Ms Gráinne McEvoy:

I am joined by my colleague, Mr. Kevin O’Brien. We welcome the opportunity to appear before the committee today to discuss the Consumer Credit (Amendment) Bill 2018. As the committee is aware, licensed moneylenders are regulated under the Consumer Credit Act 1995, which sets out the specific regulatory regime for this sector, including provisions reflecting particular features of this sector and, in particular, the high cost of this type of credit. The Central Bank assumed responsibility for licensing and supervising moneylenders in 2003, when responsibility transferred from the Office of the Director of Consumer Affairs. We fulfil this role within the parameters of the legislative regime. Under the legislation, any firm involved in moneylending activity requires a licence from the Central Bank, which must be renewed every year. In line with our mandate, working to ensure that the financial system operates in the best interests of consumers and the wider economy, we maintain a proactive and focused approach in supervising the sector, ensuring that the requirements imposed on the sector continue to be effective and provide suitable protections for consumers.

There are currently 35 moneylenders licensed to operate in Ireland. The business model operated by licensed moneylenders generally falls within the following categories: home collection firms, firms operating a catalogue business model and other firms, including firms providing credit to fund gym membership, insurance premiums, etc., and firms involved in the provision of goods on credit. Licensed moneylenders are required to carry out their business under the specific terms of their licence. We have not permitted a maximum APR or costs charged within the sector to increase. In line with our gatekeeping responsibilities, we have not allowed practices such as pay-day lending to enter the Irish licensed moneylending market.

There is a strong consumer protection framework in place for consumers who choose to use the services of licensed moneylenders. Consumers are protected by a range of provisions that moneylenders must adhere to, including the Central Bank (Supervision and Enforcement) Act 2013, the (Licensed Moneylenders) Regulations 2020, the European Communities (Consumer Credit Agreements) Regulations 2010 and the Consumer Credit Act 1995, all of which include additional provisions specific to the moneylending sector.

In addition to the protections provided under these regulations, there are important protections provided for in legislation that mean licensed moneylenders are prohibited from applying additional charges, including in the event of default or non-payment by the customer. Therefore, a customer can never be asked to pay more than the total amount payable as stated on the moneylending agreement. Moneylenders are also required to undertake a creditworthy assessment before entering into a moneylending agreement with the consumer. We have made, and set out, our clear expectations to all credit providers, including licensed moneylenders, that they lend responsibly and act at all times in the best interests of the consumers.

Last year, following an extensive public consultation process, we introduced new regulations, which replaced the Consumer Protection Code for Licensed Moneylenders, to further strengthen protections for consumers of the licensed moneylending sector and to enhance professional standards in this sector.

In addition to the existing requirements, moneylenders are now required to include prominent, high-cost warnings in all advertisements for moneylending loans with an APR of more than 23%. The warning must also prompt consumers to consider alternatives.

Moneylenders may not be permitted to make unsolicited offers to apply for credit to consumers who have recently made, or are nearing, full repayment of a moneylending loan. There is a limit on moneylenders’ contact with consumers and a limit the offer and promotions of loans to consumers. Where a loan is required for basic needs, such as accommodation or electricity, moneylenders will be required to inform the consumer that a moneylending loan may not be in their best interest and to provide contact information for the Money Advice & Budgeting Service, MABS. There are also new requirements for staff and agents working in the sector, designed to enhance their professional standards.

While the regulations came into effect on 1 January 2021, due to the financial impact of Covid-19, the high-cost warning requirements in respect to advertisements for moneylending loans with an APR in excess of 23% came into effect earlier, from 1 September 2020. We assertively supervise this sector, taking supervisory and enforcement action, where required, to protect consumers’ interests. Compliance is required through supervision initially and at annual licensing processes. Applying the fitness and probity regime, we undertake thematic and firm-specific inspections and engagements, we undertake market monitoring, we conduct consumer-based research and we monitor industry trends, including complaints made to the Financial Services and Pensions Ombudsman of Ireland, FSBO.

In respect to the new proposed legislation, the Central Bank is supportive of all initiatives that seek to enhance existing protections for consumers in the moneylending sector. The Consumer Credit (Amendment) Bill 2018, as drafted, proposes to place a cap of 36% of APR charged by moneylenders, which could present some specific challenges. Moneylender loans are generally short term in nature. Their cost and the associated APR can be very high when compared to other forms of credit. APRs may appear to be extremely high on short-term loans when compared to the actual cost of credit over the longer term. Therefore, lowering the APR may be ineffective and counterproductive and not achieve the objective of lowering the total cost of credit if, for instance, a moneylender chooses instead to extend the duration of the loan, resulting in the consumer paying more over the longer duration of the loan.

Neither the 1995 Act nor the regulations provides for an interest rate cap, nor does the 1995 Act define "excessive" in the context of interest rates. The Central Bank, therefore, has no statutory power to impose a market-wide cap on rates, and the introduction of an interest rate cap would require a legislative amendment. Any legislative proposals seeking to achieve an overall reduction in the cost of credit to customers of moneylenders should be calibrated to ensure no unintended consequences in terms of financial exclusion.

Our focus has been on improving the transparency of these costs and increasing consumer awareness by setting of requirements such as the need to warn customers about the high-cost nature of loans and to disclose all the fees, costs and interest in a clear manner prior to entering into the moneylending contract. Our public register of licensed moneylenders also sets out product details such as the maximum APR, maximum cost of credit and collection charges, if applied.

One of the challenges in considering rates charged by moneylenders is finding a balance between the availability of credit for consumers who do not have access to regulated credit elsewhere or who do not use other regulated credit providers and the provision of short-term unsecured loans which can be at a high cost. For small amounts of credit and for those consumers with an impaired credit history, there may be limited alternative credit options available to them from regulated credit providers.

We have concerns regarding the proposed legislation as currently drafted. Any legislative proposal imposing such a cap would have to be carefully considered to achieve an overall reduction in the cost of credit and to ensure unintended consequences in terms of financial exclusion do not arise. We recommend an assessment of the impact on consumers should be undertaken to inform this approach.