Ireland - Action to be take against moneylenders

The Irish Times - Money lenders' licences to be reviewed every year

Carl O'Brien

Tue, Jan 09, 2007

The Government is planning to change the way money lenders are regulated to help ensure those who charge excessive interest rates do not have their licences renewed.

The Money Advice and Budget Service (Mabs), which offers advice to the public over budgeting and debt management, will be able to recommend to the Financial Regulator on whether a money lender is charging a reasonable rate. There are more than 50 licensed money lenders in the State, some of whom charge rates of between 100 per cent and 200 per cent, according to research conducted by Ralaheen Ltd, entitled Do the Poor Pay More?

Minister for Social and Family Affairs Séamus Brennan said that under changes to legislation later this year the Financial Regulator would not be able to issue an annual money lender's licence without first consulting the Mabs agency. He also said he was taking on board recommendations in the report which found that improved access to financial services could help people on lower incomes avoid poverty and debt.

Mr Brennan said his department was in discussion with banks over establishing a new "basic banking account".
This would provide a person in need of short-term loan an overdraft at a normal rate instead of having to pay the often exorbitant rates offered by money lenders.

However, Mr Brennan's plans were criticised by Labour leader Pat Rabbitte who said the Minister's plans were long overdue and amounted to little more than "political posturing". Mr Rabbitte said the most effective way to tackle the problem was to ensure people on low incomes had access to reliable sources of credit at reasonable
rates of interest.

"Minister Brennan should enter into immediate discussions with the credit union movement with a view to providing such a service. The credit union movement has an extensive network around the country and a proven track record," Mr Rabbitte said.

Research shows that ID requirements for opening bank accounts, restrictive criteria for some free bank accounts and a lack of appropriate financial products are among the barriers facing people on low incomes in seeking to open a bank account. A recent report by Combat Poverty into financial exclusion found that people
on low incomes also excluded themselves from the banking system because they lacked confidence to engage with banks, or they felt such institutions were not interested in poor people.

Helen Johnston of Combat Poverty said its research highlighted the important role played by credit unions and post offices in providing access to savings and affordable credit facilities within disadvantaged communities.

"People on low incomes tend to be familiar with these institutions and therefore more likely to use their services. "By expanding their services to include a wider range of facilities, such as basic 'no frills' bank accounts and emergency credit, the study suggests that these institutions can further contribute to tackling financial exclusion," Ms Johnston said.

OFT Issues Guidance on Unfair Credit

The Office of Fair Trading has issued guidance on the operation of the Unfair Credit Relationships test which will be introduced as part of the reforms brought in by the Consumer Credit Act 2006. The test will come into effect in April 2007 for new agreements signed after that date, and April 2008 for current agreements.

The guidance fails to set out a comprehensive view as to what an unfair relationship is, and there will be considerable uncertainty until test cases have been taken in the courts. However, there have been some revisions since the OFT consulted on it last year, and the OFT expresses the view that the courts will be able to take action against high cost lending.

The guidance states:

4.20..in the OFT's view there is clearly scope for the court to find that a credit relationship is unfair on the grounds that it involves excessive costs for the borrower. Section 140A(2) requires the court to have regard to all relevant matters and these could include the cost of the credit agreement or any related agreement. This appears to be endorsed by Ministerial statements in Parliament during the passage of the Consumer Credit Bill.

4.21 For example, the rate of interest charged under a credit agreement, or the rate or amount of other fees or charges, may be so much higher than those applicable generally in the particular market sector, or payable by borrowers in similar situations, as to make the relationship as a whole unfair to the borrower. They may also, in the particular circumstances, be oppressive or exploitive of the individual borrower even if they are in line with rates prevailing at the time in the particular sector.

4.22 In addition, excessive prices may be accompanied by other unfair terms or practices which may contribute to an unfair relationship as well as being susceptible to possible Part 8 action in their own right."

Debt on our Doorstep will be looking to work with agencies interested in taking test cases in relation to the cost of credit from April onwards. It should be noted that the guidance indicates that the cost of linked transactions (for example payment protection insurance and default charges can also be considered by the courts as part of an assessment of unfairness).