Simon Harris (Wicklow, Fine Gael) | Oireachtas source

I thank the Deputy for raising this important issue and for giving me an opportunity to outline the Government's thinking it. I will deal with some of his requests which were quite constructive at the end of my response.

The Government has some concerns about the introduction of a cap. Those concerns include that the introduction of a cap on the interest rates that can be charged by moneylenders would not necessarily be in the interests of consumers or the wider financial system. The Central Bank is the competent authority, as the Deputy outlined, with regard to licensed moneylending and is responsible for overseeing and regulating their activity. Legislative provisions relating to moneylending are contained in the Consumer Credit Act 1995, as amended. It is an offence under that Act to engage in the business of moneylending without a licence granted by the Central Bank. I understand that there are 39 licensed moneylenders operating in Ireland at present.

The legislation does not provide for an interest rate cap for moneylenders. The introduction of an interest rate ceiling may not achieve the objective of lowering the total cost of credit, for example, if the licensed moneylender chose instead to extend the duration of the loan. I understand what the Deputy is trying to achieve but I pose the concerns that we have that it may not have the desirable effect.

Lower interest rate ceilings could also result in excluding low income households from access to credit that have repayment capacity, even at the high rates charged by licensed moneylenders.

The Government would have some concerns, therefore, about the imposition of an industry-wide interest rate cap without a detailed assessment of its impact on consumers. Often the loans are for small amounts, are needed immediately by the customers and are made available and repaid at the home of the customer. The shorter the duration of the loan, for example, two weeks, the higher the annual percentage rate of charge, APRC, as the APRC is an annualised measure of the interest charged. This service may impose extra costs on the moneylenders. Under section 47 of the Consumer Credit Act, a customer may apply to the Circuit Court for a declaration that the total cost of the credit provided is excessive.

Moneylenders have to apply to the Central Bank on an annual basis to have their licences granted or renewed. Part VIII of the Consumer Credit Act 1995, as amended, sets out the Central Bank's powers, duties and responsibilities regarding the granting or refusal of a moneylender's licence and in the regulation when granted. In addition to the licensing system, the Central Bank has in place a Consumer Protection Code for Licensed Moneylenders. The Central Bank has power to impose sanctions on licensed moneylenders for a contravention of the code. Since 1 December 2011, licensed moneylenders have been subject to a new fitness and probity regime by the Central Bank. The Central Bank has advised me that there is a rigorous process involved in the granting or renewal of a licence.

Under section 93(10)(g) of the Consumer Credit Act 1995, the Central Bank can refuse to grant a moneylender's licence on a number of grounds. One of these grounds is where, in the Central Bank's opinion, the cost of credit to be charged is excessive or any of the terms and conditions attaching thereto are unfair. This point is particularly relevant to this Topical Issue debate. Although there is no specific cap on the interest rate which a moneylender may charge, the licence granted to the moneylender will indicate what the APRC is and all advertisements must include the following words in font larger than the rest of the advertisement: "WARNING: This is a high cost loan."

There is a danger that if a cap on interest rates were introduced, some licensed moneylenders might exit the market with the ensuing risk that illegal operators might take their place. We are all aware of the operation of illegal operators and the negative impact they can have on families and communities. Since persons operating as illegal moneylenders are in breach of the law, it is a matter for the Garda Síochána to investigate their activities. Under section 98 of the Consumer Credit Act 1995, as amended, the Garda Síochána has sole responsibility for the investigation and prosecution of such offences.

I would encourage consumers to consider all the different sources of loans that are available to them. Deputy Terence Flanagan highlighted the problem of moneylenders becoming so prevalent as a consequence of the economic crisis the country has come through. I encourage people to avail of the personal finance information available from the National Consumer Agency. This information can be found on the website www.itsyourmoney.ie. In addition to the information provided on this website, people who are in debt or in danger of getting into debt may avail of the services of the Money Advice & Budgeting Service, MABS. As the Deputy knows, MABS works with people in order to assist them with financial planning and budgeting for the future. It is a national, free, confidential and independent service. The Deputy's point about the need to examine what happens in other European countries and best practice in Europe is something I am happy to take back to the Minister for Finance and I will ensure he receives it directly.

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