Legal Updates

Background

The Consumer Credit (Amendment) Act 2022 (the Amendment Act) amends the Consumer Credit Act 1995 (the CCA). It was signed into law following a review by the Department of Finance of the moneylending sector and the publication of the Moneylending Policy Proposals Report in July 2021. The Amendment Act builds on The Central Bank (Supervision and Enforcement) Act 2013 (Section 48) (Licensed Moneylenders) Regulations 2020 (the Regulations) which were introduced by the Central Bank of Ireland (the CBI) and came into operation on 1 January 2021. For further information on the Regulations please see our previous note “Moneylending – New Central Bank Regulations”: https://www.dilloneustace.com/legal-updates/moneylending-new-central-bank-regulations.

The Amendment Act aims to strengthen the protections available to, and reduce the cost of credit for, consumers, in addition to streamlining and modernising the moneylending sector.

Definitions

Section 2 of the Amendment Act amends the interpretation section of the CCA and replaces the definitions of “moneylender”; “moneylending”; “moneylender’s licence” and “moneylending agreement” with definitions of the following terms: “high cost credit provider”; “high cost credit”; “high cost credit provider’s licence” and high cost credit agreement” respectively. The purpose of these amendments is to increase transparency and ensure that consumers are aware of the nature of the product and the relevant institution that they are dealing with.

High cost credit refers to credit supplied by a high cost credit provider to a consumer on foot of a “high cost credit agreement”, which is defined in the Amendment Act as a credit agreement into which a high cost credit provider enters, or offers to enter, with a consumer in which one or more of the following features apply:

• the agreement was concluded away from the business premises of the high cost credit provider or the business premises of the supplier of goods or services under the agreement;
• any negotiations for, or in relation to, the credit were conducted at a place other than the business premises of the high cost credit provider or the business premises of the supplier of goods or services under the agreement;
• repayments under the agreement will, or may, be paid by the consumer to the high cost credit provider or the representative of the high cost credit provider at any place other than the business premises of the high cost credit provider or the business premises of the supplier of goods or services under the agreement; or
• the total cost of credit to the consumer under the agreement is in excess of an annual percentage rate (APR) of 23 per cent, or such other rate as may be prescribed.

To further ensure transparency, section 8 of the Amendment Act requires that the wording “high cost credit agreement” be displayed prominently within any such agreement entered into after the commencement of the Amendment Act, being 14 November 2022.

A high cost credit provider is required to obtain authorisation from the CBI to engage in the business of providing high cost credit. Prior to applying for such authorisation, the provider must publish a notice of their intention to do so in a national newspaper. Licences are issued to certified high cost credit providers by the CBI pursuant to Section 93 of the CCA, as amended. A high cost credit provider’s licence contains the terms and conditions specific to the relevant high cost credit provider, including its maximum APR and its cost of credit.

Purpose of the Legislation and Key Amendments

Whilst the Amendment Act does provide for some beneficial measures for high cost credit providers, its primary purpose is to enhance consumer protection. Section 9 of the Amendment Act allows the Minister for Finance (the Minister) to set a maximum interest rate that may be charged by a high cost credit provider for both cash loans and running accounts. Such interest rate caps may be imposed by the Minister pursuant to regulations and must only be implemented following consultation with the CBI. The Minister has already implemented regulations under the Amendment Act providing for an initial interest rate cap of 1% per week and a maximum interest rate of 48%. These regulations will take the most expensive products off the market and will require the bulk of products to be revised downwards. Moneylenders must consider if they need to revise their business model and reduce their margin to enable them to operate within the legislative cap.

Section 7 of the Amendment Act inserts a new section 94A into the CCA which limits the term of cash loans under high cost credit agreements to a maximum period of 52 weeks, save for agreements entered into prior to the commencement of the Amendment Act or running accounts under high cost credit agreements.

In addition to the protections afforded to consumers by the Amendment Act, it also modernises the sector for the benefit of both the consumer and the credit provider. Section 10 of the Amendment Act introduces the option to maintain a repayment book online at the request of the consumer. The repayment book should contain information relating to repayments made under a high cost credit agreement, such as the amount and date of each repayment, and the outstanding amount due following each repayment. Allowing repayment books to be maintained online will enable consumers to have remote access to repayment details, aligning the sector with the increased use of online banking.

Section 6 of the Amendment Act streamlines the licencing process for high cost credit providers under section 93 of the CCA. The licencing period of 12 months has been extended to 5 years, aligning it with CBI licencing terms for other regulated financial services providers. Additionally, section 93 of the CCA has been amended to enable the CBI to reject a licence application where the high cost credit provider’s interest rates are above the regulatory cap. This operates in conjunction with the CBI’s power to suspend or revoke a licence under section 93(11) of the CCA.

Prior to the commencement of the Amendment Act on 14 November 2022, moneylenders were required to register in each District Court area in which they wished to operate. Pursuant to Section 6 of the Amendment Act licences will now be recognised on a national basis. This will encourage competition and provide more options for consumers when seeking credit.

The Amendment Act enables the Minister to request that the CBI, at any time, collects and publishes non-personal data on the sector. This should allow more consistent monitoring of the sector as a whole.

The offences provided for in Section 12 of the CCA have been supplemented by Section 3 of the Amendment Act which introduces two new offences:

• Providing a loan over the maximum permitted period of 52 weeks; and
• Providing a loan with an interest rate above the maximum permitted caps.

The relevant penalties and offences under the CCA which may be tried summarily or on indictment are:

• a maximum penalty of a fine of up to €100,000; and/or
• up to 5 years’ imprisonment.

Commencement of the Act

The Amendment Act was signed into law on 29 June 2022 and was commenced by the Minister on 14 November 2022 pursuant to the Consumer Credit (Amendment) Act 2022 (Commencement) Order 2022 (S.I. No. 575 of 2022).

Conclusion

The primary purpose of the Amendment Act is to reduce the cost of credit for consumers in the high cost credit sector. The Amendment Act empowers the Minister to set interest rate caps for high cost credit (which has already been done as set out above) and also introduces several other safeguards for consumers, increasing transparency with regard to the nature of products offered and provided by high cost credit providers to consumers. Some practical updates have also been introduced by the Amendment Act which should benefit credit providers, such as the introduction of measures designed to modernise and streamline the sector as outlined above. As a whole the Amendment Act principally creates new obligations for high cost credit providers. All high cost credit providers should take steps to ensure that they are complying with the new requirements introduced by the Amendment Act.