Consumer Credit

Consumer Credit Regulation  I

The Consumer Credit Act 1995 consolidated earlier moneylending and hire-purchase legislation and implemented Council Directive 87/102/EEC and Council Directive 90/88/EEC on consumer credit. It introduced provisions in relation to home loans, which are dealt with later. The legislation also made provision for the regulation of credit and mortgage intermediaries.

The Consumer Credit Act covers a number of different types of consumer credit and related activities. It requires certain credit providers to be licensed. It prescribes requirements in relation to the provision of certain types of credit. Credit institutions and retail credit firms licensed by the Financial Regulator do not require a separate licence under the Act. However, they are bound by certain provisions of the Act, particularly those relating to housing loans and consumer credit agreements.


Consumer Credit Regulation II

The European Union (Consumer Credit Agreement) Regulations 2010 and 2012 implement   Directive 2008/48/EC of the European Parliament and of the Council, as amended by Commission Directive 2011/90/EU. They cover most consumer credit agreements, but there are a number of significant exceptions. In particular, they do not apply to credit in excess of €75,000.

The principal requirements of Part III of the Consumer Credit Act do not apply in relation to a credit agreement to which the Consumer Credit Regulations apply.

Regulation and enforcement under the Consumer Credit Act and Consumer Credit Regulation are undertaken, principally by the Central Bank. The Financial Services Ombudsman determines complaints by consumers under the Act. Central Bank Regulator now licenses moneylenders and mortgage intermediaries. The Competition and Consumer Protection Commission licenses credit intermediaries and retains certain policing powers under the Act.


Consumer I

The Consumer Credit Act defines a consumer as a natural person acting outside his business or such other persons as are declared to be consumers by ministerial order. No such ministerial order has been made.

The Consumer Credit Regulations defines a “consumer” as a natural person who is acting, in the course of a transaction to which the Regulations apply, for purposes outside his or her trade, business or profession;

Both the Consumer Credit Act and Consumer Credit Regulations definitions of “consumer” are narrower than that which applies under the Consumer Protection Code and in the context of the Financial Services Ombudsman’s powers. It does not cover small businesses.

The AIB PLC -v- Higgins & Ors, [2010] IEHC 219 Kelly J. interpreted the term “consumer,” narrowly. A wider interpretation was taken in Ulster Bank Ireland Limited -v- Healy [2014] IEHC 96, which related to whether the question of whether the claim that a property investor was a consumer, merited a reference to a plenary hearing.

Barrett J. wrote

“ The court does not consider that a consumer who on one or more occasions places saved or borrowed monies in a particular form of investment, such as property, with a view to making a profit therefrom necessarily becomes a person whose business, trade or profession is that of professional investor or property investor and thus no longer a “consumer” for the purposes of the Consumer Credit Act. Of course, there must come a point when a person crosses the Rubicon from consumer to professional…….

It seems to the court that it could be argued that a good example of a person satisfying their individual needs in terms of private consumption is a man such as Mr. Healy engaging in personal investments, using either saved or borrowed monies, so as to meet the retirement or other future requirements of himself or his family”. …………

Having regard to the criteria propounded respectively by Hardiman J. and McKechnie J. in the Aer Rianta c.p.t. v. Ryanair Limited [2001] 4 I.R. 607 and Harrisrange Limited v. Michael Duncan [2003] 4 I.R. 1 cases, the court considers that Mr. Healy satisfies the low hurdle that arises for a defendant seeking leave to defend


Consumer II

In Allied Irish Banks Plc -v- Fahey & ors [2015] IEHC 334 O’Malley Iseult J. wrote

“It is abundantly clear that the first named defendant does not meet the test applied in Benincasa and Allied Irish Banks Plc v Higgins since it cannot be said that he borrowed in excess of €10 million from the plaintiff to satisfy personal needs in terms of private consumption……”

“……I am of the view that under no formulation of the applicable test could the first named defendant be regarded as having acted as a consumer in this context. That is because I consider that the same outcome results from an application of the “predominant purpose” test to the transactions involved in the instant case.

This is not a situation where, as described by Barrett J. in Ulster Bank Ireland Ltd. v. Healy [2014] IEHC 96, an individual invested surplus income or borrowed monies without thereby making that investment his or her business or trade. This defendant was not making an investment with his own funds. He was engaging in a commercial development in the expectation of profit, and funding the development by borrowing. Apart from his business as a publican, the uncontradicted evidence is that he was also in business as a property developer. I see no reason to doubt the logic of Kelly J. in holding that a person may have more than one business.”


Consumer Credit Agreements under CCA I

Part III of the Consumer Credit Act applies to consumer credit agreements except for

  • housing loans and
  • credit agreements covered by the Consumer Credit Regulations.

Part III of Consumer Credit Act makes requirements in relation to the form and content of consumer credit agreements and agreements for overdrafts. The consumer is entitled to withdraw from the agreement within a 10 day “cooling off” period. This right can be waived in writing, but a specific warning is required.  These provisions do not apply to housing loans.

A credit agreement and any contract of guarantee relating thereto shall be made in writing and signed by the consumer and by or on behalf of all other parties to the agreement. A copy of the agreement shall be handed personally to the consumer upon the making of the agreement, or delivered or sent to the consumer by the creditor within 10 days of the making of the agreement.

In the case of any contract of guarantee relating to the agreement, a copy of the guarantee and the agreement shall be handed personally to the guarantor upon the making of the contract, or sent within 10 days of the making of any contract by the creditor to the guarantor.


Consumer Credit Agreements under CCA II

A credit agreement shall contain a statement in respect of the cooling-off period that the consumer—

  • has a right to withdraw from the agreement without penalty if the consumer gives written notice to this effect to the creditor within a period of 10 days of the date of receipt by the consumer of a copy of the agreement, or
  • may indicate that he does not wish to exercise this right by signing a statement to this effect, this signature to be separate from, and additional to, the consumer’s signature in relation to any of the terms of the agreement.

A credit agreement shall contain a statement of—

  • the names and addresses of all the parties to the agreement, and
  • any costs or penalties to which the consumer may become liable for any failure by the consumer to comply with the terms of the agreement.

The above provisions do not apply to credit in the form of advances on a current account, or on credit card accounts.


Consumer Credit Agreements under CCA III

If the above requirements are not followed, the credit agreement and guarantee may be unenforceable. The court may allow the agreement to be enforced in the case of a breach, other than a breach in relation to furnishing of the copy of the signed agreement and the cooling off period. Subject to the above, the court may permit enforcement of the agreement, if the breach was not deliberate, did not prejudice the consumer and it would be just and equitable to enforce. The court may attach conditions to enforcement.

A creditor shall not be entitled to enforce a credit agreement or any contract of guarantee relating thereto, and no security given by the consumer in respect of money payable under the credit agreement or given by a guarantor in respect of money payable under such contract of guarantee as aforesaid shall be enforceable against the consumer or guarantor by any holder thereof, unless the requirements specified in this Part have been complied with:

Provided that if a court is satisfied in any action that a failure to comply with any of the aforesaid requirements, other the above  provisions relating to signing and content, was not deliberate and has not prejudiced the consumer, and that it would be just and equitable to dispense with the requirement, the court may, subject to any conditions that it sees fit to impose, decide that the agreement shall be enforceable.

If the above requirements are not followed, the credit agreement and guarantee may be unenforceable. The court may allow the agreement to be enforced in the case of a breach, other than a breach in relation to furnishing of the copy of the signed agreement and the cooling off period. Subject to the above, the court may permit enforcement of the agreement, if the breach was not deliberate, did not prejudice the consumer and it would be just and equitable to enforce. The court may attach conditions to enforcement.


Reopening Certain Credit Agreements

In the case of loans by bodies other than licensed credit institutions and mortgage lenders, a consumer or someone on his behalf may apply to the Circuit Court for a declaration that the total cost of credit is excessive. The court may “reopen” the credit agreement and change its terms.

An Agreement may be reopened if the court finds that the total cost of credit is excessive having regard to current interest rates and interest rates at the time of the agreement, the age, business competence, the level of literacy and numeracy of the consumer, the degree of risk involved for the creditor, the security provided, the creditor’s costs including the cost of collecting repayments and the extent of competition for the type of credit concerned.  The court may revise the agreement or set it aside.


EU (Consumer Credit Agreements) Regulations

The European Union (Consumer Credit Agreement) Regulations 2010 and 2012 implement Directive 2008/48/EC of the European Parliament and of the Council, as amended by Commission Directive 2011/90/EU. They cover most consumer credit agreements. There are a number of significant exceptions. In particular, they do not apply to credit in excess of €75,000 in amount.

The European Union (Consumer Credit Agreements) Regulations 2010 apply to consumer credit agreements. Where they apply, their provisions take effect in place of Part III of the Consumer Credit Act, mentioned in the last section.

The Consumer Credit Regulations do not apply to a credit agreement secured by:

  • a mortgage or another comparable security on immovable property, or a right related to immovable property;
  • to a credit agreement the purpose of which is to acquire or retain property rights in land or in an existing or projected building;
  • to a credit agreement involving a total amount of credit of less than €200 or more than €75,000;
  • to a hiring or leasing agreement where an obligation to purchase the object of the agreement is not laid down either by the agreement itself or by a separate agreement;
  • to a credit agreement in the form of an overdraft facility where the credit has to be repaid within one month,

Pre-Contract Information

The consumer must be furnished with information needed to compare different offers in order to take an informed decision on whether to conclude a credit agreement. A creditor and any credit intermediary involved shall provide the Standard European Consumer Credit Information on the basis of the credit terms and conditions offered by the creditor and, if applicable, the preferences expressed and information supplied by the consumer concerned.The Standard European Consumer Credit Information shall be provided on paper or on another durable medium, and by means of the Standard European Consumer Credit Information Form.

A creditor shall supply a consumer on request free of charge with a copy of the draft credit agreement and an appropriately completed Standard European Consumer Credit Information Form (unless at the time of the request the creditor is unwilling to conclude the credit agreement with the consumer).

In the case of a credit agreement under which payments made by the consumer do not give rise to an immediate corresponding amortisation of the total amount of credit, but are used to constitute capital during periods and under conditions laid down in the credit agreement or in an ancillary agreement, the Standard European Consumer Credit Information shall include a clear and concise statement that the credit agreement does not provide for a guarantee of repayment of the total amount of credit drawn down under the credit agreement, unless such a guarantee is given.


Standard European Consumer Credit Information

That information is to be provided in the “Standard European Consumer Credit Information” prescribed format and must include prescribed information in relation to following;

  • the type of credit,
  • the name and the geographical address of the creditor and the name and geographical address of any credit intermediary involved,
  • the total amount of credit and the conditions governing its drawdown,
  • the duration of the credit agreement,
  • the following information in relation to borrowing rates: the initial borrowing rate; the conditions governing the application of the initial borrowing rate; where available, any index or reference rate applicable to the initial borrowing rate; the periods, conditions and procedure for changing the borrowing rate; if different borrowing rates apply in different circumstances, the information required above for all the applicable rates,
  • the annual percentage rate of charge and the total amount payable by the consumer, illustrated by means of a representative example mentioning all the assumptions used in order to calculate that rate,
  • the amount, number and frequency of payments to be made by the consumer and, where applicable, the order in which payments will be allocated to different outstanding balances charged at different borrowing rates for the purposes of reimbursement,
  • where applicable, the charges for maintaining an account or accounts recording payment transactions and drawdowns (unless the opening of any such account is optional), any charges for using a means of payment for both payment transactions and drawdowns, any other charges deriving from the credit agreement, and the conditions under which those charges may be changed,
  • where the conclusion of an ancillary service contract (in particular, an insurance policy) is compulsory to obtain the credit or to obtain it on the terms and conditions marketed, a statement of the obligation to enter into such a contract,
  • the interest rate applicable in the case of late payments and the arrangements for its adjustment, and any charges payable for default,
  • a warning of the consequences of missing payments,
  • where applicable, the sureties required,
  • a statement that there is a right of withdrawal, or that there is no such right, as the case may be,
  • a statement of the right of early repayment, and, where applicable, information concerning the creditor’s right to compensation and the way in which that compensation will be determined in accordance with the Regulations.
  • a statement of the consumer’s right, to be informed immediately and free of charge of the result of any database consultation carried out for the purposes of assessing the consumer’s creditworthiness,
  • a statement of the consumer’s right to be supplied, on request and free of charge, with a copy of the draft credit agreement (unless the creditor is at the time of the request unwilling to conclude the credit agreement with the consumer), and
  • if applicable, a statement of the period during which the creditor is bound by the pre-contractual information.

Similar requirements, to the above general requirements, apply to overdrafts


Suitability

A creditor or credit intermediary shall provide adequate explanation to a consumer to enable the consumer to assess whether a proposed credit agreement is appropriate to his or her needs and financial situation, where appropriate by explaining—

  • the Standard European Consumer Credit Information,
  • the essential characteristics of the products proposed, and
  • the specific effects they may have on the consumer, including the consequences of default in payment by the consumer.

Consumer Credit Agreement Content

Section 30 of the Consumer Credit Act applies to agreements covered by the Consumer Credit Regulations. The relevant provisions which relat to signing and content are set out above.

The credit agreement must be drawn up on paper or on another durable medium. All the parties to a credit agreement must receive a copy of it.

The following information is to be included in credit agreements, covered by the Regulations. It must be set out in a clear and concise manner:

  • the type of credit;
  • the names and geographical addresses of the contracting parties and of any credit intermediary involved;
  • the duration of the credit agreement;
  • the total amount of credit and the conditions governing the drawdown;
  • in the cases of credit in the form of deferred payment for a specific good or service and of a linked credit agreement, the good or service concerned and its cash price;
  • certain information in relation to borrowing rates and charges:
  • the annual percentage rate of charge and the total amount payable by the consumer, calculated at the time the credit agreement is concluded (mentioning all the assumptions used to calculate that rate);
  • the amount, number and frequency of payments to be made by the consumer and, where applicable, the order in which payments will be allocated to different outstanding balances charged at different borrowing rates for the purposes of reimbursement;
  • where capital amortisation of a credit agreement with a fixed duration is involved, a statement of the consumer’s right to receive, on request and free of charge, at any time throughout the duration of the credit agreement, a statement of account in the form of an amortisation table;
  • if charges and interest are to be paid without capital amortisation, a statement showing the periods and conditions for the payment of the interest and of any associated recurrent and non-recurrent charges;
  • where applicable, the charges for maintaining an account or accounts recording payment transactions and drawdowns, unless the opening of any such account is optional, and any charges for using a means of payment for payment transactions and drawdowns, and any other charges deriving from the credit agreement and the conditions under which those charges may be changed;
  • the interest rate applicable in the case of late payments as applicable at the time when the credit agreement was concluded, and the arrangements for its adjustment and, where applicable, any charges payable for default;
  • a warning regarding the consequences of missing payments;
  • the sureties and insurance required if any;
  • the existence or absence of a right of withdrawal, the period during which that right may be exercised and other conditions governing the exercise of that right, including information concerning the obligation of the consumer to pay the capital drawn down and the interest and the amount of interest payable per day;
  • the right of early repayment, the procedure for early repayment, and, where applicable, information about the creditor’s right to compensation and the way in which that compensation will be determined;
  • the procedure to be followed in exercising the right of termination of the credit agreement;
  • whether or not there are an out-of-court complaint and redress mechanism for the consumer and, if so, the methods for having access to it;
  • any other contractual terms and conditions, and;
  • where applicable, the name and address of the competent supervisory authority.

 


Proper Court to Enforce

In consumer cases, legal action to enforce the loan agreement must usually be taken in the borrower’s home country. This is the case provided the loan agreement was preceded by an invitation addressed to the borrower or by advertising in the country concerned and the consumer took the steps necessary to enter the agreement there.


References and Sources

Irish Texts

Breslin Banking law + Supplement     3rd Ed  2013

Mortgages Law & Practice     Maddox 2nd Ed            2017

NAMA Act 2009: A Reference Guide Raghallaigh, Kennedy, Whelan

Money Laundering & Anti-Terrorist Financing Act 2010

Financial & Emergency Provision Legislation Annotated      2011

Shelley & McGrath     National Asset Management Agency Act Annotated 2011

Dodd & Carroll            Law Relating to NAMA 2012  0

Ashe & Reid    Anti-Money Laundering: Risks, Governance & Compliance             2013

Johnston & Ors           Arthur Cox Banking Law Handbook               2007

Dr Mary Donnelly  The Law of Credit and Security, 2nd Ed, 2015

UK Texts

A Hudson The Law of Finance 2nd Ed (Sweet and Maxwell 2013)

Veil (Ed) European capital markets law (Hart Publishing 2013)

IG MacNeil An Introduction to the Law on Financial Investment 2nd Ed ( Hart Publishing 2012)

E Ferran Principles of Corporate Finance 2nd Ed ( OUP 2014)

Gullifer (ed) Goode and Gullifer on legal problems of credit and security (6th edn Sweet and Maxwell London 2017).

MA Clarke et al (eds) Commercial Law: Text, Cases and Materials (5th edn OUP Oxford 2017)

McKendrick (ed) Goode on commercial law (5th edn Penguin London 2017)

G McCormack Secured credit under English and American law (CUP Cambridge 2004)

L Gullifer and J Payne Corporate Finance (2nd edn Hart Oxford 2015)

D Sheehan The Principles of Personal Property Law (2nd edn Hart Oxford 2017)

Ross Cranston, Emilios Avgouleas, Kristin van Zwieten, Christopher Hare, and Theodor van Sante Principles of Banking Law 3rd Ed 2018

E.P. Ellinger, E. Lomnicka, and C. Hare Ellinger’s Modern Banking Law 5th Ed 2011

Andrew Haynes The Law Relating to International Banking  Bloomsbury Professional 2009

Charles Proctor Mann on the Legal Aspect of Money 7th Ed 2012

Charles Proctor The Law and Practice of International Banking 2nd Ed  2015

Sheelagh McCracken The Banker’s Remedy of Set-Off   2010 Bloomsbury Professional

Louise Gullifer, Jennifer Payne Banking & Financial Law 2018

Hubert Picarda QC The Law Relating to Receivers, Managers and Administrators 4th Ed  2006 5th Ed 2019

Lightman & Moss on the Law of Administrators and Receivers of Companies 6th Ed  Sweet & Maxwell 2017

Timothy N Parsons  Lingard’s Bank Security Documents 6th Ed 2015