MONEYLENDERS, who are legally allowed to charge up to 180pc interest for short-term loans, are giving cash-strapped consumers new loans before they have paid off existing ones.
It is estimated by industry sources that more than 100,000 heavily indebted people are being forced to use legal moneylenders, who charge exorbitant interest, in order to obtain lending as other financial institutions continue to turn them away.
Now, a new inspection by Central Bank officials of nine of the 42 licensed moneylenders in the State has found evidence that overly indebted people are being loaded up with new loans they cannot repay.
Often known as doorstep lending, this involves people calling to homes with offers of credit and collecting the repayments weekly.
Central Bank head of consumer protection Bernard Sheridan said he was concerned about the multiple loans being issued.
He added that in some cases consumers were provided with new loans before existing loans had been repaid in full, which was not in the best interests of borrowers.
And he revealed regulators will take legal action against a number of moneylenders found to be breaching rules on treatment of their customers.
Most moneylenders were found to be observing regulatory rules – but their loans were very expensive.
"Using short-term, high-cost loans for longer-term needs should be avoided and I would encourage consumers in such a situation to contact MABS for help and advice," Mr Sheridan said.
"We continue to focus on the area of costs and charges in this sector due to the high-cost nature of these loans.
"While the majority of firms inspected were broadly compliant, we discovered some serious issues in a small number of firms which we are pursuing individually with the firms.
Rules put in place by the Central Bank to protect consumers apply to moneylenders as well as banks and other finance houses, the regulatory authority said.
Anyone getting a new loan from a moneylender must get the full amount of the loan – they can't be given only some of the money because they have yet to finish paying off the existing loan.
And the Central Bank stressed that people who repay a moneylender loan early are entitled to a rebate on the interest due.
Moneylenders were told by Mr Sheridan to make efforts to find out if the people they are giving loans to have other debts, and are in arrears on these debts.
"While acknowledging that the home collection industry is predominately focused on engagement with consumers, the Central Bank expects that firms formally assess the creditworthiness of consumers on each new loan issued and to require documented evidence to verify information being provided by consumers," he said.