Debt Recovery Update: A Little Less Litigation, A Little More Regulation

In 2018, the debt recovery sector noted an increase in the number of purchasers of loan portfolios pursuing litigation. This precipitated judicial and legislative attempts to manage issues stemming from this development.

Developments in debt recovery litigation

The publication of the Courts Services Annual Report 2017 in July of this year highlighted the ongoing decline in debt recovery litigation, with default judgment numbers dropping by 10% on the previous year. It also noted that new proceedings seeking possession of secured properties decreased by 14% in 2017 and orders for possession made by the Circuit Court decreased by 19%.

Coinciding with this decline, there has been a marked change in the identity of the creditors in debt recovery proceedings. This has arisen from an ever growing volume of loan portfolio sales in Ireland, resulting in non-bank entities holding 7% of all outstanding residential mortgage accounts and 9% in terms of value as at 30 June 2018. However, it is worth noting that non-bank entities owned 18% of all Irish PDH mortgages that were in arrears over 720 days.

Portfolio sales that made the headlines in 2018 included those being carried out by KBC Bank Ireland to Goldman Sachs, Permanent TSB plc to Start Mortgages, Allied Irish Banks plc's sale of Project Redwood, and Bank of Scotland plc’s sale of its remaining Irish retail mortgage loan agreements to Pepper Finance Corporation.

Legislative proposals & the regulation of creditors

There have been a number of legislative attempts to regulate loan portfolio acquirers and to restrict the ability of all lenders, not merely loan portfolio acquirers, to repossess secured property. These include the Courts and Land Conveyancing (Amendment) Bill 2018, formerly the Keeping People in their Homes Bill 2017, and the Consumer Protection (Regulation of Credit Servicing Firms) (Amendment) Bill 2018.

Provisions contained in the Courts and Land Conveyancing Bill include consideration of additional factors in circumstances where the plaintiff is not the original lender. The Regulation of Credit Servicing Firms Bill was subject to ECB criticism in an opinion delivered in July 2018. This was due to the possible burden it may place on investors, the need to avoid impeding participation in secondary markets, and the avoidance of risks to the financial stability of credit institutions.

Arguably, both Bills will also need to be considered in light of the Draft Directive on credit servicers, credit purchasers and the recovery of collateral published by the European Commission in March 2018. This will require Member States to ensure that a credit purchaser is not subject to any additional requirements for the purchase of credit agreements other than as provided for by the national measures transposing the Draft Directive. It remains to be seen whether either Bill will pass successfully through the Irish legislature.

A word of warning from the courts

A cautionary note for creditors echoed from the October 2018 judgement of Mr Justice MacGrath in Havbell DAC v O’Hanlon. These proceedings were struck out for want of prosecution due to what he deemed excessive, inordinate and inexcusable delay. The circumstances of the case were that summary proceedings were commenced in 2008 by the original lender, but not progressed until 2018, after Havbell DAC purchased the loan and was substituted as the Plaintiff. Judge MacGrath accepted that this delay caused general prejudice to the defendants, ultimately leading to the proceedings being struck out. In his criticism of the actions (or inaction) of lenders leading to unjustifiable delays, he stated that a loan purchaser must assume any obligations of a loan as well its rights, including the requirement to process the case expeditiously.

Conclusion

Overall, 2018 witnessed a further decline in collection litigation and enforcement, coupled with increase in the prevalence of loan portfolio purchasers as plaintiffs. There has been a clamour of voices calling for the further regulation of such purchasing entities and some legislative proposals to regulate these entities.

The general decline in collection litigation is likely to continue into 2019, though we expect the overall dip in volume will not be as pronounced as in previous years. The current legislative proposals to directly regulate loan portfolio acquirers may not withstand the scrutiny of either the ECB or indeed the Central Bank here. Nonetheless, given the current homelessness and housing crisis, pressure will remain on the Irish Government to ensure that that the activity of these acquirers, or the consequences of that activity, are more directly monitored and regulated.

For more information on debt recovery issues affecting your business, please contact our Debt Recovery team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.