“I have a farm loan with a bank that has ceased doing business in the country. I have met all the repayments, etc. I have recently received notification that my loan was sold to a third party. Was the bank entitled to do this without my consent or prior knowledge? I am not familiar with the third party that has taken over my loan and am concerned that they will change the terms of the loan or be more aggressive in their dealings than the previous lender. Have you any advice?”
The standard terms and conditions of a commercial mortgage generally give the lender the right to assign the benefit of the loan/mortgage without the borrower’s knowledge or consent. However, the code of practice on the transfer of mortgages issued by the Central Bank provides that a loan secured by the mortgage of residential property may not be transferred without the written consent of the borrower.
There are specified limited exceptions when the code does not apply, such as a transfer of the mortgage within the same corporate group or a transfer connected with the making of further loans to the borrower, etc.
The code provides that when seeking consent from either an existing or a new borrower, the lender must provide a statement containing sufficient information to enable the borrower to make an informed decision. This statement, which must be cleared in advance with the Central Bank of Ireland, must include a clear explanation of the implications of a transfer and how the transfer might affect the borrower. The borrower must be approached on an individual basis and given reasonable time to give or to decline to give his consent.
Loans sold to unregulated entities
During the downturn in the economy, an issue arose where loans were being sold to entities not regulated by the Central Bank. The result of this was that unregulated financial institutions were not bound by any of the Central Bank codes, many of which are legally binding and thus the borrowers were not entitled to the protection of the codes. In order to address this anomaly, the Government launched a public consultation entitled Consumer Protection on the Sale of Loan Books in July 2014, which culminated in the passing of the Consumer Protection (Regulation of Credit Servicing Firms) Act 2015. This was signed into law on 8 July 2015.
The aim of the act is to continue to afford consumers, whose loans are sold by regulated entities to unregulated entities, the protections to which they would have been entitled had their loans not been sold.
Arising from the act, upon the sale of a consumer loan portfolio to an unregulated entity, the relevant borrowers will continue to enjoy the benefits of the Central Bank of Ireland codes designed to protect consumers. Further, the borrowers will have access to the Financial Services Ombudsman complaints procedure regarding treatment by credit servicing firms.
All regulated entities and credit servicing firms will be subject to supervision and enforcement by the Central Bank of Ireland. Until the act came into effect, credit provided by credit unions and registered societies was outside the scope of both the Consumer Credit Act 1995 and the Central Bank codes. Now where such credit is transferred to an entity that is not a credit union or registered society, the credit will become subject to the Consumer Credit Act and as a result, subject to the Central Bank’s codes.
What credit agreements fall within the act?
The act is designed to protect consumers and, accordingly, it does not cover all types of credit agreement. Protection is given to consumers who are classified as relevant borrowers, ie a natural person within Ireland or a micro-, small- or medium-sized enterprise. An SME is defined as an enterprise which employs fewer than 250 people and has an annual turnover not exceeding €50m and/or an annual balance sheet not exceeding €43m. It includes sole traders, partnerships, unincorporated bodies and incorporated bodies engaged in an economic activity.
What Central Bank codes protect consumers?
As long as you continue to comply with the terms and conditions of your loan, the change of lender should not affect your loan arrangement.