Time to cap moneylender’s interest rates

Posted: August 23, 2012 in Debt, Moneylending

Eoin Ó Broin highlights the need to cap interest rates charged by lisenced moneylenders and asks why the Government refused to support a Sinn Féin Bill which would have helped thousands of hard pressed and heavily indebetted families.

Across the country low and middle income families are struggling to get by. As each month passes the recession bites deeper.

Unemployment, wage cuts, tax increases, the house hold charge, cuts to rent supplement and rising mortgage distress are pushing more and more families into severe financial hardship.

Hundreds of thousands of people are turning to moneylenders to make ends meet.

On a daily basis families are forced to make impossible decisions – do they pay their gas or electricity bill or do they pay their mortgage or rent.

And when faced with such impossible choices many are getting into even greater levels of debt just to get by.

40% of people have borrowed to pay their household bills in the past 12 months, 10% of these borrowed from licensed moneylenders.

More than 300,000 people turn to licensed moneylenders every year. Many more go to illegal loan sharks.

Incredibly, there is no cap on the rates of interest that licensed moneylenders can charge. Some lenders charge an APR of up to 210%.

What TD or Government Minister could support such high charges?

In fact, the only reason lenders can charge such excessive rates is because no Government has placed a cap on interest rates.

As a result of the inaction of the Oireachtas some lenders are getting rich on the backs of hard pressed families.

Last week Sinn Féin tabled a private members bill in the Dáil to cap moneylenders interest rates at 40% APR.

Across the EU many EU member states operate interest rate caps on licensed moneylenders.

In Belgium for example the cap ranges from 10% to 19.5% APR. In France the range is from 5.7% to 21.6%. In Spain the rate is 10%.

In 2006 Poland introduced a 20% APR cap. The largest commercial moneylender in Poland is Provident. After the cap was introduced Provident continued to trade profitably.

Provident is also the largest lender in the Irish market. Here they charge an APR of 187%, almost ten times what the same company charges in Poland.

Despite the clear evidence that caps work Fine Gael and Labour opposed the Sinn Féin Bill last week in the Dáil. They did so on the spurious grounds that a cap of 40% would drive licensed moneylenders into the black market.

There is no evidence to support this claim. In fact all of the evidence demonstrates that caps work. Lenders can continue to make profit without borrowers paying through the nose for their loans.

Of the 13 EU member states that operate caps the average ceiling is 20%. In these countries politicians have decided that there is a limit to the amount of interest that licensed money lenders can charge, particularly when lending to low income families struggling under the weight of household debt.

Last week in the Dáil Fine Gael and Labour had a chance to take a stand against excessive interest rates. They could have supported the Sinn Féin Bill and in doing so reduced the financial hardship of tens of thousands of hard pressed families.

They chose not to. All four Dublin Mid-West TDs voted against the cap. Deputies Fitzgerald, Keating, Tuffy and Dowds supported the status quo. They supported the right of licensed moneylenders to charge interest rates of up to and beyond 210%.

That the Fine Gael deputies took the side of the financial industry should surprise no one. But for our two Labour deputies to support such excessive interest rates is genuinely shocking.

Excessive interest rates push hard pressed families further into financial stress and poverty.

There is no moral or economic justification for the absence of a cap on interest rates charged by licensed moneylenders.

The law must be changed. Unfortunately it looks like we will have to wait for a change of Government before our laws are made in the interests of the people rather than the interests of the banks and moneylenders.

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