Michael McGrath fears SMEs are 'vulnerable' to vulture funds

Wants the Central Bank to track the purchase of business loans...

Michael McGrath fears SMEs are 'vulnerable' to vulture funds

Fianna Fail finance spokesman Michael McGrath | Photocall file photo

Fianna Fáil finance spokesperson Michael McGrath has expressed his surprise that the Central Bank has failed to keep track of vulture funds purchasing portfolios of Irish business loans.

Speaking to Newstalk Breakfast, McGrath argued that "the relationship changes quite significantly if a bank sells on your loan to a so-called vulture fund".

He has called for the Central Bank to collate the data, as well a change in the law to "ensure that the funds themselves are directly regulated".

At present, the Consumer Protection (Regulation of Credit Servicing) Act 2015 dictates that, while funds do not have to be regulated in Ireland, they must appoint a credit servicing firm as an intermediary contact point between the new loan owner and the borrower.

McGrath feels that this lack of direct contact with the new owner is a cause for concern, noting that "a huge amount of SME loans are in difficulty".

"That is a real deficit of information," he said. "In my view, there is a gap there within the regulation that needs to be closed. You have to look at where this will lead to.

"Many of these funds, they look at investments over a very short term horizon of maybe three to five years and the experience internationally is that they sell on these loans again. And then those loans could get sold on again and nobody knows in whose hands those loans ultimately end up.

"That puts the borrower, in my view, in a very vulnerable position."

By way of a 'worst case scenario' example, McGrath stated:

"You could be looking at a situation where somebody in business could have their loan sold on to their competitor.

"All that their competitor has to do to comply with the law is to appoint an intermediary who is a regulated entity."

When asked if this could result in firms putting the financial squeeze on their rivals, he said:

"Well that's the concern I have. If they get into the wrong hands, and someone has nothing but negative intentions as regards the future of that loan and the business that it is underpinning, then that can have very serious consequences."