Billy Timmins (Wicklow, Fine Gael)
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Question 153: To ask the Minister for Finance if his attention has been drawn to financial companies that may not be subject to financial regulations and which may be charging extraordinarily high interest rates; if so, his plans to deal with same; and if he will make a statement on the matter. [7292/05]

Brian Cowen (Laois-Offaly, Fianna Fail)
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I assume that the Deputy is referring to non-deposit-taking financial service providers who offer loans secured on property to persons who are perceived as poor credit risks and are thus unable to secure credit from mainstream lenders.

The Consumer Credit Act is the principal source of protection to personal borrowers. All financial service providers that provide loans secured on a person's principal private residence are subject to the provisions of Part 9 of the Act. This is as a result of an amendment to the Act made last year, following consideration of a recommendation of the 1999 McDowell report.

The Act subjects all lenders who provide finance on the security of the family home to a range of obligations. These include: provision of a written loan agreement; quoting the APR and any other fees that will be charged; a requirement to warn the borrower about the risk of losing their home; and an obligation to put mortgage protection insurance in place. Apart from the special case of the family home, the Act does not apply where a loan is given for a commercial purpose.

There is no statutory oversight of interest rates, except for the special case of moneylenders who come within the scope of Part 8 of the Consumer Credit Act. This special category of lender typically provides short-term loans to poor credit risks at very high APRs. Such lenders are required to hold a moneylender's licence and the financial regulator can refuse to grant such a licence on the grounds that the cost of credit is excessive. The requirement to hold such a licence, and the corresponding oversight of interest rates, only applies to this specialist category of lender.

The financial regulator already has the power under the Consumer Credit Act to give directions to a mortgage lender in relation to misleading advertising, as well as to prosecute for breaches of the Act. In addition, under the legislation establishing the regulator, its consumer director has responsibility for monitoring the provision of financial services to consumers generally and the power to require a provider of such services to furnish information relevant to any inquiry or study that the director chooses to undertake.

I am at present consulting the Ombudsman Council about the financial service providers, not regulated by the financial regulator, that should be brought within the scope of the Financial Services Ombudsman, when the ombudsman commences operations on 1 April. The ombudsman has extensive powers to provide redress to consumers who have been unfairly treated by a financial service provider. Subject to the views of the council, I can see merit in including those mortgage lenders who provide loans secured on a person's principal residence.

The authorisation and supervision system that is in place in relation to deposit-taking institutions is primarily designed to protect their depositor customers and the general stability of the financial system. I do not at present have evidence to suggest that an extension of the financial regulator's powers in relation to non-deposit-taking mortgage lenders would be justified, bearing in mind that there are no depositors to be considered and that the additional costs involved would ultimately fall on their borrower customers. However, should such evidence emerge from consideration by the financial regulator, the ombudsman or other sources, I am open to making suitable amendments to the law. The forthcoming Bill to consolidate and modernise our financial services legislation could offer a suitable vehicle for such amendments.