The Central Bank has issued details of new protections for SME borrowers which come into effect on 1 July 2016. They will apply to Credit Union lending from 2017.
New regulations aim to protect SMEs by introducing specific requirements for regulated lenders, including:
• Giving SME borrowers greater transparency around the credit application process
• Providing SME borrowers with reasons for declining credit, in writing, that are specific to their application
• Providing greater protections for guarantors
In Association with
•Contacting SME borrowers who have been in arrears for 15 working days
•Warning SME borrowers if they are in danger of being classified as not co-operating, and
•Expanding the grounds for appeal and setting up an internal appeals panel.
Director of Consumer Protection, Bernard Sheridan, said: “The Regulations aim to strengthen protections for SMEs when borrowing from regulated lenders while also facilitating access to credit. We have produced a short guide outlining the ten things that micro and small enterprises should know about the protections available to them. The Guide also includes information about the protections for guarantors.”
Information for micro and small enterprises
10 things you should know
- Your lender must make information about the credit application process available to you
Your lender must publish information about its credit application process on its website. This must include the relevant timelines, information that your lender may ask of you and information about Government support schemes available from or through your lender. You can ask your lender questions about the credit application process. If you engage with your lender before you make a credit application, your lender must provide you with guidance which may assist you to make a successful credit application.
- If your lender does not make a decision on your credit application within 15 working days, it must tell you the reasons why
Your lender must tell you the expected timeframe within which a decision on your application for credit will be made. If your lender cannot make a decision within 15 working days because it needs you to provide more information, it must tell you what information it needs and when you need to provide this information.
- If your credit application is declined
If your lender declines your application for credit, you are entitled to get the reason(s) in writing from your lender. The reasons given to you must be (i) clear and easy to understand and (ii) relevant to your application. If your lender’s decisions are subject to review by the Credit Review Office, your lender must give you information about the role and contact details for the Credit Review Office.
- If your credit application is successful
If your credit application is successful, your lender must give you information about the loan that it is offering you, including the terms and conditions that apply. It is important that you read this information before you make a decision to take the loan offered to you. If you do not understand this information, you should ask your lender to explain it and consider getting independent advice.
- Your lender must offer you the option of a meeting, which includes a credit review, at least once a year
Your lender must, on an annual basis, offer you the option of a meeting which must include a review of your loan(s), the security held by your lender in respect of those loans and any alternative arrangements that have been put in place between you and your lender to discharge your debts. You are also entitled to ask your lender to carry out a credit review at any time.
- What happens if you go into arrears
If you fall into arrears on your repayments and you remain in arrears for 15 working days after you miss a repayment, your lender must contact you to let you know that you are in arrears and to find out why you are in arrears. Your lender will then assess whether you should be treated as a financial difficulties case. A financial difficulties case includes any case where a borrower has:
• missed payments for 3 months in a row, or
• exceeded his/her overdraft for 90 days in a row, or
• been assessed by the lender as being in financial difficulties.
If you are concerned about going into arrears, or you are in arrears and are concerned about going further into arrears, you should engage with your lender as early as possible. It is also important that you co-operate fully with your lender. If you do not co-operate with your lender, your lender must advise both you and your guarantor of the possible implications of not co-operating.
- A lender must give information on how it will work with borrowers in financial difficulties
Your lender must publish an information booklet on its website with information for SME borrowers in financial difficulties, including a description of the types of alternative arrangements that may be available. The information booklet must include details of your lender’s internal appeals process for its decisions to grant an alternative arrangement and the timelines involved, and where its decisions are subject to review by the Credit Review Office.
- Your lender must have an internal appeals procedure
Your lender’s appeals procedure allows you to appeal a decision in relation to the following decisions:
• a refused credit application,
• the withdrawal or reduction of a credit facility agreement,
• a refusal to offer an alternative arrangement,
• special terms and conditions imposed on an offer of credit or an alternative arrangement, or
• a classification of ‘not co-operating’.
- Your lender must give you information about the security required for a loan
If security is required for your credit facility, your lender must explain to you in writing why the security is required and any potential consequences for you of providing this security.
- If your lender offers you an alternative arrangement to discharge your debts, you must be provided with information about the alternative arrangement in the loan offer document. This information includes:
• timeframe to avail of the offer,
• new repayment amount,
• number of repayments,
• frequency of repayments,
• term of the arrangement,
• implications of the arrangement,
• details of any residual debt remaining at the end of the arrangement,
• how interest and charges are applied.
