Dáil debates

Thursday, 15 July 2021

Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Bill 2021: Second Stage (Resumed)

 

1:25 pm

Photo of Matt ShanahanMatt Shanahan (Waterford, Independent) | Oireachtas source

I welcome the Bill, as I am sure most Deputies will. It is about giving full transparency to costs in terms of credit agreements and licensed credit intermediaries. We have heard a lot in the last year and more about economic challenges and the level of indebtedness. Credit agreements and different ways of buying goods and products, including hire purchase agreements and private contract agreements, are ubiquitous now. People do not always understand the terms of contracts they enter into. There has been, for many years, an issue about the annual percentage rate, APR, on credit agreements and how it is calculated. I am happy to see in the Bill a facility for the Central Bank to look at various credit arrangements companies have in place and to amend the APR calculation in contract agreements.

It is important that this legislation will ensure credit agreements cannot have an APR of more than 23%. To put that in context, the rate of international borrowing for EU countries is now between 0% and 0.5%. Credit intermediaries can get access to funds at 1.5% or 2%. Whatever they put into the marketplace after that gives them their gross margin. I worked in an area that used financial services and a figure of 3% was often given as a cost base in terms of credit supply. The cost of funds plus that 3% amounted to the operating costs and whatever was charged after that was the margin. That means we could and do have financial companies operating in this State which have a net margin rate of about 4%. Whatever they charge in APR after that is their gross margin, and nearly their net margin. This measure is timely.

This provision will apply to hire purchase agreements. Such agreements are treated differently from other types of credit agreement. It is about a legal definition of when the title of goods passes or does not pass. The Bill will hopefully also clear the large amount of small print from financial contracts. A large number of people in this country have found out about this to their cost, either because they did not read the contract fully or did not take advice or have the small print fully explained to them regarding add-on terms such as final payments and the calculation of final balloon payments.

In general, the Bill is to be welcomed. The car and retail industries have also been mentioned. Everybody wants transparency. This will facilitate more trade and business and ensure consumers have higher levels of protection in terms of these agreements.

I will mention moneylending. Deputy Verona Murphy highlighted some issues related to licensed moneylending, which appears to be outside the scope of this legislation. There is a lot of informal moneylending going on, much of it based in criminality. Anybody who has done work in the community has come across this and the exorbitant rates of interest charged, which can run to 100% or 200% in a short period for those who do not manage to make payments. It is important that people have an avenue.

I compliment the credit union service, which does a fantastic job in making credit available on generous and accommodating terms for those who are challenged in trying to access credit. Children will shortly return to school. This is one of the most expensive times of the year for families who face having to pay for books, school uniforms, shoes, travel and so on. Many of them try to access money and anybody with a poor credit rating will get very little hearing from the banks. The State needs to address this issue and find a way to filter people who have a poor credit rating to allow them to access reasonable finance and give them community support for longer terms of repayment. These are hard-pressed families and there is no spare money knocking around. Many of them are repaying debts at €5 and €10 per week and it is hard to clear any significant amounts of debt on those terms. We will have to look at that and, hopefully, legislate for it.

Overall, my colleagues and I welcome the Bill and the additional securities it will offer consumers. It is timely, particularly coming into the summer months with the economy opening up. We hope it will be enacted as soon as possible.

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