Mr. Ed Farrell:

As I have said, credit unions have a maximum rate of 12% and the phasing in of a 36% rate would be six times better than the current rate for other lenders of between 200% and 300%. For the good of the country, if there is a plan to get to a 36% maximum rate within a stepped process, it would bring the cost of credit and the amount a borrower must repay from 300% to approximately 30%. At that stage, it could be a case of happy days. We could all reflect and see if it needed to go further. A rate of 36% sounds very expensive when interest rates are at zero or negative. When credit unions put members' money in banks today, they get negative rates on that money, so 36% might sound ludicrous. For very small loans of perhaps €500 or €1,000 over six months, it is probably not as outlandish as it may seem. As I have said, in the context of rates of 200% to 300%, it is certainly a big step forward.

I indicated in my opening address that the league and seven, eight, nine or ten other organisations, including some of those before the committee today, have been working on the It Makes Sense loan as part of a task force under the auspices of the Social Finance Foundation with the Department of Social Protection, Citizens Information Board and a range of stakeholders. During that time we have had various other research mini-projects within the overall task force trying to get under the bonnet of the legal and illegal moneylending system, trying to understand behavioural patterns, what makes people loyal and what are the strengths. People are obviously stuck with them or loyal to them, whether it is a legal or illegal operation.

This research and the research within the UCC report tends to stack up and indicate there will not be an explosion in the sector. Time will tell and nobody could guarantee one scenario over another. We can look to research findings and experience in other countries, and there are caps in other developed European countries. There are other examples where there has been no loss of control.

As Deputy Doherty mentions, there is a proposal from the Minister on the cap on credit unions' own rates. Since credit unions started in the late 1950s - the first legislation for credit unions was in 1966 - the cap has been 12%, or a 1% per month calculation. That was before computers proliferated so it was probably just a simple calculation of 1% on a manual ledger system. That cap has not changed in 60 years. Four years ago the Minister for Finance's credit union advisory committee surveyed credit unions to see how they felt about credit unions having a maximum rate of 12% versus moneylenders having a rate of 200% and 300%. Approximately half of credit unions indicated they would like the flexibility to go above 1% per month above the 12% rate but half felt the 12% rate was enough and part of their social ethos was about the possibility of subsidising small loans to more vulnerable people at that 12% rate. Some of the bigger credit unions that would do more loans said it would be nice to have the flexibility.

The Minister's intention is to bring about legislation to allow the 1% rate go to 2% per month, which would be 24% per year, and that is still two thirds of the 36% rate that has been mentioned. If that comes to pass, credit unions seeking that flexibility will be happy because the boards of the individual credit unions will then be able to decide if they want to increase the rate. As I stated, on a purely commercial basis they would not make money at 12%. At 24% they would not be making much money but at least it would pay more of the cost to administer the loan. Many other credit unions will not go above 12% because they feel it is part of the overall offering and average rates will even out.