SME Credit Issues

Refusal of Application

Where a regulated lender refuses a credit application, it must, at the time it first informs the borrower of the refusal, provide the borrower with an explanation of the reasons why the credit was refused, in a durable medium.

In particular, where a regulated entity refuses an application for credit, it shall at the time it first informs the borrower of the refusal, provide the following information in a durable form

  • an explanation of the reasons why including the application was refused which must be specific to the borrower’s application;
  • information on internal appeals procedures;
  • where the lender is subject to review by the Credit Review Office, information about the role of the office and contact details’
  • a link to the Irish Government Supporting SMEs online guide or another equivalent website;
  • information about the right to make a complaint under the lender’s complaints procedure

Withdrawal of Credit Facilities

If the lender decides to withdraw or amend a credit facility agreement, it must, in a durable medium, provide the borrower with an explanation of the reasons for the decision to withdraw or amend the credit facility agreement. It shall promptly provide the borrower with the following information in a durable medium;

  • explanation of the reasons why;
  • information on the internal appeals procedure[
  • information in relation to Credit Review Office;
  • a link to the Irish Government supporting SME online guide; and
  • information regarding the right to make a complaint

Statements Fees and Charges

Subject to the exceptions below, a regulated lender must provide the borrower free of charge and on request with a copy of the credit facility agreement.

A regulated lender must provide an annual statement in a durable medium setting out details of payments, balances, interest and other charges. A regulated lender must inform the borrower of any change in the fees or charges in a durable medium before it comes into effect.

The regulated lender must inform the borrower of any change in the interest rate and give particulars of the change, including the new payment and the frequency of the charge. It must indicate that the borrower should contact the lender if it anticipates difficulties in meeting the changed repayments.

Where there is an increase, the above information must first be provided. The requirement does not apply to the changes caused by reference to a rate which changes on a daily or weekly basis, where the new reference rate is publicly available and the information concerning the new reference rate is available on the premises of the lender or on its website.


Various

A regulated lender may issue additional credit to a borrower who is an existing customer before providing the requisite information in relation to the additional credit sought, provided that the borrower has indicated that the funds sought are required within three working days or less.  In this case, the lender is to provide the required information within three working days of the additional credit being advanced.

Before applying a full or partial repayment, a regulated lender must promptly inform the borrower, on request with an estimation of any early redemption fee in a durable medium or if the terms of the credit facility agreement have changed, the borrower is to notified of the changes in a durable medium.

Where the lender has appointed a third party to engage with the borrower in relation to its facility agreements with the lender, the regulated lender shall first in durable medium inform the borrower that it has appointed the third party and explained the role of the third party in the extent of its authority.


Information

A regulated lender must publish on its website or otherwise make available in any of its offices dealing with lending, the following information

  • that the borrower is entitled to request the meeting to discuss any proposed application for credit;
  • timelines in which assessment for credit assessment is to take place;
  • information required from the borrower in support of an application
  • that a business plan may be required; with content required including information on its structure and content
  • Government support scheme available through the regulated lender
  • a statement confirming that a refusal will have a negative effect on borrower’s credit rating
  • a description of the lender’s policies on security.

The regulated lender must ensure that the information provided to a micro enterprise borrower is comprehensible and that information of material importance is specifically brought to its attention.  The information must not be presented in a way which disguises, diminishes or obscures information which is of importance. Warning statements required under the regulations are to be presented in a permanent manner in a box and bold type in a different and prominent font size.


Advertisements and Warnings I

Where an advertisement includes an interest rate, the regulated lender must ensure that the advertisement states whether it is fixed or variable. Where it refers to an interest rate and term, it must ensure that advertisement displays the total cost of credit to the borrower.

Advertisements to micro and small enterprises must comply with the following requirements (as well as other general requirements.

An advertisement for credit with a variable interest rate must contain a warning that the cost of repayments may increase.

An advertisement for credit with a fixed interest payment must contain the warning.  “

Warning; you may have to pay charges if you repay early, in full or in part, a fixed rate credit facility”.


Advertisements and Warnings   II

An advertisement for credit which provides an interest-only period must contain a warning

“Warning: The entire amount that you have borrowed will still be outstanding at the end of the interest-only period.”

Where the advertisement relates to the consolidation of facilities, it must warn,

“Warning; This new credit facility may take longer to repay than your previous facility.  You may pay more than if you paid over a shorter time.”

The above warnings need not be provided if the advertisement does not refer to the features or benefits of the product or service available or referred to and the features include the interest rate or interest type.

A regulated lender must ensure that advertisements for credit enabling the consolidating of two or more debts which offer sample figures in the advertisement indicate the difference between the total cost credit to the borrower of the consolidated debt and the total cost of credit of the borrower of the individual debts.


Repayment and Security

Where security is held by a regulated lender and any credit facility agreement to which it relates has been repaid, it shall inform the borrower in a durable medium that it holds a security in relation to that credit facility.  Where this security is not held in relation to other credit facilities, it shall inform the provider of security of the right to request its return. A regulated entity shall where requested, return security held when all credit for which it is given has been repaid.

Where a guarantee is held by a regulated lender and any credit facility agreement to which it relates has been repaid, the lender is to inform the guarantor in a durable medium that the guarantee is extinguished, or in the case of an all-sums guarantee that it remains in place.

Where the security for a credit facility has been realised the lender shall inform the borrower and where applicable the guarantor of the following

  • the amount obtained for the security;
  • the balance of residual debt or overpayment after proceeded in respect of the realized security have been applied;
  • if there is a residual debt information on how the deficit is to be repaid;
  • details of the interest rate to be applied;
  • if there is a surplus information as to how the surplus is to be paid to the borrower or guarantor;
  • the cost of realisation of the security

Appeals Small / Micro Enterprises

A regulated lender must establish and implement an internal appeals procedure.  It must allow the borrower to appeal at least the following decisions of the lender:

  • a refusal of a credit application;
  • special terms and conditions required, in order to grant credit, including with respect to security and guarantees required;
  • a withdrawal or reduction of a credit facility;
  • special terms or conditions required in order to provide an alternative arrangement;
  • the refusal of an offer of an alternative arrangement;
  • the classification of a borrower as non-co-operating.

The procedure must provide that an appeal be conducted by an appeal panel as soon as reasonably practicable after the borrower makes an appeal, and without limiting the above, that if the lender does not make a decision on the appeal within 15 working days after submission, it shall promptly inform the borrower of the reason and how long it will take.

This provision shall not apply to a matter under which a borrower has a right of appeal under the Credit Union Act.


Appeals

The appeals panel shall consist of two decision makers who have not been previously involved in the borrower’s case, and who have sufficient knowledge and experience to conduct the appeal. The lender shall allow the borrower a reasonable period of time to consider submitting an appeal. The appeals period shall be at least 20 working days from the notification of the decision.

The lender shall, within five days of receipt of the appeal, acknowledge receipt, and provide the borrower with details of contact points.  Within five working days of completion of an appeal, the regulated lender is to notify the borrower, in a durable medium, of the decision, the reasons and the terms of any offer made in clear and comprehensible terms.

Where the lender’s decisions are subject to review by the Credit Review Office, it must inform the borrower of its right to refer the matter, provide the borrower with information about the role of the Office, and provide the borrower with the relevant contact details.


Handling complaints

A regulated lender is to make all reasonable efforts to resolve any complaint made by a borrower.  It must maintain, establish and adhere to a written procedure for the handling of complaints.  This requirement is not applicable where the complaint has been resolved to the borrower’s satisfaction within five days, and this is recorded.

Where an oral complaint is made, the lender shall offer the borrower to have it handled in accordance with the written procedure. The procedure must provide, at a minimum,

  • the complaint shall be acknowledged within five days;
  • that the borrower shall be updated on the complaint at least every 20 days;
  • that the lender shall attempt to investigate and resolve the complaint within 40 working days above;
  • that where this is not possible, it shall inform the borrower of the anticipated timeframe;
  • that the borrower may be in a position to make a complaint to the Financial Services Ombudsman and set out the class of persons who so qualify, together with contact details of the Ombudsman.

Within five working days of the completion of the investigation of the complaint, the borrower is to be informed of

  • the outcome;
  • the terms of any offer of settlement;
  • the right to complain to the Ombudsman, if applicable, and contact details, in a durable medium.

Records

A register is to be kept of all complaints setting out details of the complaint, the date, the correspondence, action taken, resolution, a summary including the lender’s response and current status of the complaint if appealed to FSO.

The lender is to undertake a review of complaints on a regular basis.   The review is to consider whether complaints are one-off or of a standing nature.  The analysis is to be reported to the audit or risk committee.

The regulated lender must maintain all records for six years from the date on which it ceases to provide the facility agreement, alternative arrangement or credit servicing activities to the borrower concerned.

It must maintain records sufficient to demonstrate compliance with these obligations.  It shall maintain records of all applications for credit and decisions made.  It shall maintain all documents relating to credit applications refused, for at least 12 months or if appealed, for at least 12 months after the conclusion of the appeal.  It shall ensure that in its dealings with borrowers that it has and employs effectively the resources, systems, and control necessary for compliance with the Regulations.


Appeals; Medium Sized Enterprises

In the case of a medium-sized enterprise, a lender shall establish and implement an internal appeals procedure allowing a borrower to appeal at least the following decisions:

  • terms and conditions required by the lender in order to provide an alternative arrangement;
  • the refusal to offer an alternative arrangement.

The procedure must provide that if the lender cannot make a decision on the appeal within 15 working days, the borrower is to be notified of how long it will take, and the reasons why it is taking longer than 15 working days.

A regulated lender must allow the borrower a reasonable time to consider submitting an appeal which shall be not less than 20 working days from the notification of the decision.

A regulated lender must make all reasonable efforts to resolve any complaints made by the medium-sized borrower.

Where the lender’s decisions are subject to review by the Credit Review Office, the lender shall, in a durable medium, inform the borrower of its rights to refer the matter to the Credit Review Office and provide the borrower with contact details.


Complaints

A regulated lender must maintain, establish and adhere to a written procedure for the proper handling of complaints by the medium-sized borrower.   The procedure does not apply where the complaint has been resolved to the borrower’s satisfaction within five working days, and this is recorded.

The procedure must provide at a minimum, for the following:

  • that the lender shall, within five working days acknowledge the complaint in a durable medium and provide a contact point in relation to the complaint until resolution or until it cannot be progressed any further;
  • that the regulated lender is to provide regular updates, in a durable medium, on the progression of the investigation at intervals of not less than 20 working days;
  • that the lender is to attempt to investigate and resolve a complaint within 40 working days of receipt of the complaint.

Where 40 days have elapsed without the complaint being resolved, the borrower must notify the lender of the anticipated timeframe.Within five working days of completion of the investigation, the lender shall in a durable medium, inform the borrower of the outcome of the investigation, and the terms of settlement offered.


Records

A regulated lender must prepare and maintain records to demonstrate compliance with its obligations in relation to medium-size businesses.

It shall maintain records of all applications for credit and the decisions on those applications.  It shall maintain all documents relating to credit applications which have been refused for at least 12 months.  And if the decision was appealed, it shall be retained for 12 months after that date.

The lender shall ensure that in all its dealings with the borrower it has and employs sufficient resources, systems, controls, checks and procedures that are necessary to ensure compliance with the legislation.


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