Michael D'Arcy (Wexford, Fine Gael) | Oireachtas source

I move amendment No. 1:

To delete all words after “That” and substitute the following:Dáil Éireann resolves that the Consumer Credit (Amendment) Bill 2018 be deemed to be read a second time this day twelve months, in order to allow for completion of the Department of Finance’s examination of University College Cork’s report, ‘Interest Rate Restrictions on Credit for Low-income Borrowers’, which was launched by the Social Finance Foundation (SFF), and engagement by the Department with stakeholders, including through the Personal Micro Credit Taskforce set up by the SFF.

I welcome the debate on this issue and the opportunity it provides for us to consider how best to protect people who use moneylenders. Moneylending is defined in and governed by the Consumer Credit Act 1995, as amended. The definition of moneylending contains two key elements, the first of hwich is that various activities are carried out away from the premises of the moneylender. These activities include the negotiation and conclusion of an agreement and the collection of payments. The second is that the total cost of credit is more than 23% annual percentage rate, APR. Earlier this year the Central Bank engaged in a public consultation process on a review of the consumer protection code for licensed moneylenders. I draw the attention of Deputies to is as it contains a lot of useful information that can inform our consideration of the issue.

The paper shows that there are 350,000 customers of moneylending firms. It helpfully describes three types of moneylending firm. The first is home collection firms, where loans are issued and repayments collected at the consumer's home. The majority of moneylenders fall into this category. The second is firms operating a catalogue business model, where goods are sold by the moneylender on credit, which is operated on the basis of a consumer having a running account, while the third category is other firms. It is fair to say it is the first category that gives rise to the most concern. These are the firms we think of as traditional moneylenders and the paper states approximately 150,000 people are customers of home collection firms.

Deputies will also be aware that the register of moneylenders which is available to the public on the Central Bank's website sets out details such as the maximum APR, the maximum cost of credit and the collection charge, if any, on the loans that can be offered by individual moneylenders. The register shows the maximum APR each firm is permitted to charge and the APR including the collection charge. It has been the subject of comment that the highest APR rates are 188.45% and 287.72%, including the collection charge. Less noticed is that the lowest APR rate is 24.3%. It is important to be aware that the Central Bank has licensed moneylenders for a range of APRs, rather than focusing only on the highest rates. The bank also points out that since assuming responsibility for the regulation of the sector in 2003, it has not permitted the maximum APR charged by each moneylender within the sector to increase, nor has it allowed practices such as pay-day lending to enter the Irish licensed moneylender market.

It is important to bear in mind that the consumer protection code for licensed moneylenders provides several important protections for customers of licensed moneylenders. There are requirements in relation to advertising, warning consumers that the loans are high cost, issuing statements to consumers, knowing the customer and product suitability, rules for cold-calling and error resolution, complaint handling and record keeping, arrears handling and debt collection. In addition, the Consumer Credit Act 1995 also provides:

A moneylending agreement: shall be unenforceable against the borrower if it provides that the rate of charge for the credit may be increased or that any additional charge, other than legal costs, may apply in the event of a default in the payments due under the agreement.

As Deputy Pearse Doherty observed when introducing the Bill, the Central Bank did not go into the issue of a cap on the rates which may be charged. However, it did state one of the challenges we faced in considering rates charged by moneylenders was finding a balance between the availability of credit for consumers who did not have access to legitimate credit elsewhere or who did not use other regulated credit providers and the provision of short-term unsecured loans at what could be a high cost. It observed that for small amounts of credit and those consumers with an impaired credit history, there might be limited alternative credit options available to them. It made it clear in the consultation paper:

Lower interest rate ceilings could therefore be ineffective and counterproductive and could result in excluding low income households that have repayment capacity from regulated lending, even at the high APRs charged by licensed moneylenders. Consequently, were lower interest rate ceilings introduced, there could be a risk that consumers would not view other regulated lenders as an alternative form of finance, but instead seek to avail of credit from unlicensed moneylenders.

I understand that in 2019 the bank expects to finalise and publish regulations under section 48 of the Central Bank (Supervision and Enforcement) Act 2013 to replace the existing code. That sets the regulatory framework in which moneylenders operate.

Let us look at the report prepared by UCC on behalf of the Social Finance Foundation on interest rate restrictions. The purpose of the research was to examine the extent and variety of interest rate restrictions within the European Union and beyond, with a view to assessing the appropriateness of introducing restrictions in the Irish market, given its specific circumstances and financial environment. The report acknowledged that a restriction on interest rates would force existing moneylending firms to re-examine their business models and that this was likely to result in some people no longer being able to access credit from moneylenders. The report states the personal micro credit scheme offered by some credit unions is emerging as a credible and affordable alternative for social welfare recipients. It includes three key recommendations., the first of which is that the Government introduce restrictions on interest rates for moneylenders. The second which is crucial in the context of the proposed Bill is that the restrictions be conditional on the credit union movement committing to and being enabled to serve the community currently serviced by the moneylending firms, subject to adherence to prudent credit guidelines. The third is that, in consultation with the credit union sector, the Department of Finance consider increasing the 1% monthly cap on interest rates for credit unions for this type of lending to cater for its significantly greater cost.

Looking at the credit union charge, section 38(1)(a) of the Credit Union Act 1997 prescribes that the interest rate on a credit union loan shall not at any time exceed 1% per month. Any change to this primary legislation is a matter for the Minister for Finance, the Government and the Oireachtas. As the Deputy may be aware, the interest rate ceiling on credit union loans has been subject to recent discussion in a number of fora.

The Credit Union Advisory Committee, CUAC, the statutory committee, the function of which is to advise the Minister for Finance on matters related to credit unions, published a policy paper on this issue in December 2017 following a survey of credit unions. In its policy paper on the loan interest rate cap the CUAC recommended that credit unions be permitted to charge an interest rate on loans greater than the current ceiling of 1% per month and proposed that the cap be raised to 2% per month. This change would provide credit unions with greater flexibility to risk-price loan products and in so doing might create an opportunity for new product offerings.

It is important to note that CUAC's recommendation to increase the loan interest rate ceiling would not mean that credit unions are required to raise their loan interest rates; rather, they could apply their own interest rates within the parameters allowed. The policy paper is available on my Department's website.

Second, the CUAC report implementation group, a group established to oversee and monitor the implementation of recommendations from the CUAC report, has also considered the issue of increasing the interest rate cap, as recommended in the CUAC policy paper. This group is chaired by the Department of Finance and is made up of one member from each of the credit union representative bodies - the Irish League of Credit Unions, the Credit Union Development Association, the Credit Union Managers Association and the National Supervisors Forum, as well as a member from the Central Bank. The implementation group is currently in the process of finalising its final report, which will be published shortly. Following publication of the final report, I will review the implementation group's recommendation on the loan interest cap, along with the CUAC recommendation already received, and consider if any legislative changes are required while bearing in mind the recommendation of the UCC report.

It would be wrong not to consider the other two recommendations together since one is dependent on the other. The report is very clear that interest rate restrictions should be conditional on the credit union movement being able to serve the community currently serviced by the moneylending sector. As the report acknowledges, the personal micro credit, PMC, scheme and the "It Makes Sense" loan are a step in the right direction. However, only 50% of the credit unions in the country currently participate in the scheme, and the percentage varies from county to country.

From discussions with the Social Finance Foundation subsequent to the publication of this Bill, it is clear that an APR of 36% for home credit customers would likely make the home credit business model unprofitable, resulting in the probable exit of many, if not all, moneylenders from this market. The interest rate restrictions report and Social Finance Foundation are explicit that this must only be considered when there is confidence that an alternative mechanism exists. As we have seen, the credit union option is not yet sufficiently widespread to be a viable nationwide alternative. Based on the information in the Central Bank consultation paper, approximately 75,000 customers of the 150,000 customers of home collection moneylenders could be left without access to credit. It would probably be even higher if people on low incomes who cannot access the PMC scheme are taken into account. Would this mean they turn to illegal moneylenders or would they just do without? We do not know the answer to this question but it should be a serious concern to everyone. Even if the numbers turning to illegal moneylenders is a small proportion, let us say 10%, this legislation would result in forcing 7,500 people into the clutches of these criminals.

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