Interest Rate Caps Debate in Ireland

The Irish TV-Programme "Prime-Time" by RTE

9th January 2007
"DEBT TRAP LAID BY MONEYLENDERS"

Report of programme by European Coalition for Responsible Credit

After their critical December programme on "united in debt" concerning families tied into overindebtedness the TV station reacts to the actual public discussion on interest rate caps in Ireland. The question for Ireland is basically whether they will hold on to the English tradition of free markets where high interest rates and no restriction to moneylending to poor people are assumed to be necessary to provide especially small amounts of credit for all and give freedom to excercise one's profession for small money lenders or whether they want to adhere to the continental European philosophy rooted escpecially in catholic culture that high interest rates are isurious and should be a question of public policies and where small credit is provided through overdraft credit on bank accounts which have single interest rates for all. Trespassing a certain ceiling ("the double of the average") is assumed to be immoral or resulting from a market failure which needs administrative or judicial control.

The programme also broadcasted an interview with ECRC board member Udo Reifner from Germany where he describes the three continental principles of regulating moneylending under the banklaw (which does not allow low quality offers), guaranteeing universal access to bank accounts and capping interest rates at the double of the average which leaves enough space for markets to play.

ECRC members on the Continent should see that presently Ireland together with the UK are the fortresses of a mere informational attitude at the European Union and basically the orginators of the present draft of the EU Directives concerning consumer credit. It is crucial that those who want to uphold the social quality standards of consumer credit should support our members in Ireland (MABS) and the UK (DOOD) who milite for more social responsibility in credit extension.

Those who want to see this programme can go directly to the website of RTE and watch

"an excerpt from last month's Prime Time Investigates report by Adrian Lydon on money lenders whose high credit costs are placing the country's poor in a year-round cycle of debt

Prof Udo Reifner, Institute for Financial Services, Hamburg, explains why he is an advocate of capping interest rates to prevent exploitation of poor people's financial misery

Mark Little chairs a discussion on the issue with Séamus Brennan, Minister for Social & Family Affairs, Pat Rabbitte, Labour leader, and Liam O'Dwyer, CEO, Irish League of Credit Unions"

RTE link here

FSA highlights irresponsibility in mortgage lending

The Financial Services Authority (FSA) has called on firms giving mortgage advice to improve their processes after new findings showed that only one third of the firms it sampled had robust processes in place to provide customers with suitable advice.

The FSA reviewed 252 firms of differing sizes through mystery shopping,visits and questionnaires between June and October last year to establish a baseline of the process by which advice is delivered in the mortgage industry. Scope for improvement was found in all aspects of the advice process. Some of the poorer areas identified were the assessment of customer needs, including affordability; training and competence; overall systems and controls; and record keeping.

Clive Briault, Managing Director of Retail Markets at the FSA, said:

"We found significant failings in the advice giving processes in a number of mortgage firms. Poor processes increase the risk of unsuitable advice being given. It is essential that firms have robust processes in place, so that they treat their customers fairly and provide suitable advice. It is crucial that customer needs are assessed properly. Customers should consider what they can afford both now and in the future, taking into account any likely changes to their circumstances."

Examples of bad practices included:

Affordability was assessed based on the customers' income and costs of servicing debt only. No account was taken of other regular expenses incurred by the customer.

No income and expenditure assessment was carried out prior to recommendation. Reliance was placed on the customer stating they could afford the payments.

Industry average figures sourced from internet websites were used to determine the customer's affordability without checking that this represented an accurate figure for the individual customer in question and did not assess whether the client lay significantly outside the average.