Financial Services Regulation.

Dáil Éireann Debate, Wednesday - 26 September 2007

Wednesday, 26 September 2007

Ceisteanna (4)

Róisín Shortall

Ceist:

107 Deputy Róisín Shortall asked the Minister for Social and Family Affairs the steps he is taking to assist service providers in combating and alleviating personal debt; the progress made by his Department in regard to the preparation of legislation to make it illegal to charge exorbitant interest rates to low income families, as promised in a television interview in October 2006; the details of the contact between officials in his Department and the Financial Regulator and the Department of Finance on measures to combat extortionate moneylending; the outcome of these discussions; and if he will make a statement on the matter. [21099/07]

Freagraí ó Béal (9 píosaí cainte)

Deputy Martin Cullen

The Money Advice and Budgeting Service, MABS, is the main Government funded service which provides assistance to people who are over-indebted and need help and advice in coping with debt problems. There are 53 independent companies nationwide with over 230 money advice staff operating the service. Many voluntary and statutory bodies such as the Society of St. Vincent de Paul and the credit unions work closely with the programme. Last year, MABS provided services to almost 12,500 new clients throughout the country. To date in 2007, some 8,300 new clients have approached the service. The number of active cases at the end of August was 18,400.

In 2006, €16.4 million was provided to fund the service and in 2007 the annual allocation was increased to €17.67 million to assist MABS in dealing with its workload.

The issues that give rise to problems of over-indebtedness for people are highly complex. The cost and availability of credit for people on low incomes and the barriers they face in accessing mainstream and cheap forms of credit add to the difficulties people encounter in managing their finances. I am particularly concerned about the high level of interest rates currently being charged by some financial institutions, loan companies and by legal moneylenders in situations where people have no alternative sources of credit available to them. My concerns in this regard are borne out by the recent Financial Regulator's report on the licensed moneylending industry in Ireland which shows that moneylenders may be charging interest rates of up to 188%. Most significantly, 71% of people surveyed in the report did not know what interest they were paying on their loans.

The regulation of moneylending comes under the Consumer Credit Act 1995 and the licensing of moneylenders is a statutory responsibility of the Financial Regulator. MABS has a unique and expert contribution to make, on behalf of people on low incomes, in shaping the strategies that need to be put in place to ensure greater financial inclusion. For example, MABS has a role in promoting to the providers of payment services, such as the banks and credit unions, the needs of people on low incomes, so it is easier for them to access financial services.

In line with the programme for Government I am developing proposals for a new structure for MABS geared to meet the needs of people with debt difficulties in today's society.

Deputy Róisín Shortall

There is no doubt that MABS provides a very worthwhile service throughout the community. I was disappointed to note that the legislation to put this on a statutory footing will not be ready until next year. It has been promised for some time and it is regrettable there is yet a further delay.

My question is not about MABS but rather that moneylenders can legitimately charge exorbitant interest rates of up to 188% which represents about ten times the level of interest charged on credit cards. People and families on low incomes who are in a difficult financial situation and who need to obtain short-term loans quickly are forced into the hands of moneylenders. I am referring to legal moneylenders as I have not even begun to discuss the issue of illegal moneylenders. Legal moneylenders can legitimately charge up to 188% interest which is scandalous. This problem has been identified by a number of agencies working in this area. It has been discussed at length by the Minister's predecessor, Deputy Séamus Brennan, who last year and earlier this year gave a series of interviews in which he promised to take action in this area and to work with the Financial Regulator and the Department of Finance to curb the level of interest that can legally be charged. Yet, there has been no action — it is all promises and no action. In light of the comments made by the Minister in the media in the past week, I ask him to state what action he intends to take to limit finally the level of interest that can be charged to these vulnerable families who have no choice but to go to moneylenders in order to gain access to short-term credit.

Deputy Martin Cullen

I would like to achieve a scenario in which people have no need to go to moneylenders in the first instance and can instead access legitimately the main stream of financial services to which most of us have access. The difficulty is that people on very low incomes get themselves into debt and find it very difficult to access credit from the normal institutions with which most of us deal on a daily basis. They end up in what are regarded as legal institutions elsewhere.

The Deputy has rightly identified the Financial Regulator who is entirely independent in this matter and has a direct responsibility along with the Minister for Finance. The levels of interest being charged in these circumstances are quite exorbitant. Since I made certain comments, it has been pointed out to me that while it may be quite easy in some respects to reduce the level of interest charged, I may still not achieve the end at which both Deputy Shortall and I aim. Deputy Shortall has outlined that end in the House this afternoon. I am informed that the rates of interest in question are usually charged on very small amounts of money which are repaid over short periods. If the outcome is to cap interest rates, people may be charged at a lower rate but over a much longer period and no significant difference will be made. It is important to note also that there are more issues than this one involved in the wider context of financial markets, including the legitimate moneylending market, which have consequences elsewhere.

While I am having discussions in this area, I am not sure as I speak today where the answer is. One may turn a corner and think one sees the answer there, but it may be pointed out very quickly that adopting that course may achieve the opposite of what one intends. Discussions are taking place in the tripartite group on the issue and the database MABS now has will be very important in informing the decision which is finally made. The Deputy and I both want to ensure that vulnerable people on low incomes can access credit which does not impose the exorbitant interest rates charged by some of the legitimate moneylending institutions. The credit unions, for instance, are working very actively with people on low incomes.

Deputy Róisín Shortall

The Minister must tell the House today whether or not he finds it acceptable that people are forced into the hands of moneylenders who can legitimately charge exorbitant rates of interest. The Minister's predecessor promised to introduce legislation to limit the level of interest which could be charged. Does the Minister intend to proceed with legislation and, if so, at what point does he expect to bring forward legislative proposals?

Deputy Martin Cullen

I will be very straight with the Deputy. I do not find it acceptable that people are charged up to 188% interest.

Deputy Róisín Shortall

What is the Minister doing about it?

Deputy Martin Cullen

I have just outlined to the Deputy that I wish to ensure that vulnerable people — the small but important cohort who are caught in this situation — have broader credit options and access to the legitimate system. I wish to ensure at the same time that if we take action in the financial market, the benefit is felt directly by those for whom we are making the changes. There is no point in changing the name over the door, so to speak, but allowing the same operator to do the same thing with the same outcome in what is simply a different way.

Deputy Róisín Shortall

What about limiting the interest which can be charged?

Deputy Martin Cullen

It has not been demonstrated that even if one places a cap on interest, the game will not change dramatically again. I wish to ensure that if I move, as I would like to, in conjunction with the Minister for Finance and the Financial Regulator, the outcome of our action works. It is easy to pick things out of the sky, but we must ensure that they deliver.