The Consumer Protection Code – Implications and Implementation Presented by Group 2

Contents  Consumer Protection Code overview  Reasons for the revision of the code  A summary of the reviews of the directives  Legislative bases and application  Common Rules  The Impact of the code on small firms  Impact on larger regulated entities  Conclusions and recommendations  Cost and Benefits of the code to regulated entities and consumers

Consumer protection code overview  The code outlines the requirements that must be complied with by regulated entities when dealing with consumers  Regulated entities must act in the best interest of the consumers  Regulated entities are also required by the code to provide suitable product, appropriate information to consumers that will make it possible for them to make an informed choice  There must also be available to the consumer an effective complaints handling procedure and time frame for the handling of complaints from the consumer

Reasons for the revision of the code  The Consumer Credit Directive (Directive 2008/48/EC) must come into effect by early next year  The agreements which are covered by both the Consumer credit act of 1995(CCA) and the Consumer protection code of 2006 will be affected.  Clarity with regards to the above code for lending institutions on it’s implementation.  To strengthen existing provisions and increase consumer protection.  Dispel provisions in the codes which are no longer appropriate to the present dispensation.  Improve the an integrated consumer market across the European Union

A summary of the reviews on the Directives  It applies to consumer loans from €200 to €75,000  It will increase the cooling off period to 14 days which cannot be waived by the consumer  It excludes certain agreements such as leasing, hire purchase and loans secured on mortgages  Information given to consumers pre contract will become standardised  Annual Percentage Rate (APR) will now have a common definition  Regulated entities must asses and confirm the creditworthiness of the borrower  Debts can be settled early by the borrower, subject to compensation being payable to the lender in the case of fixed rate lending

Legislative bases and application  The code is issued under section 117 of the Central Bank Act of 1989  The central Bank has the power to administer sanctions and fines for a contravention of this code; under Part IIIC of the central Bank Act of 1942  Under the new code the provisions are binding on all regulated entities and must at all times be complied with when providing services  Subject to exclusions the code applies to regulated activities and entities operating in the state including;  Financial services providers authorised, registered or licensed by the Central bank  Financial services providers authorised, registered or licensed in another EU or EEA member state with regards to the provision of services in this state in a branch as well as on cross border basis

Common Rules  General requirements 1. A regulated entity must ensure that names of products and services are not misleading 2. A regulated entity must ensure that instructions and requests from and on behalf of consumers are processed properly and promptly 3. A credit institution must ensure that funds logged or sent via a deposit agent are credited to the correct account on the same day 4. A receipt must be provided to a consumer if the regulated entity is in direct receipt of a negotiable or non-negotiable instrument as payment for financial products or services 5. A regulated entity must also acknowledge in writing receipt for a completed direct debit mandate or payroll deduction from a consumer for the payment of financial products or services 6. A regulated entity must also ensure that all warnings required by this code are prominent i.e. larger than the font size used throughout in the document and or on advertisement 7. In situations where power of attorney has been granted a regulated entity must obtain a certified copy of the power of attorney and ensure that it operates within it’s limitations 8. A regulated entity must have regard to the provisions of any relevant anti-money laundering rules and guidance notes approved by the Minister for Justice, equality and Law reform under section 107 of the criminal Justice ( Money Laundering and Terrorist Financing) Act 2010

Common Rules cont;  Restrictions:  New and Strict restrictions have now been placed on the below activities  Offers on unsolicited pre-approved credit  Tying and bundling of products  Deposit agents  Conflicts of interest between a consumer and a regulated entity  Remunerations  Premium handling  Product producer responsibilities  Unsolicited contacts such as coldcalling  Sales processes and Pre-contact disclosure  Right of withdrawal for contract agreements  Credit agreements which are made in writing or on “durable medium” e.g. online  The handling of arrears  Small prints – full disclosure including all charges must be well outlined  Credit card statements must also be transparent and clear

The Impact of the code on small firms  The size of the firm and the scale of services may confer competitive advantage or disadvantage which could have an adverse effect on competition of scale  The common rules would have a huge impact on smaller firms and as such hinder their growth when compared with larger entities  The code could also cause a situation where smaller firms have a few dedicated compliance function  Due to the lack of a dedicated compliance team or expert in small firms, they may fall out of regulation in regards to the complexity of the code  Smaller firms who have narrower product ranges have less opportunities to cross sell their products  It could discourage firms from entering into new markets

Cost and Benefits of the code to regulated entities and consumers  Some of main costs and benefits of the codes are summarised below: CostBenefits Consumer  Reduction in choice because of harmonisation of products  Funding costs ultimately borne by the consumer  Assists in delivering to consumers what it is that they think they are buying  Creates a greater number of close to optimal outcomes  Fewer incidents of being sold the wrong product  More competition leading to better value for consumers. Regulated Entities  Information technology costs  Staff costs, including training  Supervision fees.  Market stability, facilitating long-term planning  Greater consumer confidence leading to greater business volumes  Internationally recognised regulatory standards.

Cost and Benefits cont;  Costs of the code can be summarised into four categories :  Direct and indirect cost to the industries  Compliance cost to the industry  The timeframe for implementation  The costs to the consumers themselves

Cost and Benefits cont;  Benefits of a consumer protection code may be more difficult to quantify as it relates to outcomes. 1. Benefits to the consumer is very obvious in regards to the code but there still some benefit for the regulated entities as well 2. Conduct of business regulation fosters stability in the market 3. The standardised regulation helps to enhance Irish firms abroad when operating in foreign markets and environments 4. In the absence of a code of conduct poor service levels could damage the whole sector as minimum standards are set for all firms 5. Unfair and undue competitive advantage are fairly reduced where a statutory code is being implemented 6. The code is also an important tool for the management of operational risk within a regulated entity

Appendix  Alfon, I. and Andrews, P. Cost-Benefit Analysis in Financial Regulation, How To Do It And How It Adds Value. FSA Occasional Paper. September  Ferran, E. and Goodhart, C. (eds). Regulating Financial Services and Markets in the Twenty First Century. Hart Publishing, 2001.