Consumer laws reformed

The Central Bank has strengthened protections for financial institution customers, and consumer law reform is planned by the Government. eolas outlines some of the changes.

Protection for customers of banks, insurance and investment companies, and intermediaries was strengthened in January through a revised consumer protection code. It is the first major revision of the code since it first came into effect in January 2006. The Central Bank has also increased staffing in consumer protection. The code includes several significant changes, such as:

• stricter affordability testing regarding mortgage lending, including a ban on self-certified declarations of income;
• a compulsion on lenders to come up with workable solutions for people in difficulties;
• more prescriptive customer profiling of information, such as personal circumstances and financial situation, so that institutions can assess whether a product or service is suitable for a particular consumer;
• a restriction to three times a month on how often lenders can contact borrowers in arrears (on loans such as credit cards, personal loans and buy-to-let mortgages);
• a timeframe of six months for institutions to resolve errors affecting consumers; and
• regular analysis (which the Central Bank expects done at least annually) of detailed records of complaints and errors, which must be maintained.

In the revised code, institutions are required to ensure that key information on an advertised product or service is prominent and not obscured or disguised and that “small print or footnotes are only used to supplement or elaborate on the key information in the main body of the advertisement and must be of sufficient size and prominence to be clearly legible.”

On assessing the suitability of someone for a mortgage where the interest rate is not fixed for five years or more, an institution must test whether someone can repay the instalments on the basis of a 2 per cent interest rate increase, at a minimum, above the interest rate offered.

A spokeswoman for the Central Bank told eolas that more staff have been assigned to deal with consumer protection (up from 55 at the end of 2009 to 78 at the end of 2011). These staff also work on compliance monitoring, authorisation of certain types of firms, and policy work.

She said that the revised rule regarding self-certification of income has come about “on the basis of experience and the reliance by the industry on self-certified declarations of income.”

The Irish Banking Federation’s Director of Public Affairs, Felix O’Regan, said that the banking sector will find it challenging to deal with the implementation of the consumer protection code (underway since 1 January) in parallel with other new requirements such as the business lending code, minimum competency requirements, and the new fitness and probity regime. However, the federation welcomed the six-month period allowed for system development and staff training on the new requirements. He said its member banks “are now fully committed to making the revised code work for the benefit of their customers.”

At present, the Central Bank has the power to administer sanctions, conduct inquiries and prosecute some summary offences through the courts. The new consumer protection code follows two public consultations (in 2010 and 2011). The only previous amendment to it was in May 2008 when it became applicable to retail credit and home reversion firms, which buy shares in people’s homes for a set price.

Enterprise, Jobs and Innovation Minister Richard Bruton, is planning to reform consumer law, through a new Consumer Rights Act. Bruton wants to simplify and consolidate consumer legislation, creating clearer rules for businesses and improvements for customers.

Following on from the Sales Law Review Group report (published last October), which made 124 recommendations, the Minister indicated that he will ban excessive payment fees greater than the cost of processing payments, additional charges on consumers through ‘pre-ticked boxes’ unless there is express consent, and curbs on small print through requirements such as minimum font sizes and a mandatory font colour such as black.

The Minister indicated that the ban on excessive payments fees and changes regarding pre-ticked boxes would be introduced by statutory instrument. A spokeswoman for the department said the time frame for enactment of these instruments will depend, inter alia, on what arises from a public consultation on these provisions with consumer and business interests this spring.

On the question of how a consumer might realistically be able to prove that a payment fee charge is greater than the actual cost borne by a trader, the spokeswoman said it would be dealt with in the consultation. Bruton expects to bring the heads of the proposed Consumer Rights Bill, which will overhaul the four acts and five pieces of secondary legislation relating to consumer transactions, to the Cabinet in late 2012 or early 2013. The Minister has said he wants the new Act to “create a structure that will be appropriate for the 21st century consumer market, will be simpler to understand, will create clearer rules for businesses, and will bring about substantial improvements for consumers.”

Consumer law will also change through implementation of the new EU Consumer Rights Directive, which replaces two previous directives (97/7/EC and 85/577/EEC). The Directive aims to eliminate hidden internet charges, strengthen refund rights and give consumers the right to withdraw from a distance or off-premises contract within 14 days from receipt of the goods under a contract of sale or conclusion of a contract for services. The measures that Bruton hopes to implement by statutory instrument are contained in the Directive. It was published in the EU’s Official Journal on 22 November 2011 and Ireland has two years from then to implement those measures.