The Central Bank is to tighten regulations around licensed private moneylenders and has urged consumers to effectively use such firms as a last resort when seeking monetary support, despite the squeeze the Covid-19 fallout has put on household finances.
There are 38 registered alternative-to-the-mainstream moneylender firms operating in Ireland, according to the Central Bank’s website. These include prominent UK players like Provident and Amigo Loans, which is currently being probed by British regulators amid rising customer complaints, a falling out with its chief shareholder and a failed sale of its business.
Moneylenders are chiefly known for offering quick cash but at often exorbitant repayment interest rates. The Central Bank is looking to limit moneylenders’ contact with consumers and restrict promotion of their offers. For instance, such firms with an APR of over 23% must include prominent warnings of the high cost of their loans in their advertisements. They must also prompt consumers to consider alternatives.
“It is important that people who use moneylenders are fully aware of the high cost nature of their loans. By strengthening the rules, we are providing the customer base with further protections and raising the expected professional standards in this industry,” said Gráinne McEvoy, the Central Bank’s director of consumer protection.
“Given the high interest rates associated with these loans, I would strongly advise consumers to consider other options before using the services of licensed moneylenders,” she said.
Firms will be required to advise consumers that a loan from the company may not be in their best interest if they are looking for money to cover everyday basic needs such as rental or electricity costs.
If the loan is for basic needs, firms must signpost consumers to the State-run Money Advice and Budgeting Service, or MABS.
The Central Bank also wants to increase the professional standards amongst people working for money lending firms, through new requirements on training, policies and engagement with vulnerable consumers.
The new regulations – borne out of a two-year consultation process – will come into effect at the beginning of next year. However, the high-cost warning requirement for advertisements will be necessary from the beginning of September.
Industry body Brokers Ireland welcomed the new rules, but said there remains “a long way to go”, with more needing to be done to educate consumers about personal finance.
“The new measures will certainly help but we know from various studies that even people with a high level of education often have difficulty in understanding basic financial concepts and having a clear understanding of what exactly credit is costing them,” said Brokers Ireland’s director of financial services Rachel McGovern.
“We believe a great deal more needs to be done in terms of financial education, at every level of the education system," she said.
Sinn Féin’s finance spokesman Pearse Doherty has also called for the Central Bank to go a step further by capping interest rates on loans from such firms. He said the only way to protect consumers from “rip-off rates and financial exploitation" is by capping interest rates.
Meanwhile, Amigo Loans expects its backlog of customer complaints in the UK to cost at least £35m (€39m) this year, with potential for that to be materially higher.