New rules proposed by the European Commission could introduce a cap on interest rates for consumers and restrict the cost of credit charged by moneylenders. The move comes days after Minister for Finance Paschal Donohoe said the Government was planning to "gradually" lower the current interest rate cap on licensed moneylenders' loans.
The proposals include a ban on bundling practices as part of tougher consumer credit rules, caps on the total cost of credit and the annual percentage rate of charge, rules on tacitly accepted overdrafts and an obligation by the creditor or the provider of crowdfunding credit services to assess the creditworthiness of the consumer.
Education
The commission wants information related to credits to be presented in a clear way in the Consumer Credit Directive and adapted to digital devices to ensure that consumers understand what they are signing up for.
EU countries will be asked to promote financial education and to ensure debt advice is made available.
The proposals were published a matter of weeks after the largest moneylender operating in the State in recent years, Provident Financial, said it would stop lending in the market. Last week, the company said it had stopped collecting payments from Irish borrowers and will write off outstanding loans.
The European proposals have been welcomed by Sinn Féin as it criticised the Government for failing to protect borrowers.
Finance spokesman Pearse Doherty said the party welcomed many aspects of the plan, including the focus on "buy now pay later" schemes and improving the provision of pre-contractual information.
“In 2018, 21 of 28 EU member states had some form of interest rate restriction in place to protect low-income and vulnerable borrowers. While we were among the 21, the interest cap here applies to credit unions with no cap for high-cost credit, with the Government allowing moneylenders to charge interest of 187 per cent, and 288 per cent when collection charges are included,” he said.
“These ultra-high interest rates are unethical, immoral and trap vulnerable borrowers into vicious cycles of debt. These proposals highlight the failure of this and previous Governments to protect vulnerable borrowers from high-cost credit.”
Legislation
Mr Doherty said the proposals also highlighted the importance of Sinn Féin's legislation to cap the total cost of credit that moneylenders can charge borrowers. The legislation passed the second stage in the Dáil in 2018 and has undergone pre-legislative scrutiny in the Finance Committee.
Speaking at an Oireachtas Finance Committee hearing on the Sinn Féin Bill Mr Donohoe said he did not support the proposal as it may lead to a "revenue shock" for the moneylending industry and could result in firms withdrawing from the market, and some households turning to illegal operators.
The European Commission proposals will need to be thrashed out with EU countries and the European Parliament before they can come into force.
Consumer group BEUC welcomed the proposals, saying the commission had accepted many of its suggestions. – Additional reporting: Reuters
