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New proposal from the Central Bank

‘Mortgage customers will have the power to prevent their bank from selling their loan to another institution under new proposals from the Central Bank’…

Having read this article in the Sunday Business Post at the weekend – I thought I would share the main points with you in case you may have missed it…

This new rule is due to be implemented early next year and could place alot of obstacles in the way of banks seeking to raise funding by selling parts of their loan book.  The banks will be required to obtain written consent from their customer before selling on their loan. They should also give the customers three months to decide whether to grant consent or not.

The new rule is being brought in to give consumers greater protection – as the borrower has the power to ‘veto’ the transfer of their mortgage.

At present the lender currently operates under non-binding prudential guidelines governing the transfer of mortgages.  However, in practice most banks insist on borrowers granting them the power to sell on the loan as a condition of the loan being granted.

This new rule will mean that the borrower’s consent has to be obtained before the loan can be sold on. But it should be noted that the Central Bank is proposing to waive the rule if the bank can show that is is experiencing “serious business difficulties”….also the rule may be waived in the cases of state-owned building societies such as Irish Nationwide and EBS. As you are aware Irish Nationwide is being wound down and the EBS is currently seeking a new owner.

A Central Bank spokeswoman stated “We have looked at all the prudential guidelines for financial firms and any we believe are strong consumer measures are being proposed for inclusion on a statutory basis in the Consumer Protection Code”.

The Central Bank stated it would consult with the banks before the new rule is implemented – the Banks are expected to oppose the change!

Having read this article it seems to me that alot more thought has to go into implementing this new rule, due to the fact that – ok, we embrace the idea that the consumer will be protected but is this new rule going to mean that we ‘hang on’ to Banks which would otherwise be closed down?

And if the consumers do not give their consent to transfer their loans to another bank are we going to be stuck with these banks which will need more money pumped into them?

The rule should be implemented BUT it should make sure that the consumer is protected by adding clauses such as they should have the same interest rate which they currently pay and the terms and conditions should remain the same or should be ironed out at least.

Whats your thoughts on this article? Posted by Caterina Nolan-Kehoe Auctioneers IAVI 03.11.10

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