Wednesday, 1 June 2022
Consumer Credit (Amendment) Bill 2022: Second Stage
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.
I welcome the Minister of State to the House. If it were ever timely to bring in an item of legislation, that is certainly the case with regard to this Bill given many people will, clearly, face significant challenges in the near future. Fianna Fáil welcomes the Bill, the main purpose of which is to restrict the total cost of credit on moneylending loans, probably as a result of the report on moneylending policy proposals. The report examined the moneylending industry in Ireland and assessed the potential impacts of the introduction of an interest rate cap along with other supporting policy.It provides an overview of the current regulatory framework for licensed moneylenders and an analysis of the different credit options, and describes key characteristics of each of the moneylending markets.
In May 2019, the Department of Finance launched a public consultation process to gather the views of stakeholders on whether the Government should introduce a statutory interest rate cap on licensed moneylenders in Ireland, along with other regulatory matters. The main focus of the consultation was the question of interest rate caps. Respondents were asked, if an interest rate cap was introduced, which of four different models they were presented with would be the most beneficial and transparent for all consumers. The majority of submissions received were in favour of the introduction of an interest rate cap. This is what the Bill does. It will restrict interest rates by providing the Minister for Finance with the powers to make the regulations setting the maximum interest rates at which moneylending can be provided and prohibit moneylenders from charging for home collection services.
The Bill will reduce the cost of credit for customers of moneylenders. It also introduces a range of measures to reform and modernise the moneylending sectors. These measures will provide better protection for consumers and will streamline the licensing process for providers. The Bill will also contain a range of measures to modernise and streamline the sector, including allowing prepayment books to be maintained online.
As I said, this legislation follows a comprehensive review of the moneylending sector undertaken by the Department of Finance. The proposals take into account the submissions received during that public consultation process held by the Department in respect of these issues. Fianna Fáil will support this vital legislation as it progresses through the House.
I welcome the Minister of State to the House. Many years ago, I worked as a barrister advising the providers of personal credit so this is an issue, as are collection charges and the like, that I have some experience of.
I agree completely with what has just been said about us now heading into a financial crisis where many people may be driven to borrowing money just to keep going. I will say a number of things before we sign off on this Bill. The Minister of State's speech is really just the explanatory memorandum. I would like to know far more about how it is intended this will all work. It is all very well to say the Minister will have the power to regulate the interest rate that can be charged. That sounds good, but I am slightly sceptical about how it will work for two reasons. For example, and I know this sum is probably too low, if €100 is lent on a collected-weekly basis, and if over six months the borrower pays €120 back over 25 payments, the APR on that will be approximately 40%. The actual amount collected each week would be €120 divided by 25. When we think about it, the amount involved does not seem enormous, given somebody arrives at someone's door every week to collect the money. There are people for whom that is a more satisfactory arrangement than having to go to some office somewhere, or to a pawnbroker or moneylender's office or whatever it is, to pay back the loan.
As the Minister of State pointed out, at present collection charges are charged separately and are not included in the APR. Once collection charges are included in APR, however, it rockets up to 40%. We then have to take into account the risk and the work involved in going to collect the money every week from a person. None of us would like to see somebody paying 40% per annum, but €20 over six months on €100, if it is collected, does not seem on the face of it to be a shocking amount, given the service involved in that. I ask Members to bear in mind that while these figures can suddenly look dramatically higher, and indefensible and unconscionable, and a rate of 40% per annum for people who are down at heel seems enormous, nobody else will lend them that money at that rate in a way that involves going to their houses and that is controlled and regulated. These are the kind of things we have to bear in mind. I am not speaking on behalf of moneylenders. I am just asking us to bear one thing in mind. If we give a Minister the power to regulate the maximum amount that can be charged, it is a politically very sensitive thing for a Minister to have to do because some clever journalist will stand up to say that Minister has just authorised 40% APR per annum, when it is really just about collecting €120 on a €100 loan over six months with daily collections. I am just pointing that out.
It is easy to say 40% is shocking but, and this is the second and most crucial point I will make, if we eliminate these areas of lending by making them uneconomic, the lending will still take place and there will be loan sharks. I recall when I was a child living on Leeson Street, off Appian Way, a man - long-since dead so I will not damage anybody's reputation - who was a newspaper vendor at the top of Chelmsford Road in Ranelagh. He was also a local moneylender. All the people who borrowed money in Ranelagh went to him. He appeared to be selling the Evening Herald and the Evening Pressin the evening but was, in fact, lending money and people were coming to him to pay it back. That was fine in its own way because he was not going to threaten to break people's legs if they did not pay. He was just a local service that was totally unregulated. The point is I want the Minister, at some stage, to spell out how he will protect people from loan sharks and unregulated people. If we regulate people very heavily, and leave people who need money badly in the hands of those who are not regulated and will not pay a blind bit of attention to what is in this Bill, we are exposing the weakest in our society to the most vicious in our society. The methods of getting money back and the whole question of having a licence with the Central Bank or anybody else regulating them is utterly irrelevant. They will just come, break people's windows, break people's legs and threaten somebody's children, or whatever they threaten to do.
It is all very well to do this but I just want to see the actual effect of it. Will we drive people into the hands of unlicensed moneylenders? Will the figures the Minister will fix by way of maximum interest rates be politically sustainable for any Minister because clever journalists will expose them to ridicule, even if at the same time these rates save people from loan sharks? This is something we should think about.
I welcome this Bill and thank the Minister of State for his work on it. We need to look at some interesting facts and figures. According to Central Bank figures, at the end of 2020, the moneylending sector had more than 283,000 customers with €141 million in outstanding loans. Research 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. It is great the Minister of State said that when this legislation is enacted, borrowers of the most popular products should see immediate reductions of approximately 13% in the interest charged. The abolition of home collection charges is very welcome. That was an appalling practice and it is great to see an end to it. The introduction of an online repayment book allowing people to check the status of their accounts on their mobile phones is also very welcome.
I will mention credit unions because they can offer an alternative to moneylenders in some instances, but only if they are enabled to do so by the Government. Will the Minister of State review the maximum interest rates credit unions can charge and other restrictions on credit union lending? Credit unions have an important part to play in this but we need to keep an eye on their rates as well. Does the Minister of State envisage any of the recommendations of the review of the credit union policy framework will impact on the high-cost moneylending sector?It is always the most vulnerable who get stuck in these situations and any work we can do to help them deal with moneylenders, who can by their nature be violent, ferocious and frightening to people, is something I welcome.
The Minister of State is always welcome. I welcome the opportunity to speak on this legislation. The issue of moneylenders has been of great concern for many years. The permission for ultra-high interest rates charged by moneylenders is immoral and unethical. The law currently permits moneylenders to charge rates of interest that trap vulnerable borrowers in a cycle of debt. Under this and previous Governments, moneylenders licensed by the Central Bank are permitted an APR of up to 187% on loans. That increases to 288% once collection charges are included. When compared with more affordable sources of credit like credit unions, which 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 borrowers into an unsustainable and vicious cycle of debt and in many cases they already have. Imposing a cap on the cost of credit moneylenders can charge is first and foremost a moral issue and one that can and should be addressed. In 2018, my colleague, Deputy Doherty, introduced the Consumer Credit (Amendment) Bill 2018 to place a cap on the cost of credit moneylenders could charge, only for the Government to block its progress for years for reasons that were party political rather than in the interests of consumers.
There are many provisions of this Bill that Sinn Féin supports. 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 that the APR for home collection loans, the term limit of home collection loans at 12 months and the ability of the Minister for Finance to amend rates further by regulation. All of that is welcome.
However, the biggest weakness of this Bill is 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 in the Dáil and I am going to speak about it again because it is so important. One does not have to be a smart journalist to given an example. 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 moneylenders will in future be able to charge €480 on a €1,000 cash loan. That is what is proposed in this Bill. That is still extortion.
I must take up the argument Senator McDowell made. He made the point that because it is broken down into small amounts it is actually not as bad as it sounds. With the greatest of respect to the Senator-----
We need to recognise these interest rates are fundamentally immoral. They are absolutely outrageous. My colleague, Deputy Mairéad Farrell, put it well in the Dáil. She said, "This Government never misses an opportunity to miss an opportunity", to do the right thing.
The most important part of this Bill is that the Government is apparently still happy for these extortionist moneylenders to charge €480 interest per year on a €1,000 loan. I ask the Minister of State to tell me how he justifies that. I grew up in London in a working-class community. Moneylenders were an absolute horror. I am lost for words to describe the damage they did predominantly to my community, the London Irish community in north London, at that time. In the areas we look after in particular - Sinn Féin as a working-class party - we know the damage these moneylenders do. The Government has an opportunity to do something right here.
Maybe it should have a look at what has happened in the rest of Europe. These high interest rates were described as excessive in Spain, as unconscionable in Finland and in Germany as lacking in moral legitimacy. The interest rate cap proposed in the Bill does not go far enough and we cannot allow such a financial regime that damages the economic interests of borrowers to continue. We must understand 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. We all know this. This is why Sinn Féin introduced its own Bill, which would have limited interest rates to three times the market average, which is much less than in the Government Bill.
We will press amendments on Committee Stage. I am not optimistic given the Minister of State rejected them in the Dáil but it is never too late to do the right thing. When we think of the damage these moneylenders do, especially to the weakest and most vulnerable, the idea this Government is suggesting it is good news - in the time of a cost-of-living crisis that is the worst we have seen in many years - that lenders can charge €480 per year on a €1,000 loan is never going to be acceptable.
I welcome the Minister of State to the House. Fine Gael supports the Consumer Credit (Amendment) Bill 2022.
As has been outlined already, the main proposal is to introduce an interest cap on moneylending loans which will protect low-income households who avail of moneylender loans. I too represent many working class communities and have done so since 2009 when I became a councillor in Waterford. I know personally of the devastation moneylending can impact on so many families. However, this is an important step to move to regulate this industry that has essentially operated like the wild west, in many cases, up to now. We are trying to reduce the cost of credit but as Senator McDowell also said, we must be mindful of the ability of people to be able to lend while also not trying to drive lending underground, where it will happen, and happen at a far higher interest rate. Oftentimes violence will also run through it.
There are some positive steps in this Bill. The Minister of State outlined some of them in his speech. Section 2 includes reference to the terminology and states the new classifications will be "high cost credit provider[s]" and "high-cost credit". That is a positive move because it is important we state on the tin what this is. It is no longer acceptable for such practices to just be called "moneylending" as if they are the friendly person at the door who is being very kind in terms of lending. These are high-cost credit providers. It is true they are needed at times by people but we need to be mindful and document exactly what it is, that is, a high-cost credit provider. We have the likes of our credit unions and many others to provide lower-cost loans. Of course, all of us in the House encourage people to avail of those products, which are far more appropriate than the high-interest loans on offer.
The cap, as has been referenced, sets a maximum of 48% interest. I note also the Minister of State said the regulations would be set at that level initially but there would also be a review within three years of this coming into operation. I suggest that review be brought forward to perhaps 18 months into the legislation's operation or a maximum of 24 months afterward. We would then be able to see how it is operating and if we need to reduce the caps. It would also allow us to ensure people still have the ability to avail of those loans, should that be necessary as a last resort.I hope such a suggestion can be taken on board on Committee and Report Stages. Overall, however, as regards the thrust of the Bill, this is an important step forward in regulating what has for a long time been essentially an unregulated industry, with interest rates ranging into very high figures. I hope some of the suggestions I have made can be taken on board.
I welcome the Minister of State to the Chamber. The Labour Party welcomes the Bill. I find it strange, though, to be effectively welcoming a maximum interest rate of 48%. Interest of €480 paid on a €1,000 loan is exorbitant. It is wrong. The principle of the Bill to impose a cap is to be welcomed, but the cap is excessively high. I take on board what Senator McDowell said. There are many money sharks. There are illegal money sharks out there who will seek to exploit opportunities and will be there regardless of the regulated system. However, the 48% cap has to be reduced much more swiftly. I therefore join the calls to have the review over a much shorter period.
As has been said, those relying on moneylenders, as we all know, tend to be low-income, female and of a particular demographic in respect of which the costs associated with raising children or just trying to put a roof over one's head are disproportionately high. It is also important to say that any of us who have dealt with people who are reliant on moneylenders know that they borrow when they are credit-impaired. There is a key issue here as to what we are doing for those who are credit-impaired, perhaps because of decisions they made very early in their lives, or those who do not have bank accounts at all. Notwithstanding that the concept of a basic bank account now exists across every bank in this country, we know there are still a few thousand people out there who do not have bank accounts, incredible as that may seem in this day and age. The last piece of research undertaken on this is from some years ago now. We would all benefit from having an understanding of who does not have access to a bank account and, therefore, can only be reliant on the likes of a moneylender.
Reference has been made to credit unions and the stark contrast in respect of the cap for many credit unions on their cost of lending. We need to look at how we might better support credit unions and other State-run banking institution to lend effectively rather than having profit as the key incentive. Ultimately, low-income people have no other choice but to rely on whomever will give them the money, as opposed to having a choice in the market. The State needs to better provide for those persons.
Lastly, I appreciate that there is an updating of the regulation of moneylenders in this legislation, but I am uncomfortable with extending the licence from a one-year to a five-year period. We need to go back to those issues of enforcement to better understand that this legislation will work before we start to extend the licence period. I presume there was good reason at the time behind the removal of the requirement for moneylenders to register in each District Court area. Perhaps this is borne out of a position of distrust, but I do not believe we should loosen the regulatory conditions surrounding moneylenders in advance of understanding how they apply the cap. We have called on the Minister of State to reduce the cap. I know he has previously said there is a concern that moneylenders will escape the market. We should not make life easier for them in respect of their regulation. Overall, however, we support that a cap is being put in place, notwithstanding our very serious concern that it is being pitched at simply too high a level.
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.