EN ECB -PUBLIC  
 
OPINION OF THE EUROPEAN CENTRAL BANK  
of 5 July  2018  
on the regulation of the business of owning credit agreements  
(CON/20 18/31) 
 
Introduction and legal basis  
On 8 June 2018 the European Central Bank (ECB) received a request from the Chairman of the 
Oirea chtas (the Irish National Parliament) Joint Committee on Finance, Public Expenditure and Reform  
and Taoiseach (the Irish Prime Minister), for an opinion on the Consumer Protection (Regulation of Credit 
Servicing Firms (Amendment) ) Bill (hereinafter the ‘dr aft law’ ). 
The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union and the third and sixth indent s of Article 2(1) of Council Decision 
98/415/ EC1, as the draft law relates to the Central Bank of Ireland (CBI) , rules applicable to financial 
institutions insofar as they materially influence the stability of financial institutions and markets  and the 
tasks conferred upon the ECB  concerning the prudential supervision of credit inst itutions pursuant to 
Articles 127(6) of the Treaty. In  accordance with the first sentence of Article 17.5 of the Rules of 
Procedure of the European Central  Bank, the Governing Council has adopted this opinion.  
 
1. Purpose of the draft law  
1.1 The draft law intends  to regulate the owners of credit agreements entered into with natural persons 
and with micro,  small or medium -sized  enterprises . For that purpose, t he draft law aims  to extend 
the requirements  introduced by  the Consumer Protection (Regulation of Credit Servicing Firms) Act 
2015 (hereinafter ‘the 2015 Act’) to ‘credit agreement owners’ . The draft law  defines  ‘credit 
agreement owners’  as persons  who – in respect of a credit agreement or portfolio of credit 
agreements – hold legal  title to the credit , deter mine the overall strategy for management and 
administration of the credit , determine the interest rate, maintain control over key decisions , or take 
such steps as may be necessary for the purpose of enabling the undertaking of credit servicing by 
another p erson or enforcing a credit agreement.  
1.2 The draft law seeks to regulate credit agreement owners by extend ing existing provisions of Irish 
law to these entities , in particular the Central Bank Act 1997, which regulates the activities of retail 
credit firms a nd credit servicing firms . First, the draft law amends  the definition of  a ‘regulated 
business’  to also include credit agreement owners2. This means that credit agreement owners are 
                                                 
1  Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national 
authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42).  
2  See section 2 of the draft law. See also Part V (Supervision of Regulated Businesses) of the Central Bank Act 1997, 
as amended.  
ECB -PUBLIC  
2 required to hold an authorisation issued by the CBI. T he CBI may also impo se a condition or 
requirement for a credit agreement owner  to effect a policy of pr ofessional indemnity insurance3. In 
addition, the draft law provides that a credit agreement owner is prohibited from taking or  failing to 
take an action, if this would otherwise be a contravention of Irish legislation or Irish statutory 
instruments , of CBI codes or directions , or of conditions, requirements or obligations imposed by 
the CBI in accordance with those acts4.  
1.3 Second, t he draft law explicitly sets out that the C BI may impose requirements  on debt 
management firms, credit servicing firms, and credit agreement owners to be subject to the CBI’s 
Code of Conduct on Mortgage Arrears  2013 (CCMA) , and the Consumer Protection Code (CPC)5. 
The CBI is also em power ed to requi re such entities to provide certain information to customer s, 
within 30 days of their credit agreement being sold, including information on the terms on which the 
credit agreement was sold,  any material change to the terms under which the credit agreement is 
serviced (including the interest rate) , whether the loan was sold at a discount , and details of  their 
rights under the CCMA  and in respect of the Financial Services and Pensions Ombudsman  
(FSPO) . 
1.4 Third, similar to the 2015 A ct, the draft law  amends the definition of ‘customer’6 to include a 
relevant borrower in a case where a  regulated financial service provider undertakes the role of 
credit agreement owner. The draft law also amends  the definition of ‘relevant default’ by a 
regulated financial service provider to include the actions of a credit agreement owner, such as : 
taking steps to cause a breach of the terms of a credit agreement ; enforc ing security when the 
customer is not in financial difficulties ; and altering the fixed duration of a credit agreement without 
the consumer ’s written consent7. These changes  aim to ensure that the CBI’s existing s upervision 
and enforcement powers in relation to protecting customers are extended to relevant borrowers in 
their interactions with credit agreement owners. In this respect, the draft law also clarifies the 
respective roles of the CB I and the FSPO . 
1.5 Fourth, similar ly to the 2015 Act, the draft law extends the provisions regarding the FSPO , 
including the complaints mechanism, to consumers and any person engaging  with a credit 
agreement owner8. 
1.6 Fifth, the draft law obliges the CBI to publish statistics on a quarterly basis, on loans held by micro, 
small or medium -sized enterprises, including information on the number and values of loans held 
by such enterprises , the total number of loans of such enterprises held by credit agreement 
owners , the total number of loans in arrears , and the total number of loans held by credit 
agreement owners  that have been restructured.  
1.7 Finally, t he draft law provides  that a regulated financial service provider , which is authorised to 
provide credit in the Republic of Ireland,  is deemed to be authorised to carry on the business of a 
                                                 
3  See section 4 of the draft law.  
4  See section 9 of the draft law.  
5  See section 8 of the draft law.  
6  See section 6 of the draft law.  
7  See section 10 of the draft law.  
8  See sections 7 and 11 of the draft law.  
ECB -PUBLIC  
3 credit agreement owner9. Moreover, t he draft law includes transitional provisions applicable to 
existing credit agreement owners  that are not yet regulated financial service providers10. These 
provisions set out that credit agreement owners can be taken to be authorised to carry on the 
business of a credit agreement owner until the CBI has granted or refused authorisation, on 
condition that an application for authorisation has been submitted by that credit agreement owner. 
During the transitional period, the CBI may : impose conditions or requirements relating to the 
proper and orderly regulation and supervision of credit agreements ; direct that the person should 
not carry on the business of credit agreement owner for a period;  or direct that a purchaser of a 
credit agreement will be subject to the provisions of the Act, except where such purchase is made 
by way of securitisation . Moreover, the transitional provisions prescribe that a credit agreement 
owner that possesses a portfolio of credit agreements within the same competing commercial 
sector, or is involved in the management and administration of a commercial enterprise in the same 
sector, may not instruct a credit servicing firm to take action in such a manner as to jeopardise the 
interests of customers to benefit these competing interests. The CBI is empowered to investigate 
complaints into such competing i nterests . The draft law also amends the transitional provisions 
applicable to existing retail credit firms and credit servicing firms, by empowering the CBI to direct 
that a purchaser of a credit agreement is subject to the provisions regarding regulated business, 
except where such purchase is made by way of securitisation11.  
 
2. Observations  
2.1 Tasks of the CBI  
The draft law complements the CBI’s existing tasks, in particular in the field of supervision of  
regulated financial service providers and regulated busi nesses , However, it  does not confer 
genuinely new  tasks on the CBI in this area.  For example, in respect of retail credit firms and credit 
servicing firms, the CBI already has powers to authorise and supervise such entities, to make them 
subject to CBI codes or directions, and to take enforcement measures against them, including for 
the purposes of protecting natural persons and micro, small or medium -sized enterprises  that have 
entered into credit agreements12. Moreover, the CBI also already has the function  to collect 
statistics in the field of micro, small, and medium -sized enterprises13. Consequently, the issue of 
assessing the conferral of new tasks on a national central bank from the perspective of the 
prohibition of monetary financing does not arise14. 
2.2 Impact on secondary markets for credit institution assets  
2.2.1  The ECB has been a strong proponent of the development of secondary markets for bank assets, 
particularly non-performing loans ( NPLs ), as reflected in the EU Council ’s action plan to tackle 
                                                 
9   See section 3 of the draft law.  
10  See section 5 of the draft law . 
11  See section 9 of the draft law.  
12   See section s 28 to 36N  of the Central Bank Act 1997, as amended.  
13   Section 5A(1)(g) of the Central Bank Act 1942.  
14   See paragraph 3.1 of Opinion CON/2018/27. All ECB opinions are published on the ECB’s website at 
www.ecb.e uropa.eu . 
ECB -PUBLIC  
4 NPLs in E urope15. In the context of the large stocks of NPLs that remain on the balance sheet of 
some European credit institutions , and as part of a comprehensive solution to NPL resolution16, the 
development of secondary markets may contribute to reducing NPLs.  Look ing ahead, well -
functioning secondary markets may also prevent stocks of NPLs building- up in the future.  
2.2.2  Moreover, a well -functioning secondary market may have a positive effect on financial stability to 
the extent that it c ould facilitate the transfer of the risks of NPLs off credit institutions’ balance 
sheets . The presence of significant volumes of NPLs on credit institutions’ balance sheets reduces 
their ability to fulfil their function as providers of credit to the real economy and hampers the 
operatio nal flexibility and overall profitability that are essential to a well -functioning banking sector. 
It is essential that the legal framework  applicable  to secondary  markets enables  the efficient 
transfer of NPLs off the balance sheet of credit institutions.  
2.2.3  In th is context, 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, 
thereby reducing overall participation and reducing price competition in the market place. Even if 
the provisions of the draft law do not result in reduced participation by investors, investors may 
simply pass the costs associated with meeting the se provisions onto the credit institutions selling  
the assets. As such, risks to financial stability may emerge either  as a result of a failure to develop 
secondary markets  or because prices in those markets are subdued by regulatory costs.  
2.2.4  While risk transfer through asset sales, securitisation and other measures may be effective in 
reducing NPLs, risk reduction measures remain, nevertheless, an important channel , particularly in 
a context where NPL stocks are high. In that regar d, and in the context of a comprehensive 
solution to NPL resolution, the originating credit institutions’ internal procedures for handling the 
work -out of NPLs themselves will always remain important.  
2.3 Impact on s ecuritisation  
2.3.1  The ECB has a strong interest in the sustainable revival of the European securitisation market. As 
a form of asset -based financing with the capacity both to channel flows of credit to the real 
economy and to transfer risk, securitisation has particular significance for the transmission of 
monetary policy. A healthy European securitisation market is important to ensure well-functioning 
capital markets in the Union. Particularly where credit institutions’ capacity to lend to the real 
economy is constrained, securitisation can act as a fresh source of funding and free up capital for 
lending17. Securitisation may also have a positive effect on financial stability to the extent that it can 
facilitate the transfer of the risks of NPLs off credit institutions’ balance sheets . Securitisation is o ne 
of a variety of options  that banks may apply alone or in combination with other measures , such as 
borrower -creditor engagement , to address the issues posed by  NPLs18.  
                                                 
15  See the EU Council ’s press release of 11 July 2017 on the ‘Council conclusions on Action plan to tackle non-
performing loans in Europe’, available at : http://www.consilium.europa.eu/en/press/press -
releases/2017/07/11/conclusions -non-performing- loans /. 
16  See, for example, Section B of the ECB’s November 2016 Financial Stability Review, available at : 
https://www.ecb.europa.eu/pub/pdf/other/sfbfinancialstabilityreview201611.en.pdf . 
17  See paragraph 3.1.1 of Opinion CON/2018/16.  
18  See paragraph 3.1.2 of Opinion CON/2018/16.  
ECB -PUBLIC  
5 2.3.2  The ECB understands that  the draft law intends to exempt securitisation from the scope of the draft 
law. The ECB welcomes this intention, as this will ensure that the draft law does not discourage 
securitisation activity. However, this exemption is not fully clear from the current text of the  draft 
law19. Therefore, it is suggested that the drafting be further reviewed, in order to ensure full legal 
certainty  in this respect . 
2.4 Interaction with existing Irish statutory provisions and prospective Union legislative  measures  
2.4.1  The ECB recalls that the 2015 Act set out that credit servicing firms wou ld be regulated financial 
services providers and thus subject to the authorisation and supervision of the CBI, including, inter 
alia, the application of the CCMA and the CPC. The ECB was consulted on the draft 2015 Act, and 
welcomed the measures, which aim ed, inter alia, to contribute to preserving confidence in the 
marketplace20. In that respect, the ECB welcomes the intention of the draft law.  
2.4.2  However, 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 CBI. In particular, it is 
unclear what the relationship will be between the draft law and the exi sting rules applicable to credit 
servicing firms . Credit servicing firms are responsible for managing or administering credit 
agreement s and interacting directly with the relevant borrower on behalf of credit agreement 
owners. The application of identical provisions to credit servicing firms and credit agreement 
owners could result in uncertainty as regards  the responsibility and liability of the respective 
entities. In this  respect it is worth noting that under the 2015 Act, persons who hold legal title to 
credit are already directly subject to the rules applicable to credit servicing firms, if they do not 
engage an authorised credit servicing firm to carry out credit servicing21. Moreover, it is a criminal 
offence for persons holding legal title to credit t o take action, or fail to take action, which would lead 
to a contravention of the applicable rules22. 
2.4.3  To the extent that the draft law aims to address elements of credit agreement ownership and 
servicing that are not currently subject to regulation, and that go beyond the protections already in 
place in respect of credit servicing firms, the impact of the draft law , and the role of the CBI, are not 
clear. These new elements include the credit agreement owners’ capacity to determine the overall 
strategy for t he management and administration of credit agreements , to determine the interest 
rate, or to maintain control over key decisions. The CBI does not currently regulate these activities 
in relation to regulated lenders, namely credit institutions and retail c redit firms, and, i n this context , 
caution should be exercised when purporting to regulate commercial decisions of market actors.  
Such administrative control should only be undertaken where it is clear what purpose the controls 
seek to achieve and that the y are likely to achieve this purpose23.Otherwise, the introduction of 
such measures could lead to unintended side effects. If the Irish market for investment in credit 
                                                 
19  The definit ion of ‘credit agreement owner’ in section 2 of the draft law refers to persons who hold title to a portfolio of 
credit agreements . This  would appear to include persons who hold such title by way of securitisation. However, 
sections 5 and 9 of the draft law include provisions that refer to purchasers of credit agreements being subject to the 
provisions of the draft law ‘except where such purchase is made by way of securitisation’.  
20   See paragraph 2 of Opinion CON/2014/69.   
21   See the definition of ‘credi t servicing firm’ under section 28 of the Central Bank Act 1997, as amended.  
22   See section 34G of the Central Bank Act 1997, as amended.  
23  See paragraphs 3.1, 3.1.2 and 3.1.4 of Opinion CON/2016/54.  
ECB -PUBLIC  
6 agreements is rendered significantly less attractive in general, this could limit the abi lity of Irish 
credit institutions to diversify their sources of finance for any type of credit agreement, not just 
those in arrears or which are non- performing. This could in turn increase pressure on Irish credit 
institutions to adjust their own strategy for managing and administrating existing credit agreements 
and determining interest rates, which might not ultimately benefit borrowers. In addition, it could 
detrimentally affect Irish credit institutions’ ability to engage in new lending and the terms on which 
they would provide new credit, also to the potential detriment of borrowers.  
2.4.4  The draft law is being introduced without the benefit of a thorough impact assessment. It is only by 
making such a prior assessment that it may be possible both to determine whether the draft law 
could achieve its aim s, and to mitigate any negative implications. In the absence of an impact 
assessment, however, it is difficult to ascertain whether the objectives set by the draft law will be 
achieved24. 
2.4.5  Finally, the ECB notes t hat on 3 March 2018, the Commission published its proposal for a Directive 
of the European Parliament and of the Council on credit servicers, credit purchasers and the 
recovery of collateral25. This proposal seeks to set out a common Union framework and 
requirements for credit servicers, credit purchasers, and for the recovery of collateral in respect of 
credit agreements concluded with business borrowers, with a view to ensuring a high level of 
consumer protection and a level playing field across the Union.  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.  
 
This opinion will be publis hed on the ECB’s website.  
 
 
Done at Frankfurt am Main, 5 July  2018 . 
 
[signed]  
 
The President of the ECB  
Mario DRAGHI  
                                                 
24  See paragraph 2.2.2 of Opinion CON/2018/13, paragraph 2.3 of Opinion CON/2012/40, paragraph 2.3 of Opinion 
CON/2012/70, and paragraph 2.2 of Opinion CON/2010/34.  
25  COM(2018) 135 final.