MIXED reactions greeted the Security Interests in Personal Property Act 2013 (SIPPA) yesterday, as a joint select committee started sifting through submissions on the Bill, which will create a legal framework to improve the availability of domestic credit to the private sector.
The Bill also seeks to minimise the risks of loan repayments; create security interests in personal property; simplify the registration process for recognition of such interests; allow for public notification of security interests; and stipulate the rules governing the property in which such interests are enforceable.
But, while the committee — chaired by minister of industry, investment and commerce Anthony Hylton — is seeking to meet an early deadline for another structural benchmark set by the International Monetary Fund (IMF), it will certainly create changes in the style of lending of the credit unions and challenges for the banks, including the Bank of Jamaica.
In their submissions, the Jamaica Co-operative Credit Union League Limited (JCCUL), while welcoming the Bill, pointed to the need for new lending processes, while the Jamaica Bankers' Association (JBA) and the Bank of Jamaica asked that some serious concerns be addressed.
The submission from the JBA shows that the banks have a number of concerns, including the transfer of security interests in personal property not being exempted from stamp duty; the possibility of increased costs of both consumers and some business financing; the registration of bills of sale and company charges, and the challenges created by the inclusion of a stamp duty requirement.
According to the JBA, Section 41(b)(i) of the Bill provides an example of the challenges which will be faced, given the inclusion of the stamping requirement for hire purchase and other transactions it covers.
"That section allows a person entitled to receive notice of disposition to redeem the property by tendering the secured creditor fulfilment of the obligations secured by the secured property. (But) as the Bill does not define 'obligations secured', the secured creditor may be limited to payment of the amount for which the security is stamped, rather than the full amount of the outstanding secured obligations," the bankers pointed out.
The BOJ pointed out that, in framing the omnibus law, it will have to consider afresh the collateral listing and the impact on the proposed new Act which establishes a comprehensive legislative framework for the taking of security interests in a variety of assets.
"SIPPA, it should be noted, also creates a number of circumstances where the rights of the holder of the security interest may be subordinate to the interests of other parties," the BOJ pointed out.
It said that the BOJ, in carrying out this review, "will have to be guided, as well, by other considerations, such as the relevant international banking supervision standards, as well as other critical issues that can affect the entity's chances of loan recovery, including marketability of the collateral and ease of disposal," the central said.
The BOJ also pointed out that it will have to consider other modern banking practices, such as securitisations and loan syndication, that expand the range of lending activities that can take place.
However, the credit union body was fully upbeat about the Bill, concluding that it is long overdue, and that in proposing it the Government is moving closer to achieving some of its reform goals.
It pointed out that the Bill shows that a perfected security interest in a property will not guarantee that interest in that property if other interests exist.
The credit union body said implementation of the Act will mean it will have to review and adjust its lending policies accordingly.