‘State is backing a form of extremely expensive credit’
With increasing numbers unable to secure loans from the banks, state-sanctioned money lenders are cleaning up with massive interest rates. And although it engenders a culture which preys on the weak and vulnerable in society, it is totally legal and above board.
Mr Joyce, an expert on consumer credit law, maintains the licensing laws around moneylenders are so highly regulated, generally there are no legal problems with them.
But paradoxically, if people do get into trouble with repaying moneylenders, it does not come to light because it is in the client’s best interest to accommodate the customer.
“You are usually talking about small amounts of money, so the lender will try and accommodate the borrower. They will reschedule payments, take what they can when they can, and often there are long-standing relationships between the two,” said Mr Joyce.
“This is how these kinds of lenders manage bto retain such high client numbers. People don’t tend to complain.”
Mr Joyce maintains the licences are difficult to get. “The company has to be able to show rates of interest, how they have previously operated, and keep records which are open and transparent. Moneylenders can lose their licence if they overstep the rules.”
According to FLAC, practices which are tolerated by some creditors are not permitted with moneylenders. These include giving top-up loans to clear an existing loan.
Up front arrangement and administration fees, common in subprime lending mortgages, are expressly prohibited in moneylending agreements.
FLAC is at the forefront of keeping people informed as to just how they operate.
It publishes a booklet, updated annually, Moneylending and the Law, which outlines exactly what is legal and what is not.
But Mr Joyce believes moneylending firms often get a raw deal as there are others out there – such as foreign banks or other credit institutions – who are operating with worse practices.
FLAC said the only concern it regularly hears about is the high cost of this kind of credit. “It needs to be made more clear exactly what the rates are how the lenders operate,” he said
“But in the meantime they are simply carrying out the terms of their licence as given to them by the State. It is impossible to challenge this type of lender in court because even though the credit may be wildly expensive, it had, in effect, been authorised by the State.”
Another reason why it does not reach the legal end of the things is because the loans are for short periods of time.
“Very often problems don’t build up because of the nature of the loan. People don’t complain; they are short loans, big amounts but for short periods,” he said.
But, he said, nothing can excuse such high interest rates.
“It’s not pleasant, it goes on. The Government is backing an extremely expensive form of credit and we believe there are still bad practices going around.
“Every now and again some politician or group will get up in arms about moneylenders, but the Financial Regulator sanctions this form of lending.”
