Michael McGrath (Cork South Central, Fianna Fail) | Oireachtas source

I thank Deputy Pearse Doherty and Sinn Féin for bringing forward this legislation and for highlighting once again this issue, which is to the fore as we come up to Christmas. As has been said, however, licensed moneylenders and the services they offer are used throughout the year.

We need to do far better in this area. The Minister of State needs to accelerate the reforms and all of the steps he believes need to happen before he would consider the type of change proposed in this legislation. I have thought about this issue carefully. I have read the report and I acknowledge what it says in regard to the other measures the Minister of State needs to bring forward before bringing in such a cap. On balance, it is our view that this Bill should proceed to the finance committee and it should pass Second Stage today. The Bill would benefit from the normal scrutiny. We should take the opportunity, as a committee, to bring in some of these moneylenders, such as Provident, as well as MABS and the Social Finance Foundation, and to hear the different perspectives.

We believe that, in principle, there should be a cap. The rates being charged are exorbitant and the reality is people are using these services for a number of reasons, in particular convenience. Given somebody is calling to the door with the cash, it is easy and straightforward, but it is horrendously expensive. People are also using licensed moneylenders because of the lack of an alternative. The Minister of State spoke about the credit unions and the personal micro credit scheme. The figure of 47% for the percentage of credit unions participating in the scheme is not good enough. The Minister of State needs to ask and very quickly answer the question as to why that is the case. I know from talking to credit unions directly that the issue is the cost of administration. These are small loans. Because of the burden of regulation, the amount of staff time involved and the small amounts being repaid, we cannot expect them to do this at a loss.

The Minister of State needs to sit down very soon with the credit union movement, the Central Bank and the Department of Employment Affairs and Social Protection in regard to the personal micro credit scheme. It has to be a priority to get full coverage across the country. If it means accepting the recommendations from the Credit Union Advisory Committee about increasing the monthly cap to 2%, perhaps that is what needs to be done. It is something we are seriously prepared to consider supporting if it results in this scheme reaching full coverage throughout the country, with the result that we can direct a lot of the business currently being done with licensed moneylenders into the credit union movement.

Credit unions are the answer. However, the reality is that because of the one-size-fits-all approach to regulation which is being applied to them, many are struggling to adapt to the new reality and to the burden of regulation. The movement is making great strides to modernise, bring in new services, invest in technology and improve governance, but it needs help. A strong message to the Minister of State is that the personal micro credit scheme is not good enough when fewer than half the credit unions are rolling it out at present.

The Minister of State quoted from the report which has been highlighted a number of times in the debate. I join with others in complimenting the work of the centre for co-operative studies in UCC, and in particular Mary Faherty, Olive McCarthy and Noreen Byrne, who completed this report on behalf of the Social Finance Foundation. It examines interest rate restrictions on credit for low-income borrowers and is a very comprehensive report of 114 pages. The Minister of State is correct when he says the report states:

The introduction of any interest rate restriction regime requires an accompanying infrastructure that will serve as the mainstream alternative to the moneylending sources of credit. The overall remit of policy, legislation and regulation should be to encourage and support existing alternatives, such as credit unions, including their PMC loan scheme, which are currently the only and practical alternative. Any interest rate restriction regime should be coupled with a limit on other fees and charges and a limit on the total cost of credit, with the rules carefully designed to avoid circumvention through the introduction of other ‘innovative’ fees and charges.

That is one example of where the Bill can benefit from scrutiny. Just introducing an interest rate cap and leaving the door open to these moneylenders to increase dramatically the collection charges will not have the desired effect.

It is an issue which needs to be examined. I note the collection charges some moneylenders impose. Marlboro Trust DAC imposes a maximum collection charge of 14 cent in the euro and Jordan Estates imposes a charge of ten cent in the euro. While some are lower, the likes of Provident has no collection charge but its APR is 187.2%, which is remarkable. In reality, those who are stuck and need money for Christmas, a holy communion or other special family occasion or to deal with an emergency in the family are desperate and will avail of credit at these rates. The difference might be an extra fiver or tenner a week, which people do not see as a huge extra when they are faced with desperate circumstances. However, over the course of 26 or 52 weeks, it adds up to a very substantial interest burden.

I highlight a few other issues. When one considers what licensed and illegal moneylenders are doing, one notes the security risk imposed by the amount of cash people are going around with. There is no limit whatsoever on the quantum of cash staff working for moneylenders can have in their vehicles or on their persons as they go from house to house. That creates an obvious risk for the staff but when I have raised the matter by way of parliamentary question, the Government's response has been that it is a health and safety issue for the company whose duty it is to protect employees by putting security measures in place. That is not good enough.

Further, there is currently no limit to the number of loans any individual can have out with moneylenders at any point in time. A person could have multiple loans at the same time either with the same moneylender or different ones. It exposes that person to an unacceptable scenario and an unacceptable level of dependence. While the code states that moneylenders may not offer unsolicited pre-approved credit facilities, I have spoken to people who have worked in the area and say the provision is being flouted left, right and centre. It is done in person when staff are collecting repayments on a loan which is coming to an end. They offer a further pre-approved and unsolicited facility. There is no doubt that is happening and it would be useful to know what level of enforcement is undertaken of the rules by the Central Bank.

We did not have the advantage of having the Minister of State's script circulated but I tried to listen closely to what he was saying about the initiatives and review under way. To be frank, they are not enough and I do not have confidence they will be speedy enough. For that reason, Fianna Fáil will support the Bill tomorrow and will not agree to defer Second Stage for 12 months. None of us wants to see a situation in which people are forced into the hands of illegal moneylenders. The Minister of State highlighted that concern and it is a genuine one. People who need money will get it from somewhere. If they are completely desperate, they may well turn to illegal moneylenders in the absence of licensed moneylenders or credit unions being in a position to lend. It is a danger we must examine by way of pre-legislative scrutiny in circumstances in which the illegal sector is without control and unregulated. We have no handle on the scale or extent of it but we know it is prevalent, in particular in disadvantaged communities and especially in the cities.

As a party, Fianna Fáil takes the view that urgent reforms are necessary. The Bill forms a very good basis on which to examine the issue closely and effect change. That is what we want to see. It is unacceptable that no cap is in place. The Minister of State gave a reply which has been provided in reply to parliamentary questions previously. He said the licence issued to the moneylender sets out the maximum the moneylender is permitted to charge and includes details of duration, maximum APR, maximum cost of credit and the collection charge, if any, which can be imposed. However, there is nothing in legislation and there is no cap in the Consumer Credit Act as things stand. That is why the amendment has been tabled. There is a cap on credit union lending, yet we have no cap for moneylenders who are charging interest rates at APRs, including the collection charge, of well over 200%. In fact, I see from the list on the register that rates of close to 300% have been imposed. It is outrageous. We must try to establish why so much business is being done in this sector. When one looks at the figures, it is hard to believe so much business is being done with licensed moneylenders. It is big business and it is very profitable.

While the credit risk and overheads are high in what is a labour intensive business, we must do more to bring about great choice and improve and make more accessible the available alternatives. It is simply not on that our citizens are paying up to 300% APR in respect of loans they take out at what, in very many cases, are points of crisis. They are being exploited and taken advantage of. The State, the regulator, the Government and the House must act. That is my message to the Minister of State. We will support the Bill proceeding to the Select Committee on Finance, Public Expenditure and Reform, and Taoiseach and look forward to engaging fully in pre-legislative scrutiny and the making of changes in this area.

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