Balancing the lending scales
Published 29/06/2016 | 02:30
New regulations on lending to small to medium businesses, including farmers are due to come into force on July 1st.
The new rules which must be observed by all lenders (except credit unions who are exempt until January 2017) will apply to new or existing credit facilities and will afford borrowers a greater degree of protection and transparency in terms of decisions made by the banks including reasons why applications are declined.
Customer right to Information
The lender must make information about the credit application process available to you the customer which 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.
They must give you the expected timeframe within which a decision on your application for credit will be made and if they cannot make a decision within 15 working days because they need further information they must tell you what information is needed and when they need it.
If a lender declines an application for credit, the intending borrower is entitled to get the reasons in writing from your lender as to why they were refused.
The reasons given must be clear and easy to understand and relevant to the application. The customer must also be entitled to appeal the decision under the internals appeals procedure.
Where a credit application is successful the lender must provide information about the loan that it is offering, including the terms and conditions that apply.
If the borrower does not understand this information, he/she should ask the lender to explain it and consider getting independent advice.
Where a borrower falls into arrears on their repayments and remains in arrears for 15 working days after missing a repayment, the lender must make contact with you to let you know you are in arrears and to find out why you are in arrears. The 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 three months in a row, or exceeded his/her overdraft for 90 days in a row, or has been assessed by the lender as being in financial difficulties.
Under the new regulations a lender is required to make available information on how it will work with borrowers in financial difficulties to include a description of the types of alternative arrangements that may be available. Right to appeal
The lender must have an internal appeals procedure to enable a customer appeal a decision. The appeals procedure covers
- a refused credit application,
- a withdrawal or reduction of an existing credit facility
- a refusal to offer an alternative arrangement
- special terms and conditions imposed on an offer of credit or an alternative arrangement
- a classification of 'not co-operating'.
The lender shall allow the borrower a reasonable period of time to consider submitting an appeal to the appeals panel and this period of time shall be at least 20 working days from the date of notification of the decision of the lender.
The lender should acknowledge the appeal within five working days and provide the borrower with the name and contact details of one or more individuals appointed to be the borrower's point of contact in relation to the appeal,
If a lender offers 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 and frequency of repayments,
- implications of the arrangement
- details of any residual debt remaining at the end of the arrangement
- how interest and charges are applied.
If security is required for your credit facility, the lender is required to ensure that any security being sought is reasonable and proportionate having due regard to the nature, liquidity and value of the security offered, and the value of the credit offered.
The lender must also outline the potential consequences for the borrower of providing such security.
Guarantors must be kept informed by the lender when they are guaranteeing the debt and during the term of the loan.
The lender must give the guarantor a clear explanation of the potential consequences of giving the guarantee and the obligations as a guarantor.
During the term of the loan, the lender must inform the guarantor of any changes to the terms and conditions of the credit facility agreement or if the borrower enters financial difficulties or the borrower is at risk of being classified as 'not co-operating'.