Ireland's largest moneylender, Provident Financial, has announced it will shut its doorstep lending business, as full-year results on Monday highlighted the strain the coronavirus pandemic and growing customer complaints have put on subprime lenders.
The move comes just days after Minister for Finance Paschal Donohoe said the Government was planning to "gradually" lower the current interest rate cap on licensed moneylenders' loans. They can currently charge up to 288 per cent a year to customers.
In a statement on the company’s Irish website it said: “Over the years, we’ve been proud to help people who need a loan and can’t get one elsewhere. However, the tough economic situation has resulted in us making the difficult decision to stop lending.
“As of May 10th, we won’t issue any new loans. This includes new loans to existing customers.”
It said loans would still be provided to those customers who had already applied for finance and had signed their loan agreements. Existing loans must be repaid in line with their terms and conditions.
Sinn Féin finance spokesman Pearse Doherty called for "swift action in the personal credit sector".
“There is no doubt that its withdrawal from the Irish market requires a co-ordinated response to protect the interests and resilience of borrowers,” he said, calling on the Government to work on legislation that “protects borrowers and puts an end to the scandalous rates of interest these moneylenders charge”. Sinn Féin has introduced legislation that would limit moneylenders to charging interest of no more than 36 per cent.
He also pressed for legislation to double the rate of interest that credit unions can charge on loans – from 1 per cent a month to 2 per cent. “This would allow credit unions to play a greater role in the personal credit market, and offer an affordable and more sustainable option for borrowers who need access to credit.
Loss-making
Provident Financial is also stopping its doorstep lending business in Britain. The company reported a pre-tax loss of £113.5 million (€132 million)for 2020, compared with a £119 million (€138 million) profit the previous year. The biggest drag was a £75 million (€87 million) loss in its consumer credit division, which includes home credit.
Provident’s business has also been affected by a series of self-inflicted and external difficulties. Its consumer credit division has been loss-making since a botched effort to modernise the unit in 2017, which led to a pair of profit warnings and an emergency rights issue.
More recently, its recovery has been hampered by an increase in customer complaints that prompted an investigation by the British regulator, the Financial Conduct Authority.
The Central Bank said it had been notified of the decision by Provident Personal Credit Limited to stop providing new moneylending loans in the Republic.
“While Provident is no longer issuing new loans, customers can continue to engage with the firm as normal with any queries on existing loans,” the Central Bank said. It added that the moneylender had assured the regulator that it would be contacting all existing customers over the coming days and directed all queries to the company.
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.
Moneylenders licensed by the Central Bank can charge Irish customers up to 188 per cent APR on loans, rising to 288 per cent APR including collection charges.
Borrowing €500 over 26 weeks from Provident would cost you €650 to repay, The Irish Times cited in a report on the Irish moneylending market earlier this year. Extending those borrowings out to a year will see the cost rise to €780.
A similar loan with a mainstream bank would cost just €535 to repay after one year.
Jason Wassell, chief executive of Britain's Consumer Credit Trade Association, which represents alternative and high-cost lenders, said the Provident decision meant that "access to credit will be reduced for hundreds of thousands of people".
– Additional reporting Copyright The Financial Times Limited 2021
