Minister Donohoe commences law to regulate all providers of hire purchase & PCP agreements

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Minister Donohoe commences law to regulate all providers of hire purchase & PCP agreements

The Minister for Finance, Paschal Donohoe, TD, has signed an order to commence the Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Act 2022.

The Act requires that providers of PCPs (Personal Contract Plans) become entities which are regulated by the Central Bank of Ireland.  This will then give the Central Bank the power to apply the Consumer Protection Code, in particular the part that requires regulated firms to assess the suitability of the product for the consumer and also the ability of the borrower to repay the debt over the duration of the credit agreement, to such firms.

This facilitates the implementation of the key conclusion of the “Tutty Report” (which was commissioned by the Minister and published in November 2018) on PCPs which recommended that the relevant provisions of the Central Bank’s Consumer Protection Code should apply to all the providers of hire purchase/PCP agreements to consumers.

In addition, the Act requires the providers of indirect credit to consumers, such as the providers of ‘Buy Now Pay Later’ type credit, to also become entities regulated by the Central Bank.

The Act also provides for the regulation of entities which service these agreements as well as making some consequential and related amendments to the Consumer Credit Act, including the application of an interest rate cap on credit and hire purchase agreements provided to consumers (other than money lending agreements which have their own regulatory framework) by all firms that provide agreements which fall within the scope of that Act.

Speaking today, Minister Donohoe said:

“The passing of this Act by the Oireachtas, and now its commencement, is an important development as it will permit the Central Bank to apply its Consumer Protection Code to the providers of a wider range of credit and hire purchase type agreements to consumers.  This will significantly improve the level of protection available to the consumers of such agreements.”

The Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Act 2022 (‘the Act’) provides that any firm which offers credit (including buy now pay later – ‘BNPL’ - type credit), hire purchase (including personal contract plans - ‘PCPs’) or consumer hire agreements to consumers and other relevant persons will, unless already subject to Central Bank of Ireland regulation, be required to be authorised as a ‘retail credit firm’ by the Central Bank.  It will do this by extending the existing authorisation remit of retail credit firms (which applies to the provision of credit in the form of cash loans) to encompass these additional types of financial agreements.  This will then allow the Central Bank to apply its Consumer Protection Code, and where applicable other relevant consumer protection codes or regulations, to the currently unauthorised entities which provide PCPs and these other such financial agreements.

The Act will facilitate the implementation of the key recommendation in the November 2018 review of personal contract plans, authored by Mr. Michael Tutty a former Second Secretary General of the Department of Finance.  This recommended that the relevant provisions of the Central Bank's Consumer Protection Code, in particular the provisions which require regulated entities to assess the suitability and affordability of credit for consumers, should apply to all the entities which provide PCP and hire purchase agreements to consumers.  PCPs have become particularly prevalent in the financing of new car purchases by consumers.

The Act also makes a number of further consumer protection improvements in the provision of and operation of financial accommodation agreements to consumers such as:-

  • bring the indirect providers of credit within the authorisation and regulatory remit of the Central Bank (indirect credit, which is increasing in popularity, is so called because the lender indirectly provides credit to the borrower by paying a retailer for the purchase of a good or service by the borrower, often as part of a ‘BNPL’ offer);
  • bring the servicers of credit, hire purchase and consumer hire agreements within the authorisation and regulatory remit of the Central Bank (it will do this by extending the existing authorisation scope of ‘credit servicing firms’ to include these additional types of financial agreements);
  • widen the current definition of ‘credit’ for the purposes of the authorisation scope of retail credit and credit servicing firms (which applies to ‘credit’ in the form of a cash loan only) so that it will include ‘credit’ in the form of a deferred payment, a cash loan or other similar financial accommodation;
  • provide for a limit (of 23% APR) on the interest consumers may be charged under credit or hire purchase agreements (other than moneylending agreements or credit unions both of which have their own regulatory framework);
  • provide for a requirement to specify the APR in a hire-purchase agreement.

The Act was signed into law by the President on 11 April 2022 and, following the signature of the commencement order by the Minister, the Act came into operation on 16 May 2022.

Article Published: 24/05/2022