The first thing to bear in mind is that the British experience and our own experience were not exactly the same. Ireland introduced a Moneylenders Act in 1933 which corresponded to an English Act in 1927. We introduced the 39 per cent ceiling but, as far as I know, Britain did not. They had an elastic formula which was to be determined by the courts.
The problem with the 1933 Act was that it was doubtful whether collection charges could be excluded from the 39 per cent interest rate. The result was that some judges took the view that the 39 per cent included collection charges and others took the view that it did not. They applied common sense to the provision and interpreted the ambiguity in the Act in favour of the moneylenders.
Deputy Rabbitte talked about an APR and the Director of Consumer Affairs mentioned a flat rate of interest at 39 per cent. As I understand it, most moneylenders engaging in collecting credit do not want anything over 39 per cent at any stage. They want their cost structure in collecting money reflected in the formula. If APR is included in the statutory formula presented by the Minister, the cost of credit will include the charge for collecting it. The result will be that fantastic figures will appear for relatively small loans. The pressure that would build up in terms of what was acceptable would be very difficult to deal with.
I worked out an example while listening to Deputies Bruton and Rabbitte. A licensed moneylender gives somebody £100, says they will collect it over 26 weeks and goes to the house every week to collect it. On my poor calculations, the amount collected every week would be £3.84. They may then say they will take £120 from the person over those 26 weeks as the interest charge and to cover their expenses. They will then collect approximately £4.50 every week.
The difference between £3.85 and £4.50 is 66p which represents the total return on the outlay. Merely paying back the £100 in instalments would involve repayments of £3.84 while paying back the additional £20 would involve instalments of £4.50. It does not seem exorbitant for somebody to look for 66p for knocking on the door to collect the money. It is not exorbitant because no bank in the world could organise a service along those lines. However, if one then applies APR principles, one finds that the £100 which converts into £120 over six months is in fact, over a year, converting into £140 because £20 over six months is the same as £40 over a year. If one applies APR principles to that, one finds that the £100, which converts into £120 over six months, converts to £140 over a year because £20 over six months is the same as £40 over a year. If one takes into account that on average half is paid back in instalments every week over the 26 weeks, one finds it is an 80 per cent flat interest rate. If one chooses to express a 66p return every week on £100 collected, on a flat interest rate, as the director mentioned, one can get 80 per cent.
When the Judiciary in the District Court were confronted with this, they said it could not be that an extremely modest charge of that type, which does not seem off the wall in any respect was illegal. The more pro moneylending members of the District Court Judiciary took the view that they would exclude collection charges from the formula in the 1933 Act. It was highly questionable at the time as to whether they were right or wrong. We are now faced with the situation that if APR including interest charges, was to be the calculation, a figure such as that would look astronomical. No Minister could ever fix a figure in a regulation that would look right. A Minister would resign rather than put his or her hand to a Statutory Instrument that gave rise to an 80 per cent flat interest rate calculated in that way.
I agree with the view taken by the Director of Consumer Affairs. In relation to collected credit agreements, it needs to be stated that so much will be there by way of charges and the interest rate will be of an amount that the Director of Consumer Affairs considers fair, taking into account the increased credit risk, the charges which are separate and whatever. It may be that 39 per cent, for example, if one removes all the charges, will not be breached by anybody. However, if one includes the charges, one gets crazy interest rates on very small sums of money. It applies further, as Deputy Rabbitte said, that if one tries to deal with it with reference to APR, which includes collection charges, one will have crazy figures in the maximum permitted amounts. The fair thing is to do what the Director of Consumer Affairs proposed, which is to allow him to set out what is fair in his licence to moneylenders, having regard to the actual conditions on the ground, the cost of credit, the risk factor etc.
The whole purpose of this is to have a licensed moneylending sector because there will be moneylending. The only question is whether it will be licensed. Those who are unlicensed, the leg breaking fraternity, will not be concerned about what is provided in any Statutory Instrument. They will never go near a court either to enforce their agreement. The point made in the surveys, to which reference has been made, about instances of astronomical interest rates is in relation to where prosecutions take place. It is not where a leg breaking moneylender, without a licence, goes to a court and asks to have an agreement enforced. They do not go near courts. The crucial point to remember is that if one hammers the licensed sector——
