Call for cap on extortionate rates charged by moneylenders
The interest rates which moneylenders can charge should be capped, a new report recommends.
Most European countries impose interest rate restrictions. The doorstep lenders are legally allowed to charge up to 287pc to people who are desperate for cash but have a poor credit history. Most of those who use moneylenders are women from poor households.
Now a report by academics in University College Cork, funded by Social Finance Ireland and the Central Bank, calls on Finance Minister Paschal Donohoe to impose a cap on the interest moneylenders can charge.
The report urges the Government "to adopt a policy that prohibits usurious rates of interest in the interests of fairness to the most vulnerable in Irish society by the introduction of a restriction on interest rates and charges".
Researchers found 21 of the 28 European Union member states have some form of interest rate cap on high-cost credit.
This country is included in the list because it caps the interest credit unions can charge at 1pc a month, but this does not apply to moneylenders, who can legally charge up to 287pc in interest, when it is expressed in annual percentage terms.
Catalogue companies, which have to register as moneylenders as they charge so much for credit, have interest rates of between 43pc and 72pc.
The report says the majority of customers of moneylenders become accustomed to the ease of availability and convenience of home collection.
Reference is made to a UK study which found that most home credit users get trapped into a cycle of borrowing.
The UCC study found that in 2013 a quarter of customers in Ireland were illegally offered additional credit before clearing an existing loan.
The report points specifically to a finding in June 2015 by the Financial Services Ombudsman that two borrowers in Donegal had been sold top-up loans by a licensed moneylender, who then deducted amounts from the new loans to repay an existing loan.
The report suggests that credit unions represent a viable alternative to high-cost credit providers.
It specifically references the credit unions' Personal Microcredit scheme with a maximum interest of 12.7pc, providing loans of between €100 and €2,000. Almost half the country's credit unions have joined the scheme since its pilot completed in 2016.
Asked why there is no cap on moneylender rates, both the Department of Finance and the Central Bank said there was a fear that this would put legal moneylenders out of business, with the void filled by illegal lenders.
The Department said: "The fear always is that a maximum interest rate which is set so low as to drive licensed moneylenders out of business will result in vulnerable borrowers turning to illegal moneylenders as a last resort."