The Revised Consumer Protection Code (“Code”) will come into effect on 1 January 2012 further demonstrating the Central Bank of Ireland’s (the “Central Bank”) commitment to protecting consumers of financial services. The Revised Code will take effect just weeks after the Central Bank levied the largest ever fine in an Irish administrative sanctions case. A settlement agreement reached between the Bank and Combined Insurance Company of Europe Limited (“Combined Insurance”) reveals that the firm was fined €3,350,000 for breaches of the existing Consumer Protection Code (“CPC”), Minimum Competency Requirements (“MCR”), and the European Communities (Insurance Mediation) Regulations (“IMR”), over a 5 year period. In all 28 regulatory breaches were identified of which 26 were breaches of the CPC.

The Code will apply to all regulated entities and seeks to enhance consumer protection in a number of core areas. It is interesting to the observe that a number of the breaches identified in this administrative sanctions case related to matters, such as, mis-selling of products by agents, client suitability, and complaints handling which are significantly strengthened by the Code.

The key revisions may be summarised as follows:

Client Suitability
The Code prescribes the type of information that a regulated firm must collate in the “Knowing the Customer” process so that it may assess whether a product or service is suitable for the consumer’s needs. Affordability is also to be taken into account for credit products. The Code also obliges product producers to provide sufficient information to assist intermediaries in determining customer suitability for the product or service in question.

Mis-Selling
Where remuneration arrangements are such that they could lead to a highly pressurised sales environment there is potential scope for mis-selling of products. The Revised Code provides that a regulated firm’s remuneration arrangements must not conflict with either the best interests of the consumer or the suitability requirements of the Code.
Further, under the Code, unsolicited personal visits are banned and more stringent rules are in place to control the circumstances in which personal visits may take place. 

Increased Transparency
The Code improves transparency through the requirement to provide more balanced information to consumers in advertisements. These new advertising provisions state that key information on products and services must not be obscured in advertisements. Advertisements must also set out any risks associated with a product or service where the benefits are also set out.
As part of the increased transparency for the consumer, the Code also specifies information which must be provided to a consumer at all stages in the sales process. This information should include details of the product or service, any charges and any commission arrangements.

Arrears Handling
The Code details how regulated firms must deal with personal consumers who are in arrears on their loans. These provisions include conditions that a regulated firm must provide more information to the consumer to encourage them to deal with their arrears and must seek to agree an approach to assist the consumer in resolving their arrears. Where a revised repayment arrangement has been agreed, the regulated firm must provide an explanation of the revised arrangement to the consumer in a durable medium within 5 days. Where a revised repayment offer is rejected, the reasons for the rejection must also be communicated to the consumer.Communications with consumers in arrears should be proportionate and must not exceed three unsolicited communications per calendar month.

The provisions do not apply to mortgage lending as these loans are covered by the Code of Conduct on Mortgage arrears.

Errors and Complaints Resolution
The Code provides that a regulated firm must have written procedures in place for the effective handling of errors which must enable the firm to identify the cause of the error and all affected consumers. All errors must be resolved within six months after the date the error has occurred and an error log must be maintained. This log must contain an explanation of how the error was discovered, the monetary amounts involved, and the number of consumers refunded. In addition to an errors log, detailed records of complaints must be retained.

Vulnerable Consumers
The Code also includes a provision that regulated firms be aware of and provide for the needs of vulnerable consumers. A vulnerable consumer may, for example, have a physical impairment, such as blindness, or an intellectual disability requiring additional assistance from the service provider in the purchasing of a financial service or product.

The Bank has accepted that compliance with the enhanced requirements will require some systems and procedural changes and will initially take this into account when monitoring compliance with the Code. However, in light of the record fine in the Combined Insurance case, all regulated firms need to be fully aware of their obligations arising from the Code and of the Bank’s willingness to see breaches through the full enforcement process.

Contributed by Rachel Stanton