By Ann Marie Foley - 31 July, 2019
“Moneylenders are meeting a need for access to credit but often at a cost which people who are better off and who have other options would baulk at.”
The Society of St Vincent de Paul (SVP) has called for clear, visible and up-front warnings about the cost of loans from moneylenders.
The SVP wants licensed moneylenders to use graphic warnings and images, such as those used in tobacco advertising, that show the true cost of their loans.
“Moneylenders tend to engage in heavy advertising at times when low income households are under financial pressure, for example back to school and Christmas, and it is important that customers know at first glance that the adverts they are seeing are for high cost credit,” said Kieran Stafford, National President, SVP.
In a submission to the Department of Finance, the SVP criticised the current advertisement rules which allow licensed moneylenders to advertise without details of costs.
While the Central Bank states that moneylenders are required to provide information about the high cost nature of the loan to their customers, this usually appears in the moneylending agreement signed by the customer.
The SVP wants wording such as “Warning: This is a high cost loan” placed on all moneylending advertisements and literature. The warning should also point out that alternatives to high cost loan offerings may be available and that people should check their options before borrowing, according to the SVP. There should be a statutory maximum cost of credit, or a cap on what can be charged by a moneylender.
Caroline Fahey, Head of Social Justice, SVP said there should be better access to sources of low cost credit for low income households as well as “enforcement of the Consumer Protection Code for Moneylenders and better protection of customers of moneylenders, including better information, financial education and more inclusive mainstream banking services”.
She said potential customers of the lenders should know the total cost of credit, including charges; how manageable the repayments are; the alternatives available; as well as “clear information which will allow customers to make informed decisions about taking out moneylender loans and the introduction, strengthening and monitoring of measures to protect customers of moneylenders.”
Speaking on RTÉ’s Morning Ireland, Caroline Fahey said moneylenders tend to drop leaflets at this time of year, as it is a busy time for parents with back-to-school costs. She explained that a €500 loan could result in interest repayments of €150 with a moneylender, while a similar loan with a credit union would have interest of around €16.
SVP members regularly come across inappropriate lending to very vulnerable households who do not have the capacity to repay the loan.
“Living on a low income and having a poor credit rating limits the options for people who are trying to access credit. Moneylenders are meeting a need for access to credit but often at a cost which people who are better off and who have other options would baulk at. Repaying a high cost loan is a very heavy burden for households that are struggling and can lock them into a cycle of debt and poverty,” he said.
There are an estimated 330,000 customers of moneylenders in Ireland. The lenders include those who operate on a home collections basis and catalogue firms. On 31 May 2019 the Department of Finance launched a consultation, as part of a review of the sector, on capping the interest rates moneylenders can apply to customers’ borrowings.
The consultation document stated that there are 39 moneylenders licensed by the Central Bank to operate in Ireland, with many applying an APR of more than 180 per cent on loans. Some also charge a fee for collecting repayments which, in one instance, brings the effective APR to almost 288 per cent.
The closing date for receipt of submissions was 31 July. The full SVP submission can be found at svp.ie/cappingcostofmoneylenders.