Central Bank raises concerns over proposed legislation on loan sales

A senior official at the Central Bank of Ireland has told the Government that the Sinn Féin Bill giving mortgage holders a veto on their loans being sold to so-called "vulture funds" would have "potentially severe unintended consequences".

In a letter to the Department of Finance, Gráinne McEvoy, director of consumer protection at the Central Bank, said the bank’s view was that the “no consent, no sale Bill” would not offer new or existing borrowers “any additional consumer protection and instead has the potential to have a significant negative impact for all borrowers”.

In her letter to Gary Tobin, a senior official who oversees banking policy at the department, Ms McEvoy said: "Borrowers whose loans are sold to another firm already have the same regulatory protection they had prior to the loan sale under the various statutory codes of conduct issued by the Central Bank."

Critique

In a critique of the Sine Féin Bill put forward by its finance spokesman, Pearse Doherty, Ms McEvoy said "new entrants to the mortgage market are also likely to be deterred by the inability to transfer mortgages in the future, thereby resulting in less competition in the market".

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She also argued that “removing a bank’s ability to sell loans would effectively be removing an important tool that assists them in reducing non-performing loans (NPLs)”, adding that recent portfolio sales had “formed an important part of EU restructuring plans and banks exiting the Irish market”.

In her 10-page letter, Ms McEvoy pointed out that removing a viable option for reducing NPLs currently on Irish bank balance sheets would have a “detrimental impact on the individual banks’ capital positions, and subsequently their ability to support consumers and the economy and could jeopardise market stability”.

Higher interest rates

She noted that in Ireland, the high share of NPLs on the balance sheet of the domestic banks had contributed to higher interest rates on mortgages and other lending.

“High NPL levels also impede the provision of credit due to the additional regulatory capital required, and will therefore constrain new lending to houses and firms,” Ms McEvoy said. “Furthermore, they impose direct and indirect costs on financial institutions which may also ultimately raise the cost of creditors for borrowers.”

Ms McEvoy also urged the department to query with the Attorney General’s office the consistency of the Bill with the Constitution.

The Central Bank’s view was that the enactment of the Bill “would appear to result in an interference of legitimate property rights of the lender or loan owner without an appropriate consumer protection justification”, she said.