Mr. Ed Farrell:

I have some more information on personal micro credit loans. It started as a pilot nearly three years ago when a group of stakeholders came together, including the Central Bank, the Department of Finance, the Department of Employment Affairs and Social Protection, the credit unions, An Post, the Citizens Information Bureau, the Money Advice and Budgeting Service, MABS, and the St. Vincent de Paul. The Social Finance Foundation brought those people together to explore the idea of credit unions offering a convenient alternative to moneylenders and even out or level an unfair playing field. The objective was to take people out of the clutches of moneylenders, rehabilitate any financial mistakes they might have made in the past and try to get them into the credit union movement. Past history would not necessarily debar a person and each case is separate.

An easier credit policy was put in place for the pilot because the Central Bank was a part of the stakeholder group and also because, for the first two loans that came through, there was a deduction at source in the social welfare payment. That increased the likelihood of repayment of the loan and was a comfort to the credit union and to the regulator - any deduction at source, whether it is deposit interest retention tax, DIRT, or PAYE tax, is always easier to administer than the member having to come in afterwards. It is case by case and credit union by credit union. We have just under half of all credit unions in it. It is probably not as relevant for some of the industrial credit unions, those for teachers, nurses and guards, because their members are working people. We probably have half of the community credit unions but we certainly have much more than half of the geographic population of the country. We have the towns and cities well covered but some of the rural credit unions are not in the pilot, so although it is half of the credit unions much more than half of the population base is covered. We all have a job to communicate and advertise it better because not everyone hears about it. We also all have a job to get it into more credit unions. We have engaged with and helped some Members of both Houses to try to encourage their local credit unions, if they are not in it, to get them into it. We can all help each other get more credit unions and more people access to it.

The interest rates are frightening as Senator Ruane said. I refer to €150 being paid back on a €100 loan. That sounds like 50% to a person under pressure but because it is only for six months it is actually over 100% and because that person will be paying off his or her loan it is actually nearer 200%. There are moneylenders with a licence from the Central Bank allowed to charge almost 200% in interest as well as transactions and fees for calling around or late fees. That can add another 100% to the effective rate so that it will be nearly 300%. That is allowed and licensed. The credit union maximum rate is 12% per annum and that is in the law.

As part of the levelling of the playing field we will be seeking to allow credit unions the flexibility of perhaps charging double the 12% - it would still only be 24% - and trying to bring down the 200% and 300% rates on the other side to a more modest figure. That would even up some of the unfairness. The stakeholder group just got a report completed on an interest rate cap. The report found that 21 of the 28 EU countries have an interest rate cap on moneylenders, including big countries like Germany, France and Italy. Ireland is one of the seven that does not have any interest rate cap. It has been part of the policy of the Irish League of Credit Unions for 20 years to try to get a cap in law for licensed moneylenders. This report from the stakeholder group has been put together to help us get the interest rate on both sides a little more in balance.