Brendan Howlin (Wexford, Labour)
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Question 40: To ask the Minister for Finance if his attention has been drawn to the recent report from One Parent Exchange Network, which found that finance companies and money lenders were charging up to 200% interest to vulnerable families; if such rates of interest are acceptable; if he intends to take steps to further control such interest rates; and if he will make a statement on the matter. [18273/05]

Brian Cowen (Laois-Offaly, Fianna Fail)
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I welcome the publication of the One Parent Exchange Network's report which highlights the difficulties lone parents can face in relation to debt and accessing financial services.

Moneylending is an expensive form of credit as the agreements are normally for small ticket loans lent over a short period of time. Therefore, the APR calculations work out much higher than the APRs charged from mainstream lenders like banks, building societies, credit unions, etc. In general the repayments may be collected at consumers' homes and although the collection charge where specifically provided for, is not included in the APR, it does increase the total cost of credit. Credit risk is a further consideration for the lender. Also the highest APR figures usually refer to the smaller loans taken out over the shorter periods.

Moneylenders are obliged to inform the financial regulator of the maximum APR they intend to charge to consumers. The maximum APR it is printed on the moneylenders licence and they cannot charge above this rate. Inspections are carried out by the financial regulator of moneylenders in which agreements would be examined to determine what APR was charged. A licence application can be refused on the grounds that the financial regulator is of the opinion that the cost of credit charged is excessive. However, there is no provision under the Consumer Credit Act 1995, as amended, as to the maximum APR that can be charged by moneylenders. The operating practice of the previous regulator, the Director of Consumer Affairs was that it did not accept applications with APRs over 200% using the APR formula specified by the relevant EU directive and the financial regulator has adopted the same policy.

The previous regulator, the Director of Consumer Affairs, commissioned a study into the moneylending business in 1998. The results of this study showed that moneylenders did not appear to be making excessive profits. My Department has been informed by the financial regulator that an examination of the financial returns of moneylenders by the regulator would suggest that circumstances have not changed significantly since the date of the study.

The Money Advice and Budgeting Service, MABS, under the aegis of the Minister for Social and Family Affairs, was set up to help people in managing their money with a view to regaining control of their finances including how to avoid falling into difficulties in relation to moneylending. I understand that it provides an extensive range of money advice, personal budget and community education services where necessary and liaises with financial institutions on behalf of its clients. It deals with 16,000 cases on an annual basis. The service has been and remains a practical response to those in debt or at risk of getting into debt.

It should be borne in mind that new regulatory requirements could have an effect opposite to that intended, that is, possibly driving legal lenders out of business to be replaced by illegal lenders charging much higher rates and employing unacceptable business practices.