Sale Of Commercial Loans To Unregulated Investors 'Alarming' - FF

The sale of commercial loans on behalf of vulture funds to individual investors has been described as "alarming" by Fianna Fáil finance spokesperson, Michael McGrath.

Deputy McGrath said that these investors are not regulated entities and have "no understanding of the underlying business the loan relates to".

A trend is now emerging whereby vulture funds, who bought large portfolios of loans at huge discounts, are breaking them down into smaller parcels of loans and offering them for sale to individual investors, according to Deputy McGrath.

Deputy McGrath said: "When banks started selling bundles of loans to vulture funds, we were told that individual businesses had no need to worry as long as they continued to service the debt.

"I and others warned at the time that vulture funds would take a short term outlook to maximise their profit with absolutely no regard for the interests of the underlying businesses the loans related to. This is now manifesting itself.

"It has been brought to my attention that agents acting on behalf of some of these funds are offering business loans for sale to people in business or known high net worth individuals. This is all perfectly legal it would seem.

"Under legislation passed last year, the new owner of the loan merely has to appoint a regulated credit servicing firm to manage the administration of the loan. The previous and current government has refused to insist that the owner of a loan would have to be regulated.

"This trend opens up the prospect of competitor firms are being offered the chance to buy the debt connected with a rival business. As it stands there is nothing to stop any investor from buying a debt connected to a business so long as they comply with the requirement that an intermediary is appointed to administer the loan.

"Personal guarantees are also often attached to these loans putting an individual's financial well-being in the hands of people who may – to say the least – not share their best interests. Business loans are now being offered for sale around the place and are usually promoted on the back of the property or properties underpinning the loan. This is happening totally unbeknownst to the borrower."

Deputy McGrath said that the law surrounding these sales is "very weak at the moment", and that it was Fianna Fáil's intention to introduce legislation to fix this.

"The first step should be to require the owner of credit to be a licensed financial institution and this needs to be done without delay. By not insisting on this, the government has facilitated a free marks for the sale of loans with no regard for the original borrower or the underlying business they are trying to run," he concluded.

(MH/JP)