Pearse Doherty (Donegal, Sinn Fein) | Oireachtas source

That sums up the Government's approach, which was not to do anything because there was another hundred licensed moneylenders in the market. Many of them are unique and catalogue operators and not lenders that provide loans to cover the communion or birthday party costs. I am glad the officials are starting to brief the Minister of State on this big issue. The Government did not do anything on this. It should have introduced an initiative to encourage the customers of that largest moneylender in the State to go to the credit union where they could get lower cost loans at a fraction of the cost charged by the moneylenders. That has not happened. The Government took a hands-off approach in that regard.

As amendment No. 3 is being discussed with amendment No. 1, amendment No. 3 proposes to delete section 103 of the principal Act, which sets out collection charges, which would be abolished under amendment No. 2, if they were to be administered. That is what the original section provided. The proposed new section 103 would provide for a cap on the rate of interest moneylenders are permitted to charge. The interest rate cap would be based on simple interest with an initial cap which would then be reduced further after a period of three years. It would also separate cash loans from loans provided on a running account. The new interest rate cap as it applies to cash loans would be as follows: a simple interest rate of no more than 0.75% per week up to a maximum of 36% per annum for a period of three years, which is the initial cap in the proposed amendment. It is proposed there would a simple interest rate of no more than 0.35% per week, which is a reduced rate, up to a maximum of 18% per annum after a period of three years. That would be the secondary reduced cap.

The impact of this cap for borrowers with reference to a €1,000 cash loan over a 12-month term by a credit union compared with the largest moneylender in the State, which the Government should have done something about when Provident pulled out of the market, would be that the total repayments on the loan would be €1,060. The borrower would be charged €60 in interest. A moneylender would charge the borrower €1,560, which is €560 in interest. The ratio of interest charged by the moneylender compared with the credit union is nine times more. The initial cap proposed in the amendment would be mean the €560 in interest that would be charged would be reduced to €360. The ratio of interest charged compared with the credit union would be six times more, which is still an very expensive type of credit. The secondary cap we propose would reduce the initial moneylender's interest from €560 to €180, bringing the ratio between what a credit union would charge compared with a moneylender after three years down to 1:3.

Crucially for the moneylender, the total interest payable does not include the impact of collection charges, which we deal with in amendment No. 2. Those collection charges push up the cost of credit much further. Therefore, this cap would slash the total cost of credit a moneylender can charge by more than one third and the further cap that would be in place after three years would slash it by more than two thirds. That would radically reduce the cost of credit moneylenders can charge, thereby protecting consumers, many of whom are vulnerable to vicious cycles of debt, and reduce the interest they are charged.

Further provisions of amendment No. 3 require the Central Bank to produce a report at least every three years assessing the cost of credit in the moneylender market and to make recommendations to the Minister for Finance, where they are warranted, to protect the interests of consumers. There is a requirement for the Central Bank to produce a report within three years. This is about sending a very clear signal that we are reducing the cost of credit moneylenders can charge, including abolishing collection charges and, after a three-year period, that cost will reduce further. That is what is necessary to protect people. It is not what the Minister of State has just told the committee, namely, that if your moneylender has gone, you should go to one of the other 100 moneylenders. That is not what we need.

Most of the reports that comprise studies that have been done in this sector show people who go to moneylenders can access credit from credit unions. A large number of them also access credit from credit unions. The issue is the convenience, the door-to-door sales, the fact the operator knows Sheila has John and Mary at home and John is about to make his first holy communion, or that people are asked on their doorstep if they are going on holidays. The issue is the in-your-face sales because of the convenience and short-term nature of the loans, as a result of which people get trapped into a cycle of high interest rate debt. I strongly commend amendment No. 1 to the committee.