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

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 moneylending loans. The feedback from the public consultation on the issue was that the introduction of a cap would protect low-income households that avail of moneylender loans, reduce the cost of credit for customers of moneylender, 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 Bill contains 16 sections. I will now set out its main provisions. Section 2 will provide for the terms "moneylender" and "moneylending" to be replaced by the terms "high cost credit provider" and "high cost credit". This makes clear that the credit is high cost and will help to differentiate between legal and illegal providers by moving away from the generic term "moneylender".

Section 3 will introduce two new offences where a provider grants a loan in breach of the legislation.

Section 6 will remove the requirement for providers to register in each District Court area and extend the licensing period from 12 months to five years. It will also bring in new factors the Central Bank can take into account when granting, suspending or revoking a licence to improve consumer protection and the orderly regulation of the sector.

Section 7 will ban cash loans from being granted for a period of more than one year. The key rationale of high-cost borrowing is that it is needed because of short-term circumstances and where an alternative source of borrowing may not be available.

Section 8 will require providers to include the words "high cost credit agreement" prominently on the agreement.

Section 9, the key provision, will provide for the setting of a maximum interest rate that a high-cost credit provider can charge for both cash loans and running accounts. It will be an offence 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, including: 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 the impact of a reduction of credit supply on financial inclusion. The Minister must also adhere to ceilings set down in the Bill.

In regard to cash loans, the maximum rate of simple interest chargeable per week can be set only at a rate less than or equal to 1%, while the maximum rate of simple interest chargeable per year can be set only at a rate less than or equal to 48%. In respect of a running account, under a high-cost credit agreement, the maximum rate of monthly nominal interest can be set only at a rate less than or equal to 2.83%. Using a simple interest arrangement for the interest rate caps on cash loans will simplify the product and enhance transparency.

A different approach is recommended for loans provided on a running account basis because these operate like credit cards, whereby there is a credit limit and purchases can be made up to that limit. The credit owed, therefore, 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 be likely to be unworkable.

Following the enactment of the Bill, the Minister for Finance will make regulations setting the cap at the maximum level allowed for under the legislation. This will take the most expensive products off the market and require the bulk of products to be revised downwards in price. These interest rate caps can be varied downwards in the future by regulation if circumstances and the consideration of factors I have outlined warrant doing so. The Central Bank will also be required to prepare a report within three years of the interest rate caps having come into operation.

Section 10 will require providers to include the option of maintaining an online version of a repayment book if the borrower requests this.

Section 11 will add collection charges to the list of prohibited charges. The Bill will not abolish the practice of home collection, just the right to charge separately for it. Moneylenders who decide to continue the practice will have to accommodate the costs associated with that in their revenue model, which can consist only of interest.

Section 12 will allow the Minister to require the Central Bank to collect and publish non-personal data on the high-cost credit sector.

The Bill received much interest from Deputies when it was in the Dáil. I look forward to hearing the views of Senators during this debate.