The Consumer Credit Bill represents a watershed in the history of consumer protection law in Ireland. It shall alter, in an enlightened and radical way, the lender/borrower relationship that until now has been biased very much against the consumer. Simply put, this is a pro-consumer piece of legislation.
The need to enshrine readily intelligible legislative protections for consumers and to provide for their effective enforcement was never greater. There is considerable competition among lenders for a grip on the personal wallets and purses of consumers and a massive proliferation of ever more complex lending and credit products. The vast majority of consumers must rely on credit to undertake both medium and longer term purchases. Equally, some consumers have no option but to resort to short term credit in order to tide them over periods of significant financial outlay such as Christmas, summer holidays and back-to-school time. Unfortunately for many in our society, but especially for the disadvantaged and less privileged, indebtedness can be an overwhelming, crushing and spiralling burden.
This legislation installs in a comprehensive and innovative way the protections required by the many varied categories of borrower, particularly those forced to avail of the services of legal moneylenders. In addition, the Bill represents the first major assault on the heinous practice of illegal moneylending, which is a blight on the social landscape of our country.
The primary purpose of the Bill is to transpose into Irish law two European Union consumer credit directives. These are Council Directive No. 87/102/EEC of 22 December 1986 and the amending Directive No. 90/88/EEC of 22 February 1990 on the approximation of the laws, regulations and administrative provisions of the member states concerning consumer credit. These directives require member states to provide a certain minimum level of consumer protection in the area of credit.
I am pleased that the Bill, with its far-ranging reforms and extensive provisions, goes well beyond the minimum requirements of the EU directives. It repeals all existing consumer credit law that is of a piecemeal nature and does not cater for the needs and circumstances of modern day borrowers. Additionally, there will now be just one unified and consolidating comprehensive piece of consumer credit legislation.
I am also heartened by the fact that what was a good Bill, when it was published in January last year, has undergone a major process of improvement arising form both the elaborate Committee and Report Stage debates in the Dáil.
The most significant changes I am associated with are that housing loans advanced by local authorities are now within the scope of the Bill and local authority borrowers can have recourse, like other consumers, to the Director of Consumer Affairs; credit sale agreements and also contracts for services obtained on credit are included; many of the existing provisions and valuable protections of the Hire-Purchase Acts, 1946 to 1980, have been reinstated; responsibility for bank transaction charges are being transferred from the Central Bank to the Director of Consumer Affairs; and responsibility for licensing pawnbrokers will now reside with the Director of Consumer Affairs rather than the courts and the Revenue Commissioners.
I will now describe the principal provisions in the chronology and order in which they appear in the Bill. The legislation will apply to and regulate virtually all forms of consumer credit, including moneylending, hire purchase and, for the first time, consumer hire or leasing.
While the EU directives specifically exclude house purchase and house improvement loans, the Bill introduces a comprehensive regime of control on these types of lending, irrespective of the nature of the financial institution. Until now only the activities of the building societies have been subject to regulation.
It is also important to draw Senators' attention to the fact that whereas the EU directive excludes loans below the value of 200ECU and above 20,000ECU, which at present exchange rate values are about £160 and £16,000 respectively, the Bill provides for no such limits. My view, which was shared by my predecessor, is that the imposition of a lower limit would provide a legal loophole for small transactions in moneylending that, however, if added together could amount to a large sum for the borrower within a matter of a few weeks; and an upper limit would result in the undesirable exclusion of housing loans.
Legislation, no matter how well intended or progressive, is worthless unless it is enforced with rigour and constancy. Responsibility for the enforcement of the legislation is being vested in the Director of Consumer Affairs. His main functions will be to regulate and monitor the activities of all persons offering consumer credit or arranging such credit; to seek redress in the courts for breaches of the legislation; to direct lenders to withdraw or modify credit advertisements; to provide advice, guidance and information to consumers on their rights under and on the workings of the Consumer Credit Bill; to license moneylenders; to authorise persons to act as credit intermediaries or mortgage intermediaries; to investigate information given on the credit status of consumers; and to curtail and regulate bank customer charges.
A term that is increasingly in public usage and that everybody is becoming familiar with is APR. Unfortunately, in this instance familiarity is not the harbinger of enlightenment. APR is the true rate of interest. It means the total cost of credit to the borrower over the lifetime of the loan expressed as an annual percentage of the money borrowed. If this definition seems arcane, the formula for the calculation of the total cost of credit contained in the Fourth Schedule to the Bill is intelligible only to the chosen but numerate few. However, I can assure the House that this formula is the most favourable yet devised to cater for the needs of the consumer. One of its main advantages is that it provides for continuous compounding or recalculation for any period during the currency of all loans.
The media are now a potent force for the slick advertising and selling message. Consumers, when listening to the radio, watching television or reading their national or local newspaper, face an onslaught of seductive advertisements offering what seem like unbeatable credit bargains. However, they can be a source of much confusion and could lead to uninformed and expensive credit decisions. Normally these advertisements show or quote two rates of charge — the variable or fixed interest rate and the APR. By definition, as the APR includes all charges as well as interest, it is higher than the nominal rate of interest. The present text of the Bill provides that the APR must be given greater prominence than a statement of any other charge. In my view, this does not provide adequate safeguards for the consumer. Accordingly, I propose to move an amendment on Committee Stage outlawing the use of any rate other than the APR in advertisements or quotations for credit.