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    ECB Opinion on Regulation of Business of Owning Credit Agreements

    July 05, 2018

    ECB published its opinion on the Consumer Protection (Regulation of Credit Servicing Firms (Amendment)) Bill (draft law) in Ireland. ECB offers several suggestions for improvement and welcomes the intention to exempt securitization from the scope of the draft law, as this will ensure that the draft law does not discourage securitization activity. However, ECB states that this exemption is not fully clear from the current text of the draft law. Therefore, it is suggested that the drafting be further reviewed, to ensure full legal certainty in this respect.

    ECB, in June 2018, had received a request from the Chairman of the Oireachtas (the Irish National Parliament) Joint Committee on Finance, Public Expenditure, and Reform and Taoiseach (the Irish Prime Minister), for an opinion on this regulation (CON/2018/31) on the business of owning credit agreements. The draft law intends to regulate the owners of credit agreements entered into with natural persons and with micro, small, or medium-size enterprises. The law seeks to regulate credit agreement owners by extending existing provisions of Irish law to the entities, in particular the Central Bank Act 1997, which regulates the activities of retail credit firms and credit servicing firms.

    Additional key highlights of the ECB opinion on the draft of the Irish law are as follows: 

    • ECB states that the draft law must carefully balance the benefits of creating well-functioning secondary markets against the impetus to protect debtors. Provisions within the draft law may create a burden of costs for investors, which could impede their participation in secondary markets, thus reducing overall participation and reducing price competition in the market place. 
    • The current text of the draft law may raise issues of legal certainty. The draft law amends a number of existing provisions of Irish law. In some cases, it is unclear how these amendments interact with the existing provisions and with the existing powers of the Central Bank of Ireland.
    • ECB notes that, on March 03, 2018, EC published its proposal for a Directive on credit servicers, credit purchasers, and the recovery of collateral. This proposal seeks to set out a common EU framework and requirements for credit servicers, for credit purchasers, and for the recovery of collateral in respect of credit agreements concluded with business borrowers. If this proposed Directive is adopted by the European Parliament and the Council, its provisions will be transposed into Irish law, requiring further amendment of the rules applicable to credit servicing and credit ownership.

     

    Related Link: ECB Opinion (PDF)

    Keywords: Europe, EU, Banking, Securities, Credit Agreements, Credit Agreement Owners, Securitization, Central Bank of Ireland, ECB

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