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

I thank all the Senators who spoke on the Bill. Generally, I think everybody is supportive of the legislation, despite some issues of concern.

The first question asked was how this will all work because we have given just an outline of the Bill. One of the key differences is that, until now, a prospective moneylender had to go to each court to get a licence. That now will be done by the Central Bank. The same conditions will apply nationwide. As this will be a regulated market from now on, which it is not as we speak, the Central Bank will have a key role. Importantly, there are only about 30 moneylenders in the country now, so it will be very straightforward for the Central Bank to have sight of the financial affairs of each of them. It is not a big imposition, compared with over 200 credit unions and all the banks the Central Bank regulates. The biggest moneylender pulled out of both the Irish market and the UK market last year. It is very important we maintain some proper licensed moneylenders. The alternative to the lenders being cut out, as I think everybody accepts, is that people will borrow elsewhere. We all want to ensure that people do not go to loan sharks. There is therefore a balance to be struck in respect of the interest rate. We could bring it down to a very low level and we would find nobody lending money because these are higher risk loans than larger loans, whereby people can have collateral and they have savings records and credit records with financial institutions. We want to make sure that lenders continue to be viable. We all know that credit cards have interest rates of 20% and more per annum. That is the baseline for this. We have gone for the 1% simple interest approach, that is, 1% per week subject to a maximum of 48%. There is currently no regulation whatever in respect of the interest rates charged today.

As for collection charges, which can be helpful, about half of moneylenders add on the cost of door-to-door visits. That puts up the APR significantly. We are not saying they cannot do that, but they cannot factor it into the interest rate they charge if that is the way they do business. Some do door-to-door visits without levying an extra charge. They do the collections but the cost is built into their APR. At present, on a 12-month €1,000 loan, a simple interest of 48% would equate to an APR of 128%. That assumes that the customer does not pay anything back for 364 days. That is not the way most loans work. People pay back loans by the week or month. People can take the example of a customer taking out a loan and not paying any of it back until the last day and can extrapolate the APR in that situation. Use of the APR in such cases is often not suitable because most of these loans are short. They could last a couple of months. They could be for a holy communion or for Christmastime. They last three, four or six months. Trying to impose an APR on something that is not an annual loan does not make logical sense to start with, but some people try to attach one to the other where it is not suitable.

Letting the Central Bank see how this will operate for a couple of years is important. The maximum rate provided for in the legislation is 48%. Let us compare the rates. As we speak, the highest APR used, including when charging for door-to-door collection, is 288%. There are some people out there today paying 288% equivalent APR when the cost of weekly home collection visits is factored in. This Bill will bring that down to a simple interest rate of 48%, a dramatic reduction but still high. We want to make sure that the 30 companies that are here stay in business and can operate viably. If they disappear, everybody will go to loan sharks. We have to avoid that.There is, therefore, a balance to be struck in that regard. We want a balance between having moneylenders in the market and having high-cost moneylenders.

Reference was made to credit unions. They have a loan product called It Makes Sense. The borrower has to be on social protection to get one of those loans. They are geared for people in that position. There are people who require short-term loans.

Another provision in this legislation is that the maximum loan period is 12 months. I must be clear that there is no provision, and it is an offence, to run a loan over to 13, 16 or 18 months. For the first time ever, these are regulated bodies monitored by the Central Bank and it is a legal offence to run a loan beyond 12 months. These are good protections. I accept that the Central Bank will do a good job. It has to watch only 30 of them. Overall, I understand what Senators are saying, but it is important we put this legislation in place as soon as possible.