I move amendment No. 71:
In page 18, subsection (5), line 36, before "Credit" to insert "In the case of".
SECTION 10.
Amendment No. 70 not moved.
Amendment agreed to.
I move amendment No. 72:
In page 18, subsection (5), to delete line 39, and substitute "shall be calculated to take account of the rates applicable from the specific dates set out in the agreement.".
Amendment agreed to.
I move amendment No. 73:
In page 19, subsection (6) (c) (ii), line 6, after "£1,000" to insert "or £100 in the case of a moneylending agreement".
The purpose of this amendment is to make it simpler for borrowers from licensed moneylenders to understand the APR system. The term "APR" is not in common usage. The consumer dealing with a licensed moneylender will have a greater understanding of the cost entered into. It is £1,000 scaled down to £100 in the case of a moneylending agreement. I liken it to the system of subsidiarity at local level, so to speak.
What will be its practical effect? Presumably it is for the purpose of explaining it to the public. What difference does the assumption that it would be a lesser amount make? What benefit does the Minister see in it?
The amounts borrowed from moneylenders are generally lower than £1,000.
If a moneylender advertises his interest rates and specifies an APR, that APR must be——
Calculated on £100 as distinct from £1,000.
My point is that £100 would be a rather small loan and the collection charges would seem larger then they would if a larger sum were borrowed.
It is to enable people to understand it. It is not saying it is £100.
If collection charges are included in calculating APR, proportionately, the charge will look larger for a smaller sum of money than it will for a larger sum.
That is the nature of the business.
Why not leave it at £1,000 and compare like with like? Why should a bank have a more attractive looking APR by reason of the fact that the sum of money on which it is calculated is £1,000? Why should a moneylender be forced to choose a less attractive sum?
This arose from discussions between my officials and the Director of Consumer Affairs. We are interested not in making it more or less attractive but in making clear the commitments which people enter into and must honour.
It is unfair. If Deputy Richard Bruton's bank rates are 21 per cent APR and Michael McDowell's rates as a moneylender are 23 per cent, my rates look less attractive because I am obliged to calculate the rate by reference to a smaller sum of money. It will deceive the consumer. They will say moneylenders are more expensive even taking into account their charge because the fixed element of the charge is proportionately greater relative to the smaller sum. It would be fairer if everyone played on the same level playing pitch. If two groups quote APR it should mean exactly the same.
Where the amount of credit to be provided is not specified——
If I advertise that I will make money available at 25 per cent APR, if I am a moneylender I mean one thing and if I am a bank I mean another.
No. I do not accept that argument. Those who borrow from licensed moneylenders generally borrow small sums. They know what they are borrowing and what the APR means. It is not the intention to make one system of credit lending more attractive than another. The purpose is to make it clear to the person borrowing the money.
If there is a fixed administration element and it is £2, that is 2 per cent of £100 but it is only 0.2 per cent of £1,000.
If a bank states they will charge an administration fee of £5 per year for a loan——
Banks will not lend money to these people.
If a bank says it will charge a customer £5 a year as the fixed element of a loan that will look insignificant over £1,000 whereas a moneylender's fixed charge will look significant over £100.
I remember the discussion we had on this. The consumer is best served by bringing the APR to that level for that type of loan.
The Minister is not comparing like with like. If a bank charges every customer an administration fee of £10 plus £X interest, that £10 over £1,000 will look insignificant. If a moneylender must calculate his APR by reference to a smaller amount it will make moneylenders look more expensive than a bank. The bank's APR will be calculated on £1,000 but the Government insists on a moneylender's APR being calculated on a smaller amount of money. It will boomerang on the Minister.
Surely it is pro rata.
It is not.
If I say I am charging £5 plus 12 per cent that will yield a far lower APR calculated by reference to £1,000 than it would over £100.
I am convinced of the necessity for this amendment in the case of smaller amounts——
I ask the Minister not to nail her colours too firmly to the mast and to allow me to make the argument in writing between now and Report Stage.
That is acceptable. I have not got a satisfactory explanation — I am merely proceeding on my gut instincts.
The point I am making is that a television advertisement will say that the Bank of Ireland APR, calculated in accordance with this Bill, is 21 per cent while that of the moneylenders is 32 per cent. The moneylenders' argument is that we must bear in mind they are not allowed to advertise on the same basis as the bank; that they are forced to put their fixed charges against a much smaller sum of money which shoves their APR through the ceiling. As consumers will compare like with like, APR being charged by both institutions, the moneylenders will be at a disadvantage. This will not necessarily be a good thing as moneylenders will say their APR is higher because the rules militate against them and they have to put their fixed charges against a much smaller sum of money.
The Deputy is saying that the moneylenders will be at a disadvantage while the banks will have an advantage. This is a casual trading Bill and does not deal with licensed moneylenders, banks or financial institutions.
The Minister is saying the moneylender must quote with reference to £100. If his administration fee is £5 plus 12 per cent that gives £17, but if the bank charges 12 per cent plus £5 that becomes 12.05 per cent. Deputy McDowell clearly has a point in this regard. This system will probably only be used for advertising purposes as most people will know the charges when they borrow a specified amount.
It will make the banks look cheaper and the moneylenders look dearer. I am not making this point in favour of moneylenders but it is unfair that a bank should be allowed to pretend it is offering a cheaper rate than moneylenders.
My instincts are that my amendment is correct but for the purposes of clarification I will withdraw it and retable it on Report Stage.
Amendment, by leave, withdrawn.
Amendment No. 74. Amendment No. 75 is related and it is proposed to take both amendments together.
I move amendment No. 74:
In page 19, between lines 9 and 10, to insert the following subsection:
"(7) A creditor shall comply with requirements of this section in relation to the calculation of the APR in respect of a credit agreement.".
This relates to the offences under section 12.
The proposal in Deputy Quill's amendment No. 75 is not at variance with that of the Minister; it is merely a different notion. On the question of interpretation as to whether something is in conformity with the Fourth Schedule for computing APR or in cases where there is controversy about the treatment of money, Deputy Quill's amendment proposes the matter should be decided by the Director of Consumer Affairs. In other words, the Director of Consumer Affairs can be asked for his opinion on whether something is fair treatment for the purposes of the Fourth Schedule and if he agrees it is then a person cannot be deemed to have committed an offence——
It is his interpretation.
A person can rely on his interpretation and can withdraw it if he thinks it is being exploited or abused. In other words, a lender, trader or a person in a credit agreement can write to the Director of Consumer Affairs saying he interprets the legislation in a certain way and that if the Director agrees he will put it on his notices. If the Director agrees that is the end of the matter.
Deputy Quill's proposal is merely an elaboration of mine. It really relates to good business practice. I want to see that type of relationship developed between the Director of Consumer Affairs and the credit institutions.
It is a bit like preliminary clearance with the Revenue Commissioners in tax affairs —"this is the scheme I am going to operate and this is how I will advertise it, if you have any objections tell me and if you do not that is fine".
It is good business practice. It is not intended that the Bill should give rise to heightened tension between the Director of Consumer Affairs and credit institutions. I am disposed to accepting Deputy Quill's amendment which deals with the type of relationship the Director and those with whom he deals seek.
Will it be included as subsection (8) — the Minister's amendment will be subsection (7)?
Fair enough.
Under the amendment it will be left to the lending institution to go to the Director of Consumer Affairs to get his consent. The question of APR is not the settled science people think it is and the Director should have the power of initiative to evolve proper practice in terms of the calculation of APR. This brings me back to some of my misgivings under an earlier amendment.
We are providing for numerous exemptions from what constitutes APR. However, some of them are questionable. While financial institutions may require some bona fides subscriptions before issuing a loan, phoney subscriptions may be created for the purpose of exempting something from the APR calculation. There is also the issue of charges for the transfer of funds and keeping accounts which are excluded from APR. Over time the Director may decide that funds were being transferred in a way he had not envisaged — there is also the possibility of "hello" money being charged — and he may see a need to tighten up on some of these exemptions. I see merit in slightly rephrasing Deputy Quill's amendment so that the Director can take the initiative in terms of the format of the APR calculation and there is some evolution in the way the Schedule is applied.
The Director is meant to be innovative, and I do not envisage that the legislation will work against him doing certain things.
If he takes the pro-active role suggested by Deputy Bruton of effectively deciding APR all the time it might be argued that he is effectively arrogating a legislative function to himself. Deputy Quill's amendment seeks to say merely that, so far as the Director of Consumer Affairs is concerned, this complies with the Act. It is not saying he can go roving around the country endeavouring to expand concepts which are well understood.
In going over the contents of this Bill I was always conscious that one does not want to be anti-liberal in the sense of arrogating to one person or one body huge powers which conflict with powers of other institutions, the courts, or anything of that nature. This was a balance one had to endeavour to strike in the Bill. The Director of Consumer Affairs by nature is pro-active because he has had, and will continue to have, to intervene in various ways. On reflection I am satisfied that mine and Deputy Quill's amendments provide sufficient intervention in the present sense, in that when the Director is approached he can work out good practice with the institution concerned. I am happy to accept the amendment.
What happens if a consumer approaches the Director of Consumer Affairs and expresses the view that under section 10 (2) (c) he did not have reasonable freedom of choice in relation to the special charges for transfer of funds, or that the charges were abnormally high? Who will decide that there was not reasonable freedom of choice or that the charges were abnormally high if the Director of Consumer Affairs does not have a more pre-active role in this?
Under any provision of this Bill if a consumer takes it upon himself or herself to go to the Director of Consumer Affairs with a complaint, the Director of Consumer Affairs has powers to investigate that complaint; I am speaking in general terms, not in specifics. The overall philosophy of this Bill is that, rather than a person having to instigate an investigation themselves — very often people are unable to do so through lack of education, disadvantage or whatever— the Director of Consumer Affairs becomes the Sir Galahad, so to speak, of the consumer in that respect.
Then Deputy Richard Bruton is right in saying that section 10 (2) (c) places a qualification on the exemption of charges for transfer of funds where the charges are too high. It appears to me that the most a responsible lender can do is notify the Director of Consumer Affairs of any charges he is levying in that area. The Director will have the right to say he can exclude this or that because it is too high. Under Deputy Quill's amendment, he will know whether he is on one side or the other of the line of reasonableness whereas, if we do not have something like Deputy Quill's amendment, the specific problem to which Deputy Richard Bruton referred arises, that in fact nobody will know until the Director of Consumer Affairs gives his decision whether they are conforming to the law or breaking it. That is why the pre-notification approval method has a lot to be said for it, especially since there are some subjective criteria on which, presumably, the Director of Consumer Affairs must exercise his mind.
It would be good practice to insert that amendment. In general terms, if he receives a complaint the Director of Consumer Affairs can explain to the consumer whether that is outside the scope of the legislation or within it. He is enabled to be pro-active in regard to his advice on the complaint submitted to him.
I move amendment No. 75:
In page 19, between lines 9 and 10, to insert the following subsection:
"(7) (a) Where any APR has been calculated in a manner agreed in writing with the director of Consumer Affairs, that APR shall be taken to have been calculated for the purpose of this Act in accordance with the provisions of section 9 and this section.
(b) The Director of Consumer Affairs may withdraw any such consent as is given under the preceding paragraph on giving reasonable notice to that effect through the creditor.".
This is being agreed, subject to the insertion of 8 where 7 appears.
Amendment agreed to.
Section 10, as amended, agreed to.