The average citizen, likely to be burdened with excessive interest rate charges from the main financial institutions, will be dismayed by the report in yesterday's editions that licensed moneylenders are entitled to charge up to 197 per cent on loans. On RTE's News at One yesterday one woman told a heart-rending story of how a relatively small loan, used to pay rent arrears and an ESB bill, had imposed a huge burden on her and her family. It seems probable that her experience is not untypical; thousands of people who do not have the collateral for a bank, building society or credit union loan, tend to seek refuge in licensed moneylenders. Of these, no fewer than 14 charge an annual percentage rate (APR) of more than 180 per cent. The Director of Consumer Affairs, Ms Carmel Foley, has acknowledged that the rates charged by moneylenders are very high. Ms Foley has been endeavouring to reduce the rates; on occasion, she has refused a licence where she believed the moneylender in question was charging an extortionate rate of interest.
Many will be surprised that the moneylender continues to thrive at a time when this State is enjoying an unprecedented level of prosperity and growth. The current estimate is that some £60 million is on loan to thousands of families from the 65 licensed moneylenders. For the most part, these lenders operate far from the plush public offices of the main financial institutions in some of the bleakest housing estates in this State. They offer unsecured loans to the kind of marginalised, desperately poor people who would not be entertained by the main financial institutions. Typically, these are people seeking a very small loan, usually of less than £200, to help them fund a family Communion, a much needed electrical appliance and the like.
In their defence, the moneylenders claim that the high interest rates are necessary because of the high cost of collecting a very small amount of money on a weekly basis. But even allowing for this, interest rates of the type quoted are clearly excessive and unjustifiable. In addressing this issue, however, policy-makers face something of a dilemma, as the last Government realised when it sought to impose a maximum interest rate figure in its much-praised consumer credit legislation. The proposed measure encountered stiff opposition, much of it from the very groups which represent the poor and marginalised.
Their contention was that the current regime, for all its faults, was preferable to a situation in which some of the weakest members of our society would fall prey to illegal moneylenders and loan sharks. It is to be hoped that Ms Foley will continue to press for lower interest rates but there are social issues involved in the lending phenomenon which cannot be easily resolved by legislation.
As a first principle, the State should be educating people in the use of their money and seeking to ensure that no one, no matter what their social circumstances, will enter a credit agreement without realising their full obligations. But this is probably a forlorn hope in a State, where, for all the impressive economic progress, one-sixth of the population has basic literacy problems.