Pearse Doherty (Donegal, Sinn Fein) | Oireachtas source

I move amendment No. 5:

In page 8, to delete lines 34 and 35, and in page 9, to delete lines 1 to 15 and substitute the following:

“(2) (a) The Minister shall prescribe in respect of a loan (other than a running account) under a high cost credit agreement—

(i) the maximum rate of simple interest chargeable per week (being a rate less than or equal to 0.75 per cent), and

(ii) the maximum rate of simple interest chargeable per year (being a rate less than or equal to 36 per cent).

(b) A maximum rate of interest prescribed under this subsection shall apply to a high cost credit agreement entered into after the date on which the regulations, by which the rate is prescribed, come into operation and for a period of no longer than three years.

(3) (a) The Minister shall prescribe in respect of a loan (other than a running account) under a high cost credit agreement—

(i) the maximum rate of simple interest chargeable per week (being a rate less than or equal to 0.35 per cent), and

(ii) the maximum rate of simple interest chargeable per year (being a rate less than or equal to 18 per cent).

(b) A maximum rate of interest prescribed under this subsection shall apply to a high cost credit agreement entered into no longer than three years after the date on which regulations, by which the rate is prescribed, come into operation.

(3A) (a) The Minister shall prescribe in respect of a running account under a high cost credit agreement, the maximum rate of nominal monthly interest chargeable on an outstanding balance (being a rate less than or equal to 1.92 per cent).

(b) A maximum rate of interest prescribed under this subsection shall apply to a high cost credit agreement entered into after the date on which the regulations, by which the rate is prescribed, come into operation.”.

This amendment would introduce an interest rate cap 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 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, to be known as the initial cap; a simple interest of no more than 0.035% per week up to a maximum of 18% per annum after a period of three years, which would be known as the further reduced cap.

The impact of this cap for borrowers with reference to the interest charged on a €1,000 cash loan by a credit union and by the largest money lender operating in the State is significant. Currently, on a €1,000 loan over a 12-month period, a credit union charges interest of €60 while a money lender, for the same loan over the same period, would charge €560 in interest. The initial cap that I am proposing for a three year period would reduce that €560 down to €360 but would substantially reduce it further after the three year period down to €180. The initial cap would be six times that which the credit union would apply but, as we get to the second step, it would be three times what the credit union would charge. Crucially for the moneylender, the total interest payable does not include the impact of collection charges, which obviously have pushed up the cost of credit further in the past.

I argued strongly on this when my own legislation was before the House but unfortunately, the Minister voted against all sections of that Bill. We have tweaks in some of the sections of this Bill to the licences of moneylenders, which I broadly support, but when we get down to the meat and bones of this legislation, what the Government is legislating for is to allow high-cost credit but with a warning on the label. It is like phoning people up to tell them that they are going to get robbed in the next half an hour. The Government is just letting them know that they are going to get robbed but what I want to do is stop the burglar coming through the door in the first place. This amendment would still allow for substantial profits to be made on these types of loans, which have been described by others during the pre-legislative scrutiny process as immoral. It would still allow for high interest rates to be charged, specifically in the initial period but I would argue that a step-down approach is the more appropriate way to deal with this and to bring it into line, with reference to credit union lending. The initial cap of six times the credit union rate and then three times the rate in the further cap is appropriate. I commend the amendment to the select committee.