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The Assignment of Consumer Debts

Debt is an unfortunate reality for many Irish people. Debt has also become a commodity for lenders which can be assigned and traded. It is useful in this environment for consumers to have a brief overview of the law relating as to how debt is assigned and collected. This article will examine assignments of debt and in particular assignments of residential mortgage debt and consumer loans. We will look at particular protections which apply to consumers in each instance.

Assignment of debt- the general position
The assignment of debt is governed by statute. Until the enactment of Supreme Court of Judicature (Ireland) Act 1877 debt could not be assigned and was considered a legal chose in action. This meant that only the creditor to whom the debt was owed was entitled to collect it.

Section 28(6) of that Act provided for assignment of debts. The section itself is quite clunky by modern standards but a useful synopsis was set out by the courts, and in particular Justice Finlay Geoghegan. For a valid assignment of debt to occur:-

  1. The assignment must be of a debt or other right to sue for a debt.

  2. There had to be an “absolute assignment” where the assignor could not retain any interest. This was to prevent double recovery by the assignor and assignee.

  3. The assignment was required to be in writing.

  4. The debtor must be given express notice in writing of the assignment.

This is still the current legal position on the assignment of debts generally.

Residential mortgages
Residential mortgages are simply contracts for a debt with the residential property being offered as security for the loan.

Although in the ordinary course banks may seek to collect arrears that arise on foot of the mortgage loan they are entitled, and do on occasion, assign (sell) mortgages to third parties.

The loan agreement will set out the provisions entitling the bank to do so.

Residential mortgages- consumer protections
Consumers do however have some protections available to them in respect of the transfer of residential mortgages. The Central Bank has produced codes of conduct which govern the treatment of consumers with respect to mortgages.

Although they are not legislation the codes of conduct can grant very strong consumer protections. Non compliance with the codes can affect the repossession of the secured property. In Irish Life and Permanent PLC v Malcolm Duff and Susan Duff [2013] IECH 43 a bank sought to repossess secured property on foot of a mortgage which was in default. An order for possession was not granted to the bank by the High Court as the bank had not made “every reasonable effort” with the debtor to agree an alternative repayment schedule as was required by the Code of Conduct which governed mortgage arrears.

The Central Bank codes of conduct apply to regulated financial entities in Ireland. The question arises naturally what happens when a regulated entity sells a mortgage loan to a non-regulated entity?

In that case, the Consumer Protection (Regulation of Credit Servicing Firms) Act 2015 applies. It sets out that the mortgage loans must either be sold to another regulated entity in Ireland (to which the Code of Conduct will similarly apply) or if they are assigned to a non-regulated entity then that non-regulated entity must appoint one of the specialist credit servicing firms operating here which are regulated to deal with the consumers on their behalf. This affords consumers the protections afforded under the codes of conduct before and after the assignment of the mortgage.

Non Mortgage Consumer Loans and Consumer Credit
There are specific rules for loans and consumer credit in relation to agreements covered by consumer credit legislation, namely the Consumer Credit Act 1995. This sets out the rules regarding advertising and offering of loans, (Part II) hire purchases, (Part III) providing information around debt (Part IV) and controls on hire purchases (Part VI), amongst other protections.

The Act allows a consumer to use any defence against the person to whom the debt was assigned as would have been available to the consumer against the creditor who assigned the debt. This includes a right of set off if any monies were paid to the original creditor.

Financial service providers must also comply with the Central Banks Consumer Protection

Code 2012 which sets out restrictions on telephone calls and unsolicited house calls

Collection and Enforcement
Mortgage loans which are in critical default are generally enforced through the Courts. For non mortgage loans it is now common that debt collection companies who are instructed by various creditors to collect debt.

Where a financial services provider that is regulated by the central bank outsources debt collection activities to an agent, that agent must comply with the central bank requirements. That is the Central Bank Consumer Protection Code 2012. If the agent fails to do so the central bank may impose penalties on the financial services provider.

Debt collection generally is not regulated in Ireland. However, their approaches must not be intimidating or dishonest or they may be subject to criminal prosecution under the Non Fatal Offences against the Person Act 1997

Conclusion
Debts are capable of assignment. Mortgages can be assigned. If they are assigned to a non regulated entity a regulated entity must be appointed to handle the mortgage. Consumers are protected by the Central Bank Codes of Conduct and the Consumer Credit Act 1995.

Non mortgage debts can be assigned. If a debt collection firm is instructed to collect the debt by a regulated entity they must abide by the conditions attaching to the regulated entity or the regulated entity can be fined. Consumers are protected by the Consumer Credit Act 1995

Where debt collection companies are instructed by these entities the protections continue to apply. Where they are not instructed by a regulated entity their activities are not regulated but cannot be dishonest or intimidating.

For further information on this topic, please contact Setanta Landers on setantalanders@reddycharlton.ie


Keywords: Publication, Banking and Security, Setanta Landers

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