Thursday, 9 October 2014
Topical Issue Debate
I thank the Ceann Comhairle for the opportunity to raise this important issue. I also thank the Minister of State at the Department of Finance for being present to reply to this matter and I wish him well in his new role.
There is an urgent need to introduce a cap on the interest rates that can be charged by moneylenders. They are regulated by the Consumer Credit Act 1995. I have concerns that not enough is being done to ensure that moneylenders charge their customers a fair interest rate. The Central Bank renews licences for moneylenders on a year basis. It can refuse to grant a licence where it deems the cost of interest to be charged is too high and unfair to the customer, yet there are instances where it is renewing moneylenders' licences where some moneylenders are charging up to 188%, and even more in some cases, in interest rates.
There are 43 moneylenders licensed to operate in Ireland with the majority being small to medium enterprises. There has been an increase in the number of customers who have turned moneylenders with the number increasing by 60,000 in recent years. Obviously that is due to the economic situation. Also, many low income earners have turned to moneylenders because they have been refused credit by the credit unions and the banks. That is an issue that the Minister needs to examine further.
I have concerns that people are not aware of the loan amounts, interest amounts and profits that have been accrued in some of the deals entered into. More transparency and accountability need to be introduced. With his banking background, Deputy Mathews will appreciate that schedules need to be introduced that would set out the capital amount, the amount of interest and projected payments once payments of a fixed amount are being made on loans. The imposition of a high interest rate limit could impact on the moneylending sector and make it unviable for some operators and people may turn to illegal moneylenders whose operations are unregulated which would be even worse. Nobody would want that to happen.
In that regard, a cap on interest rates is what is needed. The Minister would have to be careful as to the ceiling he would set for the highest level of interest moneylenders could charge. For example, a person who takes out a loan of €100 and pays €58 in interest on top of the loan of €100 is paying a considerable level of interest. The Central Bank is allowing that to happen at present.
I ask that an interest rate ceiling of 50% be set which would be greatly beneficial to many customers who use moneylenders. I ask the Minister to consider that proposal. Some 13 members of the European Union have already introduced legal caps on licensed moneylenders with Spain enforcing a 10% APR cap, Belgium a 19.5% cap and France a 21.6% cap. Also the UK is considering introducing legislation in this area with a maximum interest rate of 100% APR for short-term lending. Will the Minister look to what is happening in the rest of Europe and introduce some level of a higher limit of interest rate that can be charged in these instances?
I thank the Deputy for raising this important issue and for giving me an opportunity to outline the Government's thinking it. I will deal with some of his requests which were quite constructive at the end of my response.
The Government has some concerns about the introduction of a cap. Those concerns include that the introduction of a cap on the interest rates that can be charged by moneylenders would not necessarily be in the interests of consumers or the wider financial system. The Central Bank is the competent authority, as the Deputy outlined, with regard to licensed moneylending and is responsible for overseeing and regulating their activity. Legislative provisions relating to moneylending are contained in the Consumer Credit Act 1995, as amended. It is an offence under that Act to engage in the business of moneylending without a licence granted by the Central Bank. I understand that there are 39 licensed moneylenders operating in Ireland at present.
The legislation does not provide for an interest rate cap for moneylenders. The introduction of an interest rate ceiling may not achieve the objective of lowering the total cost of credit, for example, if the licensed moneylender chose instead to extend the duration of the loan. I understand what the Deputy is trying to achieve but I pose the concerns that we have that it may not have the desirable effect.
Lower interest rate ceilings could also result in excluding low income households from access to credit that have repayment capacity, even at the high rates charged by licensed moneylenders.
The Government would have some concerns, therefore, about the imposition of an industry-wide interest rate cap without a detailed assessment of its impact on consumers. Often the loans are for small amounts, are needed immediately by the customers and are made available and repaid at the home of the customer. The shorter the duration of the loan, for example, two weeks, the higher the annual percentage rate of charge, APRC, as the APRC is an annualised measure of the interest charged. This service may impose extra costs on the moneylenders. Under section 47 of the Consumer Credit Act, a customer may apply to the Circuit Court for a declaration that the total cost of the credit provided is excessive.
Moneylenders have to apply to the Central Bank on an annual basis to have their licences granted or renewed. Part VIII of the Consumer Credit Act 1995, as amended, sets out the Central Bank's powers, duties and responsibilities regarding the granting or refusal of a moneylender's licence and in the regulation when granted. In addition to the licensing system, the Central Bank has in place a Consumer Protection Code for Licensed Moneylenders. The Central Bank has power to impose sanctions on licensed moneylenders for a contravention of the code. Since 1 December 2011, licensed moneylenders have been subject to a new fitness and probity regime by the Central Bank. The Central Bank has advised me that there is a rigorous process involved in the granting or renewal of a licence.
Under section 93(10)(g) of the Consumer Credit Act 1995, the Central Bank can refuse to grant a moneylender's licence on a number of grounds. One of these grounds is where, in the Central Bank's opinion, the cost of credit to be charged is excessive or any of the terms and conditions attaching thereto are unfair. This point is particularly relevant to this Topical Issue debate. Although there is no specific cap on the interest rate which a moneylender may charge, the licence granted to the moneylender will indicate what the APRC is and all advertisements must include the following words in font larger than the rest of the advertisement: "WARNING: This is a high cost loan."
There is a danger that if a cap on interest rates were introduced, some licensed moneylenders might exit the market with the ensuing risk that illegal operators might take their place. We are all aware of the operation of illegal operators and the negative impact they can have on families and communities. Since persons operating as illegal moneylenders are in breach of the law, it is a matter for the Garda Síochána to investigate their activities. Under section 98 of the Consumer Credit Act 1995, as amended, the Garda Síochána has sole responsibility for the investigation and prosecution of such offences.
I would encourage consumers to consider all the different sources of loans that are available to them. Deputy Terence Flanagan highlighted the problem of moneylenders becoming so prevalent as a consequence of the economic crisis the country has come through. I encourage people to avail of the personal finance information available from the National Consumer Agency. This information can be found on the website www.itsyourmoney.ie. In addition to the information provided on this website, people who are in debt or in danger of getting into debt may avail of the services of the Money Advice & Budgeting Service, MABS. As the Deputy knows, MABS works with people in order to assist them with financial planning and budgeting for the future. It is a national, free, confidential and independent service. The Deputy's point about the need to examine what happens in other European countries and best practice in Europe is something I am happy to take back to the Minister for Finance and I will ensure he receives it directly.
I appreciate the Minister's last comment in particular. He has a can-do attitude and, hopefully, he will re-examine the fact that 13 EU countries, including Spain, Belgium and France, are adopting a legal cap on licensed moneylenders. Even the UK is considering it. We are talking about low-income families who are being refused credit by banks and credit unions and have nobody else to turn to. Perhaps the Minister of State could consider allowing credit unions to apply a risk-based price structure to their loans and charge a higher rate for higher-risk loans. Credit unions could have more of a role to play in these particular instances and provide help for families in extreme difficulty and in poverty. Perhaps this could be considered as part of the ongoing debate about credit unions and what they could and should do in the future.
The Society of St. Vincent de Paul has highlighted the issue of illegal moneylenders and warned the Government that urgent action must be taken to stop vulnerable families being targeted. Some of them are being charged 400% per quarter for short-term loans, which the Minister will agree is horrendous. Families are turning to these illegal moneylenders particularly when they are preparing their children for going back to school and at Christmas time. Hopefully, something can be done about this as we approach the end of the year. I support the Society of St. Vincent de Paul in highlighting the issue and, hopefully, the Minister of State will target these people.
The Deputy is correct. The issue that has been raised by the Society of St. Vincent de Paul and others about illegal moneylenders is a major cause of concern for people on all sides of the House. We need to examine it. Since persons operating as illegal moneylenders are in breach of the law, it is a matter for the Garda Síochána to investigate their activities. Under section 98 of the Consumer Credit Act, the Garda Síochána has sole responsibility for the investigation and prosecution of such offences. While the Central Bank has no power in this regard, if it has reason to believe a person is operating as an illegal moneylender it refers the matter to the Garda Síochána. I strongly encourage every Member to ask that anybody who has information about the operation of unlicensed moneylenders to make the information available to the Garda Síochána, which will take all measures open to it to enforce the law in this area. Perhaps the Deputy can raise the matter with my colleague, the Minister for Justice and Equality. I will also refer to it when I next meet her. We need to examine what other countries are doing and I will ask the Minister for Finance to examine what is happening with his European counterparts. As I said in my opening statement, the legislation already in place on the issuing of a moneylender's licence allows the Central Bank to refuse a licence on grounds which include where the Central Bank is of the opinion that the cost of credit to be charged is excessive or that any of the terms and conditions attaching thereto are unfair.
I do not have that, because it is a matter for the Central Bank. It is a fair point. We have provisions in the Consumer Credit Act 1995. If the question the Deputy is posing is whether they are adequate or if more could be done, I am willing to explore it with my colleague, the Minister for Finance. I thank the Deputy for raising it.