Donohoe plans ‘gradual’ lowering of 187.2% cap on moneylender rates

Minister for Finance Paschal Donohoe said that he is planning to bring proposals to Cabinet within weeks that will "gradually" lower the current 187.2 per cent annual percentage rate (APR) cap on licensed moneylenders' loans.

The Minister made the statement at an Oireachtas Finance Committee hearing on a Sinn Féin Bill proposing to limit moneylenders' interest rates, which was first introduced in the Dáil in late 2018 and called for the introduction of a 36 per cent APR cap.

Mr Donohoe said he did not support the Sinn Féin Bill 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.

“While completely agreeing that the current interest rates are too high, a sudden revenue shock of this magnitude would be extremely difficult in any industry and sector and could lead to exits,” he said. “If supply were reduced significantly, then customers . . . would have to either do without credit or seek it elsewhere including from family and friends. A small proportion may turn to illegal moneylenders.”

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Still, Sinn Féin finance spokesman Pearse Doherty said he was planning to move away from this specific limit to a rate of "no more than three times" the cost of credit that exists in the market, as determined by the Central Bank.

Mr Donohoe said he would be proposing that an introduction of lower caps “be done gradually and responsibly” and that planned legislation would give the minister for finance of the day the power to vary rate caps, taking into consideration the viability of the moneylender sector, the potential impact on credit supply and the general rates environment.

Time to review

"An interest rate cap at the recommended limit will give the moneylending industry time to review their business practices and identify areas in which operational efficiencies can be achieved," he said. "It would also allow time for the Central Bank to monitor the impact of the cap, to check that loan terms and amounts are not being manipulated in order for caps to be met and advise the Department of Finance of its findings."

Moneylending in Ireland hit a high in 2013, when some 360,000 people borrowed €301 million. Since then, however, it has been in decline, with latest figures from the Central Bank, published in February, showing that 283,000 people borrowed €151 million from moneylenders in 2020, with an average loan of €509.

This is down by 50 per cent in terms of the value of loans, and by 21 per cent in the number of borrowers, since the peak in 2013. It also marks a further decline of 5 per cent (borrowers) and 29 per cent (loan value) on 2019, when €214 million was loaned to 299,000 borrowers. People using moneylenders are also borrowing less, as the average loan issued in 2019 was €630.

The continued decline in lending figures may surprise, coming as it does in the midst of a pandemic. However, the figures are based on 2020 annual licence applications, which means that some of the data may refer to lending in 2019, and the figures may not accurately reflect demand for loans.