Moneylenders must display high-interest charges under new rules

Central Bank to curb unsolicited offers of credit

Moneylenders will be barred from making unsolicited offers of new loans to customers who have recently repaid loans, or are close to doing so. Photograph: Alan Betson / The Irish Times

Moneylenders will be barred from making unsolicited offers of new loans to customers who have recently repaid loans, or are close to doing so. Photograph: Alan Betson / The Irish Times

 

New Central Bank rules will demand that moneylenders carry a high-interest warning on their ads while curbing their right to make unsolicited offers.

The bank regulates 38 businesses that offer short-term, high-interest loans to consumers, which frequently charge more than 23 per cent for the credit.

New rules require these firms to include prominent, high-cost warnings, displaying their annual percentage rate, and prompt consumers to consider alternatives.

Moneylenders will also be barred from making unsolicited offers of new loans to customers who have recently repaid loans, or are close to doing so.

The rules will limit moneylenders’ contact with people, giving them greater control over when these firms can contact them.

However, they will not ban the house calls made by some of these firms to clients for various reasons including aiding those seeking credit with applications.

Gráinne McEvoy, the Central Bank’s director of consumer protection, warned that it was important that people using moneylenders were fully aware of the loans’ high cost.

“By strengthening the rules, we are providing the customer base with further protections and raising the expected professional standards in this industry,” she said.

Those working for moneylenders will also be required to tell anyone seeking credit for such things as rent, mortgage payments or electricity bills, that borrowing may not be in their best interest and to provide them with contact details for the Money Advice and Budgeting Service (Mabs).

Ms McEvoy urged consumers to consider alternatives to the high-interest loans offered by moneylenders and warned that they should never use unlicensed lenders.

“At this time of financial stress for so many Irish households, I would also encourage people in financial difficulty to seek advice, guidance and assistance from Mabs,” she added.

The new rules come into force on January 1st, 2021, except for regulations requiring warnings on loans with interest rates of more than 23 per cent, which take effect from September 1st.

Moneylenders generally offer smaller loans, about €500, for short periods, but charge high interest.

The firms generally use house calls or catalogues to attract business, while clients are usually unable to get credit from more conventional lenders such as banks.

The maximum annual percentage rate that lenders can charge is 188 per cent. They are not allowed to impose penalties if borrowers fall behind with repayments although they can pass on legal costs, should they decide to go this route in the case of defaults.

The Central Bank has a list of the 38 firms licensed to provide this credit. They include Littlewoods and Close Brothers Premium Finance in Dublin and Marlboro Trust in Cork.

‘Health warnings’

The Society of St Vincent de Paul welcomed the news that the Central Bank would make interest rate “health warnings” mandatory. The rules were among recommendations made by the charity to the regulator.

However, the organisation called on the incoming Government to restrict the rates that moneylenders charge.

St Vincent de Paul head of social justice Dr Tricia Keilthy argued that while moneylending loans can seem like a lifeline to people in financial trouble “the high-cost credit often sends families into a debt trap with wide-ranging consequences”.

The Minister for Finance, Paschal Donohoe, also welcomed the Central Bank’s new regulations.

“The Government and Central Bank are committed to enhancing consumer protections where necessary,” the Minister said.

“In particular, I welcome the introduction of requirements regarding the identification of vulnerable consumers and the provision of arrangements to facilitate them in dealing with moneylenders.”