Dáil debates

Thursday, 10 March 2022

Consumer Credit (Amendment) Bill 2022: Second Stage


1:30 pm

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein) | Oireachtas source

I welcome the opportunity to speak on this legislation. The issue of moneylenders has concerned me for many years. Indeed, it is more than nine years ago now since I accompanied a group of whistleblowers, people who were employed by the largest moneylender in the State at the time, to bring evidence to the Central Bank relating to the practices of moneylenders in this State. The information on those practices we gave at the time resulted in an investigation and a fine because of what moneylenders were doing. I have introduced legislation to cap the interest rates moneylenders can charge and have campaigned for changes to the law for several years now.

The permission for ultra-high interest rates charged by moneylenders is immoral and unethical. Had moneylenders never existed, nobody in this House could ever justify passing legislation allowing lenders to charge the level of interest they do, but that is precisely what the law does. It permits moneylenders to charge rates of interest that trap vulnerable borrowers in a cycle of debt. At present, under the law and under this and previous Governments, moneylenders licensed by the Central Bank are permitted to charge an APR of up to 187% on loans. That increases to 288% once collection charges are included. When compared to more affordable sources of credit, such as credit unions that have an APR charge of no more than 12.67%, there are no grounds whatsoever on which such high rates can be justified.

In 2013, the Central Bank published a report that found typical moneylender customers are predominantly female and from lower income backgrounds. The excessive rates charged by moneylenders risk driving vulnerable borrowers such as these into an unsustainable and vicious cycle of debt. In many cases, they already have. Imposing a cap on the cost of credit that moneylenders can charge is first and foremost a moral issue and one that can and should be addressed. Other stakeholders and I have been raising this social justice issue for several years now, with our calls often falling on deaf ears. It is clear a conservative reflex exists in the Department of Finance that gives focus to issues of economic and financial stability but gives too little regard to crucial issues of consumer protection. The imposition of an interest rate cap has been batted away by Minister after Minister, and the Department, for several years on spurious grounds, especially when so many other European countries have interest rate restrictions in place. In Spain, this is on the grounds that ultra-high interest rates charged are excessive; in Finland, it is on the grounds that they are unconscionable; and, in Germany, because they lack moral legitimacy. All those assessments are correct.

We should not allow an immoral financial regime that damages the economic interests of vulnerable borrowers to persist. In 2018, the landmark report published by University College Cork, UCC, and authored by Dr. Mary Faherty, Dr. Olive McCarthy and Dr. Noreen Byrne found that 21 of 28 EU member states had some form of interest rate restriction in place. Ironically, they found that while such a restriction was in place in this jurisdiction, it is the interest rate cap of 1% imposed on credit unions, with no such restriction in place on high cost moneylenders. The report, which was funded by the Central Bank and the Social Finance Foundation, was "to examine the extent and variety of interest rate restrictions within the EU and further afield...[and to assess] the appropriateness of introducing such a restriction in the Irish market given its specific circumstances and financial environment". The authors of the report made a number of recommendations, including the adoption by government of a policy that prohibits excessive rates of interest, in the interests of fairness to the most vulnerable in society, by introducing a restriction on the cost of credit. In short, they called for a cap on interest rates. That was four years ago. How many loans have been issued, how many families have fallen into poverty and how many other people have fallen into the clutches of high cost credit as the Minister of State, his colleagues and those in Fine Gael in the previous Government sat idly by?

In the same year, I introduced the Consumer Credit (Amendment) Bill 2018 to place a cap on the cost of credit moneylenders could charge. That legislation reached Committee Stage yesterday in the finance committee and, despite years of the Government blocking its progress for reasons that were party political rather than in the interest of consumers, the Government rejected interest rate restrictions on moneylenders' loans based on arguments that are now, in effect, redundant. The most popular argument was that the cap on interest rates would lead to moneylenders fleeing the market and borrowers being forced into the clutches of illegal moneylenders. I will make two points on this. First, the biggest moneylender by some way, Provident, left the market last year. The Government and this Minister were so concerned about this, and about the risk of borrowers moving to illegal moneylenders, that they did not even bother to offer any advice or guidance to Provident borrowers. It was shameful, disgraceful and a dereliction of their duty that there was nothing whatsoever. Second, the Government has been slow, even obstructive, in enabling credit unions to step forward and offer a credible alternative to moneylenders.

I will now turn to the provisions in the Bill that Sinn Féin welcomes. We support many provisions in this legislation, in particular the separation of home collection moneylenders from catalogue moneylenders. We support the elimination of collection charges for home collection loans, which is a proposal we brought forward under the Consumer Credit (Amendment) Bill 2018 and which was recommended by the Social Finance Foundation. We welcome the use of a simple interest rate rather than APR for home collection loans. We are aware of the challenges posed by APR as its meaning and application varies widely based on the loan term. We also welcome the proposed term limit of 12 months for home collection loans - we ask for further justification of 12 months as the term limit chosen - and we welcome the provisions that give the Minister the ability to amend rates further through regulation.

However, I will now turn to the biggest weakness in the Bill and what this Bill is supposed to be all about. It is the proposed interest rate cap, which will allow moneylenders to continue to charge rates of interest that are excessive, immoral and unjustifiable. That is shameful. The interest rate cap proposed under section 8 is extremely limited with no concrete commitment to a reduced cap in the years ahead.

The Government proposes an interest rate cap based on simple interest of 1% per week up to a maximum of 48% per annum. Let us flesh this out properly. At present, on a cash loan of €1,000 a typical moneylender can charge interest of €560. That is extortion. In contrast, a credit union would charge interest of €60 on the same loan amount. Under this legislation, the Government proposes that moneylenders in the future will be able to charge €480 on a €1,000 cash loan. That is still extortion. As the Social Finance Foundation told the finance committee during pre-legislative scrutiny of this Bill, permitting organisations to charge €480 interest on a 12-month €1,000 loan is simply wrong. The Minister should not be bringing this Bill to the House. It is not what is needed. It is wrong. Yet that is what this legislation will do. It imposes a cap that is modest at best and immoral at worst.

In contrast the interest rate cap that I proposed at the finance committee yesterday would initially restrict interest that could be charged on €1,000 loan to €360 and further down to €180 after a period of three years. This tapered interest rate cap would be meaningful. It would drive down an excessive interest rate charge by moneylenders and would protect vulnerable customers from exploitation into vicious cycles of debt.

Sinn Féin will table amendments to deliver that more ambitious interest rate restriction on Committee Stage and we ask the Government to work with us to achieve a meaningful cap to protect borrowers. I am not convinced whatsoever, despite the words of the Minister of State, that he will work with us because he absolutely gutted the Bill before the finance committee yesterday. That is the reality. The Government does not want to work with the Opposition. It wants to do as little as possible and leave interest rates immorally high.

There are many provisions of this legislation that I and my colleagues in Sinn Féin welcome. They include the separation of cash loans from running accounts, the restriction of cash loans terms to 12 months, and the ability of the Minister to further restrict interest rates at a future date.

Stakeholders, including the Society of St. Vincent de Paul, MABS, the Social Finance Foundation and the UCC academics who authored the landmark 2018 report, have been calling for a cap on moneylender interest rates for some time. It has been for too long. I and my party have been campaigning on this for years. The key issue is putting a hard cap in place on the interest rate that moneylenders are permitted to charge. Put simply, the interest rate cap in this Bill is not ambitious; it is modest. It will allow moneylenders to continue charging rates of interest that are excessive, immoral and will lock borrowers into continuing cycles of debt. It permits a practice to continue that is simply unacceptable.

The provision with respect to the interest rate restriction is window dressing. Sinn Féin will table amendments on Committee Stage to put in place an initial and then further interest rate cap that will reduce the cost of credit to levels that we can morally stand over. Financial inclusion and protecting vulnerable consumers from immoral credit provision is an imperative for this Dáil. We will continue to work to further that objective.


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