Dáil debates

Thursday, 10 March 2022

Consumer Credit (Amendment) Bill 2022: Second Stage


2:40 pm

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail) | Oireachtas source

I thank all the Deputies for their time and interest in contributing to the debate on this Bill. As I mentioned earlier it is my intention to seek an early date for consideration of the Bill at the Select Committee on Finance, Public Expenditure and Reform, and Taoiseach, where we will constructively engage with the Deputies on any proposed amendments. In the meantime my officials and I will reflect on the points raised and give further consideration, in consultation with the Central Bank and the Office of the Attorney General, to any amendments that may be necessary to ensure as smooth a transition as possible to the new regime and that the measures can be implemented as early as possible for customers. This is an important Bill and it will significantly improve protection for those borrowing from lenders in the high-cost credit sector and deliver reductions in the cost of credit.

The benefits for consumers include the introduction of an interest rate cap to bring the interest rate down by an average of 13% on the cost of interest on most popular loans. This will bring about an immediate reduction in the cost of interest on the majority of loans out there, which is important. We will introduce a one-year cap on the loans because the longer people have a loan out, as was just referred to, the more dangers keep creeping up. We will ban home collection charges. The practice that people can call and collect a loan will continue if it suits individuals for the money to be collected but there cannot be a charge for this. We will also introduce a repayment book, which will be available online for people to be able to check the status of their accounts on their mobile phones. We will rename the licensed moneylenders to high-cost credit providers, as clear and different from the current system of illegal moneylenders. Providers will be licensed nationally instead of having to go to each District Court. That will help the consumer and competition. From the industry point of view we will be banning the higher rates and the long-term high-interest loans, not to mention there will be a one-year restriction. We will ban home loan collection charges and it will be a requirement to make repayment books available. The administrative burden of charges will be improved. The licences will be valid nationally, which will assist the industry as well as the consumers. The licence terms will be increased to five years from one year, which we currently have.

I acknowledge that a number of Deputies have said this legislation is long overdue. A lot of work has been done on this issue, reports on it go back a number of years and there are a lot of good elements in this legislation. A lot of Members accept that but some have raised particular issues on the interest rates. Deputies Doherty and Mairéad Farrell spoke about this, as did Deputy Martin Kenny who highlighted the credit union issue in particular. I will come back to that in a moment as it has been the theme of a lot of what has been said and an issue I have spent a lot of time dealing with recently. Deputies Ellis and Patricia Ryan spoke about the vulnerable nature of many customers and that is why we are here. Many people are vulnerable and they are paying high interest on their loans.

Deputy Shortall also mentioned the credit union and the cap on the APR. I know she is no longer here but the reason some of these loans will not be based on APR is that we will have a one-year restriction on the length of the loan. Many of these loans might be obtained for three or six months so they will not exist for a full year; therefore they cannot be considered as an annual loan to calculate an APR. The fundamental issue with APR is that the loan will extend for at least a year or more. For a loan that exists for three or six months it is not appropriate to use an annual rate. It would be a notional concept because it would not apply to the particular loan, which is interesting. Deputy Shortall made an interesting point on the cost of credit in relation to credit unions, which has been discussed at length before. There is an interest rate cap in Ireland, which Deputy Doherty referred to, and that is 1% in the credit union sector. There are proposals from a lot of people in the credit union movement that the cost of 1% to administer small fluid loans with short repayment dates is not making it feasible to provide those loans in many cases. There is strong support out there that it be raised to 2%, which would be in the order of 23% or 24% per annum, which is in the order of what people pay on credit cards. I listened carefully and took on board everything the Deputy said about considering that for the credit union movement.

Deputy Naughten also mentioned the credit unions at length. Half of the time I was here I was wondering if this was a Bill on credit unions. Deputy Naughten mentioned the micro credit scheme and the misconception that the credit unions have €15 billion that they cannot lend because of the restrictions from the Central Bank. He used the word “misconception” every time he referred to it because it is a misconception. They can lend billions of euro more tomorrow if they choose to do so. There are only certain restrictions on the amount they can lend for mortgages; there is no other restriction on them. Credit unions currently lend about 26% of their assets and that can go to 36%, 46%, 56% or 66%, as many of the credit unions used to do historically. There are restrictions on the small business and mortgage sector and that section of lending.

Deputy Lahart mentioned the issue of the old ESB shops. We all understand that. They are not there now. Yesterday, we passed a Bill in this House that deals with the "buy now pay later" facility, which is the exact same thing. A person can go into most shops to buy a fridge, freezer, TV, couch or suite. We passed a Bill in this House last night to regulate that sector, in detail, for the first time. It also relates to personal contract plans for car financing. I look forward to the Bill being passed in the Seanad in the coming period. This sector has effectively replaced, in practice, what the ESB used to offer. This facility is being regulated now. The Bill will pass through the Oireachtas in the immediate future, after which strict measures will be in place. They are the main points.

We have completed a process of extensive consultation about legislative changes for credit unions. I had a good discussion with all representatives. I hope we will be able to bring a memo to the Government as a result of the discussions with the credit union sector. I believe we will have progress in the relatively near future on the practical steps we can take to improve the credit union model and to assist their members and the people to whom they want to lend money. I cannot put a date on it yet because it has to go to the Government. That in itself will not solve all the business model issues with the credit union movement. Many people are looking for new organisations to manage their financial affairs with Ulster Bank pulling out of the market, KBC closing and some Bank of Ireland branches having closed last year. There is an opportunity for the credit union movement to take on many new accounts. I know it is not a legislative matter. We will do what we can from a legislative point of view, but the credit unions know that they will have to be to the forefront in terms of increasing their lending capacity.

I wish to re-emphasise a point in the legislation that has not existed heretofore to a great extent. Section 3 of the Bill introduces specific offences for any breach of this legislation. Rather than people having to get approval and people going around checking, section 3 adds two new offences. This is important here. Companies lending money that breach this section will immediately be guilty of an offence. It is not a question of "they should not have done it"; it will be an offence. The Central Bank will monitor this closely. The two new offences will apply when a moneylender grants credit in a way that breaches either one of the two new provisions, in the first instance by providing a loan of more than 52 weeks' duration. We want to limit it to 52 weeks in order that the credit providers are not extending loans to two or three years and charging interest on a rolling basis. We want to have a 52-week timescale for these loans. If they breach that, it will automatically be an offence. It will also be an offence if they provide a rate above the interest rate cap that will be set in the legislation. It is not a question of "they should not have done it"; it will be an offence.

I understand the issue regarding the interest rate cap, but I want to explain to people where we are coming from and the landscape we are in as we speak about this issue today. It is an issue we need to take into account. At the moment, no matter what rate of interest we introduce, including the rate the Government is proposing in the Bill, it will lead to a reduction of the interest charges payable on loans by a significant amount compared with what is being charged today before we pass this legislation. No matter how one looks at it, this legislation will reduce the interest charges paid by people who borrow from these high-cost lenders in the future. I will set out the full extent of what is out there. Deputy Doherty and I quoted some of these figures in our opening statements today. I want people to be clear that there is no statutory interest cap in Ireland as we speak. However, the de facto interest cap in Ireland, which we both quoted earlier, is 288%. That includes the collection fees that are applied for calling to a house. As we speak today, people are being charged an interest rate of up to 288% on borrowings from money lenders. We are proposing to reduce that figure - the maximum currently being charged, compared to what will be charged when we pass the legislation - from 288%, which people are paying tonight and tomorrow to those who collect money from them, to 48%. We want to cut the de facto interest rate by 240%. I hope people get that. It is a reduction of seven eighths on what they are currently being charged. It is a phenomenal reduction to go from 288% to 48%. I am not aware of any other country that has brought in legislation to make such a change.


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