Moneylenders to face stricter rules (Irish Times) [PIBA release mentioned here]

04 November 2011
MONEYLENDERS WILL have to warn customers about the high cost of repayments under a new industry code to come into effect next year.

Licensed moneylenders charge interest rates of up to 188 per cent but most of their customers have no idea of the cost involved.

Now the Financial Regulator is to compel most moneylenders to include a warning notice saying "This is a high-cost loan" in any agreement with customers.

The requirement will apply to virtually all the 52 licensed moneylenders in the State, who charge an Annual Percentage Rate (APR) of interest above 23 per cent.

Some credit cards and store cards charge rates of over 23 per cent but will not be required to provide a warning until the rules under which they operate are changed at a later date.

People who resort to moneylenders typically have difficult credit histories, but the regulator fears the credit crunch will drive more people away from traditional institutions and into the hands of moneylenders.

The code published yesterday also requires the sector to provide customers with detailed information on the cost of repayments.

Moneylenders will have to demonstrate that the credit agreed with customers is suitable for their needs, and to provide information on debt counselling services such as the Money Advice and Budgeting Services (Mabs). Earlier research showed that 80 per cent of consumers who used the services of a moneylender did not compare interest rates when taking out a loan, and 71 per cent did not know the interest rate they were being charged.

Mary O'Dea, consumer director of the Financial Regulator, said the code would strengthen consumer protection. "It will require moneylenders to assist each individual consumer in understanding the method of repayment and all related costs and charges. The code introduces a new measure requiring moneylenders to inform consumers of the actual repayment cost of every €100 borrowed.

"It will also mean that moneylenders must be able to demonstrate how they have concluded that each consumer's credit agreement is suitable to that consumer, within the range of products and services that they offer."

Following consultation on the best way of showing the costs associated with loans from moneylenders, the regulator decided to include the provision that the cost of credit per €100 borrowed be disclosed, rather than the APR of interest commonly used with other lenders.

The Professional Insurance Brokers' Association welcomed the code but said regulation of financial service providers made no distinction between small and large operators or the relative risk posed to consumers.

The general principles of the moneylenders' code come into effect on January 1st, with the remainder of the code coming into effect later in 2009.