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TENS OF THOUSANDS of people in Ireland are paying interest rates and charges of up to 287% annually to borrow small amounts of money.
An estimated €153 million is currently owed to the country’s licensed moneylending firms, mainly by those with the lowest incomes.
Despite a decade of extremely low-interest rates and 0% PCP car finance, legislation dating back to 1995 allows licensed money lending firms to charge interest rates of up to 187%, and APRs (annual percentage rates) of up to 287% when collection charges are included.
A majority of their customers are female, drawn from lower socio-economic backgrounds and aged between 35 and 54 years.
According to Central Bank figures, an estimated 330,000 people are customers of money lending firms. One of the largest categories are ‘home credit companies’ which charge APRs of up to 287%. Another large grouping, catalogue companies, charge lower but still very high interest rates of between 43%-72%.
Typical home credit loans, also known as doorstep loans, cover costs like back-to-school, Christmas or emergency household spending.
A report launched yesterday entitled ‘Interest Rate Restrictions on Credit for Low-income Borrowers’ looks at the topic of applying restrictions on high-cost lending. The research was conducted by UCC and was funded by the Social Finance Foundation and the Central Bank of Ireland.
EU countries have for many years clamped down on high-cost credit.
Twenty-one EU member states now have some form of interest rate cap on high-cost credit.
Ironically, Ireland is included in the 21 as we have an the interest rate cap of 1% per month on credit union lending. But that restriction does not apply to moneylenders here.
The German Supreme Court, for example, has established a very strong presumption that interest rates above double the relevant market rate lack moral legitimacy. A recent ruling in Spain found an interest rate of 24% “excessive”, while in Finland interest rates of 118% were deemed to be “unconscionable”.
These examples raise the question of the moral legitimacy and social justice of permitting excessive interest rates for access to credit, which often targets the most vulnerable and financially excluded consumers.
Ireland is in a clear minority in not addressing the issue. Ironically, until 1995, an interest rate restriction of 39% applied in Ireland.
Is it right that money lending firms in Ireland today can be allowed to charge APRs of up to 287%, if low-cost alternatives are available?
The report identifies that most customers of money lending firms value the ‘ease of availability’ and ‘convenience’ of home collection by moneylending firms.
It points, however, to a 2013 UK study which showed that 52% of home credit users feel trapped in this cycle of borrowing. European experts highlight that high-cost lending can lead to a spiral of increased indebtedness and an inability to maintain payments for essential items such as rent and utility bills.
On the positive side, Ireland is recognised as having one of the best credit union movements in the world. Credit unions represent a viable alternative to high-cost credit providers.
This can be through their standard loans or through the Personal Micro-Credit (PMC) loan scheme launched in 2016. PMC is now on offer in up to half the country’s credit unions. Loans range between €100 and €2,000 with a maximum APR of 12.7%.
Ability and willingness to repay the loan is of course essential. To date, thousands of these loans have been issued with typical repayment savings of €130 on a €500 loan.
The report makes three key recommendations to Government:
The study also recommends enhanced protection for Irish consumers and embedding of greater financial inclusion in policy and financial service provision, including initiatives around financial education.
Brendan Whelan is the CEO of the Social Finance Foundation, a wholesale lending agency that supports the development of community organisations and social enterprises
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Spain 24% Excessive
Finland 118% unconscionable
Ireland 287% Typical
@John Murray: but the country’s run by people who act like these loan sharks….
@Dave Walsh: give a man a gun he’ll rob a bank, give a man a bank he’ll rob the world!!
@John Murray: UK 1000%+
Instead of or combined with banning a solution to a problem we need to tackle the source of the problem. Educate. Ban all forms of credit gambling, paddy power is treated like some kind of Irish hero, the company is preying on the vulnerable, I don’t have the figures but I suggest that 50% of young male suicide is debt related and a huge part of that is gambling.
@Gerard Jennings: education on personal finances doesn’t put food on tables of those with no incomes. Yes, we should improve financial literacy in the country but it won’t solve the problem of desperate people making expensive choices.
@Dara O’Brien: Education on personal finances stops people getting in to desperate situations.
@John Horan: Not really, anything can happen tomorrow that people wouldn’t have planned for so education isn’t always the answer.
These companies need to be replaced by legit ones so people who need money quick can be provided it without the risk of getting knee capped by some of these.
@Mark McDermott: No…financial planning and education gives you the knowledge on how to budget so that you are prepared for emergencies. Of course not all can be planned for but education will help with most of them. On a basic level think Christmas clubs were you pre save rather than going to a money lender in December and paying back more than you borrowed.
@John Horan: which is all very well. However , Mark make the good point, that the people who tend to need these loans are coming from a place where they are not in a position to save up reserves. They have nothing to plan with, if they need to drive it’s fiver to fiver, last Christmas is still being paid off and so the cycle goes. Breaking the strangle hold of door lenders would help create the space you talk about.
If you watch some of these lending adds some of the intrest rates are 1000+ for the short term loans. Why would anyone want to pay or have the means to pay 1000 +intrest on a short term loan. I’m talking about the adds which are showing shower not working or car broken down. The next pay day loans
@bings: they pay because they have to or believe they have to.
There will always be a market for gouging moneylenders unless credit is made available to those in lower socioeconomic classes. People will always borrow for Christmas, birthdays, communions etc rather than having nothing to give children and loved ones etc.
Micro-finance may be available through the credit unions and whilst they are more flexible in lending practice than banks, their credit assessment still excludes those in the lowest income brackets.
Some form of community banking initiative is needed or rates of 200% plus will just continue – bam them and the illegal sharks just move in
Ban this, ban that, people need to take responsibility for their actions.
@The Bull McCabe: True. But when they don’t, who has to pick up the pieces? We do.
So what were The Labour Party actually doing in Government. They’ll be all over this like a rash now but were they asleep for 5 years.
On the face of it payday lending should be banned. However a little research and you might change your mind when you see what happens when they are banned. http://freakonomics.com/podcast/payday-loans/
In short if we cut the rates they can charge the payday lenders shut down as it is not profitable. Keep in mind the administration cost of a 100 EUR loan is the same as as 10,000 EUR loan. Those administration costs result in a higher interest rate on small loans. If we ban payday lenders what are the alternatives? Don’t say credit unions…they won’t lend you 100 EUR in 15 minutes, which is what some people require. think about what people will do to get the money if there are no payday lenders
They provide a service, banks are not going to lend to anyone without an income or give them a credit card, companies like provident unfortunately are necessary .
@Mrs M: or we address the problems which makes them necessary
@Breandán O Conchúir: No employment , bad credit history, inability to put by a few quid each week for events, is the main reasons I guess. I would also go out on a limb and say the foreign holidays for the chronic lazy is a big part of Thier business.
I would also suggest when somebody loses a job and has to sign on for a period they are not kept waiting 6-8 weeks for a claim to come through
A complete change of attitude from the government on middle and low income families would stop a lot of these problems. Ireland is a place for the rich and working class must leave to get the breaks to be able to afford to return
@stephen byrne: Ireland is not a place for the rich…the punitive tax regime means the rich are not tax residents.
How’s it even allowed in the first places is beyond me
@James O’Brien: Must be a few boys in the dail with their finger in it.
Ban the nanny state
People who are barred from credit unions will always go for what they need. they just want money up front.
Moneylenders typically charge around 25% paying back a loan,
this is an incredibly biased article; promoting credit unions and villainising moneylenders
Moneylenders are regulated by the central bank of Ireland to ensure they dont charge excessive rates.
isn’t this why we have credit unions? so people don’t have to go to money lenders.
Before we had credit unions this kid of dept was common how is it still a thing when cheap loans from member owned credit unions are available
Christianity forbid interest bearing loans . Moslem still do if we did have Islamic banking it take share in profits . but borrowings is still spending money you don’t have now
No, it is well past time
4000 grand limit on credit card is way to go :) stay away from money lenders . Credit cards can be dodgy but it’s all about managing it properly
It’s criminal – even credit cards over 20% are illegal unless they can prove otherwise
No interest
It is time to stop this
have your say