Opening Statement by Gráinne McEvoy, Director of Consumer Protection at Joint Oireachtas Committee on Finance, Public Expenditure and Reform, and Taoiseach

Introduction

Good afternoon Chairman, Committee members. I am joined today by my colleague Kevin O’Brien. We welcome the opportunity to appear before you today to discuss the Consumer Credit (Amendment) Bill 2018.

As the Committee is aware, licensed moneylenders are legislated for under the Consumer Credit Act 1995 (the “1995 Act”), which sets out the specific regulatory regime for this sector, including provisions reflecting the particular features of this sector and, in particular, the high cost of this type of credit. The Central Bank assumed responsibility for licensing and supervising moneylenders in 2003, when responsibility transferred from the Office of the Director of Consumer Affairs. We fulfil that role within the parameters of the legislative regime. Under the legislation, any firm involved in moneylending activity requires a licence from the Central Bank, which must be renewed every year.

In line with our mandate, working to ensure that the financial system operates in the best interests of consumers and the wider economy, we maintain a proactive and focused approach in supervising the sector, ensuring that the requirements imposed on the sector continue to be effective and provide suitable protection for consumers.

The licensed moneylending sector in Ireland

There are currently 35 moneylenders licensed to operate in Ireland. The business models operated by licensed moneylenders generally fall within the following categories:

• Home collection firms;
• Firms operating a catalogue business model; and
• Other firms including firms providing credit to fund gym membership, insurance premiums etc. and firms involved in the provision of goods on credit.

Licensed moneylenders are required to carry out their business under the specific terms of their licence. We have not permitted the maximum APR or costs charged within the sector to increase. And, in line with our gatekeeping responsibilities, we have not allowed practices such as pay-day lending to enter the Irish licensed moneylender market.

The Consumer Protection framework and our supervisory approach

There is a strong consumer protection framework in place for consumers who choose to use the services of licensed moneylenders. Consumers are protected by a range of provisions that moneylenders must adhere to including the Central Bank (Supervision and Enforcement) Act 2013 (Section 48) (Licensed Moneylenders) Regulations 2020 (the “Regulations”), the European Communities (Consumer Credit Agreements) Regulations 2010 (the “CCR”) and the 1995 Act, which include additional provisions specific to the moneylending sector.  In addition to the protections provided under the Regulations, there are important protections provided for in the legislation that mean licensed moneylenders are prohibited from applying additional charges including in the event of a default or non-payment by the consumer. Therefore, a consumer can never be asked to pay more than the “total amount payable” as stated on the moneylending agreement. Moneylenders are also required to undertake a creditworthiness assessment before entering into a moneylending agreement with a consumer. We have made clear our expectation to all credit providers, including licensed moneylenders, that they lend responsibly and act in the best interests of consumers at all times.

Last year, following an extensive public consultation process, we introduced the new Regulations, which replaced the Consumer Protection Code for Licensed Moneylenders, to further strengthen protections for consumers of licensed moneylending services and to enhance professional standards in the sector.      

In addition to existing requirements, moneylenders are now required to:

• Include prominent, high cost warnings in all advertisements for moneylending loans with an Annual Percentage Rate (APR) over 23 per cent. The warning must also prompt consumers to consider alternatives.
• Moneylenders are not be permitted to make an unsolicited offer to apply for credit to consumers who have recently made, or are nearing, full repayment of a moneylending loan.
• Limit the moneylenders’ contact with consumers and limit the offer and promotion of loans to consumers.
• Where a loan is required for basic needs, such as accommodation or electricity, moneylenders will be required to inform the consumer that a moneylending loan may not be in their best interest and to provide contact information for the Money Advice and Budgeting Service (MABS).
• New requirements for the staff and agents working in the sector, designed to enhance their professional standards.

While the Regulations came into effect on 1 January 2021, due to the financial impact of Covid-19, the ‘high-cost warning’ requirement in respect of advertisements for moneylending loans with an APR in excess of 23% came into effect earlier, from 1 September 2020.

We assertively supervise the sector, taking supervisory and enforcement action, where required, to protect consumers’ interests. Compliance requirements is supervised through the initial and annual licensing processes, applying the fitness and probity regime, themed and firm-specific inspections or engagements, market intelligence monitoring, conducting consumer based research and monitoring industry trends including complaints made to the Financial Services and Pensions Ombudsman.

The proposed legislation

The Central Bank is supportive of any initiatives that seek to enhance existing consumer protections. The Consumer Credit (Amendment) Bill 2018 (PDF 394.5KB) proposes to place a cap of 36% on the APR charged by moneylenders, which could present specific challenges.

Moneylender loans are generally short-term in nature. Their cost and the associated APR can be very high when compared to other forms of credit. APRs may appear to be extremely high on shorter term loans when in fact the actual cost of credit increases the longer the loan term. Therefore, lowering the APR may be ineffective and counterproductive and not achieve the objective of lowering the total cost of credit if, for instance, a moneylender choses instead to extend the duration of the loan resulting in the consumer paying more over the duration of the loan.

Neither the 1995 Act nor the CCR provide for an interest rate cap, nor does the 1995 Act define “excessive” in the context of interest rates. The Central Bank has no statutory power to impose a market wide cap on rates so the introduction of an interest rate cap would require a legislative amendment. Any legislative proposals seeking to achieve an overall reduction in the cost of credit to customers of moneylenders should be calibrated to ensure that unintended consequences in terms of financial exclusion do not arise.

Our focus has been on improving the transparency of these costs and increasing consumer awareness, by way of requirements such as the need to warn customers about the high cost nature of loans and to disclose all the fees, costs and interest in a clear manner prior to entering into the moneylending agreement. Our public register of licensed moneylenders also sets out product details such as the maximum APR, maximum cost of credit and collection charges (if any).

One of the challenges in considering rates charged by moneylenders is finding a balance between the availability of credit for consumers who do not have access to regulated credit elsewhere, or who do not use other regulated credit providers, and the provision of short-term

unsecured loans at what can be a high cost. For small amounts of credit and for those consumers with an impaired credit history, there may be limited alternative credit options available to them from regulated credit providers.

In conclusion, the Central Bank has concerns regarding the proposed legislation as currently drafted. Any legislative proposals imposing such a cap would have to be carefully considered to achieve an overall reduction in the cost of credit, and to ensure that unintended consequences in terms of financial exclusion did not arise. We recommend an assessment of the impact on consumers should be undertaken to inform the approach.

Thank you.