Dáil debates

Thursday, 10 March 2022

Consumer Credit (Amendment) Bill 2022: Second Stage


2:10 pm

Photo of Denis NaughtenDenis Naughten (Roscommon-Galway, Independent) | Oireachtas source

I welcome the opportunity to speak on this legislation. I welcome that we are going to put a statutory interest rate cap in place. It is long overdue in this country. The difficulty is the interest rate cap that is being introduced is far too high. To accept the prevailing interest rates and to enshrine that in law is not acceptable.

The legislation will provide the Central Bank the power to recommend future reductions, but the starting point needs to be considerably lower than where it is at the moment, particularly in the current desperate financial situation many people find themselves today. Enshrining interest rates in this legislation at such a level is completely unacceptable. It is as though the Government is actually endorsing these types of exorbitant interest rates. It is imperative the Minister of State would look again at this in the context of the Committee Stage of the Bill.

The arguments being made to the Minister of State are that this will ultimately reduce the supply of loans from licensed moneylenders or that it will increase the number of illegal moneylenders. The reality is very different and the evidence is different. First of all, we have a very well-developed credit union movement in Ireland. The Minister of State can do far more to help, support and grow the credit union movement, and support it in actively taking over the business of the moneylenders. I will come back to this point.

Where rate caps have been introduced internationally it has not led to an increase in illegal moneylenders. It has not led to a reduction in the supply of loans. A report on interest rate restrictions on credit for low-income borrowers by the Centre for Co-operative Studies in University College Cork says:

[T]here is no empirical and undisputed evidence that interest rate restrictions result in an increase in illegal moneylending. In the UK, it was feared that the price caps on payday loans would push a large percentage of people towards illegal moneylending. However, Citizens Advice has said that the caps on payday loans has not led to an increase in illegal moneylending, with analysis of debts held by Citizens Advice clients showing that the number of loan shark debts has remained constant since the introduction of the cap.

There is evidence from elsewhere, therefore, that having a significantly reduced interest rate does not lead to people going elsewhere and availing of illegal money lending. I ask the Minister of State to look at this actively between now and Committee Stage. Effectively, we are endorsing in legislation these exorbitant interest rates. This is unacceptable.

I am aware the Minister of State is working closely with the credit union movement, and I believe he met with its representatives earlier today. The Minister of State needs to actively work with the credit union movement to expand and develop its personal micro credit scheme to ensure every single credit union in the country provides the It Makes Sense loan scheme, and that the movement is actively supported, encouraged and marketed by the Government. Something similar can be done with An Post. Those areas need to be explored to provide real and viable alternatives to the moneylending industry in Ireland.

On the legislation, I welcome the change in the description of a moneylender from a licensed moneylender to a "high cost credit provider". The Government is however making a mistake not to include in the name the word "licensed". I ask the Minister of State to look at this for Committee Stage. The term "licensed" does at least give some element of authorisation. Above all things, we do not want people going to unlicensed moneylenders. It is important the word "licensed" remains in the title. I ask the Minister of State to review this again.

We are talking about providing credit and micro loans to people but we cannot do that unless we have a viable banking system in Ireland. We do not have that with the pillar banks. The Minister of State has seen it in his own constituency and I see it in my constituency where the main banks have been pulling out of rural Ireland and pulling out of our provincial towns. The whole area for providing credit is contracting. The moneylenders will fill that void unless we provide a viable alternative. We need to provide a new community banking force. It is frustrating because we have the bones of that community banking force already, but we do need to bring it together.

KBC Bank is pulling out of the market here, Ulster Bank is pulling out of the market and we have seen Bank of Ireland closing down branches across rural Ireland. Two distinct customer bases are being excluded by the pillar banks. These are the personal customers and small businesses. Both of these elements need to be addressed and their needs must be met by a new State-supported banking model. A total of 13% of people do not use banking online. That is a national figure but the Minister of State will know that across provincial Ireland and rural Ireland that figure is far higher than 13%. Even a simple service such as 24-hour access to an ATM for lodgements and withdrawals is being removed from many of our rural towns. That option is not available in many of our rural towns now. This makes a big difference to the development and growth of some of these smaller towns. The Government has recently launched its town centre first strategy, the principles behind which I support. It is very hard to support a town centre first approach if people do not have access to an ATM, if they cannot make lodgements and if they cannot withdraw money at any time of the day or night. There is also a security issue for many businesses in this regard.

Unless this is driven by politicians and by the Members in this House, it is not going to happen. The financial establishment in Ireland does not want to see a community banking initiative developed here. The establishment in all its guises does not want to see a State co-ordinated banking force established to compete actively against the so-called pillar banks. There is an absolute mindset block against State involvement in the banking sector within the Minister of State's Department. This is why I believe this needs to be driven by us as parliamentarians.

The basic infrastructure is already in place but it is fragmented. Instead of taking a copy-and-paste model from some other country, we should start with the infrastructure we already have in Ireland: our post offices, our credit union movement and the two State banks that we have already, which are the Strategic Banking Corporation of Ireland and Microfinance Ireland. They should all be brought together to establish a very effective community bank that would have a comprehensive branch network throughout the State. This would provide people with access to banking services in smaller towns and in our local communities that have been withdrawn by the big banks. We have the financial infrastructure there, which should be exploited.

In the Department of Finance Indecon report on the evaluation of the concept of community banking in Ireland, it was pointed out that An Post has in excess of 500 post offices in locations where there are no banks within 5 km.

It is not just about using the post office and the credit union. We also need to exploit the two State banks, namely, the Strategic Banking Corporation of Ireland and Microfinance Ireland. They have been specifically designed to provide flexible finance to small and medium-sized businesses. Rather than trying to reinvent the wheel, we need to build on these key strategic strengths in the physical financial network we already have. We need to build on the two banks that are controlled by the State so we can have the levers to support our indigenous business throughout this country and provide the type of sustainable, long-term regional employment we need.

The 250,000 SMEs in this country account for 99.8% of total enterprises, employing 65% of our total workforce. They are the backbone of the economy outside our cities and they need the types of supports that can be provided through an alternative community banking model. It is not just about personal customers or even business customers but also about providing a competitive mortgage market, which is something people do not have at this time.

I know the Minister of State has been meeting with the credit union movement. His has a specific role and responsibility for working with it. There is a clear commitment in the programme for Government to enable credit unions to grow and become a key provider of community banking. These are all words. What we need is real and practical action to make this happen. There needs to be a root-and-branch review of the regulatory restrictions curtailing credit unions. Credit unions have in excess of €15 billion sitting in the bank accounts of the pillar banks at the moment, which they cannot lend out because of the restrictions on them. That is money that could be used to provide a competitive mortgage market, support first-time buyers, support housing supply, support small businesses and provide the type of microfinance this legislation is providing. Under the current restrictions, credit unions can only offer 3% of mortgage loans and up to 10% of the SME loans required by this market. The pillar banks have 70% of the mortgage market tied up and the remainder is with KBC and Ulster Bank, which are leaving the country. Credit unions cannot reach their full potential and become a key provider of community banking, as committed to in the programme for Government, without alterations to the restrictive conditions on their day-to-day operation.

The Central Bank just does not want to work with the credit union movement. As far as the Central Bank is concerned, it is an irritant. If we are going to deal with the issue of microfinance for individuals and wean them away from moneylenders, we need to support the credit union movement. If we are going to provide proper competition to the pillar banks, we should be accessing that €15 billion of capital that is currently losing money on deposit in the banks. The Central Bank has a responsibility to meet the needs of our economy and our citizens rather than just providing cheap money to the banks.

Let us compare what is happening with the credit union movement here in Ireland with what is happening elsewhere. In the United States, Canada and Australia, the system operates on a fairer and more equitable playing field. Regulatory rules in these countries mean credit unions are offering ten times the number of mortgages and business loans that Irish credit unions offer. If we can get a regulatory regime under the same type of legal structure as in the United States, Canada or Australia, surely to God we can come up with a system that provides the regulatory reassurance we need but allows cash to flow into communities and revitalise them. We need to create a proper community banking force in this country that puts it up to the pillar banks and provides active competition, which is not there at the moment. The credit union movement is more than willing to fill the void that has been created by Bank of Ireland, Ulster Bank and KBC, but there needs to be an urgent review of the current regulatory regime. We need a level playing field and a policy that is fair and inclusive to all the financial institutions in this country. I hope the Minister of State can reflect on this in his engagement with the credit union movement, with his own officials and with the Central Bank.


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