£60m in loans go to low-income families

Legal moneylenders are charging interest rates of up to 197pc (APR) to low-income families who have been refused credit from …

Legal moneylenders are charging interest rates of up to 197pc (APR) to low-income families who have been refused credit from mainstream lending institutions.

An estimated £60 million is on loan to thousands of vulnerable families from the 65 licensed moneylenders in the State, the Director of Consumer Affairs, Ms Carmel Foley, has disclosed. Ms Foley, who is responsible for issuing moneylending licences and who authorises the APR (annual percentage rate) moneylenders can charge, last night called on the banks and the credit unions to make it easier for poorer families to obtain loans so they won't have to borrow from moneylenders.

"I do agree that the interest charged by moneylenders is very high and they provide very poorvalue credit, but many families are left with no choice because they simply cannot get loans from the banks," she said.

The annual percentage rate charged by the legal moneylenders ranges from 197 per cent on a loan period of 20 weeks to 18.5 per cent on a loan period of 36 weeks.

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The company charging the highest APR is Jordan Estates Ltd, of 102-103 Amiens Street, Dublin at 197 per cent on loans over 20 weeks. The company also charges a collection fee of .099p in the pound.

The next-highest is 195.60 per cent, charged by R and P Credit Ltd, of South Circular Road, Dublin, on a loan over 21 weeks. It has no collection charge.

One company, Shelskar Home Plan of Castlebridge, Co Wexford, charges a collection fee of 15.5p in the pound. Its APR is 101.50 per cent on a loan over 30 weeks.

The managing director of Jordan Estates, Mr Brendan Connor, said yesterday that a very small percentage of its business involved loans with an APR of 197 per cent over 20 weeks. Some 85 per cent of the company's business was in loans with an APR of 160 per cent over 26 weeks, he said.

"While our licence allows us to issue loans over 20 weeks with an APR of 197 per cent, only a tiny part of our business is at this rate," he said.

He said his company was providing an important service for people who wanted the option of taking short-term loans with repayments collected from their doorstep. He said he had "no problem" with Ms Foley's call on banks to make credit for the lower-paid more accessible.

Ms Foley, under the Consumer Credit Act, 1995, grants and renews moneylenders' licences every July. Her office sets out the interest the legal moneylenders can charge as well as general terms and conditions such as the collection fee and the use of repayment books.

The collection fee is charged where a customer opts to have the repayments collected from home instead of paying it directly into the moneylender's office. Collection fees vary from zero to 15.5p. On the 15.5p charge, the moneylender gets £1.55 for every £10 repaid at the doorstep.

Ms Foley said she had threatened to refuse an application for a licence unless the proposed cost of credit was reduced. On each occasion the moneylenders concerned did so.

"I will do my best to keep charges down. Since the Consumer Credit Act came into force the APR being charged by legal moneylenders has reduced from 214pc. I would still like to see it even lower".

Ms Foley said if the APR the moneylenders could charge was dramatically reduced, and if they were prohibited from giving short-term credit, they would not be prepared to take the same risks they do currently, and they would, in effect, be operating like the mainstream credit institutions. She said this would force low-income families into the hands of illegal moneylenders, or loan sharks, who operate outside the law.

"The focus must be on getting these people better-value credit from the large lending houses," she said.

A spokesman in the Office of the Director of Consumer Affairs said that while an APR of over 100 per cent sounded very high, the average interest paid back on a loan of £100 over 20 weeks - the typical cash loan and repayment period given by licensed moneylenders - was £20.

He stressed that the APR was very sensitive to even minor changes in the repayment period. For example, a loan of £100 over 20 weeks, with the customer paying back £23 interest, amounted to an APR of 188.4 per cent. On a loan of £100 over 24 weeks, where the customer ended up paying back an extra £20, the APR was 118.3 per cent.

Ms Foley said people would not be driven to legal moneylenders if banks and credit unions made it easier to borrow and she called on them to find ways to give low-income families access to better-value sources of credit.

The APR charged by licensed moneylenders on loans are in some cases 10 times higher than the APR charged by banks on credit cards and personal loans.

AIB charges an APR of 20.9 per cent for purchases made with its standard Visa Card, while Bank of Ireland charges an APR of 20.8 per cent on its standard credit card.

AIB charges an APR of 8 per cent on a personal loan while the Bank of Ireland charges an APR of 10.92 per cent on a personal loan.

Ms Foley said the new Single Financial Regulator would be taking over responsibility for legal moneylenders when the office was up and running.

"A lot of the mainstream credit institutions do not want to know because small amounts of money in a smaller loan period are involved. But we need ways to make credit available to vulnerable groups who have been outside the mainstream until now.

"Many low-income people fall foul of normal lending criteria. Even with credit unions you must follow certain criteria such as having savings for a period of time before you can take out a loan. That is totally out of the reach of many poor families." Ms Foley said the real problem with moneylending lay with the illegal operators.

"At least the licensed moneylenders have to observe certain conditions and are monitored. Any information we get on illegal moneylenders we pass to gardai. These people operate through fear and intimidation and have to be put out of business," Ms Foley said.

Based on returns made by the various licensed moneylenders, her office estimated that approximately £60 million was outstanding on loans granted. Loans granted by 10 of the largest licensed moneylenders represented most of this figure.