I am advised that anyone wishing to engage in the business of moneylending requires a licence from the Central Bank in accordance with the Consumer Credit Act 1995 (the Act) and that the Central Bank assesses applications in line with the criteria set out in the Act. The Act provides that the Central Bank can refuse to grant (or renew) a licence to a moneylender if it is of the opinion that the cost of credit is excessive. Since assuming responsibility for the regulation of the sector in 2003, the Central Bank has not permitted the maximum APR charged within the sector to increase, nor has it allowed practices such as pay-day lending to enter the Irish licensed moneylender market.
Ireland does not have a statutory interest rate cap. Neither the Act nor the European Communities (Consumer Credit Agreements) Regulations 2010 (the CCR) provide for an interest rate cap, nor does the Act define “excessive” in the context of interest rates. The Central Bank has no statutory power to impose a market wide cap on rates. The introduction of an interest rate cap would require a legislative amendment. Any legislative proposals in this regard would have to be careful to achieve an overall reduction in the cost of credit and ensure that it did not have unintended consequences in terms of financial exclusion.
In considering rates charged by licensed moneylenders on specific loans, the Central Bank seeks to find a balance between, on the one hand, the availability of credit for people who do not have access to regulated credit elsewhere or who do not use other regulated credit providers and, on the other hand, the provision of short term unsecured loans at what can be a high cost.
The Central Bank’s focus has been on improving transparency and increasing consumer awareness by way of requirements such as the need to warn consumers about the high cost nature of the loans and to disclose all the fees, costs and interest in a clear manner, prior to entering into an agreement. In addition, the Register of Moneylenders which is available to the public on the Central Bank’s website sets out details such as the maximum APR, maximum cost of credit and the collection charge (if any) of the loans that can be offered by moneylenders.
There is a strong framework of protection in place for consumers who choose to avail of the services of licensed moneylenders. In addition to the protections provided under the Central Bank’s Consumer Protection Code for Licensed Moneylenders, there are also important protections provided for in the legislation whereby licensed moneylenders are prohibited from applying additional charges (other than a collection charge) to a moneylending agreement. They are also prohibited from applying any additional charges in the event of a default in the payments due under the agreement i.e., the total amount repayable by a consumer is limited to the amount specified in the moneylending agreement the only exception being the awarding of legal costs by a Court of law. Moneylenders are also required to undertake a creditworthiness assessment before entering into a moneylending agreement with a consumer. The Central Bank has highlighted its expectation to all credit providers, including licensed moneylenders, that they lend responsibly and act in the best interests of consumers.
In addition, on 8 June 2020 the Central Bank published new Regulations to strengthen protections for consumers of licensed moneylending services and to enhance professional standards in the sector. The regulations include a requirement on Moneylenders to include prominent, high cost warnings in all advertisements for moneylending loans with an Annual Percentage Rate (APR) over 23 per cent. The warning must also prompt consumers to consider alternatives. The regulations will come into effect on 1 January 2021. However, recognising the financial effects of COVID-19 on consumers, the ‘high-cost warning’ requirement in respect of advertisements for moneylending loans with an APR in excess of 23% came into effect on 1 September 2020.
Where the loan is required for basic needs, such as accommodation or electricity, moneylenders must inform the consumer that a moneylending loan may not be in their best interest and provide contact information for the Money Advice and Budgeting Service (MABS).
Finally, the Department of Finance undertook a public consultation in 2019 seeking views on capping the cost of licensed moneylenders and other regulatory matters in relation to moneylending. The submissions received, proposed a number of policy changes in relation to the moneylending industry and are broadly in favour of introducing an interest rate restriction.
A number of potential policy proposals are being prepared in light of these submissions and I expect to receive a draft report setting out these proposals for my consideration in the coming months. Key to this process will be trying to balance improvements for borrowers with the potential for unintended consequences in terms of financial exclusion, if the supply of credit is reduced.
