MHC lawyer has concerns on bad-loan sale rules

A financial-services lawyer at Mason Hayes & Curran (MHC) has expressed concern about some aspects of an EU directive on the market for banks' non-performing loans (NPLs).

Irene Nic Chárthaigh (small picture) was speaking about the Credit Servicing Directive at an MHC webinar on financial services last week.

The directive, which lays down a common European framework for the transfer and management of NPLs that are transferred or sold after 29 December 2023, while at the same time safeguarding borrowers' rights, is due to be transposed into Irish law by the end of this year.

Nic Chárthaigh welcomed the directive's introduction of a passporting regime, which will allow other firms to be involved in the Irish market.

The MHC lawyer pointed out, however, that a 'dual approach' would be created in Ireland, with some loan sales falling outside the scope of the directive, while others would continue to be subject to the continuing Irish regime.

"This does not make a lot of sense," she stated, adding that the Government should have taken the opportunity to look at the current credit-servicing regime, which went "far beyond" the directive.

Disclosure

Nic Chárthaigh also argued that the disclosure requirements imposed on selling banks by the directive had the potential to add red tape, and could make some sales "impossible".

“We all know that Irish banks suffer from information and documentation gaps; a lot of Irish banks simply don’t have all the information and documentation for historic loans,” the lawyer said.

Asked about recent criticism of the variable mortgage rates imposed by some non-bank firms on borrowers, the lawyer said that it was not the role of the Central Bank to set a maximum interest rate for such lenders.

She said mortgage-interest relief would be an interesting option to help borrowers, but would be quite costly for the State.

Central Bank warning

The webinar also heard from MHC partner Rowena Fitzgerald (co-head of financial regulation), who said that firms involved in the payment and electronic-money sectors should take seriously a warning from the Central Bank in a letter to chief executives earlier this year.

"We have no appetite for the crystallisation of risks that would materially undermine the achievement of our supervisory objectives, which are focused on safeguarding stability and protecting consumers," the regulator wrote.

Fitzgerald also stressed the importance of bringing Central Bank letters, reports and correspondence to the attention of boards, and ensuring that plans were in place to address any issues raised by the regulator.

The lawyer also warned that, despite heavy fines handed out to banks in recent years, there was "more to come" on the Central Bank's tracker-mortgage probe, with the focus now switching to the conduct of individuals.

She said we would be dealing with the repercussions "for a number of years yet".

'Tentative signs' inflation easing

The event also heard an update on the economy from UCC economist Seamus Coffey (pictured), who told attendees that, while there were tentative signs that inflation was easing, this did not mean that prices were coming down.

He said that energy prices were beginning to fall, but uncertainties remained, while the ECB's rate-tightening cycle might be coming to an end.

The economist pointed out that interest rates for new mortgage lending in Ireland had become one of the lowest in the EU, from being one of the highest in 2020, as rates in other countries had risen more rapidly.

He added, however, that banks in other euro countries had also raised deposit rates, in contrast to Irish banks.

The economist also raised questions about whether the current "extraordinary" high level of savings – around €30 billion – among households and Government were appropriate.

"Are we in a position as an economy to have €30 billion that isn't being spent or invested?" he said.