Sunday 25 August 2019

Donohoe launches probe into interest cap on loans

Paschal Donohoe. Picture: Collins
Paschal Donohoe. Picture: Collins
Charlie Weston

Charlie Weston

Views on whether it is a good idea to cap the interest rates moneylenders can charge have been sought by the Department of Finance.

Licensed moneylenders can charge up to 287pc annually to borrow small amounts. They are allowed to set their own interest rates.

An estimated €153m is currently owed to licensed firms, mainly by those with the lowest incomes.

Most European Union member states have some form of interest rate cap on high-cost credit.

There is a limit here, set down in legislation, on what credit unions can charge but there is no explicit cap on moneylender interest rates.

The department has launched a consultation asking if it is a good idea to bring in a statutory cap.

There is a fear that limiting rates will have a negative effect on the supply of credit, leading to an increase in illegal moneylending.

The department's consultation paper also said a cap could lead to confusion.

Most of those who use these loans are women from poor households. It is thought around 350,000 people use moneylenders, who call to front doors offering funds and collecting payments.

Before Christmas a report by academics called for an interest rate cap.

Academics in University College Cork, funded by Social Finance Ireland and the Central Bank, called on Finance Minister Paschal Donohoe to impose a cap.

It urged 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".

There are 39 moneylenders licensed by the Central Bank, including new one, Amigo, which charges 49.9pc.

The Central Bank can refuse to grant a licence if it decides the rates will be excessive. The consultation paper says this works out at a de facto cap of 188.45pc.

When collection charges are added the effective limit is 287.72pc.

Irish Independent

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