The Minister for Finance, Paschal Donohoe T.D., this week, commenced the Consumer Credit (Amendment) Act 2022 and made Regulations under the Act, setting the maximum interest rate at which a high cost credit loan can be provided. Minister of State Sean Fleming brought the legislation through the Oireachtas.
An initial interest rate cap of 1% per week will take the most expensive products off the market and will require the bulk of products to be revised downwards. The maximum interest will be set at 48%.
At the same time, the initial rates will allow moneylenders to revise their business model and reduce their margin to enable them to operate within the legislative cap.
The Act also contains a range of measures to modernise and streamline the sector, including:
- Prohibiting high cost credit providers from charging for home collection services;
- Allowing repayment books to be maintained online;
- Allowing licenses to be issued for periods of five years at a time rather than one;
- Removing the requirement for high cost credit providers to register for a particular District Court area, and register State-wide instead; and
- Changing the term ‘licensed moneylender’ to ‘high cost credit provider’ to differentiate between licensed and unlicensed moneylenders.
The legislation follows a comprehensive review of the high cost credit sector undertaken by the Department of Finance, and takes into account the submissions received during the public consultation held by the Department in respect of the issue. Minister Donohoe published a Moneylending Policy Proposals Report on reform of the moneylending sector in July 2021.
Speaking today, Minister of State Sean Fleming said: “I was pleased to bring this legislation through the Oireachtas earlier this year. These changes give extra protection to people who may be under increased pressure to borrow for various family events especially over the Christmas period.’
‘This important legislation will restrict the rates that high cost credit providers can charge. It will reduce the cost of credit for the customers of high cost credit providers. It will provide better protection for consumers which is a key priority.’
Note to Editors
Maximum interest rates
The Act restricts interest rates by providing the Minister for Finance with the power to make regulations setting the maximum rate that a high cost credit provider loan can charge.
In making the regulations, the Minister must adhere to the following parameters:
- In relation to cash loans under a high cost credit agreement:
- the maximum rate of simple interest chargeable per week can only be set at a rate less than or equal to one per cent, and
- the maximum rate of simple interest chargeable per year can only be set at a rate less than or equal to 48 per cent,
- In respect of a running account under a high cost credit agreement, the maximum rate of monthly nominal interest can only be set at a rate less than or equate to 2.83 per cent. A running account operates similarly to a tied credit card and is a product sometimes offered by catalogue companies.
Following consultation with the Central Bank of Ireland, the Minister has today introduced the interest rate caps at the maximum levels outlined above.
Within three years of the coming into operation of the legislation, the Central Bank of Ireland will prepare a report assessing the impact of the above prescribed rates in accordance with section 98A(8) of the Consumer Credit Act 1995.
Central Bank of Ireland
The Central Bank of Ireland is the competent authority in Ireland for the authorisation and supervision of high cost credit providers (under Section 93 of the Consumer Credit Act, 1995 (as amended).
The Central Bank has engaged actively with the sector to update products contained on existing licences to ensure compliance with the interest rate cap. This has involved changes to the interest rates of existing products and/or the addition of new products.
The Central Bank is in the process of updating its public registers to publish each firms’ newly approved products. An updated and enhanced licence renewal application form for five year licences will also be published on the website.
Information on the market
- The Central Bank register currently lists 32 licensed moneylenders.
- The number of providers is gradually declining. The largest operator in the Irish market stopped trading on 28 June 2021.
- The Central Bank estimates that there were 283,000 customers with moneylending loan balances outstanding totalling €141,146,290 at the end of 2020.