Strict controls on licensed moneylenders urged

Report calls for measures to stop consumers being hit with interest rates of almost 300%

Photograph: iStock

Photograph: iStock

 

Strict controls on licensed moneylenders to protect vulnerable consumers from being hit with interest rates of almost 300 per cent have been proposed in a new study.

More than 300,000 people use moneylending firms, according to figures from the Central Bank. Home credit companies target people struggling to make ends meet, charging annual rates of as much as 287 per cent. Catalogue companies, meanwhile, can charge rates of between 43 and 72 per cent. Such charges are legal under legislation dating back to 1995.

The report, which was carried out by the Centre for Co-operative Studies at UCC on behalf of Social Finance Foundation, suggests most customers of moneylending firms are female, drawn from lower socio-economic backgrounds and use home credit loans to cover costs like back-to-school, Christmas or emergency household spending.

It urges the Government “to adopt a policy that prohibits usurious rates of interest in the interests of fairness to the most vulnerable in Irish society by the introduction of a restriction on interest rates and charges”.

It says a majority of customers of moneylending firms become accustomed to “ease of availability’ of home collection by moneylending firms and highlights “an alarming finding”, which found that almost a quarter of customers in Ireland were offered additional credit before clearing an existing loan.

It points specifically to a June 2015 report by the Financial Services Ombudsman Bureau focussing on two borrowers in Donegal who were sold top-up loans by a licensed moneylender, who then deducted amounts from the new loans to repay an existing loan.

The report calls on the Government to adopt a policy that prohibits usurious rates of interest in the interests of fairness to the most vulnerable in Irish society.’

It says such policies would have to be conditional on the credit union movement in Ireland committing to and being enabled to serve the community currently serviced by the moneylending firms.

And it says that in consultation with the credit union sector, the Department of Finance should consider increasing the 1 per cent monthly cap on interest rates for credit unions for this type of lending to cater for the significantly greater costs associated with such small lending.

“In an era of extremely low interest rates and 0 per cent PCP car finance, [high interest] charges are unacceptable,” said the chief executive of Social Finance Foundation, Brendan Whelan. “The overall remit of policy, legislation and regulation should be to widen existing alternatives such as credit unions and the Personal Microcredit Scheme.”