12,000 low-income people hit with debts of €76m

A TOTAL of 12,000 low-income people ran up debts of a staggering €76 million last year.

The figure was disclosed by the Government’s Money Advice and Budgeting Service (MABS), which has become the first port of call for people who have racked up serious debt.

The latest figures given by the MABS to Social Affairs Minister Seamus Brennan reveal that an increasing number of poor people faced problems with spiralling debt last year. The average debt for those who contacted the MABS was just under €7,000, but some had much higher debts.

The figures show roughly half of the money wais owed to financial institutions, with the rest divided between utility bills, credit union loans, debt collectors, credit cards and car loans.

A small percentage — 3% to 4% — owed money to moneylenders but it was an area of particular concern because of the high interest rate charged (sometimes tipping over 100%).

Mr Brennan told the Irish Examiner that he was concerned at the situation, particularly the problems caused by the boom in consumer credit and the type of crisis faced by those who fell behind with repayments to moneylenders.

Citing a 2005 study which showed that the poor paid six or seven times more for credit, Mr Brennan said he was determined to tackle the problem with three specific measures this year.

He will bring forward legislation early in the Dáil session to modernise the MABS and to give it a more national footing.

He will also give the Financial Regulator more powers to refuse licences to moneylenders if he considers they are charging excessive interest.

Thirdly, after discussions with banks, he will press them to offer a basic bank account service to people who might otherwise be unable to open an account.

He pointed out that under the Consumer Credit Act of 1993, a moneylending licence is only granted to those who charge a minimum of 23% interest. He said this was because money is borrowed for a short time (sometimes a few weeks) and there was often no security to back the loan.

“The average interest rate is 39%, though some charge as much as 100%. The department has been involved in heavy discussions with the Financial Regulator about his role in this in future. The act says he must licence moneylenders every year. He can refuse a licence for all kinds of reasons if he believes the interest rate is excessive or unfair. We will be putting a section in February into the Bill that would give the regulator an opportunity to spell out what he means by excessive… It will make it easier for him to refuse a licence,” Mr Brennan said.

He said he was not persuaded into putting a cap on the interest rate a moneylender could charge would work.

He also believed that the banks could do more to help.

“I had the banks in for talks in the last year. I have told them they should consider basic banking accounts. The kind of people we have here, it’s very difficult for them to open a bank account because they are already under financial pressure. This has worked very well in Britain.”

Mr Brennan said he was highly confident that the bill would become law before the Oireachtas breaks for the election.