Response to Consumer Protection Code Consultation - June 2024

The Introduction

The Small Firms Association (SFA) proudly represents a diverse membership of businesses with fewer than 50 employees, homegrown and spanning every sector of our economy. Our members are found in every town and every city in Ireland. Its mission is to deliver business-focused advice and insights to member companies, influence government policy to the benefit of small businesses and connect its members in a thriving community. Small businesses account for 98 per cent of the total number of businesses in Ireland, employing 43 percent of the private sector workforce, nationwide.

Overview: ‘SME Protection’ Section

SME Protections Under the RBR, the Central Bank is recommended to review and amend the SME Regulations to take account of legislative changes and developments in the Consumer Protection Code. Under the existing Code, the General Principles apply to business done with all customers, including all SMEs. The other chapters of the existing Code apply to consumers, which includes natural persons and small businesses.

The Central Bank has considered the recommendation under the RBR. Our proposal is for the approach to the scope of application in the existing Code to be carried across to the revised Code through the application of the Standards for Business to all customers that the regulated firm does business with including all SMEs. With reference to the Standard for Business and Supporting Standards for Business addressing securing customers' interests, these will apply to firms when doing business with individuals and small businesses.

To ensure that a similar population of small businesses are afforded the protections of the Code to the firms that were protected when the Code was introduced in 2006, we are proposing to update the threshold in the definition of consumer under the revised Code to apply the General Requirements to small businesses, to include incorporated bodies with an annual turnover of less than €5m per annum (current threshold is €3m).

As noted above, it is also our intention to consolidate the SME Regulations into the revised Code as part of further work we will undertake.

As part of this consultation, we want to hear your views on whether there are further elements of the revised Code that should be extended to all SMEs to ensure that the regulatory framework provides appropriate protection for SME customers.

Regulation text

The text of the regulations in relation to the threshold is as follows:

Regulations 14(3)(a) and 14(4)(a) shall not apply where the borrower is—

(a) a person or group of persons, but not an incorporated body with an annual turnover in excess of €3 million in the previous financial year (for the avoidance of doubt a group of persons includes partnerships and other unincorporated bodies such as clubs, charities and trusts, not consisting entirely of bodies corporate), or

(b) an incorporated body having an annual turnover of €3 million or less in the previous financial year (provided that such body shall not be a member of a group of companies having a combined turnover greater than the said €3 million).

Key questions

The two key questions related to SMEs posed in the consultation document:

Question 1: Are there elements of the revised Code that you think should be applied to SMEs?

Question 2: Do you have any comments on the change to the definition of “consumer” under the revised Code to include incorporated bodies of less than €5m in annual turnover?

SFA Response

Reply to Question 1:

The Small Firms Association has no strong position on which chapters of the existing code should be applied to SMEs.

Reply to Question 2:

Overall, the Small Firms Association (SFA) welcomes the modernisation of the Consumer Code. The proposal to change the definition of consumer to incorporated bodies of less than €5 million, up from €3 million appears reasonable and based on inflationary rises since original inception. In principle, we welcome additional protections to our members which are extended to consumers and recognise enhancements are needed to firms’ communication, (informing effectively) how they consider the customer (SCI) and when our members have challenges including vulnerability temporarily or otherwise. We believe the expansion to capture more of our members is therefore broadly positive.

The SFA would comment that the expanded inclusion for our members carries a risk that some of our members (those trading in the €3m to €5m range) and not included previously will now be subject to CCA regulatory standards by the Bank / Firm handling their business. This has the potential to involve additional bureaucracy (from firm to SFA member and vice versa) which could involve delays on ultimate outcomes whether it is supply of credit through to how the Firms deal with errors or complaints. The transition to the revised turnover number must therefore be managed within firms as seamless as possible for small and micro firms.

The SFA notes that the turnover ruling is arbitrary and has an uneven impact across sectors.

As illustrated by the table below, sectors are impacted differently due to the blunt measurement method using the annual turnover. For example, the construction and services sector of small firms (10 to 49 employees) now fall into scope. There will continue to be variation within sectors and size classes in terms of turnover but understand the arbitrary turnover could mean a mature & well-established small firms may be tagged “consumer” however fast growing <over 5m small firms regardless of net worth could be excluded given the turnover definition who may well need more protection on their growth journey particularly if the owner is not wholly financial literate.

The definition by turnover is therefore blunt and does not recognise the promoter acumen or financial literacy for better or worse.

Average Turnover per enterprise, € table*:

*Source: CSO

For questions on this subject, please contact SFA Public Affairs Lead, Jonathan McDade – Jonathan.McDade@sfa.ie