Moneylenders claim new code will increase rates

MONEYLENDERS have claimed they would have to increase interest rates to borrowers if tighter new regulations on the sector come into effect.

In submissions to the Financial Regulator on a new consumer protection code due to be introduced later this year, lenders say it will add bureaucracy and costs to their business and drive competition out of the market.

Around 50 moneylenders are licensed to operate in the country, generally providing high-interest loans of several hundred euro a time to an estimated 300,000 customers, whose borrowings are too small or credit ratings too poor to be catered for by the main banks.

The Financial Regulator began a consultation process in March this year on a draft protection code, which would require moneylenders to collect more information about prospective customers before issuing a loan, explain interest calculations in more detail and refer customers with debt problems to the Money Advice and Budgeting Service (MABS).

They would also have to issue regular statements to direct debit customers, restrict cold-calling and use large distinctive warnings on all literature, which must also “prominently indicate the high-cost nature of the loan”.

In its response, the Consumer Credit Association said there was “no obvious rationale for the code” as customers were happy with the service provided and only about 5% experienced any real difficulties with repayments.

Individual lenders who made submissions included Practical Finance Ltd in Athenry, Co Galway, which also complained of the extra paperwork being sought, warning it “may result in the moneylender increasing their APR (interest) rates”.

Maddens Finance Ltd objected to the requirement to refer people to MABS, saying it would be “insulting” to customers. Marlboro Trust Ltd in Mayfield, Cork, took issue with the restrictions on cold-calling as part of their business involved selling goods on credit.

It would accept a ban on offering cash loans by cold calling but insisted it needed to call door-to-door where goods were concerned.

MABS and the Department of Social and Family Affairs welcomed the code.

The regulator is due to introduce it, or a revised version of it, by the end of this year.