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

I thank Deputy Doherty for his proposed amendment, which we discussed on Committee Stage. Deputy Doherty and I agree on many elements of this Bill, including the need for a statutory interest rate cap. We are at odds here on the precise rate of that cap. Deputy Doherty's amendment would reduce the caps in the Bill and cut the caps in three years' time to rates that would compare with mainstream lending rates. Lower interest rates are better for consumers; I am aware of that. The purpose of this legislation is to reduce interest rates and the Government remains open to cutting the interest rate again in the future based on evidence we will ask the Central Bank to collect.

I want to explain how we arrived at the figures I am proposing in the Bill. In 2019, the Department of Finance held a public consultation on the introduction of a statutory interest rate. Fourteen submissions were received in favour of a cap with six against. There was no consensus as to what the cap should look like or on the level at which it should be set. Following the public consultation, the Department carried out further research, which was published last July and is available on the Department's website. It showed there was an appetite for a statutory cap, that such a cap should be on a simple interest basis for cash loans, that the rate should be adjustable over time, and that care should be taken to mitigate the potential impact on supply arising from the introduction of such a cap.

The research showed there is currently a concentration of loan offerings between 1% and 1.2% simple interest rate per week in the market. An initial interest rate cap of 1% will make these loans cheaper. It will take the most expensive products off the market and will require the bulk of products to be revised downwards. It is also accompanied by a ban on home collection charges, which currently apply in many situations. At the same time, the initial rates will allow moneylenders to revise their business model and reduce their margin to enable them to operate within the legislative cap.

It is not every day we bring forward legislation to cut revenue of an industry. I do not have any sympathy for the industry, but if interest rates for moneylenders are reduced too much and too quickly, some moneylenders may cease operating and the availability of much-needed credit for many people could be reduced. The biggest market player has already left, as the Deputy has mentioned. The moneylenders that remain would be likely to reduce their credit risk appetite and would leave a portion of their existing customers with even more limited access to regulated credit. If borrowers' access to regulated credit is reduced, a number of things can happen. Some will go to other regulated lenders such as credit unions. Some will go to family and friends and some will go without. Some will, however, end up as victims of illegal moneylenders and that is what we must avoid. There is very little information available about the potential migration of customers from moneylenders to unlicensed moneylenders. This makes it difficult to assess the likelihood of consumers migrating to unlicensed moneylenders if a cap is introduced that reduces or removes the supply of credit from licensed moneylenders. Even if it is a small percentage of people who do this, that will be a very big deal for those individuals and vulnerable families especially. It is easy to say the rates are too high, but if people are availing of them. we cannot cut these borrowers off either. It is not an exact science nor is it the ultimate destination. It is an appropriate place to start.

Therefore, we are starting with the 1%, which can be reduced over time.

The legislation sets out the principles and policies that guide the Minister when making regulations to set the specific caps, and these include in particular the financial inclusion issues to ensure people have access to loans when they need them and that there is credit available in the market. This provides flexibility to amend the caps downwards while ensuring there is always an upper limit in the primary legislation. The figure set in the legislation, 1%, can be reduced over time but we are starting at this point.

The legislation also provides two separate caps: a weekly one of 1% and an annual one of 48%. These can be adjusted either separately or together, depending on the information in the market. This is a better approach than setting particular limits, which businesses may fail to adjust, ultimately reducing the availability of credit for many borrowers. As already mentioned, the largest player has withdrawn from the Irish and UK markets. We must ensure there continue to be people who can lend to those who actually need a loan.

Including in the primary legislation a maximum rate to apply in three years presupposes without any analysis a level of reduction the market will be able to take. The Deputy’s amendment prescribes the rate we should have in three years. I want to see lower rates as much as Deputy Doherty, but we have to take care not to reduce the supply when introducing the caps. With regard to setting the rate for three years’ time at this point without any evidence as to how the market will be, the availability and the social inclusion issues that need to apply, it is appropriate to make the decisions closer to the time. This legislation provides for that, and it can be done based on the evidence we will collect or that the Central Bank will collect on our behalf in the intervening three years rather than guessing what we will need in three years. Therefore, it is important we start at this point with the view to being in a position to make a change as time goes on.

This legislation also deals with what we call running accounts, which some of the catalogue operators have. Many will be familiar with these. They feature all year round. Sometimes there are Christmas catalogues. We want to ensure people have funds available without having to seek recourse to illegal moneylenders. That is what we want to ensure here.

I accept and have put it on the public record that Deputy Doherty has done tremendous work in this area over recent years. He has produced information and legislation on the matter. We agree on practically everything, including the principles of the Bill, the running accounts, the need for a cap, the need for a review and the need to set the maximum cap, but the point of difference is the particular interest rate. We want to introduce one we are satisfied will look after vulnerable people who need access to cash. We can review it as time goes along.

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