Brian Hayes (Dublin South West, Fine Gael)

I thank Deputy Pearse Doherty for preparing the Bill we are debating tonight and tomorrow night and for presenting it for the information of the House. There is a comprehensive licensing system in place for moneylenders. In that regard, I will outline shortly for the information of the House the main provisions of Part VIII of the Consumer Credit Act 1995 which deal with moneylenders. However, I wish to inform the House that the Government intends to oppose the Bill.

The most likely impact of applying a cap rate of 40% APR - or a lesser rate as is outlined in the explanatory memorandum - is that moneylending would no longer be viable, licence renewals would not be sought and it would effectively close down the industry. The Government is aware of the burden placed on customers because of the high rates charged by moneylenders. However, as Deputies will appreciate, moneylending is an inherently expensive business. Licensed moneylenders serve a high-risk borrower segment, by way of a labour intensive operational model, and through offering loan amounts which are too low effectively to cover the costs of running the business if offered at low interest rates. Given that many customers of licensed moneylenders would have few, if any, other sources of licensed credit available to them, the proposal regarding a cap on the APR would likely increase growth in illegal moneylending. That is one unintended consequence of the Bill and it is something that all of us, I presume, oppose. Pushing more people into the hands of unscrupulous and unregulated moneylenders would make no sense and would further marginalise those who need protection most.

Licensed moneylenders service a varied group of customers but are closely identified with marginalised or vulnerable consumers. Meeting the financial needs of such consumers is a complex multidimensional policy issue. The Government is already engaged in a number of measures, such as the provision of basic payment accounts and the implementation of a national financial education programme, both of which are designed to support persons and families targeted by moneylenders and, more generally, promote financial inclusion and reduce over-indebtedness.

For the information of the House, an EU proposal will shortly come into being, which will provide for a basic payment account. It is crucial to give everyone the right to have an account so that their financial transactions can be carried out. The basic payment account, if properly designed and marketed, provides marginalised consumers with an opportunity to engage with mainstream credit providers, build up a good savings record and ultimately access mainstream credit. I was surprised to hear the information that has been estimated that currently 17% of Irish householders do not have access to a bank account that can make payments through the clearing system. The implications for people are stark if one does not have access to a bank account. The question arises as to how one pays a bill, makes debit payments, and collects and transacts with financial institutions. What is required in this case is a further exploration of the need to have basic payment accounts for all citizens rolled out over a period. Without that, we are not going to make a great difference. It is no surprise that people would call around to one's house to collect money if one does not have a basic bank account because one cannot work through the clearing process. It is a major inequality if people do not have access in the normal way to the banking system that is in place for everyone else. It can have a significant impact on the financial well-being of citizens. As part of the Government's policy to improve financial inclusion levels, a pilot project has commenced to introduce a basic payment account. The project is being tested until the end of this year and it will be evaluated to ensure it is meeting the needs of the target population before a more refined offering will be rolled out on a nationwide basis next year.

Deputy Pearse Doherty referred to a study from 2007, but the House might wish to note that a more recent UK study from 2009 found that a licensed moneylender, to be financially viable, must charge a high cost of credit, even on a not-for-profit basis. Specifically, the study found that a not-for-profit home credit business to break even by year five would require an £18 million subsidy of start-up capital and APR of 123% on an average £288 loan over 56 weeks to be commercially viable. Given the Irish context, in particular the small market size, and taking into account the above findings, it is not likely that many moneylenders would be commercially viable operations by offering loans at rates of credit of substantially less than they are currently authorised.

While licensed moneylenders may be the subject of adverse comment, which I understand, they service a gap in the market not served fully by mainstream lenders, in a manner which is deemed to suit the particular needs of their customers, for example, convenience in payment and collection, speed at which a loan may be granted and a long-standing or family relationship with a particular moneylender. As I indicated, there is a comprehensive licensing system in place for moneylenders. Currently, 46 licensed moneylenders operate in the State. Annually, each must complete and return the appropriate moneylending application form to the Central Bank, together with a number of items for review and consideration. A moneylender's licence granted by the Central Bank is specific to a moneylender, in that each individual moneylender's licence outlines the specific products that the moneylender offers, the APR for each product and the total cost of credit for each product. Before applying for a moneylender's licence, an applicant must give notice of this intention in a local or national newspaper published in Ireland and circulating in the District Court area in which the applicant intends to engage in the business of moneylending. Under section 93(10)(g), of the Consumer Credit Act, the Central Bank may refuse to grant a moneylender's licence if, in the bank's opinion, the cost of the credit to be charged is excessive or, if any of the terms and conditions attaching thereto are, again in the bank's opinion, unfair.

There is provision in the Consumer Credit Act to appeal the decision to the Circuit Court. There is a view that there may be a lack of transparency in how the Central Bank determines the authorised limits of APR and total cost of credit of moneylenders, nor are there guidelines in place to steer the bank in its authorisation-making process. The Minister for Finance proposes to engage with the Central Bank with a view to deciding if the bank can develop guidelines, which will provide greater transparency on the rates charged by moneylenders. The benefits that the introduction of guidelines could achieve include increased transparency for the public, a greater emphasis on the total cost of credit as the primary metric, a better understanding as to why the APR is a poor measure for typical moneylender loans, that is, low value and short-term loans, and greater confidence that licensed moneylenders are not earning big profits as a result of an express linkage between authorised terms and conditions and the underlying cost of providing the service.

The Minister for Finance has also asked the Central Bank to assess the situation in other EU countries, because, as Deputy Pearse Doherty and others have said, a variety of responses is evident. Some countries have a cap while other countries do not. However, one is not comparing like with like because the legislative framework in each of the countries is different. Consequently, on foot of the Bill outlined by Deputy Pearse Doherty and his colleagues, the Minister for Finance proposes to engage with the Central Bank to undertake a thorough assessment of the position across other member states to get the best possible model, albeit at a guideline level, which the bank might propose.

In 2011 the Central Bank published the results of a themed inspection of licensed moneylenders. The Central Bank has advised the Department of Finance that this inspection showed a high level of compliance with the law among firms. Overall, the inspection found that customers were charged in accordance with the moneylender's authorised annual percentage rates, APRs, and the cost of credit. Members also will be aware of the Central Bank's consumer protection code for licensed moneylenders. The code sets out the general principles with which a moneylender must comply. The code also places requirements on moneylenders in respect of the provision of information to the consumer, preservation of consumer rights, knowing the customer, suitability and unsolicited contact, debt collection and the contents and presentation of advertisements. For example, all advertisements must contain the following warning in large font: "WARNING: This is a high cost loan". In addition to the annual licensing regime, moneylenders are subject to new fitness and probity requirements under sections 20 and 22 of the Central Bank Reform Act 2010.

As I have outlined, the Central Bank is the competent authority with regard to licensed moneylending and in overseeing and regulating this activity. It is an offence under the Consumer Credit Act to engage in the business of moneylending without the appropriate licence granted by the Central Bank. Any suspicion of moneylending activity should be brought to the attention of An Garda Síochána for investigation. As the Minister for Finance pointed out recently in reply to an oral parliamentary question, it is appreciated that enforcement can be difficult when moneylending is carried out on a small scale and the persons to whom the money is lent are reluctant to come forward to assist the Garda in bringing forward proceedings.

Before concluding, I wish to acknowledge the important work of the credit union sector in providing low cost loans for the unbanked and other vulnerable consumers. The Government will continue to support the restructuring of the credit union sector to ensure its continued contribution to communities nationwide. I thank Deputy Pearse Doherty and his colleagues for raising the issue of interest rates charged by licensed moneylenders. The Government is aware of the concerns raised in this debate. However, this issue must be examined carefully to ensure the solution proposed does not adversely affect the most vulnerable members of society. This will be the Government's main aim in considering the findings of the examination to be carried out by the Central Bank and by the officials of the Department of Finance.

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