Mr. Untoy who is a consumer took out 3 loans from GE Money who offered him a payment protection policy for the loans. GE Money acted as an intermediary for the underwriter Lighthouse which offered the insurance. Lighthouse was also owned by the parent company of GE Money.

Mr. Untoy was a public sector employee at the time he took out the 3 loans from GE Money. He was not aware at the time that commission was paid to GE Money on the purchase of each policy for his 3 loans. Neither was he aware that GE Money and Lighthouse were related companies. He subsequently discovered the policy sold to him was not suitable for public sector employees as he was not eligible to obtain any benefit under the policy. He then sued GE Money for negligence, misleading him, failing to disclose the relationship with the underwriter and that it was earning a commission on the payment protection policies.

In the District Court, GE accepted that they had a duty to act honestly, in good faith in their dealings. Mr. Untoy said he did not realise that the Insurer and GE were the same entity. He was surprised to learn that GE earned a commission on the sale of the payment protection insurance as this was never disclosed to him. He said had he known that he was paying extra for this he might have gone to the insurer directly or looked for other options.

There is no express obligation for GE Money to disclose its commission or the amount of any commission on the sale of an insurance policy. However, there is an obligation on an insurance intermediary to disclose any connection between the provider of a loan and the provider of insurance cover for a loan, under regulation 19(1)(d) of the Insurance Mediation Regulations 2005 (SI 13/2005).

The findings of the District Court were appealed by way of case stated to the High Court.

The Irish Court considered the regulatory regime in the UK which is different to the Irish regime. In the UK there are a number of rulings considering the fairness of a debtor-creditor relationship and situations where commissions payable are not disclosed. The UK Supreme Court has found in one case that the non-disclosure of a 71.8% commission made a contractual relationship unfair for a consumer under a statute.  A reasonable person given that information would be bound to question if the insurance represented value for money.

GE Money admitted that they had not complied with the requirement to inform a customer in advance of entering into an insurance contract of the connection between the lender and insurance provider. In Mr. Untoys case, the Judge found that where companies are related and one is paying commission to the other, this information should be disclosed to the consumer, since the consumer may not realise that he is in effect paying on the double to related companies. It is at that point the size of the commission being paid becomes relevant. The Judge found that the conduct of GE Money amounts to a misleading commercial practice and Mr Untoy is entitled to compensation for this as a result.

The amount of damages to be awarded to Mr. Untoy have not yet been measured, and we will update you when this has been decided. Following this ruling insurance intermediaries should review their procedures for selling insurance policies and practices. Further training may be necessary for staff.

In particular, the Act ensures that the rights available under the Consumer Protection Code, the Central Bank’s Code of Conduct on Mortgage Arrears and the Code of Conduct for Business Lending to Small and Medium Enterprises (“the Codes”) are available to ‘relevant borrowers’ after their loan has been transferred to a third party, where, prior to the commencement of the Act, same would not have been available.

In brief, a ‘relevant borrower’ is a natural person within Ireland or a small or medium-sized enterprise (“SME”) being an enterprise which employs fewer than 250 persons and which has an annual turnover not exceeding €50m and/or an annual balance sheet total not exceeding €43m.

Frequently when a loan or a portfolio of loans is sold by a bank/ lending institution, it is sold to an investment company that is not in the business of administering or managing loans.  Usually, investment companies outsource the administrative duties attached with servicing loans acquired (such as notifying a borrower of a change of interest rates, sending statements, dealing with complaints, managing or recovering the loan, etc) to another company or organisation.  The Act defines that other company as the ‘credit servicing firm’ (“the CSF”) and requires that entity to have an authorisation from the Central Bank of Ireland (“the CBI”) or other relevant banks. If the investment company administers and services the loan itself, the investment company is treated as the CSF under the Act.  An authorisation from the CBI requires high service level standards to be met when interfacing with the relevant borrower and robust governance arrangements to be in place. Further details of the high service level standards and arrangements may be viewed here.

The Act goes some way towards protecting consumers, SMEs and individuals borrowing in their private capacity and is no doubt a welcome introduction for those whose loans have been transferred from established financial institution in Ireland to a relatively new non-resident investment company.
If you have any queries about the application of the above legislation to your business, please contact Deirdre Farrell, partner, Amorys Solicitors deirdre@amoryssolicitors.com, telephone 01 213 5940 or your usual contact at Amorys