We now move to amendment No. 67. Amendments Nos. 68 and 69 are related. It is proposed to take amendments Nos. 67, 68 and 69 together. Is that agreed? Agreed.
SECTION 9.
I move amendment No. 67:
In page 17, subsection (1), line 29, after "commitments" to insert "(loans, repayments and charges)".
The purpose of this amendment seeks to clarify the annual percentage rate in simple terms to the consumer. Provisions in a Bill of this type are often not clear to the people who would benefit most from them. The amendment brings the wording of the article of the directive into focus in this section and the criteria setting out the calculation of the APR.
Amendment No. 68 states:
In page 17, subsection (1), line 31, before "the" to insert "the method of calculation specified in".
The proposed addition of the words "the method of calculation" provides for greater clarity in the APR calculation. Similarly, amendment No. 69 provides greater clarity, amplifies the scope of the section and links this section with those sections in the ordinary credit and mortgage credit parts of the Bill. In effect, these amendments clarify the meaning of APR.
How does the Minister propose to deal with credit institutions that occasionally require people to maintain a running deposit before loans are advanced to them?
Is the Deputy referring to a credit institution requiring money to be lodged for a number of months?
That is right, and in the case of the credit unions which are exempted from this Bill one has to maintain that deposit throughout the period of the loan. A person is advanced a sum which is a multiple of what one has on deposit.
That is right. In general terms the Deputy is asking me about the stipulation of having to have money on deposit before one is granted a loan. The consumer can shop around. We do not propose to address that issue.
How is the APR measured? If, in order to raise £10,000 one must have £3,000 on deposit, and the financial institution offers 1 per cent return on the deposit, that is clearly well below what would be regarded as a commercial loan. If an institution can give such terms, it is clearly making a profit on the fact that one has a deposit with that institution. If that was not taken into account such institutions could offer much keener rates of interest measured by conventional APRs on the money they advanced. If that becomes a pattern, which could well happen, consumers may not know where they stand because he would have to compare the deposit rate offered against other deposit rates and measure that against the APR.
The Deputy is saying that the stipulation of some financial institutions that one must have a deposit before being granted a loan should be taken into account. We do not propose to do that in the Bill. I am not aware if every financial institution adopts that policy; I know of some who do and others who do not, but APR, as laid out in the directive and in the Bill, does not arise in the issue to which the Deputy refers. Perhaps it should, but it is a matter of consumer choice.
It is a very effective way of confusing the consumer about what exactly is on offer. People have the right to choose but if one borrows £10,000 at an attractive rate, while keeping £3,000 on deposit, and another institution does not insist that money be kept on deposit, the first institution is stealing a march on the one not requiring a deposit. Regardless of the way it is measured, there will always be some distortion, but it seems that is likely to be the practice. It is not an unusual practice and we should try to address the problem in some way, or at least require some appendage to the APR to draw to the consumer's attention the terms of the deal.
If it is a requirement, it should come under the advertising section of the Bill rather than the APR. The APR is a determined rate based on loans, repayments and charges. As such it is discernible and quantifiable. Section 22 (5) states:
Where an advertisement refers to the cost of credit, and the availability of credit at that cost is subject to any restrictions, those restrictions shall be clearly indicated.
We should examine that section and, perhaps, amplify it. Deputy Bruton's point is valid but it does not fit neatly into the discussion on these amendments because APR is precise.
It does because a financial institution could effectively shave two or three points off the true cost to the lender by having compulsory deposits which would make the APR look very favourable compared to a competitor.
I understand the APR is laid down in the directive but the Deputy's point is valid. When we come to deal with the terms of advertising of credit it should be examined.
Perhaps on Report Stage I will table an amendment so that if institutions quote APRs with such special features, the consumer will at least be alerted to special terms which might distort the APR relative to other institutions.
We will seek advice on that point and on advertising. This again raises the issue of consumer choice. When consumers seek loans from financial institutions, they should be aware that some institutions do not require a deposit while others may require a deposit of £1,000. The consumer can then decide which financial institution to use. I will consider the Deputy's point and whether we can elaborate on this under section 22 which deals with advertising.
Amendment agreed to.
I move amendment No. 68:
In page 17, subsection (1), line 31, before "the" to insert "the method of calculation specified in".
Amendment agreed to.
I move amendment No. 69:
In page 17, subsection (2), line 33, after "APR" to insert "specified in the Fourth Schedule".
Amendment agreed to.
Section 9, as amended, agreed to.