Michael McGrath (Cork South Central, Fianna Fail)

I welcome the opportunity to contribute to the Second Stage debate on the Consumer Credit (Amendment) Bill 2012. I commend Deputy Pearse Doherty and Sinn Féin for introducing the Bill. On behalf of the Fianna Fáil Party, I confirm we will support it. It echoes a call by the Irish League of Credit Unions, which is at the coalface in respect of dealing with such matters. It is fair to state the question of how to regulate the practices of moneylenders has long challenged legislators. All Members should acknowledge that for the vast majority of people, moneylenders, be they legal or illegal, are the lenders of last resort. Members also should acknowledge it is understandable that a risk premium would be charged with regard to the interest rate. The question posed by this Bill concerns what constitutes an acceptable risk premium to charge to customers who avail of the services of moneylenders. Many such customers have a poor credit history and many of them turned to moneylenders because they are unable to access credit through the conventional routes normally are open to people, including the local bank or credit union. Consequently, the Bill takes cognisance of this fact and in allowing for an APR of up to 40%, it recognises the reality that some of the loans being extended by moneylenders are of a risky nature. Members should be fair and should acknowledge this point. Moreover, that is the reason such interest rates are being tolerated, even within the proposals being made by Sinn Féin.

I listened to the Minister of State's speech on the monitor and do not believe anyone is trying to outlaw the practice of moneylending. The question is what represents a fair interest rate to charge them? The Minister of State referred to the Central Bank's report into the sector of 2007, as in the past has the Minister for Finance, Deputy Michael Noonan. However, it would be reasonable to impose some level of a ceiling to the interest rate being charged by moneylenders. In his opening remarks, Deputy Pearse Doherty asked the Government to accept the principle that a ceiling would be put in place and the finer details with regard to the precise APR could be worked out subsequently. This is a reasonable position and the Bill should have been allowed to proceed to Committee Stage for a more detailed debate. Perhaps the Oireachtas Joint Committee on Finance, Public Expenditure and Reform could have held hearings, involving groups such as the Irish League of Credit Unions, FLAC and the Society of St. Vincent de Paul, at which its members could listen to those who deal with people who are customers of moneylenders on a day-to-day basis. When one deals with a regulator or a Central Bank, one often gets one perspective on an issue but the perspective of individual customers is equally important.

As all Members are aware, many people use moneylenders in the hope it will be a short-term measure to tide them over. However, they end up by getting in deeper and find it hard to extricate themselves from being involved with them. Statistics from the Money Advice and Budgeting Service showed that in a nine month period last year, 830 new clients were indebted to moneylenders, while the equivalent figure for the whole of 2010 was 1,418. The Society of St. Vincent de Paul has raised concerns about how moneylenders operate by targeting people at certain times of the year and sending agents door-to-door offering cash. More than 40 years have elapsed since the now infamous "Seven Days" RTE documentary on the practice of moneylending in Ireland was broadcast. The programme caused significant controversy as it alleged there was a scourge of illegal moneylending in Ireland at the time and that moneylenders were using strong-arm tactics to extract payment from customers. The programme's presenters, including current RTE sports presenter Bill O'Herlihy, were condemned at the time for what were believed to be exaggerated claims. The Oireachtas set up a tribunal which to some extent shone a light on the moneylending sector.

While I am sure that some of the worst practices of that era are now behind us, it certainly is the case that the history is not without problems that must be addressed. All Members can agree the Consumer Credit Act 1995 put in place a robust licensing regime in respect of moneylenders. For example, it provided that a customer is entitled to a proper written agreement when borrowing money from a licensed moneylender, that a customer is entitled to a properly filled out repayment book, that it is illegal for a moneylender to charge interest on interest and that it is illegal for a moneylender to grant another loan to clear an existing loan. Moreover, it is illegal for a moneylender to contact one at one's place of work without one's permission and it is illegal for a moneylender to trade without a licence.

Most Members will agree these are sound measures, in so far as they go, and provide a good basis for underpinning the operation of the sector. However, the legislation does not address the question of potentially excessive interest rates. The annual percentage rate allowable under each moneylending licence is set out on the Central Bank website and while no maximum rate of interest is set out in legislation, under section 93 of the Consumer Credit Act, the Central Bank may refuse to grant a moneylender's licence if, in the opinion of the bank, the cost of the credit sought by the moneylender is excessive or if any of the terms or conditions attaching to it are unfair. Consequently, it beggars belief that the Central Bank is approving APRs at present levels and some of the previous speakers put on record the APRs that are being charged by the 46 licensed moneylenders in the country. The true measure is an APR that includes the collection charge because when one examines, as I did today, the schedule of licensed moneylenders, one finds, for example, that one moneylender has a collection charge of 14 cent in the euro. Many of them have collection charges of 10 cent in the euro. By any measure, these are extremely exorbitant collection charges to be imposing on customers who are, by their very nature, vulnerable and who are accepting loans from moneylenders at a time when they are put to the pin of their collar. When we include the collection charge, the APR can rise as high as 280%. One licensed moneylender, based in Stillorgan, County Dublin, has an APR of 287.72%, including the collection charge. There are many others with an APR in excess of 200%. Any person who has experience of drawing down and trying to repay a loan will know exactly the impact of the interest rate on the amount of money being repaid. It is scandalous that the State is standing over a situation where licensed moneylenders that are complying with all of the rules - I do not wish to suggest otherwise - are in a position where they can charge upwards of 300% APR when the collection charge is included.

I note that in February, the Central Bank published the results of a themed inspection of licensed moneylenders. Inspections were conducted in 11 of the 46 licensed moneylenders currently operating in Ireland. Overall, the inspections found a high level of compliance with the requirements and that consumers were being charged in accordance with the moneylenders' authorised APRs and costs of credit. I have no evidence to the contrary. I am sure the licensed moneylender sector is generally adhering to the rules that govern its operation. This is hardly surprising, given the leeway under which licensed moneylenders can operate. The rules on interest rates are so broad and so generous that it is no surprise they are operating within them. It begs the question: if the Central Bank is approving moneylenders and allowing them to charge an APR of 288%, including the collection charge, then at what level of interest would the Central Bank shout "stop"? At what level will the Central Bank declare that this is not acceptable and will put customers who are already in a difficult financial situation into an even worse situation? How many applications is the Central Bank refusing? Is it refusing applications by moneylenders who want to charge an APR of 400% or 500%? There are moneylenders abroad who charge that level of interest. I cannot understand how it is acceptable for the regulator, the consumer watchdog, to stand over a situation where moneylenders are allowed to charge 288% APR, including the collection charge.

I looked at the list of licensed moneylenders on the Central Bank website today. Some of the charges are truly staggering. In the case of a company called Southside Finance, the APR is 287%, including the collection charge. When we consider the profile of people who go to moneylenders looking for help, this is nothing short of extortionate, but it is entirely legal and entirely licensed. The fact that they are operating within the letter of the law is irrelevant. They are engaged in a predatory practice exploiting very vulnerable citizens. The typical client of a moneylender is a parent who is trying to get money together to pay the electricity or gas bill, or cover a family event like a First Holy Communion or Christmas presents. The vast majority of clients of such firms do not have the time to study APRs across different providers to ascertain the best deal available. The Minister of State acknowledged that much of this activity is focused on disadvantaged areas. We all know from our own constituencies that this is the pattern of activity in the moneylending sector. These consumers need the protection of the law and setting a maximum APR for moneylenders is the obvious way to do it. Even lending at 40% APR would still be a profitable activity for such providers.

Anyone who has ever been at home during the day and put on a UK TV channel will be familiar with the advertising of short term or pay day loans. The advertising is certainly slick and promises people a way out of their financial difficulties with easy access to credit, even if they have previously had an impaired credit record. As with most consumer products, it is likely that the services of legal moneylenders will migrate online. One such provider advertising heavily in Ireland is Provident Financial. I took a look at its website today, which certainly looks good. It offers "money advice, hints and tips" and a budget planner. In addition, it promises no complicated forms to complete, cash delivered to the client's door within days, and manageable, fixed repayments. The "representative example" cited by the website sets out the cost of a typical loan - other Deputies have referred to this - where essentially the APR is 157%. This is not a small scale problem. This company has thousands of customers throughout the country. An Irish Examiner investigation in 2009 revealed that Provident Financial had 75,000 customers here. This rose to 88,000 in 2010 and the firm now lends to 100,000 people. We would simply be failing in our duty to citizens if we did not legislate to outlaw such excessive charges. I am the first to acknowledge that this should have been done sooner, but it is more important now than ever, at a time when people are really struggling. They are struggling to meet their day to day basic financial commitments. This is a golden era for moneylenders, both licensed and unlicensed. They are preying on very vulnerable customers and it has never been more important for the Oireachtas to step in and provide those people with some level of protection on the interest rate that such moneylenders can charge.

In 1988, a report by the Combat Poverty Agency indicated that there were three unlicensed moneylenders for every licensed moneylender. It would be interesting to know the ratio today. We cannot be sure because we have no mechanism for keeping account of the activities of the illegal moneylenders. We can only rely on consumer advocacy groups and others who are directly helping consumers to deal with the consequences of accepting loans from illegal moneylenders. That is a different matter from this debate, but it is equally important. While there is a regulatory regime for licensed moneylenders, there is an unknown number of illegal moneylenders who are using tactics that are entirely unacceptable within the licensed sector. That issue needs to be tackled. The lack of any evidence of enforcement action by the authorities on illegal moneylenders is disturbing.

In respect of legal moneylenders, we should apply a reduced maximum interest rate. Collection charges, whereby money is charged to customers for collecting payment at their home, should be outlawed or strictly limited. Up to 14 cent in the euro is currently charged legally and that is absolutely outrageous. If the Government is not going to accept this Bill, it should find some other mechanism of giving consumers the protection they deserve. The people who are going to moneylenders are the people who can least afford to pay the exorbitant interest rates being charged. I do not think it is fair or reasonable that the Oireachtas would stand over that situation. I know the Central Bank's theory is that introducing a low cap could bring about the end to the sector and that could have unforeseen consequences for those who rely on it at the moment. However, I think we can strike a balance between those issues. I am disappointed the Government is rejecting the Bill, but I hope this issue is tackled at an early date.

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