Dáil debates

Thursday, 10 March 2022

Consumer Credit (Amendment) Bill 2022: Second Stage


1:15 pm

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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I move: "That the Bill be now read a Second Time."

The main purpose of this Bill is to provide for the introduction of caps on the cost of borrowing under a moneylending agreement.

While the moneylending industry has been contracting in recent years, it remains an important source of credit for a significant number of people. To give Deputies a sense of the market, according to Central Bank figures, at the end of 2020, the moneylending sector had over 283,000 customers with €141 million in outstanding loans.

Research carried out in 2020 shows that the customers of moneylenders are more likely to be women, to have dependent children and to be in their late 30s to early 50s where child-rearing is most expensive. The Bill will serve these people well at a time when the cost of living is going up. It will do this by reducing the cost of credit on new moneylending loans and by improving the regulatory framework to modernise the way providers operate. The Competition and Consumer Protection Commission has been supportive of the Bill and the benefits it brings for consumers.

The Bill is the result of a detailed policy review within the Department of Finance, which included a public consultation in 2019. The report, Moneylending: Policy Proposals, was published by the Minister for Finance last July along with the heads of this Bill.

The main proposal is the introduction of an interest rate cap on moneylender loans. The feedback from the public consultation on the issue was that the introduction of a cap would protect low-income households who avail of moneylender loans, reduce the cost of credit for customers of moneylender loans and reduce the number of customers in default, and align Ireland with other EU countries that have an interest rate cap on short-term credit in place.

The Consumer Credit Act 1995 provides the regulatory regime for moneylenders. It is overseen by the Central Bank and it has regard to the high cost and high risk nature of this form of low volume credit.

Under the Consumer Credit Act 1995, the Central Bank may refuse to grant a licence to a moneylender if, in its opinion, the cost of credit to be charged is excessive or the terms and conditions of loans are unfair. As the Consumer Credit Act 1995 does not define "excessive", the Central Bank, which took over responsibility for moneylenders in 2003, has continued to license moneylenders at the maximum rate as per their last licence issued by the former Director of Consumer Affairs, which was the previous licensing authority. While Ireland does not currently have a statutory interest rate cap, it has a de factocap of 188.45% annual percentage rate, APR, excluding collection charges, and 287.72% APR, including collection charges.

This rate is too high and it is important that this legislation progresses to introduce a statutory cap to deliver immediate reductions, which can be reviewed over time. I reiterate that, at the moment, the APR can be as high as 188%, excluding collection charges, and 288%, including collection charges. Every Member must support the proposal to bring that to an end and to do so swiftly. The highest rates at which the caps can be set are set down in the Bill. I will discuss the different specific rates in a moment. These ceilings allow for a step-wise approach to be taken in time to come to further reduce the caps.

While lower interest rates are, of course, the preference for consumers, there is a need for balance in setting the ceilings to ensure this regulated sector remains viable and consumers do not face the difficulty of having to go without credit where providers leave the market either suddenly or en masse. When this legislation is enacted, borrowers of the most popular products should see immediate reductions of approximately 13% in the interest charged. This is a real reduction in the cost of credit for consumers. It also gives the sector time to operationally adapt to lower revenue from each borrower.

I thank the Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach, for its consideration of the general scheme. Officials in my Department have reviewed the report prepared by the Oireachtas Library and Research Service as part of the pre-legislative scrutiny process and that feedback has been taken on board in the drafting process, where appropriate.

The Bill contains 15 sections, which I will run through briefly. Section 1 sets out that the Consumer Credit Act 1995 is the Act which is amended by the Bill. Part VIII of that Act contains provisions dedicated to moneylending.

Section 2 is an amendment of section 2 of the 1995 Act relating to terms used in the Act. The section provides for the terms "moneylender" and "moneylending" to be replaced by the terms "high cost credit provider" and "high cost credit". This language will help to differentiate licensed providers more clearly from unlicensed ones. Using the term "high cost credit provider" means that everyone will understand that when they go to such a place, they are paying a high cost. In some people's mind, there might not be a clear distinction between legal and illegal moneylenders that operate in the marketplace and, therefore, it is important to use different terminology to show people they are dealing with a high cost credit provider.

Section 3 is an amendment of section 12 of the 1995 Act and deals with offences. The section introduces two new offences. These apply where a high cost credit provider grants a loan with a duration over 52 weeks, as per section 94A, with an interest rate over the set caps.

Section 4 adds a definition for "nominal rate" to the Act of 1995, as this is the type of interest rate cap being placed on running accounts. A running account operates similarly to a tied credit card and is a product sometimes offered by catalogue companies.

Section 5 modernises and streamlines the licensing regime in a number of ways. It removes the requirement for providers to register in each District Court area in which they wish to operate and allows them to operate nationally instead. This should go some way towards improving competition in the sector and increase the number of providers available to people in different parts of the country. It extends the licensing period from 12 months to five years. It updates the licensing process so that where a provider's proposed interest rates are above the rates set by the Minister at any time, the Central Bank can refuse to grant a licence. That is very important. Up to now, some providers may not have registered in every District Court area in the country and instead have cherry-picked certain urban areas. By taking away the restriction on the need to register with every District Court in the country, when somebody has a licence, he or she can lend money anywhere. That will increase competition in areas where there may not have been the full range of competition up to now.

Section 6 inserts a new section, 94A, into the 1995 Act to require that cash loans will not be granted for a period greater than 52 weeks. The longer one is paying interest, the more of it one will pay. There is a strong argument then for banning high cost credit agreements of more than a year's duration because a key rationale of high cost borrowing is that such borrowing is necessary because of short-term circumstances and there may not be an alternative source of borrowing available at the time. That is the reason we have a limit of 52 weeks, which is one year, for such loans.

Section 7 requires providers to include the words 'high cost credit agreement' prominently on the agreement. This will ensure consumers are clearly aware of the nature of the product they are being offered.

Section 8 is the most fundamental provision in terms of reform. This section inserts a new section, 98A, into the 1995 Act to provide for the setting of a maximum interest rate that a high cost credit provider can charge for both cash loans and running accounts. Crucially, it will be an offence under section 12 of the 1995 Act for a provider to grant credit at a rate in excess of the maximum set at that time. Under this new section, the Minister for Finance may, following consultation with the Central Bank, make regulations providing for the maximum rate of interest at which a moneylender can provide credit. The Minister must have regard to a number of relevant factors when making such regulations. These are the impact on competition in the high cost credit sector; the impact on the supply of credit in the high cost credit sector; the average rates of interest offered to customers in the high cost credit sector and any trends in such interest rates; and where setting the proposed rate would reduce the supply of credit in the high cost credit sector, the impact of such a reduction on financial inclusion. Many of the people concerned are in a financially vulnerable position and only have recourse to high cost lenders.

In making the regulations, the Minister must also adhere to the following parameters: in respect of cash loans, the maximum rate of simple interest chargeable per week can only be set at a rate less than or equal to 1%, and the maximum rate of simple interest chargeable per year can only be set at a rate less than or equal to 48%; and in respect of a running account, under a high cost credit agreement, the maximum rate of monthly nominal interest can only be set at a rate less than or equal to 2.83%. A two-pronged approach is being recommended, with separate maximums for cash loans and running accounts. Using a simple interest arrangement for the interest rate caps will simplify the product and enhance transparency. Borrowers will be able to easily evaluate whether the interest rate they are being asked to pay for a loan is in excess of the statutory weekly or annual caps.

Different approaches are recommended for cash loans and loans provided on a running account basis because, in simple terms, running accounts operate similarly to a credit card account in that one can have a credit limit and can make purchases up to that limit and, therefore, the credit one owes could be the result of several purchases over a lengthy period, less the monthly payments. Applying term limits and simple interest rate caps to each purchase that ends up in a single outstanding balance on an account would be too difficult and would likely be unworkable. In addition, it might not be capable of being understood by people in a vulnerable position who are seeking the credit in the first place.

Following its enactment, the Minister for Finance will make regulations setting the cap at the maximum level allowed for under the legislation. These interest rate caps can be varied downwards in the future by regulation, if circumstances and consideration of factors outlined above warrant it. The Central Bank will also be required to prepare a report within three years of the interest rate caps coming into operation.

Section 9 concerns the requirement to maintain a repayment book. This has been amended to include the option of maintaining an online version of a repayment book if the borrower requests it. This is intended as a modernisation of the product and to provide borrowers with greater options, where they could access their payment record in a straightforward way on their mobile phone. It is very important that people will be able to access the details of the repayment on their mobile phone through this requirement where we provide in the legislation for a digital option.

Section 10 amends section 102 of the 1995 Act to include collection charges on the list of charges which are not allowed. Moneylenders that currently charge home collection charges tend to charge a specified amount for every €1 borrowed, with the highest currently authorised charge standing at 14% per €1 borrowed. Moneylenders are in favour of retaining the home collection model because it reduces the occurrence of missed payments and bad debts. Some consumers like the convenience of home collection based on previous Central Bank reports. Several options were explored in respect of collection charges, from leaving the system as is, through introducing a cap per €1 borrowed, to abolishing charges in their entirety.

Abolishing collection charges has many advantages, including the fact the Covid-19 pandemic has shown that providers can implement remote payment systems and move away from an archaic form of collecting loan repayments, if necessary. Therefore, in light of these recent developments in the industry, the abolishment of home collection charges is proposed in the Bill. That is important. We are abolishing the charge that has arisen heretofore relating to home collections and home visits. The existing prohibition on all other charges should continue and this change should encourage the digitalisation of the industry, which could lead to the home collection model being naturally replaced by remote or online repayment options.

Section 11 deletes the previous provision regarding collection charges, which are no longer allowed. The Bill does not abolish the practice of home collection but merely the right to charge separately for it. Moneylenders choosing to continue the practice will have to accommodate the overheads associated with this in their revenue model, which can only be consistent with the rate of interest allowable in the legislation.

Section 12 amends the 1995 Act by inserting a new section 114A, which allows the Minister to require the bank to collect and publish non-personal data on the sector.

Section 13 sets down transitional arrangements for those who have moneylender licences issued under section 93 of the Act before the passage of the Bill. Due to the changes in terminology from "moneylender" to "high cost credit provider" in the legislation, these transitional arrangements ensure that the appropriate provisions are applied to existing moneylending licence holders for the remainder of the term of validity of those licences.

Section 14 provides for consequential amendments to the 1995 Act and other enactments arising from the renaming of moneylenders as "high cost credit providers" and the renaming of moneylending as "high cost credit".

Section 15 is a standard provision. It provides for the Minister for Finance to commence different provisions of the Bill on different dates.

I look forward to hearing the views of Deputies on this very pertinent Bill. It will significantly improve consumer protection for those borrowing from the high cost credit sector. It is my intention to seek an early date for consideration of the Bill by the Oireachtas Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach and to constructively engage with Deputies on any proposed amendments. There may be Government amendments at that stage to ensure the smoothest transition to the new regime following further engagement with the Central Bank and the Attorney General's office. I thank the Acting Chairman and look forward to hearing the views of Deputies.

1:30 pm

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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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.

1:40 pm

Photo of Mairead FarrellMairead Farrell (Galway West, Sinn Fein)
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All of us will be aware from our work in our constituencies and from our clinics that the most vulnerable in our society often rely on moneylenders. As a result, they lose large amounts and pay large sums attempting to repay these loans. We have all heard horror stories of people stuck in that cycle. It is welcome that we are here today to try to make some effort on this. However, the Bill is a poor cousin of my colleague, Deputy Doherty's, Consumer Credit (Amendment) Bill 2018. It is something that the Deputy has campaigned on for some time. He has really shone a light on the matter. It is unfortunate that this Bill is weaker, watered-down version of his Bill because the situation is at crisis point. The rising cost of living, including fuel, is severely impacting on ordinary working people who will increasingly be pushed into borrowing money in an attempt to put food on the table and keep the lights on. As Deputy Doherty outlined, the differences in the two Bills are clear. We have to understand that those who use moneylenders are the poorest and most vulnerable in society. Much of the time they are locked out of the normal banking system and pushed towards moneylenders as a consequence. They can end up clocking up vast amounts in interest. That is why Sinn Féin introduced its own Bill, which would have limited interest rates to three times the market average, much less than that in the Government Bill. This is unfortunate.

When we do not deal with these issues head on and in the best way possible it means the most vulnerable will go further into debt. They will incur higher fees and default rates will increase leading to more misery for our constituents.

It is a missed opportunity. Sometimes it feels as though this Government never misses an opportunity to miss an opportunity. The change to how moneylenders operate in this State should have been made years ago. It should have happened when Deputy Doherty and Sinn Féin introduced his Bill. We cannot have a situation of dither, dally and delay; we need action. It is good to have some action but just doing the bare minimum means that it will not have a massive impact on those people who continue to have to rely on moneylenders and even more so with the increased inflation rates, including for fuel and rent. It is unfortunate that this was not adopted in 2018 when my colleague introduced his Bill because we would have come a long way since then.

Photo of Martin KennyMartin Kenny (Sligo-Leitrim, Sinn Fein)
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I am very glad to have the opportunity to speak on this Bill. Many people in my constituency have contacted me over the years after they got into serious difficulties dealing with moneylenders, including some of the companies that go around door-to-door offering loans to people. Usually these are vulnerable people in more poor circumstances and on working-class housing estates. An unfortunate housewife's washing machine could break down and she has to get a loan. She may find herself paying almost double the cost of a washing machine by the time it is paid for. I have come across numerous cases of that; all of us have. While elements of this legislation are welcome, such as the removal of the charge for door-to-door collection, the use of simple interest rates and the limit on collection of term loans of 12 months, the key thing that we need to deal with is the interest that moneylenders charge. Yet that is the thing that the Minister of State has avoided. It is most regrettable that he has not gone far enough on that. I do not understand why a Government that is in the throes of a crisis - as the cost of living is going through the roof and people are hardly able to manage even though they are out there working hard to try to pay their bills and their rent - that it does not recognise that it needs to act on the things that it can do that will cost the Exchequer nothing but will make a big difference to hard working, hard-pressed people who are in the clutches of these money lenders.

What about the alternatives? Deputy Doherty noted that the excuse used in the past was that if we go too hard on these licensed moneylenders that people will turn to illegal moneylenders but the alternative is that they could turn to other institutions such as the credit unions, which have long been the people's bank or the community bank, as it were. The credit union movement has been campaigning. It has contacted me and I am sure every other Deputy about getting some relief on the 10% regulator reserve that is in place and a number of other issues. Yet nothing has been done to assist them to enable the credit unions to be able to offer more services. Members of credit unions have received letters from the credit unions to say there is a limit on what can be deposited with them now. There are huge difficulties there. If the Minister of State is interested in doing something to look after ordinary people who are struggling he needs to look at the credit union movement and enable it to be the people's bank and to deliver for people in those circumstances.

Returning to this legislation, it is very clear the individuals who need the assistance are again going to be let down by this Government. Perhaps in his closing remarks the Minister of State could address the issue of why on earth the Government feels it is appropriate for a person borrowing €1,000 to have to repay €480, 12 months later. How can the Minister of State think that appropriate? How can he go round to his constituents and sell them that and tell them he thinks it is okay? I cannot sell it to my constituents and would not try to. I do not think anybody who is serious about delivering for their constituents, people in more difficult circumstances and hard-pressed people out there could possibly expect they would be able to convince people that is appropriate and is okay. I am aware the Minister of State has a measure there where that can be changed but there is no commitment to change it. There is no commitment from Government to press that down to ensure we bring it back to a level that is acceptable. In the proposals we have it would go to €180 after 12 months, which is 18%. Even that is very high. I think we all understand that. What is the block? The Minister of State should explain that. Why does the Government feel this is appropriate? Nobody in their right mind would consider it appropriate.

While it is welcome something is being done, the key thing that needs to be done is being avoided. The conclusion one would come to from looking at this is what the Government is doing is simply window-dressing the problem while leaving it there. Has the Government got a commitment to these people? Is that what is going on here? Somebody somewhere is lobbying or making sure the very wealthy companies making huge profits on the poorest people in our society are going to be enabled to continue to do that. There are, therefore, real questions to be asked about the Government's commitment to ensure it provides for the ordinary, decent people and to look after them as we move forward.

1:50 pm

Photo of Patricia RyanPatricia Ryan (Kildare South, Sinn Fein)
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The main purpose of the Consumer Credit (Amendment) Bill 2022 is to restrict the total cost of credit on moneylending loans. Under this Government, moneylenders are permitted to charge an annual percentage rate of 187%. That rises to 288% once collection charges are included. When compared with more affordable sources of credit, such as credit unions that have an APR of no more 12.67%, there are no grounds upon which such high rates can be justified. In 2013, the Central Bank published a report that found typical moneylending customers are predominantly female and from lower-income backgrounds. The astronomical rates charged by moneylenders risk driving vulnerable borrowers such as them into unsustainable and vicious circles of debt.

The Government proposes an interest cap of 1% per week up to a maximum of 48% per annum. In contrast, my colleague, An Teachta Doherty, has proposed in legislation an initial cap of 0.75% per week up to a maximum of 36% per annum and then a reduced cap after a period of three years of 0.35% per week up to a maximum of 18% per annum.

There are many provisions of the legislation Sinn Féin supports and previous speakers have mentioned this. These include: the separation of home collection moneylenders; the elimination of collection charges from home collection loans; the use of the simple rate of interest rather than the APR for home collection loans; the term limit of home collection loans of 12 months; and the ability of the Minister for Finance to amend rates further by regulation.

However, as was already said, the biggest weakness of this Bill was the proposed interest rate cap. It will allow moneylenders to continue to charge levels of interest that are excessive, immoral and unjustifiable. Deputy Doherty has spoken about this and I am going to speak about it again because I do not know whether the Minister of State really listens to what we say. The permitting of ultra-high interest rates is unethical. Many European countries have introduced interest rate restrictions. These high interest rates were described in Spain as excessive, in Finland as unconscionable and in Germany as lacking in moral legitimacy. The interest rate cap proposed under section 8 of this Bill is limited with no commitment to a reduced cap in the years ahead. We cannot allow an immoral financial regime that damages the economic interests of vulnerable borrowers to continue. Many of our older people have been victims of these moneylenders.

I met the local chapter of the credit union in south Kildare last week. It is doing a fantastic job in helping vulnerable people, as well as those just starting out, and I highly recommend them. I have been a member of the credit union since I was 15 years of age and it has certainly helped me through lean times. We need to ensure they are given every opportunity to prosper because their success means the community is successful.

Photo of Dessie EllisDessie Ellis (Dublin North West, Sinn Fein)
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It is unfortunate people must borrow money to make ends meet. They might need to replace a broken utility such as a washing machine or fridge, get their car fixed or cover the cost of family events like communions and confirmations or expenses at Christmas. For the most part, people mostly take out relatively small loans with moneylenders. These are then charged at a very high interest rate.

Research carried out in 2019 by the Social Finance Foundation found there are an estimated 330,000 customers of moneylenders in Ireland with an average loan size of €566. Loans tended to be offered over a nine-month period with an annual APR of 125%. Moneylenders give people these small loans that are then paid back over a short period of time and these loans are charged at exorbitant interest rates. Borrowing from moneylenders is perhaps one of the most expensive ways for an individual to borrow money.

Moneylenders can at present make door-to-door calls for payments but do so at a charge. This legislation will end this practice and that is to be welcomed. Figures from the end of 2019 show there were 38 licensed moneylenders in the country with approximately 300,000 customers. Of these, 28 were door-to-door moneylenders and two were catalogue moneylenders.

Findings from the research by the Social Finance Foundation further found the majority of those who use moneylenders are female and in the lower-income socioeconomic groups. They were typically aged between 35 and 55 years. For many, the moneylender is the lender of last resort and for those who use their services there is a high price to be paid, as people can be trapped in a cycle of debt and borrowing. For the most part, this makes a bad situation even worse in the long term.

While this Bill is an attempt by the Government to regulate moneylenders with a view to preventing those seeking loans from going to illegal moneylenders, the reality is the Bill does not adequately address the exorbitant interest rates moneylenders charge. We advocate a more substantial reduction than what the Government is proposed as the interest cap. If Government has a concern about people going to illegal moneylenders it should be noted An Garda Síochána has considerable powers under existing legislation to stop, question, search and seize money from those they suspect of illegal moneylending. There are also severe sanctions, such as massive fines and long prison sentences that can be imposed. It is important moneylenders are properly regulated and that people, especially vulnerable people in our communities, are not be exploited by moneylenders. I have concerns about this Bill and would like the Government to get it right now so we are not revisiting this issue in future.

Photo of Róisín ShortallRóisín Shortall (Dublin North West, Social Democrats)
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Moneylenders have been a feature of this country since the 19th century. They have acted as a source of credit for low-income households when mainstream providers simply did not do that. However, this easily-accessible credit comes at a cost and as we know it is a very high one. For households that are already struggling, these loans are a heavy burden. They may seem at the beginning to be helping people out of a difficulty but they inevitably end up being a heavy burden.

According to a report from University College Cork, entitled Interest Rate Restrictions on Credit for Low-income Borrowers, there are an estimated 330,000 moneylender customers in Ireland. The average loan size is €566 and these loans are most commonly offered over nine months at an APR of 125%. Compare this with the credit union where a loan is capped at 12.67% APR. It is difficult, if not impossible, to justify this large differential, not least when one considers the prevailing profile of borrowers who turn to moneylenders. The same report found that the majority of moneylender customers were female, in the lower socioeconomic group and aged 35 to 44 years. Typically, loans were taken out to purchase household goods and clothing along with covering the cost of family occasions as well as the exceptional cost of children returning to school.

The immediate access to credit and convenience of home collections are some of the reasons for many low-income families and individuals resorting to moneylenders. Satisfaction with legal moneylenders is high, with an average customer rating of 83%. This is attributed to the ease with which people are able to borrow. However, this convenience comes at a high cost for low-income families. In the UK, 52% of home credit users believed that using this form of credit trapped them in a cycle of debt and borrowing. This is an all too familiar experience. They felt trapped because most were living on low incomes and had limited options for accessing credit outside of moneylending. Unfortunately, moneylenders are eagerly meeting this unmet need with high interest rates that reach 187% and APRs of up to 287% when collection charges are included. These rates are eye-watering and are being offered to the individuals and families least able to repay them, namely, those living below the poverty line. In many ways, this is unconscionable and needs to be tackled on a number of different fronts.

Our fundamental difficulty is that there are significant problems with low incomes in this country. I mean this in terms of people who are dependent on welfare and those who are often described as the working poor. There was no increase in basic social welfare rates in 2020 or 2021. People dependent on welfare would have needed an increase of €10 in this year's budget just to stand still, but the allocation was a mere €5 per week. I appeal to the Minister of State that we need to move away from increases in welfare rates at budget time being dependent on the whim of the Minister of the day. That is not an acceptable way of operating. There needs to be a yardstick for what we consider an essential income to live a life with any kind of dignity.

The Vincentian Partnership for Social Justice has done outstanding work in this area and it has for many years been working on producing the minimum essential standard of living, MESL. It examines various categories of people who are on welfare or who have income from work. Through very detailed research, it establishes the figure that would represent the minimum needed to survive. It includes the incidentals people face, general overheads and small amounts for family occasions - critical things we need if we are to live any kind of normal life or a life with dignity. The Vincentian Partnership for Social Justice estimates that the basic social welfare pension rate - the State pension rate - would need to be increased to €252 to reach the essential levels for survival. This is a good yardstick to use. If inflation increased, there would be a corresponding increase in social welfare rates. Other bodies recommend that the basic social welfare rate should be a percentage of average wages - this is another way of doing it - but we need to have some kind of clear yardstick to measure the adequacy of the basic social welfare rate, and we do not have that at the moment.

Many social welfare recipients started this year already behind where they would have been two years ago. Then they were faced with substantial increases in the cost of living, including the cost of energy, even before what happened in recent weeks. They are under extreme pressure. They are the same people who are forced to turn to the moneylenders calling to their doors. They are in desperate straits, so if someone calls to their doors and offers them €200 or €500, there is a great temptation to take it. It is not just a matter of temptation, though. Often, many of these people need to accept such loans just to survive or get through particular points in their lives.

Another issue we cannot ignore is the fact many people are on low pay and in precarious working conditions. We have the second highest percentage of population on low pay at 22% or 23%. This is a dreadful reflection on the State. I made this point last night when discussing the Finance (Covid-19 and Miscellaneous Provisions) Bill. The figures for the tax take for the past two years, which were during the pandemic, said it all. There was not a major issue because, in the main, the people who were out of work, forced onto the pandemic unemployment payment, PUP, and so on were those who were on such low pay that they had actually been paying very little tax anyway. This serious structural problem in our economy needs to be addressed and cannot be ignored in a debate on moneylending.

Moneylenders have filled a gap in the market for decades by targeting the most vulnerable in society. The gap is widening, though, with MABS, credit unions and others reporting client creep into more groups of consumers since the recession. I suspect the figures will be even starker following the experience of recent months and what we are likely to face over the coming months. Since the recession, more higher income groups have been utilising this service because they are also struggling to cope financially. This is further compounded by the spiralling cost of living, including rent, fuel and food, that all households are facing. More and more people are turning to high-interest options or solutions - of course, they are not solutions in the long term - and Government intervention in the sector is needed urgently, but more than the modest offering that is currently under consideration is required.

One of the most glaring omissions from the Bill is a cap on APR. APR represents the annual cost of the loan over its full term, including fees and additional costs that are not included in the simple interest rate. This is the true cost of the loan. It should be noted that this issue is dealt with in Deputy Doherty's Bill, which is on Committee Stage. It is a shame the Government did not learn from that Bill and pick up on some of its most important aspects. It is disappointing the Minister has not provided for a similar cap on APR in this legislation, especially when we know that shorter term loans have a higher APR and that these account for the majority of moneylenders' loans.

As reported in The Irish Timeslast year, a licensed moneylender - Penny Farthing Finance - charges 49% on a 12-month loan, which is just above the Minister's proposed upper interest limit, but the APR on that amounts to 131.59%.

This is the real burden. This Bill does nothing to address that. In its submission on pre-legislative scrutiny of this Bill, the Credit Union Development Association also cited APR as a fair metric in this regard. It is also the current comparative mechanism across financial sectors. If we were to introduce a cap on consumer credit APR, we would certainly not be an outlier because this is becoming standard practice. There are multiple international examples, including the Netherlands, which places a total cost cap of 14% APR. Further to that, the European Commission is in the process of revising its existing rules on consumer credit. Instead of a centralised approach, this proposal will place an obligation at member state level to set interest rates or APR caps with national discretion.

In some jurisdictions outside the EU, the relevant financial regulators have introduced regulatory responses which specifically deal with short-term, high-cost consumer credit. This includes the UK, Australia, Slovakia and South Africa. Unfortunately, the Minister remains vehemently opposed to any cap on APR in regard to money lending. It is very hard to understand the rationale for this. The argument is there is a danger there could be a mass exodus from the market and that this, in turn, could reduce access to credit. However, there is very little international evidence to suggest that customers would turn to illegal moneylenders en masse. Even if this were to emerge as a major risk, it could be substantially mitigated by developing and supporting existing alternatives to money lending such as credit unions.

Credit unions are local trusted institutions and they are best placed to offer free banking and micro finance to low-income families and individuals. Since its very foundation, the credit union movement in Ireland has been encouraging people to assert more control over their finances. One of the founders, Nora Herlihy, began promoting this institution in 1958 to curtail the very issue we are discussing here today 64 years later. This network needs to be developed to meet the current challenge. However, as the Minister of State will know, reform of our credit unions is happening at snail's pace. There has been very limited progress towards establishing this sector as a strong, competitive force. There are many obstacles put in the way of the credit union movement in terms of it becoming a fully fledged player within the Irish financial market, not least because it is required to put its deposits with the pillar banks and that hugely restricts its capacity to operate in a competitive manner.

The Social Democrats have long argued for a strong, not-for-profit banking sector in Ireland. Not only would this create much-needed competition in the banking sector, it would support financial inclusion. We believe this can be based on a reformed credit union movement. There has been so much talk about that over many years, it is time now for action. We also strongly endorse the recommendations of the Oireachtas finance committee from 2017 in regard to the credit union movement and the credit union recommendations contained in the UCC report, specifically that credit unions should serve communities currently serviced by moneylending firms by increasing the 1% monthly cap on interest rates for credit unions. I understand that the Minister is open to this and intends to bring forward legislation to amend the Credit Union Act 1997. This would be a welcome change to the current regime as it would allow credit unions to cater for the significantly greater costs associated with small lending. I certainly hope we will be moving towards adopting that as soon as possible.An increase to 2% per month, which would work out at 24% per month, would be much more favourable to the rates offered by moneylenders. This is exactly where we should be encouraging people to access credit. Unlike moneylenders, who are profit-driven, credit unions are a social movement. Their ethos should be utilised to the full in order to ensure that everyone can access affordable credit.

In 2015, credit unions began the personal micro credit scheme, otherwise known as the "It Makes Sense Loan". This pilot scheme was designed to provide a creditable alternative to moneylenders. It is offered in more than 106 credit unions in 280 locations nationwide. Loans range from between €100 and €2,000 with a maximum APR of 12.68%. To qualify, a person must be a member of the credit union, or join, and be in receipt of a social welfare payment. The original pilot scheme initiative was launched in 30 credit unions under a common mission to deliver an alternative to moneylenders. An evaluation of this pilot found that 52% of pilot borrowers had used moneylenders in the past, while 22% had considered using moneylenders before taking out the pilot loan. Over 90% of borrowers rated the credit union service as good or very good. Since then, the pilot has been rolled out across the country. While it has been successful, many credit unions have not signed up, unfortunately. More work is needed in this area to increase the level of small personal loans across the country otherwise a significant portion of the population will continue to be cut off from accessing the scheme and, as such, will be still subject to relying on moneylenders.

Another area of concern is the significant dearth of financial literacy education in our schools. Many people are completely unaware of the financial implications of APR and interest rates on their loans. People who are struggling to make ends meet will take the line of credit that is most easily available. That is understandable, but that is usually a moneylender. They often do so without realising the true cost of the credit or just accept that cost because it is their only option. There is an onus on the Government to ensure that basic financial literacy is a key part of the education curriculum, as well as the provision of support schemes through community projects around the country to improve financial literacy. This must be done in conjunction with renewed efforts to make low-cost credit available nationwide through our credit unions. I also think there is huge potential for extending deduction-at-source for many household bills. Very often, people have difficulty getting access to some of those schemes but they have been hugely successful where they have been used. There is a great need for an extension.

I reiterate my call on the Minister to do more. This Bill is not enough to deal with the myriad of issues in this area. While it is an improvement and that is welcome and overdue, it will not fundamentally change the current system. We need a move away from high-cost moneylending and a shift to not-for-profit banking. I accept this will not be a straightforward, easy task. The importance of tradition and friendships with door-to-door agents and so on will need to be overcome. However, these are not insurmountable issues if we are truly serious about limiting the use of moneylenders. This is all the more important now given the current context. High energy prices and rising food prices hit low-income households the hardest. This will likely cause a spike in moneylending. There is a real urgency about tackling this issue. Financial education and credit union reform, alongside tighter regulation, are part of the solution. We need to act fast, otherwise the most vulnerable in society will be saddled with even more debt. We simply cannot stand over inappropriate and misleading moneylending any longer.

2:10 pm

Photo of Denis NaughtenDenis Naughten (Roscommon-Galway, Independent)
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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.

2:30 pm

Photo of John LahartJohn Lahart (Dublin South West, Fianna Fail)
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I welcome the opportunity to speak briefly on this Bill and I welcome the Minister of State's presence here today. I was in the fortunate position to be in the Chair while listening to some of the contributions. I am reminded of the fact that moneylending is still with us. We will have read about it in the New Testament and read as children about Jesus railing against the moneylenders in the temples. It featured strongly in some of the greatest pieces of Shakespearean writing as well. It is an old practice but that does not mean it is an acceptable one.

None of us would disagree that nobody should be forced to have recourse to a moneylender. I have highlighted some of the pieces in the Minister of State's introductory contribution. I know we are pushing an open door with him on a number of the themes that have been raised and that he will be sensitive and alive to many of these issues. I welcome how the Bill modernises and streamlines the licensing regime. It also puts some discipline on something that exists which I would prefer did not. It potentially provides for a degree of competition in the sector by nationalising the licence, as opposed to licences being provided on a regional basis and being stricter in some areas, so other people may move into this. However, there are obvious pitfalls, such as requiring a limit on cash loans as regards when they can be provided and repaid.

I was very taken by the points about the stereotypical person who has recourse to a moneylender. It is difficult to imagine people calling to a door to collect cash repayments in a modern society. I imagine it is quite intimidating in some cases, and very personally intrusive. That gets to the heart of the matter. Many people have asked why we do we not use credit unions in these instances. To some degree, that suggestion ignores the fact people may have exhausted every kind of formal route of borrowing. The Minister of State made that point in his contribution. Traditionally, to borrow from the credit union, people have to have a few quid in the credit union. Clearly, people who have to resort to a moneylender are at their wits' end and are in the last chance saloon when trying to a few quid together.

My late father was a milkman and when I was young, aside from delivering milk with him I used to go with him every Thursday and Friday to collect the milk money. We had our little receipt book and money bag and that taught me some early lessons. I was younger than most children would be allowed to work today and I enjoyed it. One of the lessons I learned was that the people who appeared to be most economically challenged were always the ones who paid their bills up to date and on time and who had the cash ready when you called. There was a facility in those days that you did not have to pay the bill in full if it was £10, which was a lot of money. I encountered families that had nice cars in the driveway, lived in good houses and seemed to want for nothing but they were never able to clear their milk money bills at the end of the week. They might have paid £15 off a £20 bill and then the next time they would pay £15 off what was now a £25 bill and then they would pay £15 off a £30 bill and it kept rising. We should not always rush to judge a book by its cover in that regard.

I will plead with the Minister of State on the following point in the context of retrofitting, which I remember raising at a parliamentary party meeting. It is staggering that there is between 250,000 and 500,000 customers of moneylenders and that by and large they fall into a particular gender and age group. It is also staggering that the products or services they spend that cash on can be narrowed down. It would be great if the Minister of State could provide more statistics on how many people repay the moneylenders in full and on how long it takes on average to pay back that €500.

When I was growing up and I had my first home I remember that the ESB had shops all around the country. I was very taken by the point that a lot of people seek money from moneylenders for instances like Deputy Martin Kenny mentioned such as the washing machine suddenly breaking and a replacement being needed or some other household good needing to be replaced. Some 20 years ago the ESB had a shop in every town in the country and one could buy a brand new washing machine and other things, as I did, and one paid a certain amount off it with each ESB bill as it came in over a period of two or three years. It might be helpful to look back on that. I suspect that it would be a source of embarrassment to turn up in the credit union looking for this money. Credit unions tend to be local and parochial with a degree of intimacy and local knowledge about people. If people are really stuck and strapped for cash it might not be the place they want to go. There is a huge degree of anonymity with moneylenders.

The interest rates, even the rates we are talking about capping them at, are staggering. I welcome this move. Deputy Doherty said he has been raising this for years and he acknowledged the fact that this Government and the Minister of State are moving on it. It is important and it has been lying around the legislative process for far too long. I commend the Minister of State for introducing the Bill and moving it to Second Stage. I will be watching its progress as we go along.

2:40 pm

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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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.

2:50 pm

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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That is not true.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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The Opposition-----

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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On a point of order-----

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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What is being proposed-----

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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How long does the Minister have to conclude?

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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I am in the middle of making a point.

Photo of Seán Ó FearghaílSeán Ó Fearghaíl (Kildare South, Ceann Comhairle)
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He has 17 minutes.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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But the schedule states ten minutes. The time was up at 30 minutes.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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What I want to say in relation to the point I am making is that the legislation-----

Photo of Seán Ó FearghaílSeán Ó Fearghaíl (Kildare South, Ceann Comhairle)
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It is 30 minutes.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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It is ten minutes in the schedule.

Photo of Seán Ó FearghaílSeán Ó Fearghaíl (Kildare South, Ceann Comhairle)
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The Minister is speaking.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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The Minister of State does not understand his own Bill.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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I think the figure of 288% was quoted by both of us in our opening speeches. The Opposition is proposing that the 288% be brought down to 36%, a reduction of 252%. Our legislation is proposing a reduction in the maximum rate of 240%.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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Jesus Christ. One is APR and the other is simple interest. You do not even know what you are talking about.

Photo of Seán Ó FearghaílSeán Ó Fearghaíl (Kildare South, Ceann Comhairle)
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Please Deputy.

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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It is embarrassing.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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It will be a reduction from 288% down to 48%. What is being proposed is a reduction of 252% from 288%-----

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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The Minister of State's officials are cringing. It is embarrassing. Oh my God.

Photo of Seán FlemingSeán Fleming (Laois-Offaly, Fianna Fail)
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That is the scale of what is being proposed in terms of where we are with the de facto rate that is out there at the moment - the interest rates being charged - and what will come in under the new legislation. There is a difference between what the two sides of the House are proposing, but the message going out that everybody needs to hear is that regardless of which rate is introduced through this legislation, it will represent an actual reduction on the average loan that is out there today. It will also mean that the crazy-high figures will be brought down dramatically by whichever measure we chose to adopt. I look forward to teasing these matters out on Committee Stage because I know the Deputy is very keen to discuss these issues. I wanted to make those points in relation to the legislation. I look forward to continuing the debate in the context of amendments on Committee Stage.

Photo of Seán Ó FearghaílSeán Ó Fearghaíl (Kildare South, Ceann Comhairle)
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Does Deputy Doherty wish to make a point?

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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APR, which is what exists already at 288%, and simple interest, which is in the Bill at 48%, cannot be compared. They are simply different ways of calculating interest. To make that suggestion is cringeworthy. The Minister of State should correct the record of the House.

Question put and agreed to.