Thursday 17 October 2019

Moneylenders hit in pocket with new State loan scheme

Leo Varadkar: to announce nationwide scheme Photo: North West Newspix
Leo Varadkar: to announce nationwide scheme Photo: North West Newspix
Charlie Weston

Charlie Weston

A State-backed loan scheme is to be rolled out nationally in a bid to take on moneylenders.

The move is set to be a major blow for the high-cost loan sharks.

Social Protection Minister Leo Varadkar is this week set to announce the extension of the scheme nationwide.

The move follows a trial that proved to be a huge success when it was run at 30 credit unions.

The country-wide roll-out of the scheme represents the first major attempt by the State to take on the scourge of moneylenders.

Some 400,000 people are estimated to use moneylenders, who can legally charge interest rates of up to 200pc.

And illegal moneylenders, who are not licensed by the Central Bank, are known to charge even more - and to use threats to force those in arrears to make repayments.

Many moneylender customers get into a spiral of borrowing from the door-step lenders, and can then find it impossible to break out of the borrowing cycle.

Now moneylenders are set to be squeezed hard by the new State-supported scheme.

The official scheme involves hassle-free loans of up to €2,000 to cash-strapped people, with a fast turnaround for borrowers seeking approval.

Loans can be approved in a day, a fraction of the time it normally takes a credit union to assess a loan application.

Called 'It Makes Sense', the lending scheme is designed to match how easy it is to get cash from a moneylender.

The scheme allows people on low incomes to get a loan from a credit union and have it paid back out of their social welfare payments. This reduces the risk of default.

Those taking them out do not have to have savings, as is usually the case.

Moneylenders are understood to have been hit hard by lower demand for loans in the 30 areas where a successful pilot of the scheme was run over number of months.

Licensed moneylenders are allowed to charge up to 200pc interest, with allegations recently that some were illegally topping up people's loans before they had finished paying off initial borrowings.

Now the new State-backed loan scheme is to be opened up to all 333 active credit unions in the State, in what represents a massive clampdown on loan sharks.

It is hoped the scheme will be available nationwide by the autumn.

The Central Bank has lifted some restrictions on credit unions offering the micro-loans.

The pilot project has been a huge success - with many of the credit unions that operated it reaching their threshold of 50 loans within weeks, according to sources in the social finance sector.

Research into the pilot scheme, seen by the Irish Independent, shows that the 30 credit unions in the pilot project loaned out a combined €720,000 to 1,200 borrowers.

Most people borrowed under €500. Half of those taking out a loan had not been members of a credit union.

A quarter of those getting a loan were current, or previous, moneylender customers.

Less than 6pc of the loans were in arrears up to the end of April.

The research by Amárach found that the take-up rate among those using the loan scheme was high. The feedback from borrowers was overwhelmingly positive. Some 94pc of people who used the micro-lending scheme said they would borrow from a credit union again.

Brendan Whelan of Social Finance Foundation, which promoted the lending scheme, said the research shows that two-thirds of the loans were for €500 or less. He said almost nine in 10 borrowers were making weekly repayments of €20 or less.

These people would normally use moneylenders, he said.

"This is specifically the category of borrower and repayment range that PMC [personal micro-credit] seeks to support and who have relied up to now largely on expensive moneylending options.

Social Finance Foundation is a tie-up between the Government and the banks to provide social finance.

The most that will be charged for the loans under the lending scheme is 12pc, with some credit unions charging less.

This means that a €500 loan for six months will be €135 cheaper from a credit union than from a moneylender legally charging 188pc.

Loans will be open to anyone who is in receipt of social welfare.

People seeking a loan do not have to be credit union members, but will be signed up as members.

They must agree to make repayments through their social welfare payments under An Post's household budget scheme.

The registry of credit unions at the Central Bank said it was pleased with the success of the scheme.

Extending the scheme is one of the commitments in the Programme for Government.

The 'It Makes Sense' project is being run by credit unions in partnership with the Department of Social Protection, An Post and Social Finance Ireland.

Irish Independent

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