Stay out of the Clutches of Moneylenders
13 Jan 2022
Tips to stay out of the Clutches of Moneylenders
As Irish people, we view ourselves as being very well informed. We know what’s what. We know when someone is trying to pull the wool over our eyes. When it comes to money, though, sometimes we’re not quite as well informed as we’d all like to think.
You’ll have heard or read about us highlighting the lack of awareness of how credit cards operate, with our research highlighting that more than half of Irish people don’t know what interest rate is charged credit cards (Quick tip, it could be up to 24%).
As well as the very high levels of credit card debt, as a country, we also have significant issues with the use of moneylenders. “Hold on”, you say. “Wouldn’t touch them with a barge pole”, you say. “Penal rates of interest and a slippery slope into high cost debt”, you say.
You won’t find us disagreeing with any of those points. Recent figures show that 283,000 people borrowed €151 million from moneylenders in 2020, with an average loan of €509.
It’s not just Door to Door
So, what is a moneylender? The official definition of a moneylending agreement is set out in the Consumer Credit Act, 1995 (as amended). Essentially, there are a number of criteria which can apply, including charging an interest rate of more than 23% APR.
Moneylenders are licensed by the Central Bank of Ireland and they have rules and regulations which they must follow. If they do not adhere to these rules, they can, like other regulated entities, be sanctioned by the Central Bank of Ireland. According to latest moneylending register from the Central Bank (published January 2022) there are 33 licensed moneylenders operating in Ireland.
Leaving aside the exact definition, what do most people think a moneylender is? We’ll omit some of the more colourful descriptions but it’s likely that they are generally considered to be people that call to your door, with offerings of quick cash.
It’s true that most moneylenders operate on a door to door basis. However, some of the largest moneylending firms in Ireland are catalogue companies, which charge huge rates of interest on loans for electrical goods, furniture or other goods. If you think that such companies are helping to make an item more affordable, you might think again if you find yourself paying a huge interest rate for the privilege.
In relation to how moneylenders operate, the Competition and Consumer Protection Commission’s website has some good information on the expectations which a person should have when dealing with a moneylender. For example, the lending agreement must be in writing and include the names and addresses of all parties to the agreement. It must show the total amount loaned, the rate of interest, the total amount payable (the cost of credit) etc.
Penal Interest Rates
In Ireland, there is no law which states the maximum rate which a licensed moneylender can charge. However, in practice, the Central Bank can refuse to grant a licence if it decides that the rates to be charged will be excessive. The Moneylender Register details the maximum rates that licensed moneylenders can currently charge. The maximum rate of APR, excluding collection charges, that moneylenders are licensed to charge goes up to 188%. The maximum rate of APR, including collection charges, can be as high as 287%.
In practical terms, what does this mean? Let’s say you get a €500 loan from a credit union which you will pay back in 6 months. Let’s say this credit union charges 12.68% APR (the maximum rate of interest which credit unions in Ireland are allowed to charge). At the end of the 6-month period, you’ll have paid back just over €15 in interest (€515 repayable in total).
Contrast that with a moneylender. For the same loan from a licensed moneylender, you could be charged up to 187% APR and you’ll end up paying back something north of €150 in interest – ten times the amount of interest paid to the credit union.That’s a whopping €650 repayable in total!
Concerns Raised about Moneylenders
There has been significant concern expressed about moneylenders promoting their services at this very difficult time, when people are vulnerable financially and may make a decision in haste out of panic or fear rather than with their normal considered approach. Across the country, concerns have been raised about the activities of moneylenders.
Here to Help
Whatever financial difficulties you or your family might be facing due to the corona virus, entering into a loan agreement with a moneylender could well lead you into further difficulty. If you are struggling to juggle your financial commitments at this time, you might want to read our guide to managing a reduced household budget.
If you do need to borrow, look at your options and not just the first one that presents itself. Compare the options and costs – it won’t take long and it could save you a lot of money in the long run.
It'll be no surprise that we recommend that you always talk to your local credit union first. Not alone will you be assisted by a friendly member of staff who will take the time to understand your circumstances and work through what your options might be, you’ll also be dealing with a community-based organisation who is committed to helping people, not to profit from their needs.
And at times like this, that’s even more important than ever.