Allowing credit unions charge as much as 2% a month for their loans could help prevent people from using hugely expensive money lenders and provide some competition to banks charging large amounts on credit cards, industry and consumer advocates have said.
Lifting the cap to 2% from 1% on the maximum monthly charge for credit union loans is one of the proposals in the final report by an implementation group set up by the Department of Finance.
It means the Government will prepare legislation enabling credit unions to charge annual rates of over 24% on the basis of an annual percentage rate on some of their loans if they so choose.
But Brendan Burgess, the veteran consumer campaigner, said the merits of the proposal include allowing credit unions expand their lending to borrowers who are using both regulated money lenders and loan sharks.
Mr Burgess said the measure wasn’t designed to boost the profits of the credit unions but could help tap the many people who cannot get loans elsewhere.
Kevin Johnson, chief executive of the business group, the Credit Union Development Association, said the current cap meant credit unions couldn’t charge more than an annual rate of 12% on a loan.
The proposal would provide “flexibility” to credit union boards, if they so choose, to compete with money lenders and would help the lenders if interest rates were to rise steeply.
Moreover, the ability of credit unions to expand into riskier areas and charge higher rates on some loans could help wean people from building up credit card debt when the borrowers only pay off the minimum amount on the cards.
The report from the implementation group of the Credit Union Advisory Committee envisages lifting some of the restrictions on credit unions from lending long-term to help some institutions expand into mortgage lending.
Mr Johnson said credit unions loan €43m a year in mortgages “and the aim is to raise that figure”.
The Central Bank said it was working with the industry for appropriate regulations to help the “prudent development of the sector”.