The Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Act 2022 – key compliance steps

As highlighted in our previous publication, driving fair outcomes for consumers is a key financial regulation priority of the Central Bank of Ireland (CBI) this year.

The recently introduced Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Act 2022 (2022 Act) is one of the most significant developments in the consumer protection regulatory framework in recent years. In order to assist firms in their compliance with both the 2022 Act and consequential developments, this ALG Soundbite and accompanying article provide an overview of:

• principal changes introduced by the 2022 Act
• consequential amendments to CBI codes and regulations
• key compliance steps

Description: This audio update focuses on the Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Act 2022 and key compliance steps.

Principal changes introduced by the 2022 Act

The introduction of the 2022 Act demonstrates a continued focus on consumer protection, specifically in the area of retail lending. In particular, the following changes have been introduced by the 2022 Act.

Extended authorisation requirements

The principal purpose of the 2022 Act is to close a gap in the consumer protection regulatory framework in respect of consumer-hire agreements, hire-purchase agreements, including personal contract plans (PCPs), and other forms of indirect credit such as Buy Now Pay Later. Specifically, the 2022 Act amends the Central Bank Act 1997 (1997 Act) by expanding the definition of "credit servicing", to require an authorisation where a firm engages in the following activities in respect of consumer-hire and hire-purchase agreements:

• the holding of legal title to the rights of the owner under the agreement
• the management or administration of the agreement, or
• communicating with the hirer in respect of the management or administration of the agreement

Similarly, the definition of "relevant activity" in respect of retail firms has been amended such that an authorisation requirement will be triggered by those firms entering into consumer-hire, hire-purchase and indirect credit agreements.

Application of Consumer Credit Act 1995

The Consumer Credit Act 1995 (1995 Act) applies to all credit agreements, hire-purchase agreements and consumer-hire agreements to which a consumer (a person acting outside the person's business or those declared to be a consumer under the 1995 Act) is a party.  In addition, the 2022 Act amends the 1995 Act such that it applies to a person who has invited, by way of advertisement, consumers to avail of credit without payment of interest or any other charge.

Maximum APR

The 1995 Act is amended to introduce a cap of 23% on the annual percentage rate of charge (APR) in respect of credit agreements (other than moneylending agreements) and hire-purchase agreements. This cap on APR applies to credit agreements and hire-purchase agreements entered into after 16 May 2022.

Content of hire-purchase agreements

The 1995 Act is amended to introduce a requirement that, where a hire-purchase agreement is entered into after 16 May 2022, the hire-purchase agreement must contain an APR statement.

Consequential amendments to CBI codes and regulations

The consequential amendments to CBI codes and regulations are in terms of scope, rather than substance at this point. The CBI has extended the scope of the Consumer Protection Code 2012, the Minimum Competency Code 2017 and the Minimum Competency Regulations 2017 to expressly include these new activities. Firms are to comply with the codes by the end of the transitional deadline contained in the 2022 Act, which is 16 August 2022.

The CBI's expectation is that firms operating in the area will comply with the minimum competency requirements at the earliest possible opportunity.

In terms of future developments and as previously highlighted, we are expecting broader changes to come down the line in this area as part of the ongoing CBI code review, with CBI publication of a discussion paper and stakeholder engagement expected later this year.

Key compliance steps

1. In light of the immediate application of the 23% cap on APR in respect of credit agreements and hire-purchase agreements, and the requirement for hire-purchase agreements to contain an APR statement, firms will need to review and update existing consumer contract templates to comply with these requirements.

2. As the transitional period in respect of authorisation requirements is relatively short, i.e. 16 August 2022, firms should also be taking the following steps:

• conducting a review of business lines to ensure clarity on the aspects of their business that would trigger retail credit or credit servicing authorisation (firms are advised to seek legal advice where in doubt about their regulatory status) 
• considering whether any restructuring of business lines would be appropriate
• considering whether it is necessary to adapt the corporate structure of the firm to bring it in line with CBI structure and governance expectations
• ensuring compliance with CBI minimum competency requirements at the earliest possible opportunity, and with the CBI Consumer Protection Code 2012 by 16 August 2022 

3. As regards the application for authorisation itself, firms that are already operating in the sector will need to submit a completed "Application for Authorisation as a Retail Credit Firm" and a "Declaration Form for availing of Transitional Arrangements as a Retail Credit Firm" to the CBI no later than 16 August 2022.  Where firms complete this authorisation process by this deadline, they may continue operating in the sector until their application for authorisation is decided upon by the CBI.

4. Finally, in terms of horizon scanning and regulatory compliance, newly regulated firms should be aware that, from the point of authorisation, they will be subject to:

• CBI supervision for compliance with conduct of business rules, including the CBI Consumer Protection Code 2012 and CBI minimum competency requirements
• section 149 of the 1995 Act and the requirement to notify the CBI in respect of any new customer charges or increase in any charge previously notified to the CBI
• the CBI industry funding levy
• the remit of the financial services and pensions ombudsman (FSPO) in respect of customer complaints
• the CBI's fitness and probity regime
• the CBI's administrative sanctions regime

Next steps

For further information in relation to this topic, please contact Patrick Brandt, Partner, Kevin Allen, Partner, Christopher Martin, Of Counsel, Louise Hogan, Associate, Sian Langley, Knowledge Lawyer or any member of ALG's financial regulation team.

Date published: 31 May 2022