Heather Humphreys (Cavan-Monaghan, Fine Gael)

I compliment Deputy Pearse Doherty on introducing the Consumer Credit (Amendment) Bill 2012. While I will not be supporting it, I recognise the spirit in which the Bill has been brought forward and welcome the opportunity it affords us to discuss the issue of moneylending. This debate is important because it highlights the activities of moneylenders and the negative impact their activities can sometimes have on relationships and families.

It should be pointed out that people are entitled to borrow money from whomever they want. That is their right and we cannot stop them from doing so. The problem with moneylenders, however, is often the lack of transparency in their dealings. This is a matter which must be addressed. What is of critical importance in the context of moneylenders is that people should be fully aware of the commitments they are entering into with them. At times of economic hardship when people are often desperate, they may not be thinking straight and the possibility of quick and easy money can be a very attractive option that is difficult to resist.

One of my main concerns with moneylenders is that the people to whom they are lending often may not have the wherewithal to understand the cost of the loan or the nature of the commitment into which they are entering. In addition, they may not understand they will be obliged to pay a very high rate of interest which can often be in excess of 180%. The details of the loan can often be explained to them in an overly simplistic manner. For example, a person may be informed that a loan will only cost €5 per week. On that basis, he or she may be of the view that there is no problem and that he or she can afford to pay. The problem is, however, that he or she must pay a huge rate of interest. It must also be remembered that people often forget to examine the exact terms relating to a loan before they obtain it. As a result, they end up paying money back over a long period and, in some cases, indefinitely. That is why it is hugely important to ensure there is greater transparency of the way in which moneylenders sell their products. There is no great emphasis among moneylenders on a duty of care towards their customers, whereas credit unions offer people genuine advice and are up-front with them. Moneylenders do not seek evidence which shows that people can repay their loans and borrowers do not need to demonstrate an ability to repay. That is what often leads to huge problems down the road. This is a matter that warrants further examination.

I have referred to credit unions. The problem with them is that they can be reluctant to lend because they are now operating in an area which is highly regulated. As a result, credit unions are sometimes left with limited scope for social lending. That is regrettable because such lending has always been to the fore of the credit union movement. In fact, the need for social lending was one of the reasons the movement was established in the first instance. Credit unions are afraid to take undue risks by lending to people who cannot show that they are going to repay their loans. A member of a credit union may have a particularly good track record but because of the need for compliance with current regulations and the very strong emphasis being placed on the ability to repay, if he or she cannot demonstrate repayment capacity, the credit union will often be afraid to extend a loan to him or her. This often encourages people to go to moneylenders because it is their last resort. It is important, therefore, that the Central Bank take cognisance of the fact that the social lending of credit unions can play a very important role in combating the negative impact which borrowing from moneylenders can have on families. Nevertheless, the fact remains that credit unions cannot give out loans in circumstances where there is no chance of their being paid back.

Regardless of whether we like it, there is a demand for the service provided by moneylenders. For one reason or another, there are some who have burned their bridges with their credit unions and cannot obtain credit elsewhere. There are those who go to moneylenders for the simple reason that it is convenient to do so. Moneylenders provide a quick and personal service and some individuals like this. The fact is that if one obtains such a personal service, one must be prepared to pay a high price for it. There are certain people who accept this fact and have no problem using moneylenders. Ultimately, we must accept that moneylenders are providing a service that some people need. There is no harm in this, but we must ensure people are fully informed before they enter into any agreement. If a person needs a loan quickly and if he or she is prepared and able to meet the repayment schedule, that is fine. However, we need to examine how certain individuals have fallen prey to moneylenders. Those to whom I refer should be using the supports provided by the Money Advice and Budgeting Service, MABS, when they fall into arrears rather than seeking the services of moneylenders. The MABS will negotiate on their behalf and may arrange to take a deduction from either their wages or social welfare payments. In addition, it can also set up arrangements with credit unions. People must be aware that there are better alternatives available in order that they will not be obliged to pay the exorbitant interest rates charged by moneylenders.

As stated, it is at times of economic hardship that moneylenders come to the fore. Placing a cap on the rates they charge would be extremely dangerous because, as the previous speaker stated, this would only serve to encourage and promote the use of illegal moneylenders and thereby exacerbate the problem further. It is welcome that the Minister proposes to engage with the Central Bank to develop guidelines which will provide greater transparency of the rates charged by moneylenders and address the issue of ensuring licensed moneylenders will not earn big profits on the backs of vulnerable persons.

See this speech in context