Stricter controls on the rate of interest charged by licensed moneylenders could help protect vulnerable borrowers, according to a new report.
The report, entitled 'Interest Rate Restrictions on Credit for Low-income Borrowers', shows that in some cases interest rates can reach 187%, and annual percentage rates can go as high as 287% when collection charges are included.
It urges the Government “to adopt a policy that prohibits usurious rates of interest in the interests of fairness to the most vulnerable in Irish society by the introduction of a restriction on interest rates and charges".
The research was carried out by researchers at University College Cork and funded by the Social Finance Foundation and the Central Bank of Ireland.
According to the report: "There are 39 licensed moneylending firms in Ireland, 31 of which are categorised as home collection credit firms.
"Currently, these licensed moneylending firms provide high-cost credit to about 7% of the Irish population, have outstanding loans currently valued at about €153m and hold a market share of 1.7% for consumer credit.
"Most commonly, loans are offered over nine months with an APR of 125%. Average loan size is €566.
"The main feature of the business model involves calling to the customers’ homes on a weekly basis to collect loan repayments.
There are an estimated 330,000 customers of moneylenders in Ireland, the majority of whom are female, in the lower socio-economic group and between 35 and 54 years of age.
However, while customers said they were satisfied with the convenience and ease of the arrangement, there was reported dissatisfaction with the interest rate charged.
"One of the main barriers to placing an interest rate restriction on legal moneylending is the fear that it will drive people to use illegal moneylenders," the report said.
"While it must be acknowledged that illegal moneylenders are one possible alternative credit source, they are not the only or preferred alternative."
It said introducing restrictions on interest rates and limiting the total cost of credit can help protect the public interest by ensuring that a fair and reasonable price for credit is provided for all.
"While users of moneylenders can come from all segments of society, they are more likely to be from lower socio-economic groups and thus least able to afford high-cost credit.
"A restriction on interest rates and the total cost of credit will force moneylending firms to reexamine their business model.
"While this may result in some people no longer being able to access credit, there is a high probability that some of these people would not pass a rigorous affordability check and may already be over-indebted."