LIABILITY CONTROL:THE POWER to prescribe lending limits to customers and the establishment of a new credit register are two of the most far-reaching proposals contained in the report on banking supervision.
According to the report, direct regulation of credit limits – such as restrictions on loan-to-value ratios or the imposition of a maximum multiple of net disposable income – does not exist in Ireland despite the existence of legislation such as the 1995 Consumer Credit Act and the Central Bank’s Consumer Protection Code. As a result, Irish households have been able to accumulate liabilities more easily than consumers in other countries.
While noting that the imposition of credit limits is a “complex” issue, the report says the question of whether liberalised consumer credit markets can work against financial stability is something that could be examined further, although it says the impact on consumers and the wider economy will also have to be factored in.
The authors anticipate that legislative amendments will allow the newly restructured Central Bank to prescribe lending limits on consumers.
However, it states that recommendations will only be brought forward following a process of research and consultation due to the complexity of the issue.
The establishment of a credit register or the strengthening of the existing legislation under which private registers operate is also recommended in the report.
According to the report, Ireland has not followed the model of many continental European countries in operating a centralised credit register. The only credit register currently operating in Ireland, the Irish Credit Bureau, fails to fulfil this function in its current form, it says.
The report outlines a series of forms a new credit register might take, and says it does not necessarily have to be operated by a public body.
Among the possibilities are: a credit bureau licensed by the Central Bank; a credit bureau or bureaux which are required to share information with the bank; mandatory reporting by all regulated lenders in the State.
According to the report, a credit register would benefit both financial institutions and consumers.
As well as providing information on the level of exposure of each individual institution, it would also allow for greater competition among lenders by bringing transparency to the market, as well as ensuring that consumers with a positive credit history could benefit from their track record.
