Select Committee on Enterprise and Economic Strategy debate -
Wednesday, 12 Oct 1994

SECTION 93.

Question proposed: "That section 93 stand part of the Bill".

Mr. R. Bruton

This is quite a good provision. However, one thing intrigues me. We appear to be putting this obligation on moneylending but not on any other type of credit agreement.

In section 99 (1) (b) we envisage charges being payable by the borrower for non-compliance with his commitments in the credit agreement. However, we are making it illegal in the case of moneylending agreements. There are mixed principles involved if we take the view that a moneylender cannot increase the rate for credit when somebody defaults on a payment. The moneylender will have to negotiate a new agreement if he wants to put that person into a higher risk category. It is strange that although we are correctly imposing that requirement on moneylenders we are not imposing the same requirement on other types of lending. There is much talk nowadays about level playing fields but it is clear that we envisage other lending institutions being able to impose these additional charges. Is there an inconsistency there?

Mrs. O'Rourke

Is the Deputy referring to interest charges?

Mr. R. Bruton

The rate charged for credit cannot be increased by a moneylender when a person defaults on a payment under the agreement. However, in section 99 we envisage the possibility of such increases and the Bill provides that they will not be part of the APR. How does the Department square the two different approaches to additional charges — the application of one set of criteria to moneylenders while taking a more relaxed view towards other lending institutions?

Mrs. O'Rourke

We had this argument, albeit in an altered fashion, during discussion of earlier sections of the Bill. Perhaps, in the interest of celerity, we could deal with this section and deal with the other matter when we reach that section.

Mr. R. Bruton

That is not altogether fair. If we are saying that this rule should apply to moneylenders we should also have some assurance that the Department has good reason for not having a level playing pitch in relation to such charges. It would not be unreasonable for any credit institution to try to change the rate of credit.

Mrs. O'Rourke

The Bill was originally intended to deal with moneylending in line with a directive. At my behest mortgages were included because I wanted transparency and openness in that area. I still contend that there is quite a difference between moneylending itself and borrowing money under a mortgage agreement to which section 99 refers. I mentioned this earlier in the context of section 46 when Deputies strongly urged me to engage in setting rates of interest. We are treating both sections differently.

Mr. R. Bruton

I can see that the Minister is treating them differently but I cannot see the reason. Why should another form of lending institution have the freedom to impose additional charges, other than legal costs, in the event of someone defaulting on payments?

Mrs. O'Rourke

Is the Deputy talking about transaction charges?

Mr. R. Bruton

I am talking about additional charges. They are not transaction charges; they are default charges.

Mrs. O'Rourke

Is the Deputy talking about interest rate charges?

Mr. M. McDowell

Default charges. If a person's building society says that he or she defaulted, they charge them an extra £30.

Mrs. O'Rourke

In actual fact that is a transaction charge.

Mr. R. Bruton

We are providing that a moneylender cannot alter his APR because a person defaulted on one of their payments. We are also providing that he cannot impose a default charge but it seems that we do not envisage either of those restrictions applying to other lending agencies. We should at least be clear on this point. If we are applying different principles to moneylenders, there should be a sound reason for doing so based on the public good.

Mr. M. McDowell

My experience from representing licensed moneylenders in court and conversing with them in the context of moneylending agreements under the 1933 legislation has always been that they believe default charges never worked. While some agreements provided for default charges, moneylenders said it was pointless even to attempt to impose them because one was only making a bad situation worse.

They take the view that one should just go and collects one's credit and that penalising people by imposing extra charges was always counter productive. As a matter of habit, they never did it. I therefore believe that they were happy to make the concession and not to fight against it in any way because they do not want to be accused of——

Mrs. O'Rourke

Piling on the agony.

Mr. M. McDowell

——making extra money from people who are in difficulties. Their view is that one takes the rough with the smooth and that since they are dealing with an area of the credit market which other institutions will not touch, they do not want to take on the badge of infamy that they take more from the people who are in the worst trouble than they do from the people who are in a position to pay them.

The rationale for distinguishing between this and other areas is that one is dealing with a group of people who need some degree of protection and the trade itself has said to the Government that it does not want to be in the position of adding penalty clauses because the reality is that they will not get it.

Mrs. O'Rourke

They know that they will not get it, as many building societies and other institutions find out to their cost having gone through endless expense to try to get the money.

Mr. M. McDowell

The Judiciary always come down like a hammer on building societies who try to take penalties from people for getting into difficulties. The licensed moneylenders have made a sensible policy decision over years to stay clear of this. The licensed banks are not half as reasonable and charge people for everything.

Mr. R. Bruton

That is the point I am making.

Mr. M. McDowell

There is chaos about a returned cheque. The person who tenders the returned cheque is penalised. If I give someone a cheque which bounces, they are charged for my default. Nobody can complain about this crazy situation. I hope the Minister will do something about this. It is outrageous that somebody takes a cheque in good faith and is ultimately debited extra money because they were diddled themselves.

Mrs. O'Rourke

That is regarded as a transaction charge because there was an attempt to put the cheque through and it was not met by money.

Mr. M. McDowell

It is extraordinary and very harsh on a person who is in enough trouble having received a bounced cheque.

Chairman

Is the section agreed?

Mr. R. Bruton

At no stage did I disagree with the section. I agree with the Minister that it is best to return to this on a later section. If the moneylenders are, as Deputy McDowell suggests, setting a standard, maybe the rest of the credit institutions should be following.

Mr. M. McDowell

I echo Deputy Bruton in asking the Minister at some stage, either by herself or in conjunction with the Central Bank, to introduce a much tougher regime on penalty clauses for ordinary people. If the moneylenders can live without penalty clauses, the big boys can also live without them.

Question put and agreed to.