Martin Kenny (Sligo-Leitrim, Sinn Fein) | Oireachtas source

I am deputising for Deputy Doherty. I welcome the opportunity to speak on the Bill. It had a long gestation and its being brought to Second Stage has been facilitated by the finance committee's waiving of pre-legislative scrutiny. That is in recognition of its importance and the fact its provisions are long overdue. The general scheme of the legislation was considered by the finance committee in 2019, when it received 14 submissions, as part of its pre-legislative scrutiny of the Bill. As explained by the Free Legal Advice Centres, FLAC, in its submission, a core issue the Bill seeks to address is that while certain agreements, such as hire purchase agreements, are regulated, the credit provider is not. As a result, they cannot be subject to the consumer protection code.

The legislation comes on the back of numerous reports published in 2018 on the regulation of personal contract plans and the PCP market. These reports were by Michael Tutty on behalf of the Department of Finance and by the ESRI, the Central Bank and the Competition and Consumer Protection Commission, CCPC. Sinn Féin welcomes this legislation and it is overdue.

In the past number of years, there has been an explosion in the PCP market. The number of personal contract plans for car finance alone between December 2014 and February 2020 increased by 528%, while the total outstanding credit in the PCP market by 2020 stood at €1.7 billion, which represents a 573% increase since December 2014. This sharp rise in the PCP market and PCP credit has raised justified concerns regarding financial stability and consumer protection. PCPs have become the prevalent feature in the Irish motor finance market. A personal contract plan is a type of hire purchase financial arrangement in which the customer is not the owner of the car until the final payment has been made.

PCPs are often characterised by the final balloon payment at the end of the contract which is often much larger than the previous repayments. Unlike other arrangements, the borrower can choose to either return the car to the seller, make a final payment to assume ownership or enter into a new PCP, which is the norm. It has been noted this balloon payment can prove to be expensive. As a consequence, as outlined by Michael Tutty in 2018: "In practice, the tendency in a PCP is that it is rolled over into a new contract at or before the end of the monthly payments."

As the CCPC noted in its 2018 report on PCPs in the Irish market: "The low monthly repayments, while making new cars appear affordable, may in some cases cause consumers to enter contracts which may become unaffordable when the final payment is taken into account." In the view of the commission, "There is potential for detriment in the absence of mandated affordability or suitability checks, particularly given the complexity of PCP products." Given the explosion of the PCP market, the complexity of the products and the risks posed to consumers, a legislative overhaul of this market is timely and long overdue. This Bill seeks to respond to those concerns.

At present, credit intermediaries, defined under the Consumer Credit Act, require annual authorisation by the CCPC but not the Central Bank. Credit intermediaries are normally engaged in leasing or hiring out goods, selling on credit or arranging credit finance, but may also arrange PCP agreements. This Bill seeks to augment the Central Bank's authorisation requirements to those who carry on business relating to hire purchase or consumer-hire agreements. This is done by an amendment to the Central Bank Act 1997. As a result, those entities which are authorised will then be subject to the consumer protection code. That is to be welcomed.

Section 9 will insert a new section into the Central Bank Act, allowing the Minister to request that the Central Bank collect and publish information on credit, hire purchase and consumer hire agreements. This follows a recommendation of the Tutty report and will allow for comprehensive and systematic data to be collect and published. However, it is not guaranteed this data will be collected and published regularly, as subsection 36EA(5) of section 9 provides that they may be requested on a once-off basis.

I ask that consideration be made to make the collection of these data a regular occurrence, at least once every six months. Section 9 does not specify the particulars to be collected and published in those data. These particulars are left to the discretion of the Minister in the request that he makes under the section. As part of the pre-legislative scrutiny of the heads of the Bill in 2019, a number of stakeholders recommended that a span of items be included in the data collected and published.

FLAC recommended details of deposits required for entering these arrangements and the range of penalties and interest which may be charged in the event of default, be included. The Money Advice & Budgeting Service, MABS, suggested the data also include the number and value of such loans in arrears and pointed out that frequently published data by the Central Bank on mortgage arrears is of great use to the agency as it supports borrowers in the services it provides. This legislation does not include such particulars and I ask the Minister to clarify what he intends to request of the Central Bank under section 9.

Sections 10 to 14, inclusive, seek provide for a limit on the interest rate that consumers can be charged under credit and hire purchase agreements, but with some exceptions. It is these provisions I will comment on in the time I have remaining. Section 14 provides that hire purchase agreements shall state the APR charged under the agreements. Of course, this is welcome, but I want to focus my attention on section 13 and the interest rate restriction it will apply. The section will apply that APR, under hire purchase and consumer credit arrangements, cannot exceed 23% with the notable exception of moneylenders. While I welcome this provision, it contradicts the arguments made by the Government and the Minister for Finance with respect to Deputy Doherty's Consumer Credit (Amendment) Bill 2018, which would place a cap on the cost of credit moneylenders can charge.

The Government permits moneylenders to charge APR of 187% or 288% when collection charges are included. When the Minister came before the committee as part of the pre-legislative scrutiny on that Bill, he said the APR was an unsuitable measure for the purposes of a restriction, because of it how behaves in the duration of a loan. Sinn Féin has made clear our intention to move to away from an absolute cap based on APR, to a relative cap based on the total cost of credit charged. The Minister has departed from his argument when it comes to this Bill, opting for an absolute cap based on APR.

In its submission in 2019, FLAC recommended that the Central Bank carry out a review of the merit of differential rates of APR-based on loan duration. I ask the Minister of State to respond to this view. As I mentioned, section 13 exempts moneylenders from the APR cap. In that regard, I draw the Minister of State's attention to proposals published by the European Commission two weeks ago to revise the rules on consumer credit in order to safeguard consumers. Among the proposals was a requirement for member states to introduce caps on the interest, APR or total cost of credit charged by lenders, including moneylenders. As the Commission noted in its proposal, "The fixing of caps on interest rates, on annual percentage rates of charge and or the total cost of the credit to the consumer is a common practice in a number of Member States. Such capping has proved beneficial for consumers." These proposals highlight the Government as an outlier in failing to protect low-income borrowers from high-cost credit, which underlines the importance of Sinn Féin's legislation to impose a cap on the cost of credit that moneylenders can charge. These proposals give fresh impetus to Deputy Doherty's Bill and I ask the Minister of State to co-operate and work with the finance committee on Committee Stage of Bill in the interests of the common good, rather than delay the necessary changes for narrow party political reasons.

Returning to the Bill at hand, I welcome its progress in the Dáil. Sinn Féin supports the objectives it seeks to meet. We will engage with the legislation as it progresses through the Dáil and we are open to tabling amendments to the Bill contingent on the Government and the Minister of State addressing the issues I have raised and the recommendations made by stakeholders such as FLAC and MABS, which are not addressed in this legislation.

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