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Select Committee on Finance, Public Expenditure and Reform, and Taoiseach debate -
Wednesday, 11 May 2022

Consumer Credit (Amendment) Bill 2022: Committee Stage

Mobile phones should be switched off. For the purposes of producing the Official Report, it has been requested that members are identified when they are called to speak. Members are requested to remove their face coverings when speaking to ensure their contributions can be recorded. Those of us who do not have face coverings should not remove anything. Apologies have been received from Deputy John McGuinness. I welcome members and also viewers who may be watching our proceedings on Oireachtas TV to the public session of the Select Committee on Finance, Public Expenditure and Reform, and Taoiseach.

Members are reminded of the long-standing parliamentary practice to the effect that members 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 or her identifiable. Parliamentary privilege is considered to apply to the utterances of members participating online in a committee meeting when their participation is from within the parliamentary precincts, which is in Leinster House, in other words. In order to participate in a division in the committee, members must be physically present.

I welcome the Minister of State, Deputy Fleming, and his officials. Any Member substituting for a member of the committee should formally notify the clerk now. No one is substituting for a member yet. Divisions will be taken as they arise. Members must attend in person in the committee room for divisions, although they can attend the meeting remotely. Members attending this meeting in accordance with Standing Order 106(3) should be aware that they may move their amendments but cannot participate in voting on that amendment.

Section 1 agreed to.
Question proposed: "That section 2 stand part of the Bill."

This section amends the interpretation section of the original 1995 Act and substitutes a number of the terms to differentiate between licensed and unlicensed moneylenders, but no changes have been made to the advertising provisions under the Consumer Credit Act, despite the fact that during the engagement with stakeholders and public consultation, there were calls for greater regulation of advertising, particularly leaflet drops by moneylenders. The Minister of State will be familiar with the practice that moneylenders use. I use the word "prey" to describe what they do to vulnerable people at times of financial pressure, including in the run-up to Christmas and at this time of year as parents prepare children for communion and confirmations. There is no prohibition on promoting new loans when customers are nearing their final payments. Why were no further restrictions on advertising put in place when the Minister of State was considering this legislation?

Section 2 provides for the terms "moneylender", "moneylending", "moneylender’s licence" and "moneylending agreement" to be replaced by the term "high cost credit provider", "high cost credit", "high cost credit provider's licence" and "high cost credit agreement", respectively. The purpose of this change in language is differentiate licensed providers more clearly from unlicensed lenders.

The many suggestions relating to advertising are currently catered for either by the Consumer Credit Association, CCA, or the moneylending code. In addition, the Central Bank has since published the moneylending regulations, which address areas like advertising and targeting. The requirements of the moneylending regulations should assist customers and consumers in becoming more informed and encourage them to consider alternatives. These requirements include that moneylenders insert an enhanced high-cost credit warning statement in all advertisements, regardless of whether advertising refers to a rate of interest or a cost of credit. The following text must be included in the warning statement: "Warning: This is high-cost credit. Consider alternative options before applying for this credit, including alternatives from other lenders regulated by the Central Bank of Ireland." The cost of credit must be clearly displayed on the moneylender's website, and they are required to provide an information notice on the application stage. Moneylenders' advertising must be clear, not misleading, and presented in a way that customers will know that it is an advertisement. Moneylenders can no longer make unsolicited contact on the recommendations of an existing customer, in other words, refer a friend. This is a very important issue that deals with vulnerable people who might be looking for funding in the run-up to some of the big family events.

Moneylenders are required to take reasonable steps to identify customers who are vulnerable customers and to ensure they are provided with the assistance that may be necessary. The essence of this legislation, which was not there before and which is very strong now, is that, before the moneylender gives a loan, they must look at the person's ability to repay that loan and take into account the existing financial commitments the person might have. There is a requirement for moneylenders to consider that. The whole tone of this legislation is that when the Central Bank is satisfied that some high-cost lenders are not actually doing that, it can have an impact on their licence. They could have it withdrawn, suspended or, ultimately, not renewed. This is the whole tone of the Bill. It is not just one section the deals with this.

Since we have spoken, the Central Bank has published its moneylending regulations to address the issue of advertising. The Competition and Consumer Protection Commission, CCPC, will have a role in advising consumers on this, separate from this legislation, even though it will also play a key part of it around consumer protection.

When it comes to granting licences, the Central Bank will take all of these matters into account any time it is issuing a licence or considering taking any action where there is an actual breach. The conduct standards required by the Central Bank of these licensed operators can be taken into account whereas up to now those factors were not specifically included in the legislation. There is a raft of areas dealing with consumer protection that perhaps had not existed heretofore.

Will there be any prohibition on moneylenders doing leaflet drops in the run-up to Christmas, which target vulnerable households with high-cost interest loans? Regardless of the fact the moneylenders will have to disclose "We are fleecing you", there remains the fact they are targeting people during that period.

There is no specific item in the legislation that deals with a period such as coming up to First Communion, Christmas or any other holiday period. There is no specific section in the legislation that prohibits the distribution of advertisements in a specific time period. When one can advertise is not confined to certain days of the year. As I have said, the interest rate must be clearly displayed and must clearly state that it is a high-cost interest loan. This must be clearly displayed. Most people will understand it is an advertisement. I take the Deputy's point, however, that it is a temptation when people see these advertisements. I believe we are strengthening the requirements on the industry to make clear what is involved if one takes up the temptation.

What is the Minister of State's view on that? It is that type of advertisement. We are aware advertising takes place in different ways now than it did in the past. That kind of leaflet drop is still a part of moneylenders' operational procedures. They are not going to drop leaflets out in Donnybrook. They target social housing estates and they target areas they believe are lower income areas. They make it very appealing to people that there is an easy fix. Given the Government is legislating for warnings around the high costs of the interest rates, does the Minister of State not feel this is a missed opportunity to prohibit that type of practice? We know of this type of lending. I am sure everyone in this House would advise people that before they go to a moneylender, they should check all of their other options, including credit unions and loan supports by the State through the credit union movement, and other retail banks. Allowing them to advertise at times of vulnerability is a mistake. I believe it is something we will have to come back and revisit in this legislation in the future.

I understand. We were all in the same space on this in protecting vulnerable customers at a vulnerable period in the year just coming up to Christmas.

The Central Bank brought in the high-cost warning requirements, which came into effect on 1 September 2020, and the remainder of those regulations came into effect on 1 January 2021. Some of those have already come into effect since the discussion started around this legislation. It is very important that the "refer a friend" practice will be dealt with now under this legislation. When somebody gets a loan, many may say to a neighbour "This is where I got the loan". There are no statistics on that but it is a common way for people to hear about a particular moneylender or high-cost credit company. Provision to deal with this "refer a friend" practice is included in the legislation.

Banning advertising for certain periods of the year is probably a broader societal issue rather than being specific to this issue. That is something we did not do in the pre-legislative scrutiny with regard to the advertising industry. That would be a very broad debate that can happen in the Oireachtas, with much wider implications than this exact legislation. The credit unions have a good product out there. Some 102 credit unions have an offer called It Makes Sense, which are loans to help customers with household budgetary items. In many of these communities the credit unions are having an impact.

I would expect a reduction in the leaflet drops because, up to now, a key feature of moneylending has been the door-to-door collection. It is a key feature. People were calling to the housing estates, which Deputy Doherty referred to, monthly or weekly collecting money. Part of that may have been the delivery of leaflets. Under this legislation, the cost of a door-to-door collection is not facilitated. The moneylenders cannot charge for a door-to-door collection fee. We cannot stop them calling door to door to collect money, but they cannot charge for it or include it in the interest rate or a fee associated with the loan. I would genuinely expect there to be a significant reduction in the number of people calling to houses in housing estates collecting money and possibly delivering leaflets when they are doing the same exercise. It will be a by-product of this legislation. They will not be calling around to those housing estates regularly. There is, however, no proposal to abolish door-to-door leaflet drops.

That is a mistake in the context of how they operate and how they target vulnerable customers. Is there anything in the legislation that will ban the practice of promoting new loans to customers who are nearing final repayments? We challenge the interest that is being charged to someone who takes out a six-month loan from a moneylender, and we can see that they are paying possibly ten to 12 times more than if they had received the same amount of money from a credit union. They must pay hundreds of additional euro than if they had got that loan from a credit union. It sounds terrible that they will have paid €300 or €400 more, for example, but the reality for many individuals who have gone to a moneylender is the practice of continuing to keep them under the grip of the moneylender. The moneylender advertises a loan as the current loan is expiring, which means the person is in a continuous period of high-cost credit. This means he or she is paying thousands upon thousands of euro extra as a result of the level of indebtedness.

I understand the point made about the people we are dealing with. There is an item in the legislation that is new and is not in existing legislation. For the first time we will have legislation whereby the loans can only extend for 12 months. Up to now there was not a 12-month limit and loans could roll over very simply. It did not have to be a new loan. Under this legislation, the loan must be repaid and it must be only a 12-month loan. A new loan would be required to be taken for a second period.

The Deputy has said that towards the end of a loan term, a customer would be offered a new loan. The second item in the legislation that did not exist heretofore is the obligation to carry out a review of the ability to pay the loan within the 12 months before issuing that loan again. In the past moneylenders were piling loans on people and maybe two or three moneylenders were calling to some houses. Now there will be a requirement to know the total ability of the person taking the loan to repay it through normal credit checks. They did not have to do those up to now. There are approximately 40 companies in the country that will rely on the Central Bank of Ireland for approval for the period of their licence and if it finds they are not complying with the obligation and are giving loans to people where it is reasonable to say they are not able to repay the loans, it will affect the Central Bank's view. With this legislation, it can take such consideration when reviewing or examining the licence. It is a new element.

To tease that out, what are the criteria a moneylender must follow on ability to pay? Would they include the track record of a customer paying a previous loan or would they be based on household income, such as the proportion of income, as applied by banks?

It would be the same requirement as for any commercial or personal loan. That did not apply up to now in this sector. The lenders will now have to meet the same consumer credit loan protections and regulations that apply to all other lenders authorised by the Central Bank. That was not the case up to now. This will include income and whether a person has the ability to repay the loan. It will always be the single biggest criterion. It is not just about historic payments, although such information will tell lenders if there are any outstanding loans to take into account. It is about the ability to repay the loan. That provision was not there previously.

That is fine. Taking it one step further, what is the default rate across the industry when it comes to moneylending loans?

I do not know.

Okay. I do not expect the Minister of State to know it. Would he accept it is reasonably low?

I would because these are small loans. The average loan is in the bracket of between €700 and €800. They are not loans of thousands of euro. They are quite small.

The default rate is low for a number of reasons. These include the relationship with the collector and the evidence indicates individuals will prioritise moneylender loans above other types of loan because it is the last opportunity for them to access credit.

It is the second to last, as the illegal lenders are out there and we want to keep people away from them.

Yes. We have had much pre-legislative scrutiny of this, including examination of my legislation, and the fear of illegal moneylenders is not seen as a reason to reduce interest rates.

The point I am making is that moneylenders having to calculate ability to pay is good. I welcome it. That misses the real point, however, as the default rate with moneylenders is very small anyway. People pay these loans and the issue is not the ability to pay. It is the fact that moneylenders are fleecing these people. If a person borrows €1,000 and pays approximately €560 in interest, rolling it over by taking out a new loan each year, in four years that person will pay over €2,000 in interest on the original €1,000 loan. That is the problem. It is not ability to pay because evidence indicates the people will pay the loan. The issue is the loan will have cost the family thousands of euro in interest over four years. That is the problem. The practice will be allowed to continue where Mary and Joe come to the end of their term and the moneylender might say that Seamus is going to college next year and offer a loan for that. The lender will offer to work out the paperwork in taking out the new loan. The €1,000 that people will have "repaid" is still be paid and the lender will take another €560 in interest.

That is the issue and it is immoral that a type of loan such as this is rolled over continuously, and this happens with many families. It ends up costing an individual thousands of euro and multiples of the capital that was originally taken out.

That is a very fair description of where we are, prior to the enactment of this legislation. It is a very fair assessment of what happens in many cases. It is why, for the first time, we are introducing a limit of 12 months on any loan. In the past, loans would just been rolled over repeatedly but now a loan will have to be brought to a conclusion at the end of the 12-month period. There will be a fresh application and the normal consumer credit checks by these companies will have to take ability to pay into account.

What the Deputy describes is exactly the position of many people. They were given loans that, effectively, they could not repay. There is almost an assumption the loan will roll over repeatedly. That will be stopped with this legislation. There is a 12-month limit for the first time and anybody who wants to get a loan for a second period will be starting from scratch with a fresh application. The Central Bank must be satisfied and it has the ability to monitor these companies, which will now be regulated. There are only a couple of dozen of them in the country. I am satisfied the Central Bank will monitor the provisions in this new legislation very closely. If it finds that, in effect, people are rolling over loans, the Central Bank will be able to take that into consideration in amending or revoking a company's licence or not renewing it. That option does not currently exist.

With respect, the Minister of State is missing the point.

I remind members we must move on. There are no amendments in this section but a number must be disposed of.

With respect, the discussion of the section may lead to amendments on Report Stage. The Minister of State is really missing the point here. We recognise that a loan cannot be rolled over and a person must make a fresh application. Taking out a new application will not be a problem for many of these families, who will have already met the terms of the previous 12-month loan. They may have taken a loan of €1,000 and paid €560 in interest. They will have repaid the capital and are good for another loan. That is the problem. If they take out another loan in the following year for the same €1,000, the process repeats. The new loans are rolled over. That is what happens with people who use moneylenders. There is no prohibition on advertising the new loan to somebody coming to the end of term in the original loan.

Somebody may have taken a €1,000 loan over four years and will have repaid €2,240 in interest in such a case. Can we stop people from going to moneylenders year after year? We cannot. However, the core of my argument is there should be regulation of advertising of new loans to new borrowers as they come to the end of their term. It is a predatory practice that moneylenders are involved with. The same loan that somebody takes from the credit union over the same period would cost €240 in interest. That is compared with €2,240 with a moneylender.

We need to make some progress. The Deputy is free to flag an amendment for Report Stage. We must move on.

Okay. The essence of the legislation is that it would be an offence to issue a four-year loan. It would be a specifically stated offence.

Nobody is suggesting it is not.

The Deputy quoted how much somebody would pay on a four-year loan on the basis of an initial €1,000-----

No. I spoke about a one-year loan-----

Allow the Minister of State to reply.

I listened carefully and I think I understood the Deputy's point. Those people would have repaid approximately €500 in interest and the capital. If somebody gets a loan and repays it within the specified period, including interest, and wants to start again, they are allowed to do it. Most people do it with car loans etc. When the loan is repaid, including capital and interest, they will start a new loan. That is not rolling over the loan. It would be for some new item in the house, electrical equipment or next year's first communion for a different child. It would not be the same loan.

This will be a new loan from the beginning for a new purpose.

Of course it will be a new loan. That the Minister of State shrugs his shoulders at that idea means he fails to understand exactly what is happening with moneylenders. This is the problem. There are families out there at the minute who are borrowing €1,000 and are paying it back. They pay the €560 interest. At the moment they are rolling that over and will not be allowed to do that and will have to take out a new loan for the €1,000 and pay another €560 interest, and so on and so forth. We cannot stop them doing that but we can and should be regulating the moneylenders to prevent them from advertising that new loan as they are coming up to the term. If an individual wants to seek out a moneylender and apply for high-cost credit, that is fine, but when somebody knows that Mary and Michael are coming to the end of their term, this gives rise to a predatory practice that should be stopped. That is my point.

I know what is happening in this legislation and that one cannot roll over, but the reality is that most of these customers will be able to get new loans. It is a good thing that there will be an extra burden there and most will be able to do this but the problem is that this predatory practice is a problem. It has been happening in the past and this is probably going to limit door-to-door sales where there were three generations involved and they were looking at Johnny who was turning 17 or 18 in the same way where the moneylenders could behave towards him in that predatory way. That will come to an end but the idea that these moneylenders can hold and try to keep a data sheet is not good. The legislation should regulate the advertisement in that regard.

The net point here is that this legislation does not regulate advertising. I take and understand the point the Deputy is making and I can confirm that this legislation is not about advertising of loans and that is not covered in this legislation.

We only have one hour to complete the rest of the sections, which we will try to do. We have already put the question that section 2 stand part of the Bill.

Question put and agreed to.
Question proposed: "That section 3 stand part of the Bill."

What are the repercussions for a breach of the two new offences under section 3? I welcome those offences but what are the repercussions for their breach?

There is a summary fine of €3,000 and, on indictment, that will be €100,000. It would be a matter for An Garda Síochána to take up breaches of this legislation.

Can the Central Bank revoke a licence midstream?

Yes, it has always been able to do that if people are not complying with the conditions of their licence at any stage. The Deputy knows that we are going to extend the period of the licence from one to five years. The Central Bank is always free to suspend the licence, including in this instance.

I thank the Minister of State for his reply.

Question put and agreed to.

I move amendment No. 1:

In page 6, between lines 27 and 28, to insert the following:

“Amendment of section 28A of Act of 1995

4. Section 28A of the Act of 1995 is amended, in subsection (1), by the substitution of “high cost credit agreement” for “moneylending agreement”.”.

The proposed new section 4 of the Bill adds a definition for a nominal rate to the Act of 1995, as this is a type of interest rate cap placed on running accounts. A running account operates similarly to a type of credit card and is a product sometimes offered by catalogue companies. This technical amendment seeks to update a schedule of references to deter moneylending, following the passing of the recent Act. One of the purposes of the Bill is to replace the term "moneylending" with the term “high cost credit” where it occurs on the Statute Book. Since this Bill was published, the Consumer Protection (Regulation of Retail Credit and Credit Servicing Firms) Act 2022 has added another reference to the word "moneylending" in the Statute Book. The reference to "moneylending" should be replaced by the term “high cost credit”. This is only a change of nomenclature or name.

Amendments Nos. 2 to 4, inclusive, and amendment No. 6 are grouped together for discussion purposes. Amendment No. 4 sets out the substantive change while amendments Nos. 2, 3 and 6 are required to be inserted appropriately into the Bill. We have worked closely with the Central Bank in the drafting of this Bill because the bank is the licensing authority for high-cost credit providers. These amendments will allow the Central Bank-----

I must put the question on amendment No. 1 before we move on to this group of amendments.

I moved too quickly, sorry.

Amendment agreed to.

Amendments Nos. 2 to 4, inclusive, and amendment No. 6 are related and will be discussed together.

I move amendment No. 2:

In page 6, between lines 27 and 28, to insert the following:

“Amendment of section 92 of Act of 1995

5. Section 92 of the Act of 1995 is amended, in subsection (2), by the insertion of the following definitions:

“ ‘financial services legislation’ has the same meaning as it has in the Central Bank (Supervision and Enforcement) Act 2013;

‘rate of nominal monthly interest’ means the advertised or stated monthly interest rate, without taking into account any fees, but including any compounding of interest applicable;”.”.

As I was saying, these amendments will allow the Central Bank to take account of additional matters when granting, suspending, revoking or varying high-cost credit licences. They will allow the Central Bank to take account of the conduct of the high-cost credit providers in the same way that the bank treats other regulated financial service providers, for example in the monetary compliance with the Central Bank’s regulations or codes of conduct. This deals with the discussion we have been having here up to now. I am talking about situations where providers breach financial services legislation by failing to pay the Central Bank levies on time or where they do not submit key information on the central credit register on time, or at all. With the terms of the licences moving now from one to five years, these changes will bring the high-cost credit providers’ licences more in line with those of other financial service providers.

I have read the general note I have been provided on these amendments, which were grouped together for discussion. I can go into more detail, if required, on the specifics. As I say, amendment No. 4 is the substantive one. The other three amendments are only there to ensure amendment No. 4 is properly inserted into the legislation.

I will move on to amendment No. 4, which is the substantive one. Section 93(10) of the Consumer Credit Act 1995 sets down the list of practices which the Central Bank can take into account when deciding whether to grant a high-cost credit provider's licence. The items added to this list will mean that the provider must satisfy the bank that it will be able to comply with the requirements of being a licensed high-cost credit provider, and a regulated financial service provider more generally, and that it will conduct its business in such a way as to ensure the protection of its customers - which is new - and in compliance with any other requirements considered necessary by the bank for the proper and orderly regulation and supervision of high-cost credit and the protection of the applicant’s customers. This legislation is, therefore, very strong on customer protection, which the Central Bank will have a role in now when the providers proceed to the renewal of a particular licence.

Finally, section 93 deals with the factors considered when suspending or revoking a licence. The Central Bank will now be able to take into account whether the high-cost credit provider has failed or is failing to comply with any condition or requirement under the financial services regulation. The Central Bank will now clearly have authority to be able to amend or revoke a licence during the course of the five-year period. The other two amendments are minor, relatively speaking.

I must mention that acceptance of this amendment involves deletion of section 4 of the Bill.

Amendment agreed to.
Section 4 deleted.

I move amendment No. 3:

In page 7, to delete line 27.

Are we dealing with amendment No. 5?

No, we are on section 5.

We have deleted section 4 and we have moved on to section 5. We have discussed some of the amendments to section 5 but they have not yet been moved.

Amendment agreed to.

I move amendment No. 4:

In page 7, to delete line 30 and substitute the following:

“ “(ga) a proposed total cost of credit is excessive,”,

(iii) in paragraph (h), by the substitution of “previous licence,” for “previous licence.”, and

(iv) by the insertion of the following paragraphs after paragraph (h):

“(i) the applicant has failed to satisfy the Bank that the applicant is, or will be, able to comply with any requirement imposed on the holder of a licence by, or under, this Part or any other provision of financial services legislation,

(j) the applicant has failed to satisfy the Bank that the applicant conducts or will conduct the applicant’s business in such a manner as to ensure the protection of the applicant’s customers, or

(k) the applicant has failed to satisfy the Bank that the applicant complies with any other requirement, compliance with which is considered necessary by the Bank in order to ensure—

(i) the proper and orderly regulation and supervision of the provision of high cost credit, or

(ii) the protection of the applicant’s customers.”,

(h) by the substitution of the following subsection for subsection (11):

“(11) The Bank may—

(a) suspend or revoke a high cost credit provider’s licence, or

(b) vary the terms or conditions of a high cost credit provider’s licence, where the Bank is satisfied that, since becoming the holder of a high cost credit provider’s licence—

(i) the high cost credit provider, or any business with which the high cost credit provider is connected, has been convicted of an offence for contravening section 98,

(ii) the high cost credit provider has become the holder of a licence referred to in subsection (10)(c),

(iii) the high cost credit provider has failed to comply with any of the terms or conditions of the licence, or

(iv) the high cost credit provider has failed to comply with or is failing to comply with any condition or requirement imposed by, or under, this Act or any other financial services legislation.”,”.

Amendment agreed to.
Question proposed: "That section 5, as amended, stand part of the Bill."

On section 5, I want it noted that I am uncomfortable with the extension of the five-year period. While the Central Bank, through the Minister of State’s amendment which I welcome, is allowed to revoke or refuse a licence midstream, I encourage it to apply this provision where this has happened. I have made the point before that I accompanied whistleblowers to the Central Bank which led to quite a significant fine - a six-figure sum - against Provident Personal Credit for practices in which it was involved in my constituency. The company never lost its licence. The Central Bank has to be feared, particularly when we are moving from a one-year licensing regime to a five-year regime.

I note the Deputy's point. The term of the licence changing will bring high-cost credit provider licences more in line with existing Central Bank licensing arrangements for other types of regulated financial service providers. The Deputy might say that this is a particular case because of the clientele involved, but the reason we have done it is to be consistent with other licensing agreements that the Central Bank would normally issue. They are usually for five years. That is the norm that is coming in under this Central Bank regulation now. We are taking the norm. That said, I accept the separate point that the Deputy makes.

Question put and agreed to.
Sections 6 and 7 agreed to.

I move amendment No. 5:

In page 8, to delete lines 34 and 35, and in page 9, to delete lines 1 to 15 and substitute the following:

“(2) (a) The Minister shall prescribe in respect of a loan (other than a running account) under a high cost credit agreement—

(i) the maximum rate of simple interest chargeable per week (being a rate less than or equal to 0.75 per cent), and(ii) the maximum rate of simple interest chargeable per year (being a rate less than or equal to 36 per cent).

(b) A maximum rate of interest prescribed under this subsection shall apply to a high cost credit agreement entered into after the date on which the regulations, by which the rate is prescribed, come into operation and for a period of no longer than three years.

(3) (a) The Minister shall prescribe in respect of a loan (other than a running account) under a high cost credit agreement—

(i) the maximum rate of simple interest chargeable per week (being a rate less than or equal to 0.35 per cent), and(ii) the maximum rate of simple interest chargeable per year (being a rate less than or equal to 18 per cent).

(b) A maximum rate of interest prescribed under this subsection shall apply to a high cost credit agreement entered into no longer than three years after the date on which regulations, by which the rate is prescribed, come into operation.(3A) (a) The Minister shall prescribe in respect of a running account under a high cost credit agreement, the maximum rate of nominal monthly interest chargeable on an outstanding balance (being a rate less than or equal to 1.92 per cent).(b) A maximum rate of interest prescribed under this subsection shall apply to a high cost credit agreement entered into after the date on which the regulations, by which the rate is prescribed, come into operation.”.

This amendment would introduce an interest rate cap based on simple interest, with an initial cap which would then be reduced further after a period of three years. It would also separate cash loans from loans provided on a running account. The new interest rate as it applies to cash loans would be as follows: a simple interest rate of no more than 0.75% per week up to a maximum of 36% per annum for a period of three years, to be known as the initial cap; a simple interest of no more than 0.035% per week up to a maximum of 18% per annum after a period of three years, which would be known as the further reduced cap.

The impact of this cap for borrowers with reference to the interest charged on a €1,000 cash loan by a credit union and by the largest money lender operating in the State is significant. Currently, on a €1,000 loan over a 12-month period, a credit union charges interest of €60 while a money lender, for the same loan over the same period, would charge €560 in interest. The initial cap that I am proposing for a three year period would reduce that €560 down to €360 but would substantially reduce it further after the three year period down to €180. The initial cap would be six times that which the credit union would apply but, as we get to the second step, it would be three times what the credit union would charge. Crucially for the moneylender, the total interest payable does not include the impact of collection charges, which obviously have pushed up the cost of credit further in the past.

I argued strongly on this when my own legislation was before the House but unfortunately, the Minister voted against all sections of that Bill. We have tweaks in some of the sections of this Bill to the licences of moneylenders, which I broadly support, but when we get down to the meat and bones of this legislation, what the Government is legislating for is to allow high-cost credit but with a warning on the label. It is like phoning people up to tell them that they are going to get robbed in the next half an hour. The Government is just letting them know that they are going to get robbed but what I want to do is stop the burglar coming through the door in the first place. This amendment would still allow for substantial profits to be made on these types of loans, which have been described by others during the pre-legislative scrutiny process as immoral. It would still allow for high interest rates to be charged, specifically in the initial period but I would argue that a step-down approach is the more appropriate way to deal with this and to bring it into line, with reference to credit union lending. The initial cap of six times the credit union rate and then three times the rate in the further cap is appropriate. I commend the amendment to the select committee.

I thank the Deputy for his proposed amendment. I know that Deputy Doherty has a great interest in this legislation and I can see where he is coming from with his proposal. Lower interest rates are better for consumers. The key purpose of this legislation is to reduce interest rates. Deputy Doherty will say that Government is not being ambitious enough, but we have to strike a balance and reduce rates without reducing access to credit. We can reduce rates right down but we might not have any companies providing credit if it is not viable from their point of view. We want to make sure that the people we are talking about have access to credit. If we make it unviable for providers, then people will not have access to credit except through the illegal moneylenders that we all want them to avoid. There is a balance to be struck between reducing the rate and making sure that we keep lenders in the market. We are looking at a substantial reduction from where we were previously. We need to do this in a balanced, responsible way.

There is currently a concentration of loan offerings between 1% and 1.2% per week in the market. Most of the loans tend to be in that bracket. An initial interest rate cap of 1% per week will allow moneylenders operating at rates above the limit to revise their business model and reduce their margins to enable them to operate within the legislative cap. This is not the ultimate destination but it is the right place to start. The legislation also sets down the principles and policies to guide the Minister when making regulations to set the specific caps going forward. This provides flexibility to amend the caps downwards while ensuring that there is always an upper limit in the primary legislation. We are starting with 1% but the legislation specifically allows for that cap to be reduced. It cannot go above 1%, but it can be reduced. What we are saying is that at the point of introducing this legislation, we want the rate to be 1% but we are not precluding, after a couple of years when the Central Bank has monitored its operation closely, reducing that further. That is provided for in the Bill.

Deputy Doherty's proposal is to have the reduced rate now, but I would be fearful that if we go too low too quickly this will lead to fewer people offering credit. Furthermore, to fix the reduction in primary legislation without any assessment by the Central Bank of how the legislation is operating would not be good practice. We are starting with 1% per week, with the commitment that it can be reviewed when we get some information from the Central Bank as to how this is operating. It may be appropriate to reduce the rate at that stage. This is a maximum cap and represents a reasonable and balanced approach. I understand where Deputy Doherty is coming from, but we are clear about the way we want to do this. It is a very big step from where we are to go down to 1%, with the option of going further at a later date, on foot of information from the Central Bank, without the need to revisit the primary legislation

We went through this before but I ask the Minister of State to clarify his proposal. He spoke about the 1% per week rate. Under the Government's proposal, how much interest would a customer pay on a €1,000 loan over a period of 12 months?

It would be €480.

Four hundred and eighty euro. How much lower is that than the current market for these loans?

The interest rate varies based on the providers out there but it would probably be around €150 lower than what is available currently. That is just the upfront cost.

Provident is the biggest provider in the market-----

It is gone-----

It was the biggest provider in the market and it charged the highest rate of APR at 1.87%. Over a 12-month period, the APR comes down to about 1.57%. The interest it would have charged on a €1,000 loan was €560. The Minister of State is proposing to bring that down to €480. That is an improvement but it still immoral. The fact that the Minister of State is asking us to legislate to allow for these types of high-cost loans is problematic. Many moneylenders do not even charge that rate at this point in time; some of them are below that. It is crazy that the Government is suggesting that we would say that charging this level of interest is legally permissible. The Minister of State claimed in the Dáil Chamber that this legislation would reduce the APR on a 12-month loan to 48%. Does he wish to correct that?

Yes, it is the simple interest loan rate rather than the APR rate.

What would the APR be on a-----

We will not have an APR. The correct terminology would be the simple interest rate rather than the APR because all of the loans may not run for 12 months.

Yes, but there will be an APR for somebody who takes out a 12-month loan of €1,000.

The simple interest rate would be 128% APR.

If it is 128% APR, it is still significantly high. The Minister of State is saying we need to strike a balance; that if we reduce it too much, we could scare people out of the market. He mentioned Provident has withdrawn. What calculations has he done to suggest that rate is the appropriate rate? All of the experts, including the Social Finance Foundation, have told us that this rate should be reduced further. They have told us that what we need to try and do is funnel people into It Makes Sense loans in the credit union and the basic loans from the credit union as well.

I understand. Part of our work here is to encourage people to go to credit unions as well. Deputy Doherty and I often have discussions on credit unions. It is something that we would support, but this legislation is introducing a cap at this stage and what Deputy Doherty is calling for is provided for in the legislation. The rate can reduce to the rate the Deputy is talking about, but we are saying it will just not happen on day one. We are starting with the 1% per week and it can go down, but the view in the Department of Finance in bringing forward the legislation is that we would like to see the operation of the 1% per week for a period and get information from the Central Bank, and if it feels that the industry could continue to operate at a lower rate, this legislation specifically provides for a reduction to the rate Deputy Doherty has signposted. Our only point of difference is we are saying we want to stick with the 1% on day one. It is a reduction from where we were. None of us like to see the high rates that have been in place, but we are on a road whereby we can reduce the rates at a further date. The principal point of difference is we are saying we will start with the 1% cap now, which is an improvement for most people who are getting loans, and there is scope for a reduction when we get more information from the Central Bank reporting on how the operators are complying with the new legislation. There is scope by means of a statutory instrument to make a change at a later date without having to come back with primary legislation.

The Minister of State's argument against my legislation and my amendment, which would reduce the cost of credit further on households - in my view it is still very high and that is why we need to reduce it further after three years - is that the Department has had to perform a balancing act in terms of a reduction while not scaring away those operating in the market. The view is that if the companies cannot charge 126% APR on a loan over a 12-month period that will scare the horses. How has the Minister of State come to that view? Was it the moneylenders that told him?

Did he listen to the experts that came before the finance committee who told us that is not true and that we need to reduce this rate further? A rate of 126% APR is immoral. There is no way I am voting for the legislation, especially at a time of pressure on workers and families. The Minister of State is saying that instead of them charging €560 interest on a €1,000 loan, we are going to legislate for them to charge €480. Jesus Christ, this Minister has got your backs, folks. Interest of €480 if people take out a €1,000 loan is ridiculous. I tabled this legislation years ago. I have been frustrated at every stage. The Government has made a dog's dinner of my legislation. Every single amendment was deleted, bar the definitions. The Government has frustrated this and come forward with the argument that it would bring a Bill itself which would be better. It is absolutely terrible that the Government is going to allow moneylenders to charge this level of interest on people in society who are on very low incomes. Those people are really pressed now because of all the issues in terms of inflation. Where is the calculation? The core of the issue is how the Minister of State came up with this figure.

As I stated, we looked at the figures already and well over half of the products on the market have interest rates in excess of the interest rate cap that we propose. The majority of loans are above this figure, and we are bringing it down. That is only part of this debate. Deputy Doherty has studiously not dealt with the other issue. The existing legislation allows for the cost of door to door collection to be charged as well. That is being abolished in this legislation. What I am saying to people in this situation is that up to now they were paying a very high interest rate and they were also being charged a fee for door-to-door collection, which in many cases was even in excess of the cost of interest. We are eliminating that cost entirely. Moneylenders cannot charge for door-to-door collection. That is a very significant element of this legislation.

The interest rate is a further enhancement for customers. As I stated previously, this legislation sets the cap at 48% - 1% per week. That is the maximum in the legislation and there is clear provision for that to be reduced at a further date if the circumstances warrant when we see the operation of this Act and the report from the Central Bank on how it is being implemented. The legislation provides specifically for reduction at a later date. I understand that the Deputy is in opposition to the legislation as proposed, but the essential difference between us is that we are saying we are abolishing the charges for door-to-door collection, which is a very significant issue, and we are introducing a cap which will immediately reduce interest rates for the majority of people who have loans from high-cost lenders. In addition, we are providing for a further reduction in the interest rate to be made in due course, depending on how the legislation operates. We need to give it a bit of time to see how it operates.

I want to tease that out a little bit further. Is there any evidence? The Minister of State has said half of the moneylenders will not be affected by the Bill because their charges are below the maximum rate and half are above it and they will be affected. The core point that he made is that this would scare people off. Fianna Fáil, Fine Gael and the Green Party believe that if lenders cannot charge €480 on a €1,000 loan, then there is no market for them in Ireland, so we need to allow these companies to be able to charge that level of interest. How did the Minister of State come up with that figure? How did he come up with €480, as opposed to what I am proposing here for the first three years, which is €360 or some number in between? Where did €480 come from?

I have not used the phraseology the Deputy mentioned in regard to this area. What I want to achieve in this legislation is that we have lenders that people will be able to go to, rather than go to illegal moneylenders. It is essential that we keep the option open for moneylenders to be able to lend money even at the reduced rate we will allow, because if it is eliminated by companies not being in the market, people will only have the option to go to illegal moneylenders. We want to make sure that we have that option available. We could bring it down to 20% and have nobody in this market, but that would be a worst-case scenario.

In May 2019, the Department of Finance launched a public consultation process to gather views from stakeholders on whether the Government should introduce a statutory interest rate cap on moneylenders in Ireland, along with other regulatory matters. The majority of submissions received were in favour of the introduction of an interest rate cap. These submissions were primarily received from non-governmental organisations and credit unions. All of the comments and submissions made through this consultation process have been considered and taken into account, as appropriate, in formulating the proposed policy options.

What we did say is we are striking a balance to make sure, first, that we are eliminating the charge for door to door collection, which is a significant feature; second, we are reducing the rate that is being charged on the majority of loans; third, it is a maximum cap that can be reduced at a further date. We have taken all those factors into account to make sure we have people who will lend money at this rate. There are only a couple of dozen companies operating in the country. This is a balanced approach to achieve those three objectives. It is not only looking at one side of the equation. I have mentioned the other side of the equation and the reduction in fees the companies can charge in terms of not being able to charge for calling door to door.

Does the Minister of State accept that the majority of moneylenders licensed in this State do not collect door to door are not licensed to apply collection charges?

I am saying that some do and some do not.

Does the Minister of State accept that the majority do not?

Many of them do not.

The majority do not.

Many do not apply such charges.

With regard to the consultation the Minister of State referred to, does he accept the majority of people who stated a rate stated one lower that than that which he is asking us to legislate for?

That is correct. This is a job for the Government and for everybody. I would love a lower interest rate. I do not know anybody who would not love a lower interest rate.

Deputy Fleming is the Minister of State. Let us do it. We can do it here. Surprise, surprise, we can actually do it in the next few minutes. The Minister of State can support my amendment.

I do not think there is a citizen in Ireland who would not prefer to have a lower interest rate than what they are being charged at the moment. I accept-----

That is not true.

Most people would-----

The Minister of State is not getting away with that. He is actually going to vote against a reduced interest rate. That is what is going to happen in the next few minutes. He cannot have it both ways. He has failed to tell this committee how he came up with an annual percentage rate, APR, of 126% for moneylenders for a €1,000 loan over 12 months. He has acknowledged that the submissions called for a reduced rate and that the experts in the field are all critical of the level of interest the Minister of State is going to allow to be charged. There is no empirical evidence to say that, if we go below this rate, businesses will somehow be scared off and will not provide credit in Ireland.

I am certainly not going to follow what the organisation representing these lenders has said but it has made a point that we have to take into consideration. I will not be guided by that body and I do not agree with a lot of what it says but its key point is that it is important to keep this industry and these lenders in the market. Achieving that is a question of balance. It is not a scientific issue. It is about striking a balance and keeping lenders in the market so they can lend money at a rate that allows them to cover their costs. It is also about making sure those who charge door-to-door collection fees are not allowed to do so. This 1% is a first step. We are not precluding a reduction of this rate at a future date. Let us start with this 1% for now as a balanced and responsible measure. When we get information from the Central Bank on the implementation and operation of the legislation, we can revisit it. The 1% can be changed very quickly by statutory instrument when we have that information. I would not like to make that move without information as to how the new legislation is operating, however. There is a net point of difference here.

Amendment put:
The Committee divided: Tá, 2; Níl, 5.

  • Doherty, Pearse.
  • Farrell, Mairéad.


  • Carey, Joe.
  • Durkan, Bernard J.
  • Fleming, Sean.
  • Matthews, Steven.
  • O'Callaghan, Jim.
Amendment declared lost.
Section 8 agreed to.
Sections 9 to 15, inclusive, agreed to.

I move amendment No. 6:

In page 14, to delete lines 37 to 43.

Amendment agreed to.
Schedule 1, as amended, agreed to.

Let us not hesitate when things are going well.

Schedule 2 agreed to.
Title agreed to.
Bill reported with amendments.

Do members wish to put any further questions or comment on the Bill before we conclude? They should keep in mind we must have ten minutes' break before 3 p.m. as well.

I give notice I intend to bring an amendment on Report Stage.

The Deputy has that privilege. Does the Minister of State wish to make any final comments?

I thank the Vice Chairman and members for participating in this afternoon's debate.

I thank the Minister of State and his officials, as well as members, for their attendance.