Last week the Central Bank approved a new lender, UK-based Amigo, which will offer loans – each loan must have a guarantor – at rates of 49.9 per cent in the Irish market. Its arrival, early next year, will bring the number of moneylenders regulated in Ireland up to 39, and has caused an outbreak of concern that such lenders are preying on the most vulnerable by offering short-term loans at sky-high rates.
In an ideal world perhaps, there would be no need for such expensive short-term credit. But as a spokeswoman for the St Vincent de Paul says, moneylenders “do serve a purpose as they are meeting a need – but the cost of it is exorbitant”.
Indeed it is – the maximum allowable interest rate in Ireland is currently 288 per cent. Unsurprisingly then, there have been calls for the Central Bank to impose a ceiling on moneylending rates – something which could be part of the regulator’s new regulations for the sector, which are due to be introduced next year. But in the meantime, there could be another alternative.
Credit unions
Step forward the credit unions. Back in 2015 credit unions across the country moved into micro loans, firstly on a pilot basis, although latterly it has been rolled out across the country. Designed specifically as an alternative to high-cost moneylenders, It Makes Sense Loans target those on social welfare payments. They are typically quick to receive – credit unions can enrol you as a member straight away, and can offer the loan either on the spot, or within 24 hours. It’s short-term in nature, with loans available for as short as a month, or as long as two years, if needed. And the loans are “cheap”, at least compared to moneylenders, with a maximum rate of 12 per cent (12.68 per cent APR) charged on amounts of between €100 and €2,000.
So, if you borrow €500 with Provident, the UK money lender with a substantial Irish operation, this would cost you €780 to repay over a year; €618.36 with new entrant Amigo; or just €544.58 with your local credit union.
With such an attractive rate for fast, low value lending, it would not, perhaps, be unreasonable to expect credit unions to be crushing the competition from moneylenders with these loans.
While the Irish League of Credit Unions (ILCU) says the scheme has been meeting with “solid success”, the figures would suggest otherwise. In the 30-month period from November 2015-April 2018 for example, just 7,500 loans were drawn down. This works out at just 250 such loans a month, or 3,000 a year.
Now contrast this with Central Bank figures, which show that some 350,000 people – or almost 30,000 borrowers a month – were customers of high-cost regulated moneylenders in 2017, and you can clearly see why the credit union scheme is barely causing a ripple in the market for such loans.
So the question then, is why aren’t they?
First of all, more than three years since that initial pilot scheme, the loan product still isn’t fully operational. Figures from the ILCU show that just 110 credit unions – or just about 40 per cent of those which could potentially operate the scheme, do so. So a bit like Shaws department store back in the 1990s, the scheme remains “almost nationwide”.
The result of this means that there are lending lacunas right across the country; Drogheda Credit Union for example doesn't offer such loans. However, the area has two local moneylenders regulated by the Central Bank, Mandarin Loans and Leinster Credit Limit, which are approved to lend at maximum APRs, including collection charges, of up to 214.23 per cent and 152.30 per cent, respectively.
And the loans offered by credit unions are far more restrictive than those on offer from moneylenders.
Yes they might be fast, but they are only available to those who either qualify for social welfare payments, or the Working Family Payment. And not only that, but applicants must also have signed up to the Household Budget Scheme, which is operated by An Post and helps those getting certain social welfare payments to spread the cost of some household bills over the year.
So all those low income – and high income too – borrowers who aren’t on social welfare, or who don’t avail of the budgeting service – can’t benefit from the scheme.
Moreover, some credit unions also apply limits to how much they will lend. Three of those on ILCU’s list have already reached their limit (St Declan’s Ashbourne; St Agnes, Dublin, and Tallaght & District), while Sligo is currently offering “limited” loans due to high demand for the product.
If the market wants moneylenders, then moneylenders are here to stay. But either Central Bank or credit unions – as part of a new task force looking at options to broaden the It Makes Sense scheme – should seize the opportunity to make it a less lucrative activity for them.
