Hire-Purchase, Consumer Hire, PCP and Buy-Now-Pay-Later: New authorisation framework
Providers of hire purchase products (including personal contract plans) or consumer-hire products to consumers, and servicers of those products, now need to be authorised by the Central Bank of Ireland. These changes also impact ‘buy-now-pay-later’ providers and products. This briefing looks at the new requirements, and highlights a related change to the interest-free credit exemption under the Consumer Credit Act 1995.
On 11 April 2022, the Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Act 2022 was signed into law. The new Act will require a commencement order before it becomes operational.
The new Act extends the retail credit and credit servicing regimes under the Central Bank Act 1997 by requiring that any person carrying on a business of offering hire purchase products (including personal contract plans (PCPs)) or consumer-hire products to consumers, and any other person providing credit directly or indirectly to consumers, be authorised by the Central Bank of Ireland (the Central Bank) as a retail credit firm (if not already subject to Central Bank authorisation).
Those who service such products will also require authorisation from the Central Bank as credit servicing firms.
The new Act also:
- caps the annual percentage rate (APR) that consumers may be charged under credit agreements and hire purchase agreements;
- requires the APR to be specified in hire purchase agreements (that requirement was already in place in respect of credit agreements);
- narrows the interest-free credit exemption under the Consumer Credit Act 1995 (the CCA); and
- allows the Minister for Finance to ask the Central Bank to collect and publish information on credit agreements, hire purchase agreements and consumer-hire agreements (‘personal data’ may not be published).
Impact on providers of hire purchase and consumer hire purchase products
Under the new Act, firms offering hire purchase (including PCP) and/or consumer hire will be required to be appropriately authorised by the Central Bank as retail credit firms. In addition, any firms which service such products will be required to be authorised by the Central Bank as credit servicing firms.
The new Act also requires firms to ensure that the APR applied to credit agreements (excluding moneylending agreements, as these are subject to a separate framework which will also be amended under the planned Consumer Credit (Amendment) Bill 2022) and hire purchase agreements does not exceed 23% and that the applicable APR is specified in the hire purchase agreements (this requirement already applies in respect of credit agreements).
Any credit agreement or hire purchase agreement with an APR in excess of 23%, and any guarantee or security given in respect of such a credit agreement or hire purchase agreement, will not be enforceable unless a court is satisfied that the failure to cap the APR at or below 23% was not deliberate and has not prejudiced the consumer, and that it would be just and equitable to allow for the agreement to be enforced. This restriction will not apply to credit agreements or hire-purchase agreements entered into before the commencement of the new Act.
Impact on ‘Buy Now Pay Later’ products
Until now, only the provision of a cash loan or direct credit to an individual or consumer came within the scope of the Irish regulatory regime.
As the new Act will regulate indirect forms of credit, this means that providers of BNPL products and other similar products which allow a person to pay in instalments (often used when purchasing goods online) will now require authorisation from the Central Bank (unless the providers of such products can avail of the relevant exemption under the CCA (discussed below)).
This means that BNPL products and providers will also need to comply with (among other obligations) the applicable ‘form and content’ requirements of Irish consumer credit legislation, the Irish AML/CFT regime and the Central Bank’s credit reporting framework.
In addition, as BNPL products will now fall within the Central Bank’s regulatory remit, they will be subject to the Central Bank’s statutory codes of conduct (including the Consumer Protection Code 2012 (the CPC)). This means that in-scope BNPL providers will have to (among other matters) conduct suitability assessments prior to providing the credit to consumers.
Narrowing of CCA Exemption
The CCA excludes certain types of credit from its scope (including credit provided by utility companies and credit provided to employees on preferential terms). One of those exemptions has been narrowed by the new Act (the other existing exemptions will continue to apply).
The new Act replaces the existing exemption in Section 3(2) of the CCA for “credit granted or made available without payment of interest or any other charge other than by a seller of goods who has invited by advertisement consumers to avail of such credit” (which applied to situations where a seller advertised credit to consumers) with a new narrower exemption.
The new narrower CCA exemption covers “credit granted or made available without payment of interest or any other charge, other than where such credit is granted or made available by a person who has invited, by way of advertisement, consumers to avail of such credit”.
The impact of the narrower exemption means that, to fall outside the Irish regulatory regime, interest-free credit will now have to be offered/provided on a completely unsolicited basis. This is of particular importance to BNPL providers who may have previously relied on the above existing CCA exemption to provide BNPL products to consumers in Ireland.
Central Bank Plans
On 29 March 2022, the Central Bank issued a Notice of Intention outlining its plans to:
- extend its retail credit firm and credit servicing firm authorisation regimes once the new Act is commenced;
- amend the CPC; and
- amend the Minimum Competency Code 2017 and the related regulations (the Central Bank (Supervision and Enforcement) Act 2013 (Section 48(1)) Minimum Competency Regulations 2017) (together, the MCC).
Planned CPC Changes
The principal change being made to the CPC is the extension of its scope by deleting existing exemptions for:
- credit of a total amount of €200 or less; and
- hire purchase and consumer hire agreements.
The Central Bank also intends to apply the CPC where regulated entities are entering into hire purchase agreements, consumer hire agreements and/or BNPL agreements.
The Central Bank may consider whether additional tailored consumer protection rules are needed for hire purchase and BNPL services at a later date.
Planned MCC Changes
The Central Bank also intends to amend the MCC to bring the newly-regulated activities into scope. The Central Bank expects these minimum standards to be met as soon as possible following commencement of the new Act (but no later than four years post-commencement).
The new Act gives persons who are already carrying on in-scope business a three-month period following commencement of the new Act to apply for authorisation as a retail credit firm (and they will be deemed authorised until the Central Bank grants or refuses their authorisation application). The same transitional period will apply to those who currently service in-scope products – they will be deemed to be authorised as credit servicing firms provided that they submit their application within three months of the new Act’s commencement and pending the Central Bank’s decision on that application.
If you would like to discuss the above in more detail, please get in touch with any member of our market-leading Financial Regulation Group.