Seanad debates

Thursday, 24 March 2022

Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Bill 2021: Second Stage


10:30 am

Photo of Paul GavanPaul Gavan (Sinn Fein) | Oireachtas source

The Minister of State is very welcome. It has been four years since the Tutty report came out. We finally have legislation which will hopefully reach its final Stages soon. It is welcome that this legislation deals with the concerns expressed in that report, but I am critical about the time taken to get to this point. This Bill implements the key recommendation of the Government-commissioned Tutty report that was published in 2018. Many people will be surprised to learn that providers of credit are not yet regulated by the Central Bank. This Bill will require providers of hire purchase and PCP credit lines to become regulated entities.That will give the Central Bank the power to apply the consumer protection code to such firms, particularly the part that requires firms to assess the suitability of the product for the consumer and the ability of the borrower to repay the debt over the duration of the credit agreement.

In the past number of years there has been an explosion in the PCP market. The number of PCPs for car finance alone between December 2014 and February 2020 increased by 528%, while the total outstanding credit in the PCP market stood at €1.7 billion by 2020, which represents a 573% increase since December 2014. This sharp rise in the PCP market and PCP credit has raised justified concerns regarding financial stability and consumer protection. PCPs have become a prevalent feature in the Irish motor finance market. A PCP is a type of hire purchase financial arrangement in which the customer is not the owner of the car until the final payment has been made. PCPs are characterised by a final balloon payment at the end of the contract which is often much larger than the previous repayments. Unlike other arrangements, the borrower can choose to either return the car to the seller, make a final payment to assume ownership, or enter into a new PCP which is the norm. It has been noted that this balloon payment can prove to be very expensive. As a consequence, as outlined by Mr. Michael Tutty in 2018, in practice the tendency with a PCP is that it is rolled over into a new contract at or before the end of the monthly payments.

As the Competition and Consumer Protection Commission, CCPC, noted in its 2018 report on PCPs in the Irish market, "the low monthly repayments, while making new cars appear affordable, may in some cases cause consumers to enter contracts which may become unaffordable when the final payment is taken into account." In the view of the commission, there is potential for detriment in the absence of mandated affordability or suitability checks, particularly given the complexity of PCP products. The difficulty with PCPs is that they can seem affordable to many people due to what look like affordable repayments at the beginning but the balloon payment at the end can cause terrible difficulties. I am sure many people in this House have been contacted by people looking for help with legacy debt, worried that they are being ripped off because they have been lured in by six-month interest-free credit deals only to find themselves locked into a four-year high-interest arrangement because companies have made it as difficult as possible to repay the balloon payment at the end of the arrangement. This has to stop.

The Bill will require providers of indirect credit to become entities regulated by the Central Bank. Indirect credit is so-called because the lender provides credit to the borrower by paying a retailer for the purchase of a good. This would significantly improve the level of protection available to the consumers of such agreements. My colleague Deputy Doherty has done a lot of work on this with the Minister of State on Committee Stage in the Dáil and Sinn Féin will continue to support the Bill, which is long overdue.

On the Bill itself, section 9 inserts a new section into the Central Bank Act allowing the Minister to request that the Central Bank collect and publish information on credit, hire purchase and consumer hire agreements. This follows a recommendation of the Tutty report. However, it is not guaranteed that this data will be collected and published regularly as subsection 36EA(5) of section 9 provides that they may be requested on a "once-off basis". I ask that consideration be given to making the collection of this data a regular occurrence, once every six months. I also note that section 9 does not specify the particulars to be collected and published in that data. These particulars are left to the discretion of the Minister in the request that he or she makes under section 9. As part of pre-legislative scrutiny of the heads of the Bill in 2019, a number of stakeholders recommended that a span of items be included in the data collected and published. For example, the Free Legal Advice Centres, FLAC, recommended that details of deposits required for entering these agreements and the range of penalties and interest that customers may be charged in the event of default be included. The Money Advice and Budgeting Service, MABS, suggested that the data also include the number and value of such loans in arrears, pointing out that the data frequently published by the Central Bank on mortgage arrears are of great use to the agency as it supports borrowers in the services it provides. This legislation does not include such particulars and I ask the Minister to clarify what he intends to request of the Central Bank under section 9.

Finally, section 13 requires that the APR under hire purchase and consumer credit agreements cannot exceed 23%, with the notable exception of moneylenders. I urge the Minister to deal with that issue. My colleague Deputy Doherty has drafted a Bill in this regard. The Government permits moneylenders to charge an APR of 187%, or 288% when collection charges are included, and I urge it to work with Sinn Féin to finally address that issue.


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