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Joint Committee on Finance, Public Expenditure and Reform, and Taoiseach debate -
Wednesday, 12 May 2021

Consumer Credit (Amendment) Bill 2018 (Resumed): Engagement with Central Bank of Ireland

I will members to please turn off their mobile phones and to identify yourselves if you are making a contribution to the meeting. Those members and witnesses who are in Leinster House will have privilege, but those who are not in the precincts of Leinster House will not have full privilege. Those attending Leinster House are those who will be involved in this committee meeting.

I welcome from the Central Bank of Ireland, Ms Gráinne McEvoy, director of consumer protection, and Mr. Kevin O’Brien. The purpose of today’s meeting is to continue detailed scrutiny of the Consumer Credit (Amendment) Bill 2018, a Private Members' Bill tabled by Deputy Doherty. The format will be that we will ask Ms McEvoy for her opening statement, and thereafter we can take questions and answers from the members.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him, her, or it identifiable.

I call on Ms McEvoy to give her opening statement.

Ms Gráinne McEvoy

I am joined by my colleague, Mr. Kevin O’Brien. We welcome the opportunity to appear before the committee today to discuss the Consumer Credit (Amendment) Bill 2018. As the committee is aware, licensed moneylenders are regulated under the Consumer Credit Act 1995, which sets out the specific regulatory regime for this sector, including provisions reflecting particular features of this sector and, in particular, the high cost of this type of credit. The Central Bank assumed responsibility for licensing and supervising moneylenders in 2003, when responsibility transferred from the Office of the Director of Consumer Affairs. We fulfil this role within the parameters of the legislative regime. Under the legislation, any firm involved in moneylending activity requires a licence from the Central Bank, which must be renewed every year. In line with our mandate, working to ensure that the financial system operates in the best interests of consumers and the wider economy, we maintain a proactive and focused approach in supervising the sector, ensuring that the requirements imposed on the sector continue to be effective and provide suitable protections for consumers.

There are currently 35 moneylenders licensed to operate in Ireland. The business model operated by licensed moneylenders generally falls within the following categories: home collection firms, firms operating a catalogue business model and other firms, including firms providing credit to fund gym membership, insurance premiums, etc., and firms involved in the provision of goods on credit. Licensed moneylenders are required to carry out their business under the specific terms of their licence. We have not permitted a maximum APR or costs charged within the sector to increase. In line with our gatekeeping responsibilities, we have not allowed practices such as pay-day lending to enter the Irish licensed moneylending market.

There is a strong consumer protection framework in place for consumers who choose to use the services of licensed moneylenders. Consumers are protected by a range of provisions that moneylenders must adhere to, including the Central Bank (Supervision and Enforcement) Act 2013, the (Licensed Moneylenders) Regulations 2020, the European Communities (Consumer Credit Agreements) Regulations 2010 and the Consumer Credit Act 1995, all of which include additional provisions specific to the moneylending sector.

In addition to the protections provided under these regulations, there are important protections provided for in legislation that mean licensed moneylenders are prohibited from applying additional charges, including in the event of default or non-payment by the customer. Therefore, a customer can never be asked to pay more than the total amount payable as stated on the moneylending agreement. Moneylenders are also required to undertake a creditworthy assessment before entering into a moneylending agreement with the consumer. We have made, and set out, our clear expectations to all credit providers, including licensed moneylenders, that they lend responsibly and act at all times in the best interests of the consumers.

Last year, following an extensive public consultation process, we introduced new regulations, which replaced the Consumer Protection Code for Licensed Moneylenders, to further strengthen protections for consumers of the licensed moneylending sector and to enhance professional standards in this sector.

In addition to the existing requirements, moneylenders are now required to include prominent, high-cost warnings in all advertisements for moneylending loans with an APR of more than 23%. The warning must also prompt consumers to consider alternatives.

Moneylenders may not be permitted to make unsolicited offers to apply for credit to consumers who have recently made, or are nearing, full repayment of a moneylending loan. There is a limit on moneylenders’ contact with consumers and a limit the offer and promotions of loans to consumers. Where a loan is required for basic needs, such as accommodation or electricity, moneylenders will be required to inform the consumer that a moneylending loan may not be in their best interest and to provide contact information for the Money Advice & Budgeting Service, MABS. There are also new requirements for staff and agents working in the sector, designed to enhance their professional standards.

While the regulations came into effect on 1 January 2021, due to the financial impact of Covid-19, the high-cost warning requirements in respect to advertisements for moneylending loans with an APR in excess of 23% came into effect earlier, from 1 September 2020. We assertively supervise this sector, taking supervisory and enforcement action, where required, to protect consumers’ interests. Compliance is required through supervision initially and at annual licensing processes. Applying the fitness and probity regime, we undertake thematic and firm-specific inspections and engagements, we undertake market monitoring, we conduct consumer-based research and we monitor industry trends, including complaints made to the Financial Services and Pensions Ombudsman of Ireland, FSBO.

In respect to the new proposed legislation, the Central Bank is supportive of all initiatives that seek to enhance existing protections for consumers in the moneylending sector. The Consumer Credit (Amendment) Bill 2018, as drafted, proposes to place a cap of 36% of APR charged by moneylenders, which could present some specific challenges. Moneylender loans are generally short term in nature. Their cost and the associated APR can be very high when compared to other forms of credit. APRs may appear to be extremely high on short-term loans when compared to the actual cost of credit over the longer term. Therefore, lowering the APR may be ineffective and counterproductive and not achieve the objective of lowering the total cost of credit if, for instance, a moneylender chooses instead to extend the duration of the loan, resulting in the consumer paying more over the longer duration of the loan.

Neither the 1995 Act nor the regulations provides for an interest rate cap, nor does the 1995 Act define "excessive" in the context of interest rates. The Central Bank, therefore, has no statutory power to impose a market-wide cap on rates, and the introduction of an interest rate cap would require a legislative amendment. Any legislative proposals seeking to achieve an overall reduction in the cost of credit to customers of moneylenders should be calibrated to ensure no unintended consequences in terms of financial exclusion.

Our focus has been on improving the transparency of these costs and increasing consumer awareness by setting of requirements such as the need to warn customers about the high-cost nature of loans and to disclose all the fees, costs and interest in a clear manner prior to entering into the moneylending contract. Our public register of licensed moneylenders also sets out product details such as the maximum APR, maximum cost of credit and collection charges, if applied.

One of the challenges in considering rates charged by moneylenders is finding a balance between the availability of credit for consumers who do not have access to regulated credit elsewhere or who do not use other regulated credit providers and the provision of short-term unsecured loans which can be at a high cost. For small amounts of credit and for those consumers with an impaired credit history, there may be limited alternative credit options available to them from regulated credit providers.

We have concerns regarding the proposed legislation as currently drafted. Any legislative proposal imposing such a cap would have to be carefully considered to achieve an overall reduction in the cost of credit and to ensure unintended consequences in terms of financial exclusion do not arise. We recommend an assessment of the impact on consumers should be undertaken to inform this approach.

I welcome Ms McEvoy to the committee to discuss this legislation which I tabled a number of years ago. I expect Ms McEvoy has followed some of the discussion on it, including my intention to amend the legislation to deal with the issues of APR, which I also share. That is the benefit of pre-legislative scrutiny where we get a chance to hear from others who support the intention of the legislation but can refine and tweak the methods of getting to the end point and try to establish what that end point is. Maybe to start off with I will ask Ms McEvoy whether she believes there is tension in the Central Bank's dual mandate between financial security and consumer protection.

Ms Gráinne McEvoy

I would say "No". Right across the breadth of the Central Bank, we protect the interests of consumers. As the Deputy will be aware, our mandate is quite broad. If we think about our role in terms of financial stability and the proper and effective functioning of the wider economy, any regime we have in place is ultimately to ensure the interests of consumers are protected by a well-functioning market and a well-functioning economy. If you look to our prudential mandate, we ensure firms meet very high standards, are adequately resourced in terms of capital and are solvent. That is to ensure they are in a position, for example, if I think of insurance firms, to pay out on policies or, if you are engaging in dealing with a bank, that your deposits are safe.

If you look to our consumer protection mandate, our core objective is to ensure firms act at all times in the best interests of consumers and treat their consumers fairly. This is to ensure the regime we impose supervises these firms to ensure they do so and there are adequate and robust consumer protections in place in terms of our regulations and guidelines.

That, in turn, leads me to our role in terms of policy-setting. We actively engage at a European level to enhance and support strong measures for the protections of consumers. Similarly, at a domestic level, we will engage with the committee and other colleagues to ensure the domestic regime supports the protection of consumers and meets that desired objective.

Finally, the fifth component of our mandate extends to enforcement action. If we find that firms operating in Ireland, or indeed on a cross-Border basis, are not acting in the consumers' best interests, and we have many cases where we have taken strong decisions in enforcement using our administrative sanction powers where we believe firms were not acting fairly or were not treating their customers fairly, right across the breadth of the Central Bank's mandate we seek to ensure the best interests of consumers are protected. Therefore, I do not see there to be a conflict.

In the paper published by Ms Mary Faherty, Dr. Olive McCarthy and Dr. Noreen Byrne of UCC in December 2008, co-sponsored by the Central Bank, and entitled Interest Rate Restrictions on Credit for Low-income Borrowers, they recommended a policy which "prohibits usurious rates of interest". Usury is defined as making unethical or immoral monetary loans that unfairly enrich the lender. They recommend "a policy that prohibits usurious rates of interest in the interests of fairness to the most vulnerable in Irish society by the introduction of a restriction on interest rates and charges". Does Ms McEvoy agree with that policy?

Ms Gráinne McEvoy

As the Deputy will be aware and as I mentioned it in the opening statement, the legislation as it currently exists does not give the Central Bank the power to impose statutory limits on interest. From our perspective, our approach in terms of supervising this sector has always been proportionate and robust, but we have focused on greater transparency, that is, making it clear to the consumer the high-cost nature of these types of loans, what one would be paying back over the length of time of the loan and any charges that may apply in that context. From our perspective, the approach we have taken has been very much around transparency and increasing awareness. We have also imposed quite a lot of requirements on moneylending firms in terms of how they engage and interact with consumers in terms of being proportionate, being aware of their marketing strategy and engaging in a sympathetic manner with consumers who are experiencing financial distress.

We can stand over the regime we have. The law at present does not allow the Central Bank to intervene and impose caps, either on interest rates or APRs.

I appreciate the law does not allow that. That is why I have drafted the Bill to change that. I will go back to my original question. Does Ms McEvoy agree with the recommendation in the report that was co-funded by the Central Bank which calls for the introduction of a restriction on interest rates and charges?

Ms Gráinne McEvoy

It is not as straightforward as to address it in the context of a cap per se. The important measure to look at in this context would be the total cost of credit for the customer because there are unintended consequences, as I outlined in the opening statement, in terms of a straightforward and clean cap. In the legislation as currently drafted and in the regulations, the Central Bank has imposed a big degree of clarity for the customer about the total cost of credit over the length of time he or she is borrowing so that a person knows from the credit agreement right at the outset what he or she has borrowed, and if he or she is paying it back in the short term, on average nine months, exactly what it will cost by the time he or she has paid back the loan. Furthermore, there is clarity in terms of the provisions of the law that do not allow customers who perhaps have defaulted through no fault of their own or are late in meeting a repayment to be subject to additional penalties or charges in that context.

From our perspective, it is a complex issue. It is something that would require careful consideration. The better way of looking at things might be in terms of the total cost of credit to the customer because a cap might mean the duration of the loan is extended far beyond and you end up paying much more for your initial €200, €300 or €400 drawdown of the loan.

The question I had was not whether Ms McEvoy supports a cap but whether she supports, as the report outlined, a restriction on interest rates and charges which can be in the form of the total cost of credit. I want to get the director of consumer protection's view on to this. Is the consumer protection division of the Central Bank in favour of restrictions on interest rates and charges which, as Ms McEvoy has outlined, may be in the way of the cost of credit? It is all well and good the Central Bank ensuring moneylenders tell their customers upfront they are screwing them, but we want Ms McEvoy's views on whether perhaps they should not be screwing them in the first place and we need to impose restrictions. Is it the Central Bank's view that it does not mind what we legislate for and, indeed, we could go even higher than what is already in the market?

Ms Gráinne McEvoy

There are a couple of points in what the Deputy said there. In the first instance, we would be supportive of any legislative regime that enhances and strengthens the protections for consumers of the moneylending sector and, indeed, right across all sectors.

It is important to note that.

Regarding the Deputy's specific question, it is also important to note some other measures that exist. For example, as I noted, the law does not give the Central Bank the powers to impose a cap. However, in our supervision of the moneylending sector, encompassing new entrants and existing providers launching new products, we have ensured we have intervened where we felt the APR was excessive. We have had success in that regard with firms reducing their APRs or, indeed, removing a product from the market. In addition, from the outset when we took over responsibility, we restricted and never allowed payday lending, which is a feature of the UK moneylending sector.

A proportionate, measured and considered response must be taken in respect of interventions, because I do not believe the Deputy or we in the Central Bank would want a situation where interventions were such that they perhaps resulted in people not having access to regulated financial services and not having the protections afforded by the Central Bank under its consumer protection regime. One has to consider this area in its totality and ensure that measures achieve the desired objective of protecting consumers.

That is fine. Let us go into the specifics some more. Turning to the register, let us deal with some examples in the market. The Central Bank has given licences to moneylenders which are permitted to charge APRs of 187%. Does Ms McEvoy believe that is usurious? Does she believe that rate is too high or does she think it is appropriate?

Ms Gráinne McEvoy

That is the maximum rate moneylenders have been permitted to charge. However, if we look across the register, it also calls out-----

No, I said I was going to deal with specifics. I acknowledge other moneylenders are charging 54%, and some of the catalogues, etc.. However, the largest moneylender in the State was charging that rate of 187%. Therefore, let us deal with the specifics and I will ask Ms McEvoy a specific question. Is it the Central Bank that determines that rate?

Ms Gráinne McEvoy

No, the Central Bank does not determine the rate. The rates are commercial decisions determined by the institution offering the services in Ireland. That rate is up to the maximum, and the range is from 17% to 187%. There are two other important points in this regard. First, if we look at the UK regime, it has imposed a cap on the total cost of credit of 100% for a moneylending loan of up to one year. In comparison, in the Irish market the total cost of credit in that context for loans from providers for up to one year is 56%. That is a little over half the rate applied under the UK model. Second, taking the APRs for periods up to three years, the average is 76%. Those are important points to highlight, and the information is available on our website and on the register.

That is fine. Ms McEvoy said it is a commercial decision. She also made the point that the Central Bank can reject these proposals and it has done so in the past. Therefore, the Central Bank deemed an APR of 187% appropriate in this case, and collection charges then further push up the cost of credit. This legislation is about restricting that level of APR and it is intended to be achieved through a multiplier of the cost of credit in the market. That is what my proposal would be on Committee Stage. Does Ms McEvoy believe it would be appropriate to restrict that type of cost of credit, or does she, as the director of consumer protection in the Central Bank, actually regard an APR of 187% as what we need in the market in that case?

Ms Gráinne McEvoy

I reiterate those are the commercial decisions of the lenders. We can intervene where the law states those are "excessive", but it does not define what that term means. I reiterate the point that a proportionate and measured approach must be taken. We could put a cap on an APR, as I mentioned, but that could turn out to be counterproductive because the moneylender could then extend the duration of the loan. In that case, the borrower would be paying back much more over a longer time. Therefore, it is necessary to give a great deal of consideration to the potential impact of putting a cap in place. As I also mentioned, it is also important to note that we do not want a situation where in some instances the customers of moneylenders may not have access to regulated credit elsewhere, be that through a credit union or bank. Some customers of moneylenders do have that line of credit available, but some do not. We must be very cautious in that context.

Ms McEvoy mentioned the cap again. I signalled to the committee previously that it is my intention to move away from an absolute cap, as drafted in the legislation, to a multiplier of the cost of credit, which, in respect of her opening statement, would be in line with the Central Bank, the Social Finance Foundation and other organisations that have given their insights into this issue. My intention, therefore, is that the cap would be a multiplier of the cost of credit in the market. Can the Central Bank provide the committee with information regarding the cost of credit for short-term loans from the retail banks and credit unions? Is it possible for the Central Bank to do that? For example, could it be done for loan terms of zero to 12 weeks, 12 to 26 weeks and then 26 to 52 weeks, to enable us to use that information in our consideration of this legislation on Committee Stage? Is it possible then for legislation that would allow, for example, moneylenders to charge up to three times the cost of credit in the market, as defined by the Central Bank at any given point in time? Is that an appropriate or better way to deal with forms of restrictions on high-cost credit?

Ms Gráinne McEvoy

There are two components to the Deputy's question. Taking the latter one first, it might be better to reflect on that proposal and then to come back to him and-or the committee regarding what is being proposed, because we have not given due consideration to that aspect. Turning to the first point concerning availability of APRs, again, and with respect, I do not have those data to hand. I would have to engage with my colleagues in that regard. However, if we have that information, we can certainly make it available to the Deputy. I just honestly do not know if we have that information.

That is great. I appreciate that. It would be helpful if the Central Bank could gather that information for the committee.

Moneylenders have adapted their methods, which are extremely costly. Door-to-door collection, for example, is very labour intensive. The moneylender firms achieve high collection rates, but it also results in other issues, such as the rolling over of loans. Ms McEvoy will be familiar with the fact that I, along with six whistle-blowers, brought information to the Central Bank regarding the main moneylender in the State and the Central Bank subsequently made a significant finding against that firm as a result. That type of situation results from the intergenerational relationship and dependency that builds up in that context. The moneylender gets to know the family and gets to know that communion day is coming up for young Síofra or Donal, for example, and sells a loan to the family as a result. In most cases, the people concerned will have access to lower interest finance through the credit unions or elsewhere.

The model has been adapted, therefore, because Covid-19 has resulted in no door-to-door collections. Many of the customers of moneylenders are now making online payments and, as a result, costs are reduced. Is now not the time, if ever there was a good time, to examine how we deal with high costs of credit? There has been adaptation and the model is basically up in the air now. It could, however, go back to the way it was once Covid-19 restrictions end. The other option is that we could change the moneylending model into one that is less labour intensive and with lower costs, and, therefore, reduce the cost for consumers. I would like Ms McEvoy's view on that point.

My other question concerns the issue of Provident, which has ceased doorstep lending from this week. It has a significant market share. What is Ms McEvoy's view regarding the Department publishing the promised legislation to increase the cap that currently exists on credit unions? It is mad that there is no cap on moneylenders, but there is a cap on credit unions, which only allows them to charge an APR of 12%. I ask her to comment on increasing that cap to allow credit unions to offer more short-term loans to customers in the market for such products.

Ms Gráinne McEvoy

I will take the latter question first. We are aware of that proposal. Ultimately, it is a matter for the credit unions, but we would have no objection to the proposal as set out. It is important that the Deputy would seek the views of the Irish League of Credit Unions and other credit union members as regards the commercial realities and practicalities of that because we would not play a role in that context. However, on the level of principle we have no objection to it.

There is quite a lot in the Deputy's first point. I agree with much of what he said, in the sense that Covid-19 has certainly impacted on the door-to-door model of moneylending. Even more recently, we are seeing trends emerging where consumers are interacting with all financial services firms in a more digital manner. Covid-19 expedited some of that as well. There is an argument to be made that there are many different types of customers of moneylenders, and the Deputy alluded to some based on his knowledge and experience. There are people who have good existing relationships with other forms of lenders, but they use moneylenders as an additional form. There are those who are, perhaps, less fortunate and have been refused credit elsewhere and a moneylender is their only source of access to regulated finance or credit. The Deputy asked if now is a good time. As I said, we would be very supportive of examining any enhancements that strengthen the protections for consumers of moneylenders. Our approach has always been that we will do so. In our view, we have kept our regulatory and legislative regime up to date. We have been clear about expectations. We reacted to some of the examples the Deputy mentioned in terms of repeat lending to customers who are still on loans and so forth. That is prohibited under the regulations we introduced last year. From our perspective, we are very much in favour of a proportionate, but robust, regulatory model.

However, it is important to take into account that there are other key stakeholders in Ireland that should feed into this process. We have been involved with colleagues from the Department of Social Protection, the Money Advice and Budgeting Service, MABS, Abhaile, the Society of St. Vincent de Paul and many others on the high cost of credit working group so we are very happy to participate in any initiative like that. We are supportive of the objective it is trying to achieve. We have also engaged with the Department of Finance over the years on different proposals it put forward. To echo the point, we would be very supportive of initiatives that seek to enhance protections for consumers in a proportionate and measured way.

I have final questions on this for Ms McEvoy. With her indulgence, it is straying from the issue of moneylenders and relates to her other role in consumer protection. I have two questions on the insurance issue. The issue of business interruption has not gone away. Many are still complaining about it. How satisfied is the Central Bank that all insurance policies it has deemed should be paid out are being paid, or does it believe that some case have to be tested in the courts before some final determinations can be made? Perhaps she would also quantify that.

Second, a massive number of people are just scratching their heads and wondering what is happening. After a long period, the Judicial Council Act 2019 was passed by the Oireachtas. The judges have done their work. They have reduced the cost of claims and the cost of awards is now officially reduced by 60% for minor recoverable injuries, yet we hear from businesses that their premiums are increasing and motorists who are renewing their policies are not getting the reductions that were promised by the industry. Representatives of the industry appeared before this committee and told us bluntly, and we do not know if the figures are right, that if we are not seeing a 20% reduction, we need to be asking some serious questions. That was based on a 50% reduction; the personal injury guidelines went further than that.

Turning to the Central Bank and the consumer protection role, what action is the bank taking? Does the Central Bank have the ability to collect the data to ensure the euro for euro reduction in the level of awards that are being paid from now on has been passed on to the consumer, as opposed to just seeing the reduction in insurance premiums that might be happening from another factor that is not related to claims? I make that point because when the British Government introduced legislation to cut the cost of whiplash injuries it passed a law to ensure that the insurance companies had to report to its central bank that the cost of premiums reduced in line with the reduction in awards. As Ms McEvoy knows, the six largest insurance companies in Britain are also the six largest insurance companies in Ireland. They have expectations that they must live up to in Britain in ensuring that the awards are passed on, which they do not have here. Does the Central Bank have the ability to collect those data at that granular level and, rather than telling me or the public that insurance premiums have reduced by 4% or 5%, to know exactly that, euro for euro in terms of the awards that have come down, the reduction has been passed on to consumers?

Ms Gráinne McEvoy

There was a good deal in both questions so I hope I recall them correctly. First, with regard to business interruption insurance, from the outset we identified this as a key risk. As the Deputy knows, under Covid-19 we were prompt and acted very quickly regarding our expectations of insurers, setting those out clearly in March 2020 and developing the supervisory framework. We were clear in the framework that if there was any ambiguity, the insurer must at all times err on the side of the customer. That is an important point.

On the Deputy's point about test cases, we were clear that where individuals took test cases against insurers we expected that they would not be out of pocket as a result, that the insurer would be required to pay reasonable costs and, importantly, that the decision taken by the courts in the test case would be applied to all impacted customers, not just those who took the test case at the outset. Since the courts have opined and made certain rulings on the issue of business interruption, our key priority for last year and carried forward into this year is to ensure that firms are honouring and meeting our expectations. We have a dedicated team across multiple different skill sets in the Central Bank that is actively engaging with all firms that offer business interruption insurance and ensuring that they are meeting our expectations with regard to customer engagement and our expectation that if it is clear the cover is provided, they pay and pay promptly. If they are awaiting decisions of the court relating to quantum, interim payments are made in lieu of or in anticipation of final authority being provided by the judge in the court. I reiterate the point that any ambiguity errs on the side of the customer. They are important principles enshrined in our supervisory framework for business interruption. We continue to monitor and supervise. We have had good engagement with the sector. We know from our engagement with individual customers as well that the sector is meeting our expectations in many cases. However, this is something that will span a longer period. It will certainly span 2021. I stress that it is a key area of supervisory focus for the Central Bank, and that will continue. That is the first point.

On the second point, I may take that question away. I know, for example, that there is quite a lot of information floating around relating to insurance and claims. We have a national claims database, and there is quite a lot in terms of judicial review. To give the Deputy a more accurate response, if I may I will take that question away and commit to reverting to him.

Has the Deputy concluded?

Yes. Ms McEvoy might let the committee know when the Central Bank expects the final report or the next stage of the dual pricing report. Is she aware of that?

Ms Gráinne McEvoy

Yes, I am.

Is it still on track?

Ms Gráinne McEvoy

It is still on track. Again, the Deputy will appreciate that it is a very extensive piece of work. We are in the thick of it right now in terms of our supervisory engagement, our analysis of the data information that we gathered and our assessment of the consumer research, which is an integral part of this as well. The expected delivery of that report is the summer. We are looking at July and we are working towards that deadline.

I have a question on consumer protection.

Will Ms McEvoy go through the complaints procedure for people who wish to lodge a complaint about particular moneylenders or companies?

Ms Gráinne McEvoy

The complaints criteria, as set out in the consumer protection code, would, in the first instance, require the consumer to engage directly with the firm. That is an important point. Consumers must raise and express their concern with the firm. If that matter is not resolved to the satisfaction of the consumer, there are other supports in the wider national framework for protecting consumers. They would then be advised and well guided, if the firm has not addressed their complaints, to refer onwards to the Financial Services and Pensions Ombudsman, FSPO.

We are the regulator of all financial services activities in Ireland and our approach to protecting consumers is on a system-wide basis, so we look at things in aggregate. That does not mean that if consumers have complaints, they cannot also refer them to the Central Bank, but the best course of action, in the first instance, is to approach the firm and then the FSPO. If we receive it, we will examine the complaint and whether there is a trend or behavioural issue within the firm. We may not always respond to the individual consumer.

Does the Central Bank carry out an analysis of complaints made, how they were dealt with, outcomes and so on? Ms McEvoy might also address the issue of not replying to consumers. If they go to the bother of making a complaint to the Central Bank, surely they are entitled to hear about the outcome?

Ms Gráinne McEvoy

In response to the first part of the Chairman's question, on many occasions over a number of years, we have undertaken thematic inspections of how firms in different sectors, including the insurance, intermediary and banking sectors, etc., are dealing with and handling complaints. It is an integral part of conduct supervision. We have published findings on the outcomes of those thematic inspections and those findings will be in the form of a "Dear CEO" letter, which would send a wide message across a sector as to our expectations and findings. Notwithstanding that the firm may not be subject to the specific themed inspection, all firms must adhere to and comply with our findings as a result of that work. We would also pick up any issue we might have with the firm specifically and that would be on a confidential and bilateral basis.

In response to the Chairman's second point, we have always acknowledged complaints that have been received from individual consumers. As I mentioned at the outset, we look at things at a system-wide level and we obviously cannot comment about engagement we might have with a particular firm because we are bound by confidentiality. However, we would use the intelligence provided by customers to paint a picture of a firm's overarching compliance. If we saw trends emerging or that the complaint in question was a part of a wider issue within a firm in terms of ineffective procedures or controls, poor claims handling, in the case of the example the Chairman gave, or poor customer support, they are matters on which we would engage directly and bilaterally with the firm. We are bound by confidentiality and, therefore, it is not possible for the Central Bank to comment on its engagement with individual firms.

What I am interested in is how much information the person who made the complaint will receive.

Ms Gráinne McEvoy

I apologise, but I cannot hear the Chairman.

Can you hear me now?

Ms Gráinne McEvoy

I still cannot hear the Chairman.

Mr. Kevin O'Brien

I can hear the Chairman so the problem might be at Ms McEvoy's end.

Has the problem been resolved?

Mr. Kevin O'Brien

I have spoken to Ms McEvoy. She is trying to resolve the problem. She is only a few metres down the corridor from me. She is happy for me to continue with the discussion for the moment, while she tries to resolve that issue.

I was asking about the number of complaints that the consumer protection section of the Central Bank has received about companies or individual lenders.

Mr. Kevin O'Brien

As Ms McEvoy said, in our thematic investigations and supervision, generally we look at these issues on a systemic basis rather than on the basis of individual complaints. The bank does not deal with individual consumer complaints, as such. In terms of our broad approach - which includes communications, the supervision work we carry out, updating the general public and so on - we try to capture feedback from the broad set of consumers but that individual complaint piece is not specifically part of our mandate. As the Chairman knows, that is a part of the job of the FSPO.

How many complaints has the Central Bank received about companies? I am not talking about individuals.

Mr. Kevin O'Brien

There are different ways in which complaints come it. There is a public communications desk in the Central Bank that deals with things more generally and we get complaints through that. There is not a specific complaints avenue into the Central Bank on a firm-by-firm basis. As set out in the moneylending regulations that came into force on 1 January, there is a detailed obligation on firms in terms of the frequency and process they need to carry out. Our focus, primarily, is on checking with those firms that they are meeting their requirements by engaging with complaints and sorting out issues. Where there is any evidence of a significant failure in that regard, that is when one sees the Central Bank's supervision work which can sometimes lead on to enforcement work.

To be clear, for the public, Ms McEvoy oversees consumer protection but the Central Bank does not deal with complaints? Instead, it deals with the companies at a macro level.

Mr. Kevin O'Brien

It is at a macro level. Our ambition is to seek to both prevent and then resolve any consumer harm. When issues of significance emerge across the different sectors relating to firms where there is consumer upset or disquiet, we are never afraid to contact the firm, engage with its representatives and understand what is happening. There is not, however, a specific avenue in legislation for a consumer to bring a complaint directly to the Central Bank and have it dealt with on an individual basis.

The general public need not bother ringing-----

Ms Gráinne McEvoy

May I add to and supplement that answer? I apologise for the technological glitch. The mandate does reside with the FSPO. Its role includes dealing with individual customer complaints related to financial services. As Mr. O'Brien referred to, our role is wider and, to use the Chairman's language, takes a macro perspective. The mandate does exist, it is just outside our remit and lies with the FSPO.

The point I am making is that the general public's perception is that the Central Bank has a role in consumer protection.

Ms Gráinne McEvoy

That is correct.

I understand the role of the bank and just wanted to clear up that point with our guests.

Has the Central Bank had any complaints about individual companies?

Ms Gráinne McEvoy

Have we had any complaints about-----

Has the Central Bank had any complaints about moneylending companies - the business itself? Has the Central Bank ever had a complaint about a company that has engaged in moneylending?

Ms Gráinne McEvoy

Not to my knowledge but I would say we have been regulating this sector since 2003. I have not been involved in the role during that length of time so I would have to refer back to our supervisors, unless Mr. O'Brien wants to add something.

Mr. Kevin O'Brien

We receive complaints about illegal moneylending from time to time. This involves unregulated firms participating in this area. Historically, it involved verbal reports of activity in communities. Possibly more frequently, you will sometimes see websites entering into this space where it is a completely illegal and unregulated activity. Those complaints are taken on board and we share them with An Garda Síochána under the 1995-----

How many of those complaints have been received by the Central Bank?

Mr. Kevin O'Brien

I would say it is in the tens. There might have been 20-odd complaints over ten years but that would be a very rough estimate.

How many complaints have been referred to An Garda Síochána?

Mr. Kevin O'Brien

We referred all of them to An Garda Síochána.

How many? Twenty?

Mr. Kevin O'Brien

Any complaint of substance regarding illegal moneylending will be referred to An Garda Síochána.

Have ten or 20 cases been referred? How many cases have been referred?

Mr. Kevin O'Brien

That is something we can come back to the Chairman about. The number is not in the hundreds but in the tens, and that would be over a number of years.

That is in terms of illegal moneylending.

Mr. Kevin O'Brien

Yes.

The Central Bank has received ten or possibly 20 complaints and has referred them all to An Garda Síochána. Has the Central Bank received any complaints from the public or any other source regarding the companies it regulates?

Mr. Kevin O'Brien

If there are any complaints, they are very limited.

But are there any complaints?

Mr. Kevin O'Brien

There is a clear escalation for complaints about companies. After specific periods, the consumer refers to the Financial Services and Pensions Ombudsman. There is no complaints hotline as such for individuals to the Central Bank. We will have some ad hoc communications but there have been very few of them.

The Central Bank has had ad hoc communications about the companies it regulates but it does not know how many of these ad hoc communications it has received.

Mr. Kevin O'Brien

There is no process within our mandate to take these and there is no complaints channel. Somebody might write a letter or there could be some other communication to the Central Bank but there is no set channel or process. I would use the term ad hoc to describe them. We could come back to the Chairman to capture the extent of that more, but it would be quite infrequent and ad hoc. Our main focus is on the firms themselves. When activities of firms come into focus, as they can for moneylenders as well as other firms, we are not short in engaging with those firms, looking in detail at the communications and complaints they may have received from customers over time, but there is no automatic or set-out path for complaints to us from individual consumers.

In essence, the Central Bank's consumer protection role engages it at a macro level.

Mr. Kevin O'Brien

At a firm level-----

It does not get its hands dirty with the general consumer.

Mr. Kevin O'Brien

I would not use that phrase to describe our approach. Through our public consultations, consumer research work and outreach, we are very active in trying to engage with and understand the consumer. The legislation has not given us that individual face-to-face engagement as part of our role. Rather it exists with the Financial Services and Pensions Ombudsman.

The consumer protection title is actually misleading.

Ms Gráinne McEvoy

I would not agree with that. The Central Bank plays a very important role in protecting the interests of consumers, including through our gatekeeping function, where we only allow those actors who have strong business models in place that are capable of being supervised on an ongoing basis and have a culture of compliance. We apply robust fitness and probity assessments on individuals managing and running firms across the financial services sector. We have very detailed and prescriptive rules in terms of guidance, regulations and code requirements, seeking to ensure firms at all times act in the best interests of their customers and treat them fairly. We seek to ensure a strong and robust framework is in place to support the best interests of consumers.

We proactively and actively supervise a multitude of different sectors within our directorate. At least 13, if not 14, different sectors are supervised within the Central Bank and specifically supervised within the consumer protection division in terms of their conduct and engagement with all of their consumers, both Irish and non-Irish. We have a long history of very credible enforcement action relating to firms falling under our remit where we have found they are acting outside the legislation or the consumer protection code or, at its most basic, are not acting in the best interests of their customers or are not treating them fairly. All of that information is publicly available on our website.

There is a national framework for protecting consumers and we are one of the actors in that framework. The committee plays a role in terms of ensuring the legislative framework is robust and is there to guard and protect the best interests of consumers. The Financial Services and Pensions Ombudsman plays its role in respect of dealing with individual consumer complaints across the financial services sector and we play our role in regulating the firms that provide services to customers and ensuring they meet our high standards, are proactive and positive in terms of their engagement with consumers and ensure their best interests are protected.

Gabhaim buíochas leis na finnéithe as teacht os comhair an choiste airgeadais seo. Ar ndóigh, tá sé suimiúil, mar is gnách, labhairt leo.. Will the witnesses provide information about the average total cost of credit per €100 for the loan terms referred to by Deputy Doherty? They could provide it later if they do not have it now. I do not expect the witnesses to have all that information to hand, but if they do, could they bring it back to the committee? It would be very useful for us when looking at this legislation.

Ms Gráinne McEvoy

If we have the information, we will make it available.

Mr. Kevin O'Brien

On our website, people can see a register of moneylending firms. In each case, the maximum APR is listed - the maximum cost of credit per €100 borrowed - so there are good examples there that explain the mathematics of the cost of credit under those APRs for each moneylending product in the market. We can send the Deputy details of how to access that.

We will take a look at that. I have not seen it. We have seen that moneylenders can charge up to 187% APR.

There is talk of 288% when fees and charges are included. In the past few days there were reports in The Irish Times regarding Provident Financial. The country's largest moneylender has announced it will shut its doorstep lending not just here but also in Britain. We have heard reports that there has been an increase here, as well as in Britain, in the number of complaints against moneylenders. We know the British regulator decided to conduct an investigation. Has anything similar been done here, such as the sanctioning of firms? Can that level of detail be provided? Have firms been sanctioned as a result of complaints?

Ms Gráinne McEvoy

There is quite a lot in what the Deputy said. We have taken administrative sanction action against firms in the moneylending sector. That has included supervisory, as well as enforcement, action. Details of any enforcement actions that firms were subject to are available on our website. The Deputy can freely access the details of the specifics in that context.

My colleague, Mr. O'Brien, said that we have not seen a significant trend in complaints regarding the moneylending sector. If the Deputy has evidence of trends or complaints emerging as is always the case we would welcome that she provide that evidence to us and, within our role as a regulator of the sector, we will take that information in hand and examine it as to the validity or otherwise of the complaints and ensure that our expectations are being met.

I need to reinforce a point. Set out in the code are very specific criteria regarding complaints handling and how firms interact and engage with customers. It is an important protection to have. There are very strong expectations that we would set of firms regarding how they engage. If people have a legitimate grievance and complaint they should at all times be treated respectfully, sympathetically and the firm should make every endeavour to address that complaint to the fullest extent possible.

It is worth reiterating that the door does not close to consumers. If they feel a complaint has not been adequately addressed by the firm, they should use the supports that exist across the national wider framework for protecting consumers and use the office of the FSPO to investigate further if needs be.

I have another question on the Bill and moneylenders. One of the reasons credit unions began was to stop out of control interest rates being charged by moneylenders. They have an active role in providing credit. Credit unions are often the heart of local communities. That is the case in my estate. Credit unions have said they want to branch out and have a greater role in the sub-prime credit market. I understand credit unions are currently subject to a cap of 1%. Would the Central Bank support increasing that to 2%?

Ms Gráinne McEvoy

We would have no objection to that. Ultimately, it is a matter for credit unions and the Department to engage with them regarding the feasibility or otherwise of the cap being increased. From the Central Bank's perspective it is something to which we would have no objection.

Mr. Kevin O'Brien

For the information of the Deputy, there is something called the it makes sense loan which credit unions have put in place. People have to be in receipt of social welfare to participate in the scheme. About two-thirds of credit unions have it in place. It has been put in place to try to address the sub-prime market. Recipients can borrow small amounts of money at credit unit rates. It includes the option of applicants seeking credit union lending to pay off other high cost loans. As Ms McEvoy said, it is for the credit unions to decide their business case and strategy around this. It is part of the solution in terms of making credit available across society.

I have another question relating to competition. The Central Banks always says that a vigorous approach to competition policy leads to better outcomes for consumers. My next question does not relate to this particular Bill. Ms McEvoy has a background in investment funds and I would be interested in hearing her thoughts. It is an issue that is very much on the agenda and in the news at the moment.

A variety of people have said that when it comes to housing there is a preferential tax system for investment funds. There is concern that the tax system places ordinary householders and buyers at a competitive disadvantage relative to investor funds. The Master of the High Court said the EU Commission could take a case against Ireland for its preferential tax treatment of such investment firms.

The Central Bank cannot change tax policy. From the perspective of competition and consumer protections, what recommendations has the Central Bank made to the Government regarding its housing policy?

Ms Gráinne McEvoy

The Deputy is quite right. Tax matters do not fall within our remit. The current state of the housing market poses significant challenges for people and individuals seeking access to it. I ask the Deputy to allow us to take that away and come back to her on that matter separately. It is outside what I understood the remit of this discussion to be. The Central Bank has engaged with Government more generally on housing matters, in particular when housing matters impact on mortgage measures and those types of areas. It would be better suited to a bilateral engagement within the Deputy or another discussion by the committee.

I thank the witnesses for coming before the committee today. The primary purpose of today's meeting is for us to hear the view of the Central Bank on the Consumer Credit (Amendment) Bill. My understanding is that it welcomes proposals to protect consumers but has two concerns. First, it is concerned that lowering the APR may be ineffective and counter-productive and may not lower the total cost of credit. The second concern is that it may lead to financial exclusion. In respect of the first concern, what type of legislation does the Central Bank believe would be appropriate in lowering the total cost of credit in the circumstances we are discussing?

Ms Gráinne McEvoy

I thank the Deputy. To reiterate the point, we would support any legislative regime that strengthens and enhances protections for consumers. As I mentioned earlier, we do not have the legislative power to impose a cap. Any imposition of a cap would be a matter for lawmakers and politicians in that context.

I understand from the discussion earlier with Deputy Doherty that the proposals set out in the original Bill are being revised. To look at APR in isolation could be ineffective and counter-productive, as Deputy O'Callaghan said. A cap might, in one sense, provide one degree of stability but that can easily be circumvented by extending the duration of the loan. In the long term a customer may pay back a loan over a longer term than he or she would in other circumstances. That can often be the byproduct of the imposition of a cap.

Any proposals around this should be considered at a holistic level by all relevant stakeholders across Ireland. We have undertaken quite a bit of research in terms of workshops with industry in 2018 and with Amárach Research in 2013. T he UK has done quite a bit of work on the whole area of APR and their understanding and meaning, in particular in the context of high cost credit loans.

I do not have an alternative proposal, but I would caution that a proportionate and measured approach be taken. The certainty afforded to the total cost of credit regime supports a borrower because he or she knows at the outset what he or she is borrowing and what it is going to cost.

As I mentioned earlier, the existing framework does not allow for the charging of late or default charges, which is an important protection for consumers.

Does Ms McEvoy believe that legislation is the appropriate and preferable way to ensure that we can lower the total cost of credit?

Ms Gráinne McEvoy

To be honest, that is a tricky one. It falls outside our remit. We would always support and provide technical assistance on draft legislation, in whatever form. From our perspective, our regulatory regime has been strengthened and enhanced on a number of occasions over a number of years. We are very much in the space of greater transparency and greater disclosure to empower consumers and make them aware that this is a high cost of credit and that there are supports elsewhere in the system if needed; to ensure rigour and additional regulation around firms to signal that these are high-cost loans; and to ensure the firms have appropriate marketing strategies that are not marketed at certain groups of customers. We try to ensure that companies do not issue loans, or give pre-approval or pre-credit for a new loan, to a customer who is already paying off an existing loan. This is to restrict or stifle that spiralling effect that can often happen whereby people, particularly customers of moneylenders, might find themselves in a downward spiral.

If the Oireachtas does not legislate to lower the total cost of credit what legal mechanisms does the Central Bank have to try to ensure the cost of credit can be reduced?

Ms Gráinne McEvoy

We cannot intervene in the context of imposing caps. We have provision in law that requires the Central Bank to ensure that costs are not excessive. This is very much done at the outset when a new entrant seeks access to the market and also upon renewal. When the firms seek to launch new products we will review the product and make a judgment on the costs of that product and whether it is excessive. This is very much done in comparison to the market average and the market costs, and the costs being charged by other actors in the market.

Aside from that, I believe that if the intention is to impose a cap or to restrict the total cost of credit, it is probably best served by way of a legislative amendment.

Ms McEvoy referred to the Central Bank's second concern of the unintended consequence that could arise around financial exclusion. Where does Ms McEvoy think those people will go who may be excluded as a result of the law being amended?

Ms Gráinne McEvoy

That is a very relevant question and, if I am honest, one I am quite worried about. In the first instance one needs to look at who are the users of moneylenders. There are many different types of users in that context. Some have existing arrangements already with banks and with credit unions. They may be paying back mortgages but they use money lending as an additional source of credit. Some customers will have been refused credit already by the traditional banks or credit unions, or they may have a poor credit history and would not be granted further credit by those institutions. They may have no other option than to secure sources of credit provided by moneylenders. My expectation and my wish would be that every consumer in Ireland, at all times, deals and engages with a regulated financial service provider where they have the full suite of protections afforded to them through the Central Bank's regime in this context. Nobody wants a situation where people find themselves excluded and perhaps having no other option but to turn to entities or individual firms that are not regulated by the Central Bank, and losing those protections. I believe that would be the worst possible outcome.

I thank Ms McEvoy.

Would Deputy Doherty like to conclude the meeting?

I thank the Chairman, I appreciate that. Unfortunately I had some technical difficulties and was logged out of my laptop for nearly ten minutes. I missed part of the discussion but I will look back on the transcript.

We have had a good engagement. It would be helpful if the Central Bank could forward to the committee at the earliest opportunity the information we have sought. I will send a note to the clerk about the specific information I have requested so we can be clear on what would be helpful for the next stage in the scrutiny of the Bill.

I thank the Deputy. This concludes the committee's business for the day. I thank Ms McEvoy and Mr. O'Brien from the Central Bank for their input. I thank the members for attending. The meeting is now suspended until 3.15 p.m.

The committee went into private session at 3.15 p.m. and adjourned at 4 p.m. until 12.30 p.m. on Wednesday, 19 May 2021.
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