Mr. Brendan Whelan:

I thank the committee for giving us the opportunity to appear before it and to make the case for addressing what is, in our view, a morally unjust reality for many Irish people. I might start by posing a question. Would any Government today consider bringing a Bill to Dáil Éireann that would allow lending organisations to charge rates of 187% APR on small loans to often vulnerable people? Of course not. It would be ethically and morally wrong for such rates to be charged to a borrower by any lending organisation. There would be an uprising if banks or credit unions were to charge such rates, but that is what is happening today with home collection moneylenders. If it is deemed wrong to introduce a Bill that would allow these rates to be charged, it is just as wrong to permit such rates to continue to be charged. Our ask of the committee is for it to address this issue by introducing legislation that would impose a maximum interest rate for small personal loans by licensed home collection moneylending organisations and a prohibition on fees and charges. We must stress that our goal is not to put moneylending organisations out of business; rather, it is to ensure that borrowers can have access to small personal loans at a reasonable cost.

I will now explain what very high interest rates mean for home collection moneylending borrowers. A typical loan is €500 and a typical period is six months. In the course of a year, a borrower could take out two six-month loans of €500 each, which would cost €300 in interest. That is €300 to have €500 made available to the borrower over 12 months. The equivalent interest cost from a credit union would be €30.

Comparing €300 with €30, it is a multiplier of ten.

Why are these organisations issued with a licence each year with permission to charge these very high rates? It is because of the business model that the home collection moneylenders operate or, in other words, how they conduct their business. Repayments are weekly and are collected by agents at or often in the borrower's home. This is an intrusive, public and, importantly, a very expensive way of collecting repayments. For the business to be profitable, it requires extremely high interest rates to generate sufficient income to offset the very high labour costs. In spite of the very high cost and the dependency it creates, it is recognised that the model generates high satisfaction rates due to its convenience and reasonably assured credit.

Why is such a business model still operating in 2021? I am old enough to remember my mother making cash payments in a working class area of Dublin on Friday evenings to the insurance agent, the milkman and the bread man. Now that it is 2021 and we are living in an era of electronic payments, it is anachronistic that this method of repayment still exists. Of course, it is a mechanism that works to the advantage of the moneylenders. They have few marketing costs and get to know their borrowers intimately. They often perpetuate their presence through each generation in the family. It is important to note that they have no incentive to take a less costly approach to repayment collection or to manage credit risk differently so long as they are allowed to charge very high interest rates.

If a cap on interest rates were introduced, the moneylenders would have to change their business model to remain viable. Intriguingly, they have had to do this already in 2020 and 2021 during the three lockdown periods, when they could not collect from borrowers' homes. The written submission we provided to the committee does not suggest the level at which the interest rate cap should be set. The territory of interest rates can be very complex, with annual percentage rate, APR, simple interest, compound interest, amortisation, etc. It is important that any cap can be easily understood and facilitate comparability. Some EU countries have adopted a cap based on a multiple of a market rate. This concept, which is based on a simple interest calculation, could give a sound basis for a cap and would be easily understood. The key question then would be the size of the multiplier, a number which, in my view, should be significantly less than the multiplier of ten I to which I referred earlier.

As already stated, we are not seeking to eliminate this source of credit. We propose that the ultimate cap should be publicly declared and then introduced on a step-down basis over several years. This will provide the time for all those impacted, and borrowers in particular, to adjust. It will also provide time to manage the known implementation risks and any additional issues which inevitably arise in a change such as this. In conclusion, we strongly believe that the Government owes it to some of its most vulnerable people to address this matter.