‘Legislation needed to cap moneylending rates’

The Central Bank said only the Government can move against moneylenders charging interest rates of 150%-220% by introducing legislation to govern the sector.

Yesterday, the Irish League of Credit Unions (ILCU) called for a cap to be put on the amount of interest that legal moneylenders can charge.

At present, no such cap exists and moneylenders have successfully applied to the Central Bank to charge interest rates of up to 287% on a year-long loan.

The Central Bank’s website indicates Provident, the country’s biggest legal moneylender, charges 187% for a six-month loan as does the Cork City-based Tony Kenneally. Rathebe Credit charges 210% for a six-month loan while Dublin-based Southside Finance charges €287.7%.

A Central Bank spokesman said: “We can only work with the powers that we have. We do not have the power to control Central Bank interest rates. There is no provision in the 1975 Consumer Credit Act to allow the Central Bank to set a cap on the interest rates charged by a moneylending company.”

The moneylending market is growing as borrowers find it difficult to acquire finance from banks and credit unions. Earlier this year, the Irish Examiner revealed that Provident has grown substantially during the recession and is now lending to 100,000 customers.

ILCU chief executive Keiron Brennan said we need to look to countries such as Germany where there is a set differential between the interest rate a legal moneylender can charge compared to a bank or credit union.

“The borrowers are a much higher risk profile and the sums are often smaller. The interest rate must reflect this and so Germany sets their interest rates at 12% greater than the average bank rate. The gap between both rates is recognition of the greater risk these borrowers present and also the often small sums involved,” he said.

Mr Brennan described these interest controls as a “prudent approach, particularly in light of the exorbitant collection charges applied by many licensed moneylenders in Ireland”.

According to the ILCU, there is a real danger of already indebted people finding themselves in even more debt if legal moneylendes are allowed to continue charging such high rates.

The ILCU says it has sought to engage with the Government on this issue but so far, has failed.

Last night, the Central Bank said it “endeavours to increase disclosure and understanding of the costs associated with loans from moneylenders”.