Unregulated lenders use loophole to give loans through retailers like Harvey Norman, Mothercare and Argos
Unregulated and unauthorised lenders are openly operating in Ireland, providing credit to consumers via retailers like Harvey Norman, Mothercare and Argos.
These lenders are outside of the scope or the regulatory oversight of the Central Bank.
A loophole in the legislation regulating credit firms has been revealed, highlighting the emergence of these unregulated entities, mainly foreign but with offices in Ireland.
They are offering high-interest loans to customers without having to abide by the Consumer Protection Code (CPC), introduced in 2012 to protect borrowers from being harassed with unsolicited phone calls to homes and offices if they fall into arrears.
Household names including Harvey Norman, Mothercare, Appliances Delivered, along with a host of dental clinics, jewellers and other stores, are using privately-funded Australian credit provider Flexi Fi to offer loans to their customers wishing to buy products.
The company has around 60,000 borrowers availing of €50m in loans. It has plans to expand into providing lending for log cabins people can put in their back gardens and offer to renters or adult children, and providing credit for dental and veterinary treatments.
Argos uses a similar provider, Creation Consumer Finance Ltd (CCF), with offices in Belfast, for 'buy now, pay later' loans on purchases over €275.
All foreign lenders are normally required to apply to the Central Bank for authorisation to act in Ireland, usually as a licensed moneylender, and be placed on a public register. It is mandatory for "cash loans or provision of goods on credit from a retailer or purchase of goods from a catalogue" said the Central Bank.
Typically, catalogue firms like Oxendales or Littlewoods come under such regulation - as do 'pay day' moneylenders.
However, other finance firms are getting around the legislation due to a loophole in the law, whereby the loan is not directly provided to the customer as cash, but items purchased directly from a shop, with a separate loan being created for repayment to the customer.
This triangular arrangement skirts around the 'direct' nature of the loan, meaning the loan provider does not have to register with the Central Bank, nor refer to APR or AER interest rates on its literature alerting consumers to the cost of credit.
APR is regarded as the best way of comparing the cost of credit and is mandatory for all regulated lenders.
A Central Bank spokesperson said: "Flexi Fi is not regulated by the Central Bank of Ireland for the provision of credit under the Consumer Credit Act 1995."
There is no suggestion that there is anything inherently wrong with the loans provided. For example, Flexi Fi offers some loans at 0pc interest and up to 11.99pc, which is on a par with market rates.
And CCF's interest rate of 0pc for six months, followed by a hefty 22.99pc for 48 months thereafter, is just below the limit required for automatic inclusion on the Moneylenders Register.
Flexi Fi says it intends to operate "as if" it was subject to the CPC, adding it has a range of products at varying interest rates to suit customer repayments.
Loans can be paid off early without penalty.