Some 350,000 people resort to regulated moneylenders

Some 350,000 people were customers of high cost regulated moneylenders in 2017 despite the economic recovery, borrowing €268 million at interest rates of up to 288 per cent.

The figures, which are now approaching all-time highs, come as the Central Bank proposes tighter measures for the sector, including restricting advertising and requiring loans to come with a warning about their high costs.

On Tuesday, the regulator published a new consultation paper setting out targeted measures which should help protect customers who borrow from moneylenders.

According to the regulator, there are currently 39 licensed moneylenders operating in Ireland, down from 52 in 2013 . These include UK firm Provident; catalogue operators Littlewoods and Oxendale; and local operator Mandarin Loans. The Central Bank’s figures don’t include illegal moneylending.

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Moneylenders offer short-term loans at high levels of interest; Provident for example is authorised to offer a maximum APR of 187.2 per cent, while Dublin operator Southside Finance has a maximum interest rate of 288 per cent, including collection charges. The high interest rates can turn a €500 loan into a €625 loan in just 25 weeks, based on an APR of 152 per cent.

Some, such as Provident, offer a “face to face” service, whereby a consumer applies for a loan online, and an agent subsequently presents at their home to approve and grant them the money. The firm says earnings for its agents, which are based on collections, are “unlimited”.

Last year, the number of people borrowing from an authorised moneylender rose to about 350,000 people, up by about 7.7 per cent on 2016, while the value of loans also rose, up by about 5 per cent to €268 million. The average loan size was €445 and term, nine months. This compares with a peak of 360,000 borrowers and €301 million in loans in 2013, and is a significant increase on the boom years, with 300,000 borrowers in 2007. Moneylending firms range from those with in excess of 100,000 customers (two firms) to small firms with 100 to 1,000 customers. Four firms account for about 84 per cent of the market in Ireland, the Central Bank figures show. Last year St Vincent de Paul expressed concern that families are putting moneylender debts ahead of household bills and food.

Grainne McEvoy, director of consumer protection with the Central Bank, said the new proposed measures aim to enhance the consumer protection framework that applies to moneylending.

“These measures will ensure that consumers are dealt with in a responsible and professional manner and are provided with targeted information to prompt consumers to consider alternatives to high-cost loans from moneylenders. We are also proposing a specific measure to reduce the possibility of consumers over-extending themselves in relation to this form of credit,” she said.

The proposed measures include restricting the promotion of moneylending by targeted advertising such as outlawing unsolicited contact, and preventing catalogue firms provide discounts on goods predicated on availing of credit. Littlewoods for example, offers 20 per cent off orders bought on credit, at an APR of up to 40 per cent.

It also wants to see consumers given better information when they go to borrow money, including a “prominent warning” about the high cost nature of the credit, and advising them that they should consider alternatives before taking out a moneylending loan. Central Bank research found that the majority of moneylending customers do not shop around and consider alternatives to moneylenders before securing their moneylending loan.

It also wants to see more protection for consumers taking out such loans to pay for food and utility bills, and providing aggregate information on both existing and new loans. Another proposal is to put a limit on the proportion of a consumer’s income that can be devoted to servicing these loans. This could see the introduction of a debt servicing ratio restriction of between 10 and 20 per cent.

Pay day moneylending, where APRs can be as high as 1,500 per cent, and which is common in the UK through operators such as Wonga, are not allowed enter the Irish market and the Central Bank said it will “continue to maintain this policy position”.

In 2016, credit unions launched a microcredit scheme, for amounts as low as €100, in an attempt to curb the growth of moneylending.

The consultation will close on June 27th 2018. Submissions should be made to consumerprotectionpolicy@centralbank.ie

Paying for regulation

Last week the Central Bank published another consultation document on moneylenders, setting out a revised method for calculating their funding levy. Moneylenders were concerned when the levy jumped from from € 11,638 to € 43,353 and from € 43,353 to € 168,491, for some providers. As a result, the bank has moved to smooth the levy, while maintaining the principle that larger firms should pay higher levies than smaller ones, by preparing a new method of calculation. This consultation will run until May 17th.