consumer hire business
• indirect credit and
• persons carrying on business relating to hire purchase or consumer-hire agreements or the indirect provision of credit

Indirect credit has been included in the new legislation to ensure that credit institutions providing “buy now pay later” credit are brought within the remit of the Central Bank. This type of credit is a recent newcomer to the Irish market with many high street retailers now allowing customers to split payments into a number of instalments.

The extension of the Central Banks jurisdiction also captures entities involved in the administration of credit agreements on behalf of credit providers.

Hire Purchase and Consumer Hire Business are included in an effort to regulate the recent phenomenon of “PCP” credit. This is of particular relevance given that, in 2019, the Central Bank reported that €1.1 Billion was outstanding on PCP agreements in this country.

Annual Percentage Rate

Another pivotal change brought about by the 2022 Act is that any credit providers will be bound to a maximum Annual Percentage Rate of 23%. The amendment also dictates that the APR must now be displayed on hire purchase agreements.

Suitability

Also, as a result of the 2022 Act, credit providers will now have to undertake suitability and affordability tests when entering into PCP and hire-purchase agreements with customers.

Transition

The transitional provisions of the 2022 Act dictate that any credit providers who are now under the expanded scope of the Central Bank must apply for an Authorisation within 3 months of the commencement date. This 3-month allowance will also apply to entities previously authorised under the old regime who are now required to extend existing authorisations.

Credit providers should be aware that the changes to the maximum APR (23%) came into effect immediately on the 16 May 2022 and any credit agreements made after that date with an APR of greater than 23% will be illegal and unenforceable.

Conclusion

The enactment of this legislation brings with it a significant amount of additional consumer protection. Credit firms will need to take appropriate in order to ensure they are compliant with the requirements.

How we can help

If you have any queries or concerns, or would like to discuss the above in further detail, please feel free to contact Joe McVeigh in our Corporate Department (jmcveigh@bhsm.ie / +353 (0)1 440 8300).

This article is for general information purposes.  Legal advice must be obtained for individual circumstances.  Whilst every effort has been made to ensure the accuracy of this article, no liability is accepted by the author for any inaccuracies.