I move: "That the Bill be now read a Second Time."
There are no simple solutions to the problems — many of a complex social nature — associated with moneylending and particularly with illegal moneylending. It has been a problem in society from biblical times and I cannot guarantee legislation to wipe it away overnight.
However, this Bill will introduce to law a body of reforms which go beyond the minimum requirements of the directives. It will repeal all existing consumer credit law and provide unified legislation.
Essentially the consumer protection provided for in this Bill will encourage consumers to have more confidence in obtaining credit by providing a discipline whereby the achievement of a high level of consumer satisfaction will be of advantage to credit institutions and credit intermediaries.
The primary purpose of the Bill is to give effect in Irish law to two European Union Directives. They are, Council Directive 87/102/EEC of 22 December 1986 and the amending Directive 90/88/EEC of 22 February 1990 on the approximation of the laws, regulations and administrative provisions of the member states concerning consumer credit. The Directives require member states to provide a minimum level of consumer protection in the area of credit.
The Consumer Credit Bill will establish throughout the State what might be called the new approach to the regulation of credit. In the past, Ireland adopted consumer credit legislation on a piece-meal basis, dealing mainly with instalment sales, hire-purchase and certain types of personal loans. The result was to channel the supply of credit from regulated forms of transaction into unregulated forms. This fragmented form of statutory regulation distorts competition between suppliers of credit and creates artificial distinctions between different types of transaction. In recent decades the banks and finance houses devised new forms of lending. Suppliers of credit for instalment sales witnessed an erosion of their market share, not through any relative inefficiency in their operations, but through the advantages enjoyed by those suppliers of credit able to avoid the piece-meal regulation of credit in Ireland.
The new approach will close this loophole by ensuring that virtually all forms of consumer credit — including mortgage credit — will be regulated on a comprehensive basis. It will also enable comparisons to be made between competing sources of credit by requiring disclosure of the Annual Percentage Rate of charge.
In order to ensure that the Bill strikes the right balance and addresses adequately the deficiencies and gaps in the present legislation, I have engaged in extensive consultations, as have the officials in my Department with the Consumers Association of Ireland, other consumer interests, the banks, building societies, finance houses, insurance industry, insurance brokers, moneylenders, IBEC, Incorporated Law Society, Irish Centre for European Law, ICTU and, most importantly, those representing the disadvantaged and vulnerable in our society, i.e. the Combat Poverty Agency, the Society of St. Vincent de Paul, money advice and budgeting service officers under the Department of Social Welfare.
Press, radio and television are being resorted to increasingly as a powerful instrument of product sales and promotion. On television and radio and across the pages of our local and national newspapers are advertisements offering what seem like unbeatable credit bargains. But what is missing very often from these heavily sold offers are adequate and clear details of many of the important loan conditions to enable the consumer to make an informed and rational decision.
The legislation provides that the selling message must be accompanied by information on the cost of the credit and a statement of any restrictions on the availability of such credit. There will also be a legal obligation that, where goods are offered on credit, the cash price, the total credit price and the number and amount of instalments must be clearly shown.
Equally the Bill lays down detailed requirements on the form and content of credit agreements. It is true to say that generally consumers are not being afforded sufficient time or opportunity to study and, if necessary, take independent professional advice on agreements governing the granting of credit to them. Apart from mortgage documents, the invariable practice has been to produce the loan agreement and have the consumer sign it on the spot. Many of these agreements are weighed down by language which is scarcely intelligible to the legal and financial profession — which leaves little hope to the consumer of understanding their terms and implications.
In addition to providing for greater transparency and intelligibility, the Bill stipulates a cooling off period of ten days for all credit agreements, except mortgages. It is clear that if you were to distort the market with regard to a cooling off period for mortgages you would distort purchasing and selling arrangements and leave many people in a serious situation.
It is up to consumers to make use of this important breathing space to ensure, if they want to, that they are fully acquainted with the extent and nature of their obligations.
Sometimes problems only manifest themselves when the consumer has already entered into a credit agreement. The goods or services purchased and financed by credit may be found to be defective, unsatisfactory or not in conformity with the supply contract. The Bill provides — as it did in the Sale of Goods and Supply of Services Act, 1980 — that where there are pre-existing arrangements between the supplier of the goods or services and the creditor, both parties shall be jointly and severally liable in such circumstances.
It is also not uncommon for creditors to pursue consumers who may have fallen into arrears by phoning or otherwise contacting consumers at their place of employment. Many of these contacts are not exercised with due discretion or regard for the privacy of the consumer. This legislation will forbid such practice.
The Programme for a Partnership Government committed the Government to introduce legislative provisions regulating most forms of consumer spending by: introducing new and stronger provisions in the area of moneylending; regulating matters arising during and at the end of credit agreements, for example, early repayment or prohibiting increased charges in the event of default; setting down parameters for the content of credit advertisements and credit agreements; and strengthening the Office of the Director of Consumer Affairs to allow for easier access by consumers throughout the country.
That is taken directly from the Programme for a Partnership Government. The commitment was made earlier with the Central Review Committee, again in the Programme for Government with the Progressive Democrats and also when Fianna Fáil were in Government on their own. It was repeated in 1989-90 and also when I became Minister of State at the then Department of Industry and Commerce, following certain events in 1992. The then Leader of the Progressive Democrats said to me: "This is a Bill you can get your teeth into, it is an important piece of legislation and I would like if you would look after it". At that vulnerable time I was glad to get hold of it. I have been involved with it since.
The Consumer Credit Bill will deliver on that commitment and, in addition, contain features related to mortgage credit. The EC Directives were in connection with transparency and related to various matters but did not include matters relating to mortgages. In my pursuit of the Bill I was conscious of the fact that the biggest, in a domestic consumer sense, purchase a consumer is ever likely to make is his or her home. I did not see why the transparency and various other forms of financing should not apply also.
The main effect will be that when a consumer takes out a loan or otherwise avails or credit, he or she will be given the maximum amount of information to ensure full awareness of the commitment being undertaken.
The Irish law on moneylending passed its "sell by" date aeons ago. The Moneylenders Act, 1933 — which had built on the none too solid foundations laid by the Moneylenders Act, 1900 — was designed primarily to control the rapacious activities of loan sharks, although finance houses without banking licences or the benefit of a ministerial exemption were also caught by its provisions. The Irish legislation in this area bears a close resemblance to the legal regime which obtained in the United Kingdom before the enactment in that jurisdiction of the Consumer Credit Act, 1974. That Act was subsequently updated. In the early 1970s the authors of the Crowther report on Consumer Credit identified the weaknesses in the UK system. Some of their criticisms are worth reproducing here because they highlight the special difficulties faced by legislatures in regulating moneylending. The report of the Committee on Consumer Credit (Cmnd 4595, London, 1971) volume 1. paragraph 6.6.4. states:
Most people borrowing from a moneylender are in a low income group and cannot readily obtain credit elsewhere. They frequently lack the ability to budget and ... they are not motivated by the rational considerations which might usually be expected to influence the selection of purchases. Moreover, such persons are likely to be ignorant of their legal rights and when proceedings are taken will usually allow those to go by default.
The new Bill will go a long way towards remedying the social ills inherent in moneylending. When I talk about moneylending I want to differentiate clearly between legal moneylenders — collected credit as their activity is sometimes referred to — and illegal moneylenders. I hope the effect of this Bill, as it is debated, talked through, disseminated and put into practice, will be that people will be strongly aware that there is coherence and shape to the collected credit movement. I am referring here to legal moneylenders. There is incoherence, chaos and all sorts of evils associated with illegal moneylenders. Sometimes people rant on about moneylenders without specifying that there are legal and illegal moneylenders. This Bill will include strong licensing and enforcement arrangements with regard to legal moneylenders and strong prohibitions against illegal moneylenders.
I will deal briefly with other outdated legislation, the Hire-Purchase Acts, 1946-80. Although hire-purchase transactions are subject to quite stringent legal controls, finance companies, in liaison with dealers, have devised new methods of providing goods and services on credit to consumers. This enables them to fall outside the catchment area of the Hire Purchase Acts, 1946-1980. For example, personal loans not linked formally to the purchase of specific goods or services — but required by consumers for those purposes — increased markedly after the enactment of the hire-purchase legislation. The Consumer Credit Bill will remedy this mischief by adopting a broad spectrum, or all embracing approach to the regulation of consumer credit. This will ensure truth in lending. When I was researching this somebody from the co-operative movement wrote and drew to my attention an American Bill passed perhaps 20 years ago, called the Truth in Lending Act which is very much along the lines of what we are doing here. It was very interesting to read it. This Bill will ensure truth in lending and preclude many of the objectionable trade practices to which consumers have been subjected in the context of credit transactions.
The purpose and thrust of the moneylending provisions in this Bill is fourfold; to implement the directives; to review and update the Moneylenders Acts; to deliver on the Government's commitment in the 1988, 1989 and other programmes and to address in an innovative and effective manner the scourge of unlicensed moneylending.
When talking about the role of the Director of Consumer Affairs I will use the word "he" all the time. Lest I be pounced upon for being sexist, I use that word because the present director is male.
The Director of Consumer Affairs is empowered to grant a moneylender's licence on the terms and conditions he sees fit to engage in the business of moneylending in a District Court area or areas as authorised.
Applicants for moneylenders' licences must pay a fee of £1,000 for a licence to trade in one District Court district and a further fee of £500 for each additional district in which they intend to operate.
If the Director refuses to grant a licence or decides to vary, suspend or revoke a licence, he must inform the applicant or the holder of the licence, as the case may be, of his decision and there is a right to appeal.
The court may on hearing the appeal, confirm the refusal or decision or may allow the appeal, whereupon the Director shall grant the licence or, as the case may be, will not revoke or vary the terms and conditions of the licence.
This part of the Bill also contains provisions to deal with a number of practices which, it is alleged, are currently used by moneylenders and which result in the borrower not receiving the full amount of the loan, although on paper it would appear that this is the case.
A moneylender may not advance a loan while retaining a portion of it in respect of repayment instalments or charges and base the charges for the loan on the full amount advanced. Equally, the practice of retaining from a "top-up" loan an amount in respect of an earlier loan while still basing the charge on the full loan being advanced is prohibited.
A moneylender is obliged to keep a record of all transactions in a "repayment book". Many legal moneylenders are already operating properly and the purpose of this provision is to ensure that others do so. This ensures that the consumer has at all times an up-to-date record of the position with regard to repayments under the moneylending agreement. It will also provide authorised officers of the Director with a simple and straightforward way of checking that matters are in order.
The repayment book must contain the name and address of both parties to the agreement, the amount of credit advanced, the date on which it was advanced, the number and amount of each repayment instalment, the rate of interest charged, the total amount payable in respect of the loan, the date of expiry of the loan and the agreement number or other reference which identifies the loan. The manner or form in which repayments are to be recorded is also set out.
This section of the Bill also covers the collection of repayments at certain times. It will not be possible for such calls to be made between 9 p.m. and 10 a.m. on Sundays or public holidays.
The impact of the legislation is greatly enhanced by the inclusion of a specific role for the Garda Síochána in helping to stamp out illegal moneylending. Under the Bill the Garda Síochána are empowered to request persons engaged in collecting credit to provide a moneylenders' licence or authorisation; to arrest, without warrant, persons engaged in unlicensed moneylending and to seize any document belonging to another person being held by those engaged in moneylending.
This latter power is designed to eliminate the practice by unlicensed moneylenders of holding and encashing social welfare payment books belonging to their clients.
The Director of Consumer Affairs will have responsibility for the functioning and enforcement of the legislation. As outlined he will be responsible for the licensing of moneylenders. In addition the Director will be responsible for the authorisation of mortgage intermediaries and credit intermediaries. He will oversee the advertising and operation of credit agreements generally and pursue those whom he believes have committed offences.
The Director will have extended powers and increased resources which will enhance his scope in the regulation of the credit industry. He will investigate the workings of the credit system and monitor the practice of the financial institutions; go to the court for orders to stop breaches of the Consumer Credit Act on behalf of borrowers and consumers; give information and advice; apply to court to have excessive rates of interest charged by moneylenders and creditors, other than banks and building societies, declared illegal and unenforceable; licence moneylenders; authorise persons to act as credit or mortgage intermediaries; investigate credit information given about borrowers; direct financial institutions or lenders to withdraw advertisements or modify them.
The Office of the Director of Consummer Affairs will be provided with additional staff and, in furtherance of the commitment for regionalisation in the Programme for Government will, on a phased basis, have branch offices located in Cork, Limerick, Athlone and Sligo.