The Department of Finance is a crucial part of the government of the republic of Ireland. During the current year, the Financial Services Division of this sector is looking into the interest rates that government approved money lenders are charging their consumers.
According to the Central Bank of Moneylending and the Consumer Credit Act (1995), money lending is “the practice of providing credit to consumers on foot of a money lending agreement.” Usually, these credits are taken in the form of cash but can also be the purchase of goods on credit from a catalogue.
In general, money lenders make getting money quick and easy. They are especially beneficial for those with a higher chance of being denied the ability to take out loans due to bad credit history, low income or a variety of other financial reasons. Many people who are also uneducated or inexperienced in the financial sector may find themselves turning to this easy alternative.
These vendors are most beneficial to be used as a last resort option when you are in need of cash fast. The reason for this being that the APR charged per loan is extremely high at almost every one of these vendors, making repayments very difficult, especially for the people that are most likely to be attracted to a lender of this nature.
Money lenders have been known to charge up to 180% APR on loans. Additionally, many of them also charge an initial transaction or payback fee that can increase the APR to a whopping 280%.
Furthermore, money lenders are not allowed to provide you with any type of secondary loan to repay the first on you have received. This can easily put people far into debt and without a way to escape the already crippling interest that is building up on the current loan.
The Irish government has made note of many bad practices that money lenders are able to get away with due to the high caps on interest rates. They are also interested in looking more closely into collection practices, regulations and marketing of this type of lending.
Although the government has expressed that the way the market is currently running is not particularly fair for the consumers, they also seem to be scared to take action. Capping interest rates or putting further restrictions on lending may decrease economic activity in the consumer sector.
If these 39 alternative lenders were unable to turn up a profit because of additional restrictions placed on them, many could and would remove themselves from the market. This would decrease legal lending areas and could possibly force their usual customers to find alternative, and sometimes illegal, ways to get cash fast.
Overall, it is hard to predict what the outcome of increased restrictions would be on this market but the government seems fairly apprehensive to find out.