Central Bank eases credit history rules amid ‘big switch’

The Central Bank has eased rules on the recording of missed loan payments with its credit register, amid mounting concerns that Ulster Bank and KBC Bank Ireland current account customers may inadvertently fall behind on instalments as they move their banking elsewhere.

Lenders operating in the State, spanning the provision of hire purchase agreements to mortgages, must submit payments information every month on loans of €500 or more to the central credit register (CCR).

While the regulator has allowed for a single missed monthly payment on a loan not to be recorded on a borrower’s credit report since the CCR started collecting information five years ago, it told lenders in recent weeks that more than one missed instalment can escape being recorded if they are the result of “operational issues” amid the so-called big switch of customers from the departing banks.

“This means that, if you miss loan repayments through no fault of your own as a result of switching bank accounts, and once the payments are again up to date, this will not show up on your credit report,” the Central Bank said in an update on its website made in the past week. “The amendment will be made to the central credit register by your lender after you have engaged with them.”

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The relaxation comes 2½ years after the regulator agreed that widespread temporary payment breaks offered at the start of the Covid-19 pandemic would not reported as payments past due date.

Alternative arrangements

Ulster Bank and KBC started writing earlier this year to holders of more than a million current and deposit accounts, giving six months’ notice to find alternative banking arrangements as they retreat from the market.

A key concern exists around how those people and businesses open new current accounts with new providers, together with their attending direct debits, standing orders and regular payments.

Even in cases where existing direct debit arrangements can, in theory, move under a Central Bank switching code, many direct debit originators and receivers will take instructions directly from their customers only, according to banking industry officials.

In total, 24 per cent of the current and deposit accounts that were open at the beginning of the year in Ulster Bank and KBC Bank had been closed by end-August 2022, the Central Bank said last week. The pace of account closures has accelerated in recent weeks.

Some 600,300 accounts were opened in the three main remaining banks in the first eight months of the year. Almost 434,200, were current accounts, with the number of openings up 46 per cent than the average of the three previous years.

Payment histories

The CCR is not like credit agencies in many other countries, which produce a credit score or rating for consumers. Also, it does not cover payment histories regarding the likes of utility bills or rent.

A spokeswoman for industry group Banking and Payments Federation Ireland welcomed the “additional flexibility” in CCR reporting.

“We would encourage all customers to closely monitor their loan repayments including mortgages, credit cards, overdraft, etc as they move accounts and to contact their lender immediately if a payment has been missed due to the account-moving process,” she said.

The relaxation to the CCR rule also applies, for example, if an individual’s employer is switching accounts, raising the risk of a delay in salary transfers, which could result in a loan payment being late.

Central Bank director of consumer protection Colm Kincaid said the additional “grace period” will help protect consumers “through this significant transition”.

However, he added: “Our focus will remain squarely on seeking to ensure that these issues do not arise in the first instance, and where they do, they are dealt with quickly.”