Wednesday, 22 June 2022
Consumer Credit (Amendment) Bill 2022: Committee and Remaining Stages
Before we start, I welcome the Minister of State at the Department of Finance, Deputy Fleming. I understand he had a big celebration last week to mark his 25 years of service in Dáil Éireann. We congratulate him on a quarter century of service to the State and wish him all the best for the next 25 years of service to the State.
I move amendment No. 1:
In page 9, to delete lines 29 to 35, and in page 10, to delete lines 1 to 10 and substitute the following: “(2) (a) The Minister shall prescribe in respect of a loan (other than a running account) under a high cost credit agreement—(3) (a) The Minister shall prescribe in respect of a loan (other than a running account) under a high cost credit agreement—(i) the maximum rate of simple interest chargeable per week (being a rate less than or equal to 0.75 per cent), and(b) A maximum rate of interest prescribed under this subsection shall apply to a high cost credit agreement entered into after the date on which the regulations, by which the rate is prescribed, come into operation and for a period of no longer than three years.
(ii) the maximum rate of simple interest chargeable per year (being a rate less than or equal to 36 per cent).(3A) (a) The Minister shall prescribe in respect of a running account under a high cost credit agreement, the maximum rate of nominal monthly interest chargeable on an outstanding balance (being a rate less than or equal to 1.92 per cent).(i) the maximum rate of simple interest chargeable per week (being a rate less than or equal to 0.35 per cent), and(b) A maximum rate of interest prescribed under this subsection shall apply to a high cost credit agreement entered into no longer than three years after the date on which regulations, by which the rate is prescribed, come into operation.
(ii) the maximum rate of simple interest chargeable per year (being a rate less than or equal to 18 per cent).(b) A maximum rate of interest prescribed under this section shall apply to a high cost credit agreement entered into after the date on which the regulations, by which the rate is prescribed, come into operation.”.
I welcome the Minister of State to the House. I am speaking on this amendment on behalf of Senator Gavan. Deputy Doherty introduced legislation in 2018 to cap the levels of interest that can be charged and Sinn Féin has campaigned for many years to have the law changed. We continue to do that today. Some of the ultra-high interest rates that moneylenders are charging are absolutely unethical and immoral, and permitting them to do so is unethical. It traps vulnerable borrowers into vicious cycles of debt. That is scandalous and it can be legislated against, which is why we have put forward this amendment, the only proposed amendment, to the Consumer Credit (Amendment) Bill.
I invite the Minister of State to give his response before I go any further. I hope the Government will support the amendment and take it on board.
I thank the Senator for moving the amendment on behalf of his colleagues. I am aware that his party has a great interest in this legislation and I engaged with Deputy Doherty in the Dáil on the same amendment on all Stages of the Bill in recent weeks.
Lower interest rates are better for consumers and that is why the key purpose of this legislation is to reduce interest rates. Members of the Opposition will say that the Government is not being ambitious enough, but we have to strike a balance here to reduce rates without reducing access to credit.
I will outline what we are proposing for cash loans. There is currently a concentration of loan offerings at between 1% and 1.2% per week in respect of moneylenders in the market. An initial interest rate cap of 1% per week will allow all moneylenders operating at the rates above this to revise their business model and reduce their margins to enable them to operate within the new legislative cap. At present, most moneylenders in the market are above 1% per week and we want to bring them down to 1% per week. It goes without saying that some of them are at astronomically high rates and some of them charge money for every time they make a house visit to collect money. That really adds to the cost of the loan for the most vulnerable people.
Research has shown that the people who are mainly inclined to borrow from such moneylenders tend to be women in their early 30s and up to their 50s with young families who they are rearing alone. They are the most vulnerable. They have back to school, birthdays, first communions and Christmas expenses through the year and they get loans and try to roll them forward. They get a loan from one company on one occasion and another loan from another company at another time. The essence of this legislation is to ensure that any time an organisation gives a loan in future, it will check what other loans the borrower has. That has not been happening up to now. The company will want to make sure that the person can actually afford the loan being taken out. There is no point in accumulating loans that people will not be able to pay in the long term.
The 1% is our starting point. We are saying this is the maximum that can be charged, but it is planned to start with 1%. Over a period of a couple of years, when the Central Bank reports on how the approximately 30 companies are operating in Ireland, we will be able to assess if the 1% is still valid and whether there might be scope to reduce it as time passes.
The proposal in the amendment is to set the rate at 0.75% per week rather than 1% per week, with specific timelines to reduce it further. I propose to introduce the latter rate and to monitor it closely. We can return to it at a later date when we have evidence and information on how it is operating and whether it is valid to reduce it below 1% and by how much at that stage. The amendment is predetermining how the legislation will work in practice over the forthcoming period by providing for set times to reduce it, but I believe the most cautious way to do it is by doing what is provided for in the Bill, subject to review.
The most important point, as I said earlier, is that there is continued access available to these loan facilities. The biggest provider in the market, both in Ireland and the UK, closed shop in the last couple of years and no longer exists. The provider felt the market was too difficult. If we move too strongly, the people who need access to these loans may not have somebody to go to if the providers pull out due to us being too severe too quickly. We want to keep them in the market because, as everybody knows, if we reduce the number of people who are offering legitimate, regulated loans, we know where people will go. They will go to loan sharks and it will end up that when the borrower collects child benefit once a month, a guy will be waiting around the corner to collect that money.We want to avoid that. We do not want people calling to their houses and intimidating them to repay their loans. It is important that we keep a level of regulated operators in the field providing loans for a period. We can see how it works out over that period.
We are starting with the 1% cap, which will be the maximum. It can be reduced if we get information from the Central Bank's monitoring of the 30 or so companies in the business showing that a reduction is appropriate in due course, but to predetermine that there would be a reduction after a certain time would be premature at this point because we do not have any information on how that would affect the market and, above all, the people who were most vulnerable and needed to have a regulated moneylender. If we are too quick and some of the moneylenders leave, which the main one has already done, then people will not have access to proper funding and will instead become victims of money sharks, which is what we want to avoid.
We all agree on the need for the legislation, everything behind it, regulating this sector, applying time limits of up to 12 months on loans and having simple interest rates that people can understand. The only issue between us is the level of that interest. Otherwise, the Bill is broadly supported. We should stick with the maximum of 1% and see how it goes. It can be reduced when the Central Bank reverts with a report on how it is working after a year or two. This Bill will reduce the rates that people are being charged from day 1 because most lenders of these loans are charging up to 1.2%, but we want to keep them in the market so that people do not go to money sharks.
I hope that the Senator accepts the spirit of our position, notwithstanding the particular point of difference over the fractional interest rate in question. We are all travelling on the same road. It is just a question of how quickly we get there. I am not in a position to accept the amendment.
I thank the Minister of State for his lengthy response. The interest rate restriction that we have proposed in this amendment is one that the moneylending sector can bear as it moves towards a more digitised and professional business model through which its labour costs are reduced. Our amendment ensures that the total cost of credit that a moneylender can charge would reduce from six to three times the average cost of credit on an equivalent credit union loan. I am disappointed that the Minister of State will not accept the amendment and I will press the issue, but I appreciate his lengthy response.
I understand the Senator's point regarding credit unions. Wearing my hat as Minister of State with responsibility for credit unions, I would encourage everyone who is seeking a short-term loan for a family event - it is something that people used to do - to join his or her local credit union where possible. I fear that some of the people in question have exhausted their credit limits with their credit unions, every other institution and their family and friends, and that this is their lender of last resort. We want to keep the lender of last resort in the field so that that option is available. If such lenders are gone, we know what will happen to the people who are most vulnerable. It will not be an interest rate of 1% per week, but 2% or 3%. A money shark will give them €40 today and they will pay them back €50 on Friday. I would hate to try to do that annual percentage rate calculation, but it is what happens. The Senator and I know from dealing with people in vulnerable positions that they will take that loan even though the interest rate could work out being 1,000% if we ran the figures. We want to avoid that happening.
Credit cards are running at well over 20% and these loans are dearer than that, but 20% appears to be the minimum interest for a credit card loan to be profitable. There is probably a higher level of default than there is on traditional credit union or bank loans. However, I agree with the Senator. Through the Money Advice & Budgeting Service, MABS, and the Department of Social Protection, credit unions offer particular loans. I would encourage anyone to go to his or her credit union. Some people believe that credit unions are for their grannies or their parents and do not think they are for them, but they are for everyone.
I understand the Senator's point, which is to go a little further on day 1 and then make guaranteed reductions at fixed times as we go along. We are making major progress, though, and the 1% rate will be the maximum. Depending on the information we get from the Central Bank on how the rate operates, it can be reduced at a later date. My principal objective is to keep regulated lenders in the market. We could agree to reduce the rate to 0.5% today, but all of the lenders would disappear because it would not be economical for them to remain in the market. If that happened, everyone would be worse off. We believe we have struck a fair balance. I appreciate and agree with the Senator's sentiment, but I will hold firm on the 1%.